Pre-Effective Amendment to Registration Statement for a Separate Account (Unit Investment Trust) — Form N-6
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-6/A Pre-Effective Amendment to Registration Statement 248 1.26M
for a Separate Account (Unit Investment Trust)
10: CORRESP ¶ Comment-Response or Other Letter to the SEC 1 2K
11: CORRESP ¶ Comment-Response or Other Letter to the SEC 1 2K
3: EX-99.26.D.10 Miscellaneous Exhibit 2 13K
4: EX-99.26.D.13 Miscellaneous Exhibit 3 18K
2: EX-99.26.D.5 Miscellaneous Exhibit 2± 9K
5: EX-99.26.K Miscellaneous Exhibit 1 8K
6: EX-99.26.L Miscellaneous Exhibit 1 9K
7: EX-99.26.M Miscellaneous Exhibit 2 11K
8: EX-99.26.N Miscellaneous Exhibit 1 6K
9: EX-99.26.R Miscellaneous Exhibit 2 17K
‘N-6/A’ — Pre-Effective Amendment to Registration Statement for a Separate Account (Unit Investment Trust)
Document Table of Contents
File Numbers 333-198279 and 811-22093
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT 1
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment Number 46
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
(Exact Name of Registrant)
Minnesota Life Insurance Company
(formerly The Minnesota Mutual Life Insurance Company)
(Name of Depositor)
400 Robert Street North
St. Paul, Minnesota 55101-2098
(Address of Depositor's Principal Executive Offices)
1-651-665-3500
(Depositor's Telephone Number, including Area Code)
Gary R. Christensen, Esq.
Senior Vice President, General Counsel and Secretary
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
(Name and Address of Agent for Service)
Copy to:
Thomas E. Bisset, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, D.C. 20004-2415
Title of Securities Being Registered: Variable Universal Life Insurance
Policies.
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
VARIABLE UNIVERSAL LIFE DEFENDER
MINNESOTA LIFE INSURANCE COMPANY
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
VARIABLE UNIVERSAL LIFE INSURANCE POLICY WITH FIXED INDEXED ACCOUNT OPTIONS
This prospectus describes a Variable Universal Life Insurance Policy with
Fixed Indexed Account Options (the "Policy") issued by Minnesota Life
Insurance Company ("Minnesota Life," "we," "us," or "our"). The Policy is a
long-term investment designed to provide significant life insurance benefits
for the insured. This prospectus provides basic information that you should
know before purchasing the Policy. You should consider the Policy in
conjunction with other insurance you own. Replacing your existing life
insurance with this Policy may not be to your advantage. In addition, it may
not be to your advantage to finance the purchase or maintenance of this
Policy through a loan or through withdrawals from another policy. Please
consult your insurance agent or financial adviser.
You can allocate your Policy's accumulation value to one or more
Sub-Accounts of the Minnesota Life Individual Variable Universal Life
Account (the "Variable Account"), each of which invests exclusively in one
of the Portfolios listed below. The value of your investment in the Variable
Account will vary with the investment experience of the Sub-Accounts you
select. You can also allocate your Policy's accumulation value to the
Guaranteed Interest Account, which credits a specific rate of interest and
is part of Minnesota Life's General Account, or to one or both Fixed Indexed
Accounts, Indexed Account A and Indexed Account B, each of which credits
interest based in part upon changes in the Standard & Poor's 500(R)
Composite Stock Price Index ("Index" or "S&P 500(R)"). Indexed Account A and
Indexed Account B are also part of Minnesota Life's General Account. NEITHER
THE POLICY NOR INDEXED ACCOUNT A AND INDEXED ACCOUNT B REPRESENT AN
INVESTMENT IN THE STOCK MARKET OR ANY SECURITIES INDEX.
THE FOLLOWING PORTFOLIOS ARE AVAILABLE UNDER THE POLICY:
[LOGO] Advantus/(R)/ CAPITAL MANAGEMENT
SECURIAN FUNDS TRUST
..SFT ADVANTUS BOND FUND -- CLASS 1 SHARES
..SFT ADVANTUS INDEX 400 MID-CAP FUND -- CLASS 1 SHARES
..SFT ADVANTUS INDEX 500 FUND -- CLASS 1 SHARES
..SFT ADVANTUS MANAGED VOLATILITY FUND
..SFT ADVANTUS REAL ESTATE SECURITIES FUND -- CLASS 1 SHARES
..SFT IVY(R) GROWTH FUND
..SFT IVY(R) SMALL CAP GROWTH FUND
..SFT PYRAMIS(R) CORE EQUITY FUND -- CLASS 1 SHARES
..SFT T. ROWE PRICE VALUE FUND
[LOGO] AB
ALLIANCE BERNSTEIN
ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC.
..DYNAMIC ASSET ALLOCATION PORTFOLIO -- CLASS B SHARES
[LOGO]
AMERICAN FUNDS INSURANCE SERIES(R)
..INTERNATIONAL FUND/SM/ -- CLASS 1 SHARES
[LOGO](R) FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
..FRANKLIN SMALL CAP VALUE VIP FUND -- CLASS 1 SHARES
[LOGO]
AIM VARIABLE INSURANCE FUNDS
(INVESCO VARIABLE INSURANCE FUNDS)
..INVESCO V.I. AMERICAN VALUE FUND -- SERIES I SHARES
[LOGO] IVY FUNDS
Variable Insurance Portfolios
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS
..IVY FUNDS VIP ASSET STRATEGY
[LOGO]
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
..MORGAN STANLEY UIF EMERGING MARKETS EQUITY PORTFOLIO -- CLASS II SHARES
PIMCO VARIABLE INSURANCE TRUST
..PIMCO VIT GLOBAL DIVERSIFIED ALLOCATION PORTFOLIO -- ADVISOR CLASS SHARES
[LOGO] TOPS/TM/
TOPS-THE OPTIMIZED PORTFOLIO SYSTEM/TM/
NORTHERN LIGHTS VARIABLE TRUST
..TOPS(R) MANAGED RISK FLEX ETF PORTFOLIO
VANGUARD(R) VARIABLE INSURANCE FUND
VANGUARD AND THE SHIP LOGO ARE TRADEMARKS OF THE VANGUARD GROUP, INC.
..SMALL COMPANY GROWTH PORTFOLIO
PLEASE NOTE THAT THE POLICY AND THE PORTFOLIOS:
. are not guaranteed to achieve their goals;
. are not federally insured;
. are not endorsed by any bank or government agency; and
. are subject to risks, including loss of the amount invested.
A PROSPECTUS FOR EACH OF THE PORTFOLIOS AVAILABLE THROUGH THE VARIABLE ACCOUNT
MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE DOCUMENTS CAREFULLY BEFORE
INVESTING AND SAVE THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE POLICY, THE
GUARANTEED INTEREST ACCOUNT, INDEXED ACCOUNT A OR INDEXED ACCOUNT B, OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE POLICY IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT OFFER THE
POLICIES IN ANY JURISDICTION WHERE THEY CANNOT BE LAWFULLY SOLD. YOU SHOULD
RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS, SALES MATERIALS WE
HAVE APPROVED OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
[LOGO] MINNESOTA LIFE
400 ROBERT STREET NORTH . ST. PAUL, MINNESOTA 55101-2098
PH 651-665-3500 . HTTP:/WWW.MINNESOTALIFE.COM
DATED: XXXXXX, 2014
TABLE OF CONTENTS
[Enlarge/Download Table]
SUMMARY OF BENEFITS AND RISKS 1
FEE TABLES 6
GENERAL DESCRIPTIONS 14
Minnesota Life Insurance Company 14
Individual Variable Universal Life Account 14
The Funds 14
Additions, Deletions or Substitutions 16
The Guaranteed Interest Account, the Fixed Indexed Accounts, the Interim Account and
the Fixed Loan Account 17
Payments Made by Underlying Mutual Funds 25
INFORMATION ABOUT THE POLICY 26
Variable Universal Life Insurance 26
Policy Changes 26
Applications and Policy Issue 28
Policy Premiums 29
Free Look 31
Accumulation Value 31
Transfers 34
DEATH BENEFIT 39
Death Benefit Proceeds 39
Death Benefit Options 40
Effect of Partial Surrenders on the Death Benefit 43
Choosing Death Benefit Options 43
Changing the Death Benefit Option 43
Increasing/Decreasing the Face Amount 43
Settlement Options 44
Policy Loans 45
Surrender 49
Partial Surrender 50
Policy Charges 51
Other Policy Provisions 55
Supplemental Agreements 56
OTHER MATTERS 64
Federal Tax Status 64
Tax Treatment of Policy Benefits 65
Voting Rights 70
Compensation Paid for the Sale of Policies 70
Legal Proceedings 72
Financial Statements 72
Registration Statement 72
STATEMENT OF ADDITIONAL INFORMATION 72
APPENDIX -- GLOSSARY A-1
SUMMARY OF BENEFITS AND RISKS
The following summary is designed to answer certain general questions
concerning the Policy and to give you a brief overview of the more significant
features of the Policy. The summary is not comprehensive and you should review
the information contained elsewhere in this prospectus. This prospectus
describes a flexible premium variable universal life insurance policy called
Variable Universal Life Defender. As the Policy Owner, you can exercise all the
rights under the Policy, including the right to change the Owner, the
Beneficiary and to make other policy changes. The Policy combines both life
insurance protection and the potential for the accumulation of cash values; the
Policy is not suitable as a short-term investment vehicle. You can lose some or
all of your money. If you are not satisfied with the Policy, you also have the
right to return it to us or your agent within 30 days after you receive it.
WHAT ARE SOME OF THE BENEFITS OF THE POLICY?
The Policy allows for the growth of Accumulation Value, while life insurance
coverage remains in force, and permits the flexible payment of premiums. The
Accumulation Value of the Policy will fluctuate with the investment performance
of the Sub-Accounts of the Variable Account. You may transfer Accumulation
Value among the Sub-Accounts, the Guaranteed Interest Account, or the Fixed
Indexed Accounts, surrender all or part of your Accumulation Value under the
Policy and take policy loans, subject to the limitations described in this
prospectus. Each Policy has a Face Amount, however, the Death Benefit payable
upon the death of the insured may be greater than the Face Amount, as described
later in this prospectus.
We offer eleven Agreements that provide supplemental insurance benefits under
the Policy: Accelerated Death Benefit Agreement, Accidental Death Benefit
Agreement, Children's Term Agreement, Guaranteed Insurability Option, Inflation
Agreement, Long Term Care Agreement, Overloan Protection Agreement, Premium
Deposit Account Agreement, Level Term Insurance Agreement, Waiver of Charges
Agreement and Waiver of Premium Agreement. There is no charge for either the
Accelerated Death Benefit Agreement or the Premium Deposit Account Agreement.
The Agreements may not be available in all states.
We also offer several ways of receiving Death Benefit proceeds under the
Policy, other than in a lump sum. Information concerning the settlement options
available under the Policy is set forth later in this prospectus, and in the
Statement of Additional Information that we will provide you upon request. See
"Statement of Additional Information" section to this prospectus.
In general, under the Internal Revenue Code (the "Code"), the Death Benefit
payable under a qualifying life insurance policy is excludable from the gross
income of the Beneficiary, and the Owner would not be deemed to be in
constructive receipt of the Accumulation Value of the Policy until there is a
distribution. This means that under a qualifying life insurance policy,
Accumulation Value builds up on a tax deferred basis and transfers of
Accumulation Value among the available investment options under the Policy may
be made tax free. This Policy is designed to afford the tax treatment normally
accorded life insurance contracts under the Code.
HOW CAN THE POLICY BE CHANGED?
The Policy allows you the flexibility to tailor your Policy to your needs at
issue and to change your Policy thereafter as your insurance needs change.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose the level of
premium you wish to pay, the Face Amount and Death Benefit option under the
Policy.
PAGE 1
WHAT MAKES THE POLICY VARIABLE?
The Policy is called "variable" because unlike traditional whole life and
universal life contracts which provide for accumulation of contract values at
fixed rates determined by the insurance company, the Accumulation Value of the
Policy may be invested in the Sub-Accounts of the Variable Account. In turn,
each Sub-Account invests exclusively in a corresponding Portfolio of a Fund.
Thus, your Accumulation Value, to the extent invested in a Sub-Account, will
vary with the positive or negative investment experience of the corresponding
Portfolio.
If you seek a fixed return on your Accumulation Value, you can allocate Net
Premiums and Accumulation Value to the Guaranteed Interest Account, which
credits a fixed rate of interest and is part of Minnesota Life's General
Account. See "The Guaranteed Interest Account, the Fixed Indexed Accounts, the
Interim Account and the Fixed Loan Account."
You may also allocate Net Premiums and Accumulation Value to one or both of the
Fixed Indexed Accounts; Indexed Account A and Indexed Account B, each of which
credits interest based in part upon changes in the S&P 500(R). The Fixed
Indexed Accounts are part of Minnesota Life's General Account. See "The
Guaranteed Interest Account, the Fixed Indexed Accounts, the Interim Account
and the Fixed Loan Account."
With the Guaranteed Interest Account and each Fixed Indexed Account, you do not
bear the risk that adverse investment performance will lower your Accumulation
Value invested in that Account. See "The Guaranteed Interest Account and the
Fixed Loan Account" and "Fixed Indexed Account Options."
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE POLICY?
The Policy provides two Death Benefit options: the Level Option and the
Increasing Option.
Under the Level Option, the Death Benefit is the Face Amount of the Policy. If
the Level Option is in effect, the Death Benefit payable will generally not be
affected by either the negative or positive investment performance of the
investment options.
Under the Increasing Option, the Death Benefit equals the Face Amount of the
Policy plus the Accumulation Value at the time of death of the insured. If the
Increasing Option is in effect, the Death Benefit payable will reflect the
investment performance of the investment options in which Accumulation Value
has been invested.
In order for your Policy to be considered life insurance under Code
Section 7702, it must satisfy either the cash value accumulation test or the
guideline premium test. Unless you specify otherwise, the Death Benefit
qualification test for this Policy is the guideline premium test. The Death
Benefit qualification test is shown on the policy data pages and cannot be
changed. In order to ensure the Policy continues to satisfy the definition of
life insurance under Code Section 7702, we may need to adjust the amount of
Death Benefit payable under the Death Benefit option you have chosen.
DO YOU HAVE ACCESS TO YOUR ACCUMULATION VALUE?
Yes. You may transfer Accumulation Value among the available investment
options, the Guaranteed Interest Account and the Fixed Indexed Accounts,
subject to certain transfer restrictions. See "Transfers." You may also
surrender the Policy at any time, or make a partial surrender of the
Accumulation Value of the Policy after the first Policy Year. A surrender or
partial surrender may have federal tax consequences. See "Federal Tax Status."
If you request a partial surrender, we will assess a Partial Surrender
Transaction Charge of 2 percent of the amount withdrawn not to exceed $25.
PAGE 2
The maximum partial surrender that you may make at any time is equal to the
Accumulation Value less any outstanding policy loan and accrued interest, any
applicable Surrender Charge and three months of monthly charges. The minimum
partial surrender that you may make is $500. We will not process a partial
surrender that would cause your Policy to be disqualified as life insurance
under the Code. We reserve the right to defer the payment of any amount from
the Guaranteed Interest Account and any of the Fixed Indexed Accounts upon
surrender or partial surrender for up to six months.
You may also borrow an amount up to your Accumulation Value less any applicable
Surrender Charge and three months of monthly charges as a policy loan. A policy
loan may have tax consequences. See "Federal Tax Status."
WHAT ARE SOME OF THE RISKS OF THE POLICY?
SUB-ACCOUNT INVESTMENT RISK. Your Accumulation Value under the Policy, to the
extent invested in the Sub-Accounts of the Variable Account, has no guaranteed
minimum value. Therefore, you bear the risk that any adverse investment
performance in the Sub-Accounts may reduce your Accumulation Value under the
Policy. You are also subject to the risk that the investment performance of the
Sub-Accounts you select may be less favorable than that of other Sub-Accounts,
and in order to keep the Policy in force you may be required to pay more
premiums than originally planned. The Policy also offers you the opportunity to
have your Accumulation Value increase more rapidly than it would under
comparable fixed life insurance by virtue of favorable investment performance.
The Death Benefit may also increase and decrease with investment experience.
FIXED INDEXED ACCOUNTS. The interest credited under the Fixed Indexed Accounts
will vary in part depending upon the investment performance of the S&P 500(R).
For Indexed Account A and Indexed Account B, if the S&P 500(R) declines or does
not change in a given year, you bear the risk that no Index Credits will be
added to your Accumulation Value in an Indexed Account Segment at the end of
the Index Credit Term. You also bear the risk that sustained declines in the
S&P 500(R) may result in Index Credits not being credited to your Accumulation
Value for a prolonged period of time and you may need to increase your premium
payments in order to keep the Policy in force. Conversely, if the investment
performance of the S&P 500(R) exceeds the current Growth Cap for the Segment
(currently 9% for Indexed Account A Segments and 6% for Indexed Account B
Segments), the Index Credits credited to your Accumulation Value would be
limited to the current Growth Cap multiplied by the Participation Rate which
may be less than the increase in the S&P 500(R) over the Segment Term. In
addition, the amount of any partial surrender or deduction of monthly policy
charges from a Segment prior to the end of the Index Credit Term will not
receive an Index Credit.
We manage our obligation to credit Index Credits in part by purchasing call
options on the Index and by prospectively adjusting the Growth Cap on Segment
Dates to reflect changes in the costs of purchasing such call options (the
price of call options vary with market conditions). In certain cases, we may
reduce the Growth Cap for a future Index Credit Term for any Indexed Account.
If we do so, the amount of the Index Credit which you may have otherwise have
received would be reduced. Although the current Growth Cap may not be less than
the guaranteed minimum Growth Cap, it is within our sole discretion to set the
current Growth Cap.
There is no guarantee that the S&P 500(R) will be available during the entire
time you own your Policy. If the Index is discontinued or we are unable to
utilize it, we may substitute a successor index of our choosing. If we do so,
the performance of the new index may differ from the S&P 500(R). This, in turn,
may affect the Index Credits you earn.
There is no guarantee that we will continue to offer the Fixed Indexed Accounts
during the entire time you own your Policy. We may discontinue offering any or
all of the Fixed Indexed Accounts at any
PAGE 3
time. If we discontinue offering any or all of the Fixed Indexed Accounts, you
may transfer Accumulation Value from the Fixed Indexed Accounts to any other
investment options available under the Policy. If you do not do so, your
Accumulation Value in the Fixed Indexed Account will be reallocated to the
Guaranteed Interest Account.
Allocating Net Premiums or Accumulation Value to one or all of the Fixed
Indexed Accounts is not equivalent to investing in the underlying stocks
comprising the S&P 500(R). You will have no ownership rights in the underlying
stocks comprising the Index, such as voting rights, dividend payments, or other
distributions. Also, we are not affiliated with the Index or the underlying
stocks comprising the Index. Consequently, the Index and the issuers of the
underlying stocks comprising the Index have no involvement with the Policy.
If you surrender your Policy before the end of an Index Credit Term, no Index
Credit will be credited to your Accumulation Value in that Index Credit Term.
POLICY TERMINATION. There is the risk that the Policy may terminate. If your
Policy terminates, all of the Agreements added to the Policy will also
terminate. As described in the "Termination" and "Reinstatement" sections of
this prospectus, Termination will only occur when the Accumulation Value under
the Policy, less the sum of any outstanding policy loans and unpaid Policy Loan
Interest, is insufficient to cover the monthly charges, and the subsequent
Grace Period expires without sufficient payment being made to keep the Policy
in force. You may reinstate a terminated Policy, subject to certain conditions.
Policy loans may increase the risk that the Policy will terminate. If a Policy
terminates with an outstanding Policy loan, there may be significant adverse
tax consequences to the Owner. Policy loans may also have a negative effect on
a Policy's Accumulation Value, and may reduce the Death Benefit. See "Policy
Premiums."
LONG TERM CARE AGREEMENT. You may add the Long Term Care ("LTC") Agreement to
your Policy to provide for an acceleration of the Death Benefit in the event
the insured meets the Agreement's eligibility requirements. The tax treatment
of long term care benefit payments from life insurance policies is uncertain.
All or a portion of such payments could be taxable to the policy Owner. Anyone
contemplating purchasing a Policy with the LTC Agreement should consult a tax
advisor.
OVERLOAN PROTECTION AGREEMENT. You may elect the Overloan Protection Agreement
to prevent policy Termination in certain circumstances. The tax treatment of
the Overloan Protection Agreement is uncertain, and it is not clear whether the
Overloan Protection Agreement will be effective to prevent taxation of any
outstanding loan balance as a distribution in those situations where Overloan
Protection takes effect. Anyone contemplating exercise of the Policy's Overloan
Protection Agreement should consult a tax adviser.
RISKS ASSOCIATED WITH THE CERTAIN FUNDS. Certain Funds use managed volatility
strategies to help limit the Fund's overall volatility and reduce the effects
of significant market downturns during periods of high equity market
volatility. The managed volatility strategy could also limit a Fund's ability
to participate in rising equity markets compared to otherwise similar funds
that do not use a managed volatility strategy. Because the use of a managed
volatility strategy may, in some markets, suppress the investment performance
of a Fund compared to other similar funds that do not employ such a strategy,
investment in a Fund could limit the growth of Accumulation Value under the
Policy.
RISKS ASSOCIATED WITH THE GENERAL ACCOUNT. The Guaranteed Interest Account,
the Fixed Indexed Accounts and the Fixed Loan Account are part of our General
Account. Our General Account consists of all assets owned by us other than
those in the Variable Account and any other separate accounts which we may
establish. Investors look to the financial strength of the insurance company
for its insurance guarantees. Guarantees provided by the insurance company as
to the benefits promised in
PAGE 4
the contract are subject to the claims paying ability of the insurance company
and are subject to the risk that the insurance company may default on its
obligations under those guarantees.
SURRENDER AND PARTIAL SURRENDERS. Surrendering your Policy or taking partial
surrenders may have significant tax consequences. If you Surrender your Policy,
you may be assessed a Surrender Charge. A partial surrender will be subject to
a transaction charge equal to the lesser of $25 or 2 percent of the amount of
the partial surrender. A partial surrender will reduce the Accumulation Value
and will reduce the Death Benefit and increase the risk of Termination. See
"Federal Tax Status."
QUALIFICATION AS LIFE INSURANCE. We believe that a Policy issued on the basis
of a standard Underwriting Class should qualify as life insurance under the
Code. However, due to lack of guidance in this area, it is not clear whether a
Policy issued on a sub-standard basis would qualify. A Policy may also fail to
qualify as life insurance under the Code if too much premium is paid into the
Policy or the diversification and investor control requirements are not met for
investments in the Variable Account. Failure to qualify would mean that the
death proceeds would be included in the Beneficiary's gross income for federal
income tax purposes, and that the Accumulation Value is constructively received
before it is actually received. Depending upon the amount of assets in and the
level of estate planning undertaken with regard to the Policy Owner's estate,
there is also a risk that the Death Benefit payable under this Policy may be
subject to estate taxation. See the "Policy Premiums" and "Federal Tax Status".
MODIFIED ENDOWMENT CONTRACT STATUS. It is possible that a Policy qualifying as
life insurance will be treated as a modified endowment contract ("MEC"),
depending on how rapidly the Policy is funded. A MEC is treated as life
insurance with respect to the tax treatment of death proceeds and the tax-free
inside build-up of yearly Accumulation Value increases. However, any amounts
you receive, such as loans or amounts received from partial or total surrender
of the Policy are includable in gross income on an income-first basis. With
certain exceptions, the tax treatment includes a ten percent additional income
tax imposed on the portion of any distribution taken before age 59 1/2 that is
included in income. See "Federal Tax Status."
FEES AND EXPENSES. Certain fees and expenses are currently assessed at less
than their maximum levels. We may increase these current charges in the future
up to the maximum levels. If fees and expenses are increased, you may need to
increase the amount and/or frequency of premiums to keep the Policy in-force.
The deduction of monthly Policy charges will reduce your Accumulation Value.
The Policy may also be unsuitable as a short-term savings vehicle due to the
costs of insurance and expenses charged. Furthermore, Sub-Account values could
decline depending upon changes in the underlying funds. Depending upon the
timing of withdrawals, Owners could lose all or part of their premium payments.
PORTFOLIO RISKS. A comprehensive discussion of the risks of each Portfolio may
be found in each Portfolio's prospectus. Please refer to the Portfolios'
prospectuses for more information. There is no assurance that any Portfolio
will achieve its stated investment objective.
PAGE 5
FEE TABLES
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the Policy. The charges may not be
representative of the charges you will pay. Your Policy's schedule pages
indicate the charges applicable to your Policy. More information about your
charges is available upon request by contacting us at the telephone number or
address listed on the cover page of this prospectus.
TRANSACTION FEES
This table describes the fees and expenses that are payable at the time that
you buy the Policy, pay premiums, surrender the Policy, change the Policy or
make transfers between the investment options.
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CHARGE WHEN CHARGE IS AMOUNT DEDUCTED
DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
Premium Charge(1) Upon premium 7 percent of premium 4 percent of premium
payment payment payment
Policy Change Upon change in Face $100 $60
Transaction Charge Amount, Death Benefit
option, or Risk Class
Partial Surrender Upon partial surrender 2 percent of amount 2 percent of amount
Transaction Charge surrendered, not to surrendered, not to
exceed $25 exceed $25
Transfer Transaction Upon transfer $25 for each transfer Currently, no transfer
Charge transaction charge is
assessed
Illustrative Report When an additional $250 per Illustrative $0 per Illustrative
Charge(2) Illustrative Report is Report Report
requested
(1) The premium charge includes premium taxes that we are required to pay to
the state in which this Policy is issued, which may range from 0 percent to
2.5 percent.
(2) The charge for Illustrative Reports will apply when the Policy Owner
requests more than one Illustrative Report in one year.
PAGE 6
PERIODIC CHARGES OTHER THAN INVESTMENT OPTION OPERATING EXPENSES
The next tables describe the fees and expenses that you will pay periodically
during the time that you
own the Policy, not including fees and expenses of the variable investment
options.
[Enlarge/Download Table]
CHARGE WHEN CHARGE IS AMOUNT DEDUCTED
DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
Monthly Policy Monthly $12 plus $0.0125 per $8
Charge $1,000 of Face Amount
Policy Issue
Charge(1)
MAXIMUM Monthly, within the $0.78 per $1,000 of $0.78 per $1,000 of
CHARGE(2) first fifteen Policy Initial Face Amount or Initial Face Amount or
Years, and within the Face Amount increase Face Amount increase
first fifteen years of an
increase in Face
Amount
MINIMUM Monthly, within the $0.11 per $1,000 of $0.11 per $1,000 of
CHARGE(3) first fifteen Policy Initial Face Amount or Initial Face Amount or
Years, and within the Face Amount increase Face Amount increase
first fifteen years of an
increase in Face
Amount
CHARGE FOR INSURED Monthly, within the $0.262 per $1,000 of $0.262 per $1,000 of
AGE 45 IN MALE, first fifteen Policy Initial Face Amount or Initial Face Amount or
PREFERRED SELECT Years, and within the Face Amount increase Face Amount increase
NON-TOBACCO RISK first fifteen years of an
CLASS, WITH increase in Face
INCREASING OPTION Amount
DEATH BENEFIT
Cost of Insurance
Charge(4)
MAXIMUM Monthly $83.33 per $1,000 of $83.33 per $1,000 of
CHARGE(5) Net Amount at Risk Net Amount at Risk
MINIMUM Monthly $0.015 per $1,000 of $.005 per $1,000 of
CHARGE(6) Net Amount at Risk(7) Net Amount at Risk
CHARGE FOR INSURED Monthly $0.22 per $1,000 of $0.066 per $1,000 of
AGE 45 IN MALE, Net Amount at Risk Net Amount at Risk
PREFERRED SELECT
NON-TOBACCO RISK
CLASS
Mortality and Monthly .075 percent of the 0.025 percent of the
Expense Risk Charge Policy Accumulation Policy Accumulation
Value Value through Policy
Year 15
PAGE 7
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CHARGE WHEN CHARGE IS AMOUNT DEDUCTED
DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
Indexed Accounts A Monthly 0.05 percent of 0.00 percent of
and B Indexed Accumulation Value in Accumulation Value in
Account Charge(8) Indexed Accounts A Indexed Accounts A
and B and in Interim and B and in Interim
Account Account
Cash Extra Charge(9)
MAXIMUM CHARGE Monthly $100 per $1,000 of $100 per $1,000 of
Face Amount Face Amount
MINIMUM CHARGE Monthly $0 $0
CHARGE FOR INSURED Monthly $0.01 per $1,000 of $0.01 per $1,000 of
AGE 45 IN MALE, Initial Face Amount Initial Face Amount
PREFERRED SELECT
NON-TOBACCO RISK
CLASS, IMPAIRED
DRIVING HISTORY
Net Fixed Interest Annually, on each For policies in force For policies in force
Rate Policy Loan Policy Anniversary, less than ten years, 1.0 less than ten years, 1.0
Interest Charge(10) and upon a policy loan percent annual rate of percent annual rate of
transaction, full interest on outstanding interest on outstanding
surrender, policy policy fixed rate loan policy fixed rate loan
Termination or death balance. For policies in balance. For policies in
of the Insured force more than ten force more than ten
years, 0.10 percent years, 0.10 percent
annual rate of interest annual rate of interest
on outstanding policy on outstanding policy
fixed rate loan balance. fixed rate loan balance.
Variable Rate Policy Annually, on each The greater of: 4.0%
Loan Interest Charge Policy Anniversary, (1) the published
and upon a policy loan monthly average
transaction, full (Moody's Corporate
surrender, policy Bond Yield Average-
Termination or death Monthly Average
of the Insured Corporates) as
published by Moody's
Investors Service, Inc.
or its successor for the
calendar month ending
two months prior to
the date the rate of
interest for the policy
loan is determined, and
(2) the guaranteed
interest rate for the
Guaranteed Interest
Account plus one (1)
percent per annum.
PAGE 8
(1) The Policy Issue Charge varies based on the insured's gender, Risk Class,
age, the Death Benefit Option, and Face Amount option chosen. For Polices
that are terminated or fully surrendered within the first fifteen years
after Policy issue or within fifteen years of an increase in Face Amount,
we will assess the sum of any remaining Policy Issue Charges for the
Initial Face Amount or the Face Amount increase multiplied by a factor of
1.4, as applicable, as a surrender charge.
(2) The maximum Policy Issue Charge assumes that the insured has the following
characteristics: Male, Preferred Select Risk Class, Age 80, Level Option
Death Benefit.
(3) The minimum Policy Issue Charge assumes that the insured has the following
characteristics: Male, Preferred Tobacco Risk Class, Age 0, Level Option
Death Benefit.
(4) The Cost of Insurance Charge will vary based on the insured's gender, Risk
Class, and age.
(5) The maximum Cost of Insurance Charge assumes the insured has the following
characteristics: Male, Standard Non-Tobacco, Age 120.
(6) The minimum Cost of Insurance Charge assumes the insured has the following
characteristics: Female, Preferred Non-Tobacco, Age 6.
(7) The Net Amount at Risk is equal to the Death Benefit payable divided by the
Net Amount at Risk divisor, as shown on the policy data pages of your
Policy, minus Policy Accumulation Value.
(8) The Indexed Account Charge is assessed to help cover administrative and
other expenses associated with making available the Fixed Indexed Accounts.
(9) The Cash Extra Charge is uniquely determined for each insured and may vary
based on such factors as the insured's gender, Risk Class and age. The
charge compensates us for providing the Death Benefit under the Policy
where the insured presents a heightened or increased level of mortality
risk as a result of an outstanding medical condition (e.g., cancer that is
in remission) or an occupation or activity (e.g., sky-diving). We will
assess the Cash Extra Charge only for the period of time necessary to
compensate us for the heightened mortality risk we would bear as a result
of an insured's outstanding medical condition, occupation or activity.
Under most Policies, we do not assess a Cash Extra Charge.
(10)We charge interest on Policy loans, but we also credit interest on the
Fixed Loan Account value we hold as collateral on Policy loans. The Net
Policy Loan Interest Charge represents the difference (cost) between the
gross loan interest rate charge of three percent (4.0 percent) and the
interest credited on the Fixed Loan Account Accumulation Value, which is an
annual rate of two percent (3.0 percent) for Policies held less than ten
years and an annual rate of two and nine-tenths percent (3.9 percent) for
Policies held more than ten years.
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CHARGE WHEN CHARGE IS AMOUNT DEDUCTED
DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
Waiver of Premium
Agreement
MAXIMUM Monthly $0.51 per $1,000 of $0.51 per $1,000 of
CHARGE(2) Face Amount Face Amount
MINIMUM Monthly $0.01 per $1,000 of $0.01 per $1,000 of
CHARGE(3) Face Amount Face Amount
CHARGE FOR INSURED Monthly $0.035 per $1,000 of $0.035 per $1,000 of
AGE 30 IN MALE, Face Amount Face Amount
STANDARD
NON-TOBACCO RISK
CLASS, WITH
LEVEL OPTION
DEATH BENEFIT
Waiver of Charges
Agreement
MAXIMUM Monthly $0.38 per $1,000 of $0.38 per $1,000 of
CHARGE(4) Face Amount Face Amount
MINIMUM Monthly $0.01 per $1,000 of $0.01 per $1,000 of
CHARGE(5) Face Amount Face Amount
CHARGE FOR INSURED Monthly $0.025 per $1,000 of $0.025 per $1,000 of
AGE 30 IN MALE, Face Amount Face Amount
STANDARD
NON-TOBACCO RISK
CLASS, WITH
LEVEL OPTION
DEATH BENEFIT
Accidental Death
Benefit Agreement
MAXIMUM Monthly $.12 per $1,000 of Face $.12 per $1,000 of
CHARGE(6) Amount Face Amount
MINIMUM Monthly $.01 per $1,000 of Face $.01 per $1,000 of
CHARGE(7) Amount Face Amount
CHARGE FOR INSURED Monthly $.08 per $1,000 of Face $.08 per $1,000 of
AGE 45 IN MALE, Amount Face Amount
PREFERRED SELECT
NON-TOBACCO RISK
CLASS, WITH
LEVEL OPTION
DEATH BENEFIT
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CHARGE WHEN CHARGE IS AMOUNT DEDUCTED
DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
Level Term Insurance
Agreement
MAXIMUM Monthly $83.33 per $1,000 of $27.69 per $1,000 of
CHARGE(8) Face Amount Face Amount
MINIMUM Monthly $0.015 per $1,000 of $0.006 per $1,000 of
CHARGE(9) Face Amount Face Amount
CHARGE FOR INSURED Monthly $0.22 per $1,000 of $0.07 per $1,000 of
AGE 45 IN MALE, Face Amount Face Amount
PREFERRED SELECT
NON-TOBACCO RISK
CLASS, WITH
LEVEL OPTION
DEATH BENEFIT
Children's Term Monthly $0.40 per $1,000 of $0.40 per $1,000 of
Agreement coverage coverage
Overloan Protection
Agreement
MAXIMUM Upon exercise of 7 percent of Policy 5 percent of Policy
CHARGE(10) Agreement Accumulation Value Accumulation Value
upon exercise of upon exercise of
Agreement Agreement
MINIMUM Upon exercise of 7 percent of Policy 5 percent of Policy
CHARGE(11) Agreement Accumulation Value Accumulation Value
upon exercise of upon exercise of
Agreement Agreement
CHARGE FOR INSURED Upon exercise of 7 percent of Policy 4 percent of Policy
AGE 75 IN MALE, Agreement Accumulation Value Accumulation Value
STANDARD upon exercise of upon exercise of
NON-TOBACCO Agreement Agreement
RISK CLASS
Guaranteed
Insurability
Option(12)
MAXIMUM Monthly $0.192 per $1,000 of $0.192 per $1,000 of
CHARGE(13) additional insurance additional insurance
coverage coverage
MINIMUM Monthly $0.032 per $1,000 of $0.032 per $1,000 of
CHARGE(14) additional insurance additional insurance
coverage coverage
CHARGE FOR INSURED Monthly $0.044 per $1,000 of $0.044 per $1,000 of
AGE 7 IN MALE, additional insurance additional insurance
PREFERRED coverage coverage
NON-TOBACCO RISK
CLASS
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CHARGE WHEN CHARGE IS AMOUNT DEDUCTED
DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
Long Term Care
Agreement(15)
MAXIMUM Monthly $3.619 per $1,000 of $2.353 per $1,000 of
CHARGE(16) long term care Net long term care Net
Amount at Risk Amount at Risk
MINIMUM Monthly $0.018 per $1,000 of $0.00625 per $1,000
CHARGE(17) long term care Net of long term care Net
Amount at Risk Amount at Risk
CHARGE FOR INSURED Monthly $0.287167 per $1,000 $0.11 per $1,000 of
AGE 55 IN MALE, of long term care Net long term care Net
STANDARD Amount at Risk Amount at Risk
NON-TOBACCO RISK
CLASS
Inflation
Agreement(18)
MAXIMUM CHARGE Monthly $5.00 $5.00
MINIMUM CHARGE Monthly $0.50 $0.50
CURRENT CHARGE FOR Monthly $0.83 $0.83
ALL INSUREDS
(1) The charges for the Waiver of Premium Agreement, Waiver of Charges
Agreement, Accidental Death Benefit Agreement, Level Term Insurance
Agreement, Interest Accumulation Agreement, Guaranteed Insurability Option
and Long Term Care Agreement vary based on the insured's gender, Risk
Class, age, and Death Benefit option. The charge for the Overloan
Protection Agreement varies based on the insured's gender, Risk Class,
Age, and Accumulation Value under the Policy upon exercise of that
Agreement.
(2) The maximum Waiver of Premium Charge assumes that the insured has the
following characteristics: Male, Standard Tobacco, Age 59, Level Death
Benefit Option.
(3) The minimum Waiver of Premium Charge assumes that the insured has the
following characteristics: Female, Preferred Non-Tobacco, Age 0, Level
Death Benefit Option.
(4) The maximum Waiver of Charges Charge assumes that the insured has the
following characteristics: Male, Standard Tobacco, Age 59, Level Death
Benefit Option.
(5) The minimum Waiver of Charges Charge assumes that the insured has the
following characteristics: Female, Preferred Non-Tobacco, Age 0, Level
Death Benefit Option.
(6) The maximum Accidental Death Benefit Agreement Charge assumes that the
insured has the following characteristics: Male, Standard Tobacco, Issue
Age 70.
(7) The minimum Accidental Death Benefit Agreement Charge assumes that the
insured has the following characteristics: Male, Preferred Non-Tobacco,
Issue Age 0.
(8) The maximum Level Term Insurance Charge assumes that the insured has the
following characteristics: Male, Standard Tobacco, Age 80, Level Death
Benefit Option.
(9) The minimum Level Term Insurance Charge assumes that the insured has the
following characteristics: Female, Preferred Non-Tobacco, Age 6, Level
Death Benefit Option.
(10) The maximum Overloan Protection Charge assumes that the insured has the
following characteristics: Male, Standard Tobacco, Age 70.
PAGE 12
(11) The minimum Overloan Protection Charge assumes that the insured has the
following characteristics: Female, Preferred Select, Age 99.
(12) The charge shown for the Guaranteed Insurability Option (GIO) is a monthly
charge for the option to purchase, on the available option dates, the
additional insurance coverage, which is also referred to as the additional
coverage layers, elected by the Policy Owner when the GIO is purchased.
See the Guaranteed Insurability Option discussion in the section entitled
"Policy Charges -- Charges for Agreements." The charge will apply from the
date the GIO is added to the Policy until the date the GIO terminates,
which generally occurs on the last specified option date (which is
generally the Policy Anniversary nearest the insured's fortieth birthday).
The GIO charge varies based upon the insured's gender, Risk Class, age and
the amount of additional coverage layer that is elected when the GIO is
purchased.
(13) The maximum Guaranteed Insurability Charge assumes that the insured has
the following characteristics: Male, Standard Non-Tobacco, Age 37.
(14) The minimum Guaranteed Insurability Charge assumes that the insured has
the following characteristics: Male, Standard Non-Tobacco, Age 0.
(15) The monthly charge for the Long Term Care Agreement is calculated by
multiplying the monthly rate by the long term care Net Amount at Risk and
dividing by one thousand. The long term care Net Amount at Risk is equal
to the greater of i) zero or ii) an amount that is calculated monthly
using the LTC amount chosen by you when you purchase the Agreement. Long
term care Net Amount at Risk is calculated by subtracting a portion of the
Accumulation Value from the LTC amount. The portion of Accumulation Value
for this calculation is found by multiplying the Accumulation Value, as of
the date we take the charge, by a fraction, the numerator of which is the
LTC amount and denominator is the Policy Face Amount. See the Long Term
Care Agreement discussion in the Section entitled "Policy Charges --
Charges for Agreements."
(16) The maximum Long Term Care Agreement Charge assumes that the insured has
the following characteristics: Female, Standard Tobacco, Issue Age 80, 4%
monthly benefit.
(17) The minimum Long Term Care Agreement Charge assumes that the insured has
the following characteristics: Female, Preferred Non-Tobacco, Issue Age
20, 2% monthly benefit.
(18) The charge shown for the Inflation Agreement is a monthly charge for the
ability to increase your Policy Face Amount every three years without
underwriting, based upon changes in the Consumer Price Index. See the
Inflation Agreement discussion in the section entitled "Policy Charges --
Charges for Agreements." The charge will apply from the date the Inflation
Agreement is added to the policy until the date the Inflation Agreement
terminates. The Inflation Agreement charge is the same for all genders,
Risk Classes, and Ages.
* Unless otherwise stated, the Guaranteed Charge is the maximum Periodic
Charge that may be assessed under the Policy.
TOTAL ANNUAL OPERATING EXPENSES OF THE FUNDS/(1)/
The next table shows the minimum and maximum expenses (as a percentage of
Portfolio assets) charged by any of the Portfolios for the fiscal year ended
December 31, 2013. More detail concerning each Portfolio's fees and expenses is
contained in the prospectus for each Portfolio.(2)
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CHARGE MINIMUM MAXIMUM
Total Annual Portfolio Operating Expenses (expenses that are deducted from
Portfolio assets include management fees, distribution or service (12b-1) fees,
and other expenses) 0.20% 1.47%
(1) If the Policy Owner is deemed to have engaged in "market-timing" the Funds
may assess redemption fees. See "Market-Timing and Disruptive Trading."
(2) The minimum and maximum Total Annual Portfolio Company Operating Expense
figures in the above table do not reflect the effect of any fee waiver or
expense reimbursement arrangement.
PAGE 13
GENERAL DESCRIPTIONS
MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company, a life insurance company organized
under the laws of Minnesota. Our Home Office is at 400 Robert Street North, St.
Paul, Minnesota 55101-2098, telephone: 651-665-3500. We are licensed to conduct
life insurance business in all states of the United States (except New York),
the District of Columbia, Puerto Rico and Guam.
INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
On June 11, 2007, our Board of Directors established the Minnesota Life
Individual Variable Universal Life Account, as a separate account in accordance
with Minnesota insurance law. The Variable Account is registered as a "unit
investment trust" with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"), but registration does not signify
that the SEC supervises the management, or the investment practices or
policies, of the Variable Account. The Variable Account meets the definition of
a "separate account" under the federal securities laws.
We are the legal Owner of the assets in the Variable Account. Minnesota Life is
obligated to pay all amounts promised to Policy Owners and Beneficiaries under
the Policies. The Minnesota law under which the Variable Account was
established provides that the assets of the Variable Account shall not be
chargeable with liabilities arising out of any other business which we may
conduct, but shall be held and applied exclusively to the benefit of the
holders of those variable universal life insurance policies for which the
Variable Account was established. The investment performance of the Variable
Account is entirely independent of both the investment performance of our
General Account and of any other separate account which we may have established
or may later establish.
The Variable Account currently has 18 Sub-Accounts to which you may allocate
Net Premiums. Each Sub-Account invests in shares of a corresponding Portfolio
of the Funds.
THE FUNDS
Below is a list of the Portfolios and their investment adviser and/or
sub-adviser, and investment objective. Prospectuses for the Portfolios
accompany this prospectus. Prospectuses for the Portfolios contain more
detailed information about each Portfolio, including discussion of the
Portfolio's investment techniques and risks associated with its investments. No
assurance can be given that a Portfolio will achieve its investment objective.
You should carefully read the prospectuses for the Portfolios before investing
in the Policy.
NOTE: If you received a summary prospectus for a Portfolio listed below, please
follow the directions on the first page of the summary prospectus to obtain a
copy of the full fund prospectus.
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INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER AND SUB-ADVISER OBJECTIVE
-------------- ----------------------- ----------
AIM VARIABLE INSURANCE FUNDS
(INVESCO VARIABLE INSURANCE FUNDS)
Invesco V.I. American Value Invesco Advisers, Inc. To provide above-average total return
Fund -- Series I Shares over a market cycle of three to five
years by investing in common stocks
and other equity securities.
PAGE 14
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INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER AND SUB-ADVISER OBJECTIVE
-------------- ----------------------- ----------
ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC.
Dynamic Asset Allocation AllianceBernstein L.P. Seeks to maximize total return
Portfolio -- Class B Shares* consistent with the Adviser's
determination of reasonable risk.
AMERICAN FUNDS INSURANCE SERIES(R)
International Fund/SM/ -- Class 1 Shares Capital Research and Management The fund's investment objective is to
Company provide you with long-term growth of
capital.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Franklin Small Cap Value VIP Franklin Advisory Services, LLC Seeks long-term total return. Under
Fund -- Class 1 Shares normal market conditions, the fund
invests at least 80% of its net assets in
investments of small capitalization
companies.
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS
Ivy Funds VIP Asset Strategy Waddell & Reed Investment Seeks to provide total return.
Management Company
NORTHERN LIGHTS VARIABLE TRUST (TOPS)
TOPS(R) Managed Risk Flex ETF Portfolio* ValMark Advisers, Inc. Seeks to provide income and capital
SUB-ADVISER: Milliman, Inc. appreciation with less volatility than
the fixed income and equity markets as
a whole.
PIMCO VARIABLE INSURANCE TRUST
PIMCO VIT Global Diversified Allocation Pacific Investment Management Seeks to maximize risk-adjusted total
Portfolio -- Advisor Class Shares* Company LLC ("PIMCO") return relative to the blend of 60%
MSCI World Index 40% Barclays U.S.
Aggregate Index.
SECURIAN FUNDS TRUST
SFT Advantus Bond Fund -- Class 1 Advantus Capital Management, Inc. Seeks as high a level of a long-term
Shares total rate of return as is consistent with
prudent investment risk. The Portfolio
also seeks preservation of capital as a
secondary objective.
SFT Advantus Index 400 Mid-Cap Advantus Capital Management, Inc. Seeks investment results generally
Fund -- Class 1 Shares corresponding to the aggregate price
and dividend performance of the
publicly traded common stocks that
comprise the Standard & Poor's 400
MidCap Index (the S&P 400).
PAGE 15
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INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER AND SUB-ADVISER OBJECTIVE
-------------- ----------------------- ----------
SFT Advantus Index 500 Fund -- Class 1 Advantus Capital Management, Inc. Seeks investment results that
Shares correspond generally to the price and
yield performance of the common
stocks included in the Standard &
Poor's 500 Composite Stock Price
Index (the S&P 500).
SFT Advantus Managed Volatility Fund* Advantus Capital Management, Inc. Seeks to maximize risk-adjusted total
return relative to its blended
benchmark index, comprised of 60%
S&P 500 Index and 40% Barclays U.S.
Corporate Index (the Benchmark
Index).
SFT Advantus Real Estate Securities Advantus Capital Management, Inc. Seeks above average income and long-
Fund -- Class 1 Shares term growth of capital.
SFT Ivy(R) Growth Fund Advantus Capital Management, Inc. Seeks to provide growth of capital.
SUB-ADVISER: Waddell & Reed
Investment Management Company
SFT Ivy(R) Small Cap Growth Fund Advantus Capital Management, Inc. Seeks to provide growth of capital.
SUB-ADVISER: Waddell & Reed
Investment Management Company
SFT Pyramis(R) Core Equity Fund -- Advantus Capital Management, Inc. Seeks long-term capital appreciation.
Class 1 Shares Sub-Adviser: Pyramis Global Advisors,
LLC
SFT T. Rowe Price Value Fund Advantus Capital Management, Inc. Seeks to provide long-term capital
SUB-ADVISER: T. Rowe Price Associates, appreciation by investing in common
Inc. stocks believed to be undervalued.
Income is a secondary objective.
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Morgan Stanley UIF Emerging Markets Morgan Stanley Investment Seeks long-term capital appreciation by
Equity Portfolio -- Class II Shares Management Inc. investing primarily in growth-oriented
equity securities of issuers in emerging
market countries.
VANGUARD(R) VARIABLE INSURANCE FUND
Small Company Growth Portfolio Granahan Investment Management, Seeks long-term capital appreciation.
Inc. and The Vanguard Group, Inc.
* The Fund employs a managed volatility strategy.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any Sub-Accounts of the Variable
Account and to transfer the assets of one or more Sub-Accounts to any other
Sub-Account as permitted by law. Each additional Sub-Account will purchase
shares in a new Portfolio or mutual fund. Such Sub-Accounts may be established
when, in our sole discretion, marketing, tax, investment or other conditions
warrant such action. We will use similar considerations should there be a
determination to eliminate one or more of the Sub-Accounts of the Variable
Account. New investment options will be made available to existing Policy
Owners as we determine in our sole discretion.
We retain the right, subject to any applicable law, to make substitutions with
respect to the investments of the Sub-Accounts of the Variable Account. If
investment in a Fund Portfolio should no
PAGE 16
longer be possible or if we determine it becomes inappropriate for Policies of
this class, we may substitute another mutual fund or Portfolio for a
Sub-Account. Substitution may be made with respect to existing Accumulation
Values and future premium payments. A substitution may be made only with any
necessary approval of the SEC.
We reserve the right to transfer assets of the Variable Account as determined
by us to be associated with the Policies to another separate account. A
transfer of this kind may require the approvals of state regulatory authorities
and the SEC.
We also reserve the right, when permitted by law, to de-register the Variable
Account under the 1940 Act, to restrict or eliminate any voting rights of the
Policy Owners, to combine the Variable Account with one or more of our other
separate accounts, operate the Variable Account or a Sub-Account as either a
unit investment trust or management company under the 1940 Act, or in any other
form allowed by law, terminate and/or liquidate the Variable Account, and make
any changes to the Variable Account to conform with, or required by any change
in, federal tax law, the 1940 Act and regulations promulgated thereunder, or
any applicable federal or state laws.
The Funds serve as the underlying investment medium for amounts invested in
life insurance company separate accounts funding both variable life insurance
policies and variable annuity contracts issued by Minnesota Life and by other
affiliated and unaffiliated life insurance companies, and as investment medium
to fund plan benefits for participating qualified plans. It is possible that
there may be circumstances where it is disadvantageous for either: (i) the
Owners of variable life insurance policies and variable annuity contracts to
invest in one of the Funds at the same time, or (ii) the Owners of such
policies and contracts issued by different life insurance companies to invest
in one of the Funds at the same time or (iii) participating qualified plans to
invest in shares of one of the Funds at the same time as one or more life
insurance companies. Neither the Funds nor Minnesota Life currently foresees
any disadvantage, but if one of the Funds determines that there is any such
disadvantage due to a material conflict of interest between such Policy owners
and contract owners, or between different life insurance companies, or between
participating qualified plans and one or more life insurance companies, or for
any other reason, the Fund's board of directors will notify the life insurance
companies and participating qualified plans of such conflict of interest or
other applicable event. In that event, the life insurance companies or
participating qualified plans may be required to sell the applicable Funds'
shares with respect to certain groups of Policy Owners or contract owners, or
certain participants in participating qualified plans, in order to resolve any
conflict. The life insurance companies and participating qualified plans will
bear the entire cost of resolving any material conflict of interest.
THE GUARANTEED INTEREST ACCOUNT, THE FIXED INDEXED ACCOUNTS AND THE FIXED LOAN
ACCOUNT
The Guaranteed Interest Account, the Fixed Indexed Accounts and the Fixed Loan
Account are part of our General Account. Our General Account consists of all
assets owned by us other than those in the Variable Account and any other
separate accounts which we may establish.
Because of exemptive and exclusionary provisions, interests in our General
Account have not been registered as securities under the Securities Act of
1933, and the General Account has not been registered as an investment company
under the 1940 Act. However, disclosures regarding the Guaranteed Interest
Account, the Fixed Indexed Accounts and the Fixed Loan Account may be subject
to certain generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
Interests in the Fixed Indexed Accounts have not been registered with the SEC.
Minnesota Life believes that there are sufficient insurance elements and
guarantees with respect to interests in the
PAGE 17
Fixed Indexed Accounts to qualify for an exemption from registration under the
federal securities laws under Section 3(a)(8) of the Securities Act of 1933.
With respect to the Fixed Indexed Accounts, the Policy is in substantial
compliance with the conditions set forth in Section 989J(a)(1)--(3) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Guaranteed Interest Account, the Fixed Indexed Accounts and the Fixed Loan
Account are those portions of our general assets which are attributable to the
Policy and other policies of its class. The description is for accounting
purposes only and does not represent a division of our General Account for the
specific benefit of policies of this class. Allocations to the Guaranteed
Interest Account, the Fixed Indexed Accounts and the Fixed Loan Account become
part of our general assets and are used to support insurance and annuity
obligations and are subject to the claims of our creditors. Subject to
applicable law, we have sole discretion over the investment of assets of the
Guaranteed Interest Account, the Fixed Indexed Accounts and the Fixed Loan
Account. Policy Owners do not share in the actual investment experience of the
assets in our General Account.
INVESTORS LOOK TO THE FINANCIAL STRENGTH OF THE INSURANCE COMPANY FOR ITS
INSURANCE GUARANTEES. Guarantees provided by the insurance company as to the
benefits promised in the contract are subject to the claims paying ability of
the insurance company and are subject to the risk that the insurance company
may default on its obligations under those guarantees.
You may allocate a portion or all of the Net Premiums or transfer Accumulation
Value from the Sub-Accounts of the Variable Account to accumulate at a fixed
rate of interest in the Guaranteed Interest Account. We guarantee such amounts
as to principal and a minimum rate of interest. You may also allocate all of
the Net Premiums or transfer Accumulation Value to the Fixed Indexed Accounts.
Transfers among and between the Guaranteed Interest Account, the Fixed Indexed
Accounts and the Sub-Accounts of the Variable Account are subject to certain
limitations with respect to timing and amount. These limitations are described
under the "Transfers" section of this prospectus.
GUARANTEED INTEREST ACCOUNT. We bear the full investment risk for amounts
allocated to the Guaranteed Interest Account and guarantee that interest
credited to each Owner's Accumulation Value in the Guaranteed Interest Account
will not be less than an annual rate of interest of 2 percent without regard to
the actual investment experience of the Guaranteed Interest Account. We may, at
our sole discretion, credit a higher rate of interest, although we are not
obligated to credit interest in excess of 2 percent per year, and may not do
so. Any interest credited on the Policy's Accumulation Value in the Guaranteed
Interest Account in excess of the guaranteed minimum interest rate will be
determined at our sole discretion. You assume the risk that interest credited
may not exceed the guaranteed minimum interest rate.
FIXED INDEXED ACCOUNTS. Each Fixed Indexed Account is comprised of Segments. A
Segment is established when you allocate Net Premium to a Fixed Indexed Account
on an Interim Account Transfer Date, transfer Accumulation Value from the
Interim Account to a Fixed Indexed Account on an Interim Account Transfer Date
or rollover Accumulation Value from a prior Segment to a new Segment. Each
Segment has a duration of one year, known as an Index Credit Term.
We do not allow additional allocations of Net Premium or Accumulation Value to
a Segment during the Index Credit Term and you may not transfer Accumulation
Value from a Segment to any other Investment Option under the Policy until the
end of an Index Credit Term. At the end of an Index Credit Term, we will
automatically transfer your Accumulation Value in the Segment to a new Segment
in the same Fixed Indexed Account unless you have instructed us to transfer the
Accumulation Value to one or more other Investment Options available under the
Policy prior to the end of the Index Credit Term.
PAGE 18
We credit interest to your Accumulation Value in each Segment, known as an
Index Credit. At the end of an Index Credit Term, we credit an Index Credit
based in part on any positive change in the S&P 500(R), excluding dividends,
over the Index Credit Term. We do not credit negative interest to Accumulation
Value in a Segment, which means that if there is a negative change in the value
of S&P 500(R) over the Index Credit Term, we will not reduce your Accumulation
Value in that Segment to reflect the negative change in the S&P 500(R).
However, in that case, we will also not credit any Index Credit to your
Accumulation Value in the Segment.
Each Segment is subject to a Participation Rate. The Participation Rate is a
percentage of a positive change in the S&P 500(R) or the Growth Cap that we use
to calculate Index Credits that we credit your Accumulation Value in a Segment.
The Participation Rates for Segments in the Fixed Indexed Accounts are as
follows:
[Download Table]
GUARANTEED MINIMUM
FIXED INDEXED ACCOUNT CURRENT PARTICIPATION RATE PARTICIPATION RATE
--------------------- -------------------------- ------------------
Fixed Indexed Account A. 100% 100%
Fixed Indexed Account B. 140% 140%
The Growth Cap is the highest positive percentage change in the value of the
S&P 500(R) over an Index Credit Term that we will use in determining the amount
of an Index Credit. If the actual positive percentage change in value of the
S&P 500(R) over the Index Credit Term is higher than the Growth Cap, we will
use the Growth Cap to determine the Index Credit. In that case, we will
multiply the Growth Cap by the Participation Rate to determine the Index Credit
rate. We will then multiply the Index Credit rate by your Accumulation Value in
the Segment at the end of the Index Credit Term to determine the amount of the
Index Credit. If the positive percentage change in value of the S&P 500(R) is
less than the Growth Cap and more than zero, we would use the percentage change
in value of the S&P 500(R) to determine the Index Credit rate and Index Credit.
The Growth Cap for new Segments in each Fixed Indexed Account is subject to
change at the Company's discretion, however, once we set the Growth Cap for a
Segment, that Growth Cap will not change for the duration of the Index Credit
Term. We guarantee that the Growth Cap for Fixed Indexed Account A will not be
lower than a 2% annual interest rate and the Growth Cap for Fixed Indexed
Account B will not be lower than a 1.43% annual interest rate. The current
Growth Caps for Segments in the Fixed Indexed Accounts are as follows:
[Download Table]
FIXED INDEXED ACCOUNT CURRENT GROWTH CAP
--------------------- ------------------
Fixed Indexed Account A. 9%
Fixed Indexed Account B. 6%
We will notify you in your Annual Report or by other written notice of the
Growth Cap and Participation Rate for new Segments beginning after the date of
the Annual Report.
The way we calculate Index Credits is different from the way Accumulation Value
allocated to the Variable Account, such as the Advantus Index 500(R) Fund
Sub-Account, is calculated. The Advantus Index 500(R) Fund Sub-Account invests
in the Advantus Index 500(R) Fund, whose investment strategy is to invest at
least 80% of its assets in equity securities of companies that are included in
the S&P 500(R) Index. Accumulation value allocated to the Advantus Index 500(R)
Fund Sub-Account is valued daily based on the net asset value of the underlying
Advantus Index 500(R) Fund. The Advantus Index 500(R) Fund Sub-Account reflects
changes in the net asset value of the underlying Advantus Index 500(R) Fund.
Conversely, the Fixed Indexed Accounts are part of the Company's General
Account. Investment of General Account assets is at Minnesota Life's sole
discretion, subject to applicable law and regulation.
PAGE 19
Index Credits credited to Segments in any of the Fixed Indexed Account are
linked to the performance of the S&P 500(R) (without dividends). We use a
one-year point-to-point interest crediting strategy that credits interest based
on the percentage change in value of the S&P 500(R) (without dividends) between
two points in time over a one year period, the Index Credit Term, or the Growth
Cap, subject to a Participation Rate, as described above.
There is no guarantee that any Index Credit will be credited to your
Accumulation Value in a Segment at the end of an Index Credit Term.
EXAMPLES. Set forth below is a set of examples for each Indexed Account option
that shows how we calculate Index Credits.
INDEXED ACCOUNT A
The first example shows how we calculate an Index Credit when the Index
increases over the Index Credit Term, but the percentage increase in the Index
does not exceed the Growth Cap. The second example shows how we calculate an
Index Credit when the Index increases over the Index Credit Term and the
percentage increase in the Index is greater than the Growth Cap. The third
example shows how we calculate Index Credits when there is a decline in the
Index over the Index Credit Term.
EXAMPLE 1: GROWTH CAP RATE EXCEEDS PERCENTAGE INCREASE FOR INDEX
Assumptions:
. The value of the S&P 500(R) on the Segment Date is 1,000;
. The value of the S&P 500(R) at the end of the Index Credit Term is 1,050;
. The Growth Cap for the Segment is 9%, or 0.09;
. The Participation Rate for the Segment is 100%; and
. The Accumulation Value under the Segment at the end of the Index Credit
Term is $10,000.
First, we determine the rate for calculating the Index Credit. We subtract the
value of the S&P 500(R) on the Segment Date (1,000) from the value of the S&P
500(R) at the end of the Index Credit Term (1,050). We divide the result
(50) by the value of the S&P 500(R) on the Segment Date (1,000).
[Download Table]
1,050 - 1,000
-----------------------= 5.00%
1,000
Second, we multiply the lesser of the result (5.00%) and the Growth Cap
(9.00%) by the Participation Rate (100%). In this case, the result is lower
than the Growth Cap, so we multiply the result (5.00%) by the Participation
Rate (100%) to determine the Index Credit rate (5.00%).
Third, we determine the amount of the Index Credit. We multiply the Index
Credit rate (5.00%) by the Accumulation Value under the Segment at the end of
the Index Credit Term ($10,000).
[Download Table]
5.00% X $10,000 = $500
The Segment earned a $500.00 Index Credit. Thus, the Accumulation Value after
we credit the Index
Credit equals $10,500 ($10,000 + $500).
PAGE 20
EXAMPLE 2: PERCENTAGE INCREASE OF INDEX EXCEEDS GROWTH CAP
Assumptions are the same as Example 1, except:
. The value of the S&P 500(R) at the end of the Index Credit Term is 1,200.
First, we determine the rate for calculating the Index Credit. We subtract the
value of the S&P 500(R) on the Segment Date (1,000) from the value of the S&P
500(R) at the end of the Index Credit Term (1,200). We divide the result
(200) by the value of the S&P 500(R) on the Segment Date (1,000).
[Download Table]
1,200 - 1,000
-----------------------= 20.00%
1,000
Second, we multiply the lesser of the result (20.00%) and the Growth Cap
(9.00%) by the Participation Rate (100%). In this case, the result is higher
than the Growth Cap, so we multiply the Growth Cap (9.00%) by the Participation
Rate (100%) to determine the Index Credit rate (9.00%).
Third, we determine the amount of the Index Credit. We multiply the Index
Credit rate (9.00%) by the Accumulation Value under the Segment at the end of
the Index Credit Term ($10,000).
[Download Table]
9.00% X $10,000 = $900
The Segment earned a $900 Index Credit. Thus, the Accumulation Value after we
credit the Index Credit equals $10,900 ($10,000 + $900).
EXAMPLE 3: INDEX DECLINES
Assumptions are the same as Example 1, except:
. The value of the S&P 500(R) at the end of the Index Credit Term is 700.
First, we determine the rate for calculating the Index Credit. We subtract the
value of the S&P 500(R) on the Segment Date (1,000) from the value of the S&P
500(R) at the end of the Index Credit Term (700). We divide the result (-300)
by the value of the S&P 500(R) on the Segment Date (1,000).
[Download Table]
700 - 1,000
---------------------= -30.00%
1,000
Since the Index Credit cannot be less than zero, a 0% Index Credit rate is used.
The Segment earned a $0 Index Credit. Thus, the Accumulation Value after we
calculate the amount of the Index Credit equals $10,000 ($10,000 + $0).
INDEXED ACCOUNT B
The first example shows how we calculate an Index Credit when the Index
increases over the Index Credit Term, but the percentage increase in the Index
does not exceed the Growth Cap. The second example shows how we calculate an
Index Credit when the Index increases over the Index Credit Term and the
percentage increase in the Index is greater than the Growth Cap. The third
example shows how we calculate Index Credits when there is a decline in the
Index over the Index Credit Term.
EXAMPLE 1: GROWTH CAP RATE EXCEEDS PERCENTAGE INCREASE FOR INDEX
Assumptions:
. The value of the S&P 500(R) on the Segment Date is 1,000;
. The value of the S&P 500(R) at the end of the Index Credit Term is 1,050;
PAGE 21
. The Growth Cap for the Segment is 6%, or 0.06;
. The Participation Rate for the Segment is 140%; and
. The Accumulation Value under the Segment at the end of the Index Credit
Term is $10,000.
First, we determine the rate for calculating the Index Credit. We subtract the
value of the S&P 500(R) on the Segment Date (1,000) from the value of the S&P
500(R) at the end of the Index Credit Term (1,050). We divide the result
(50) by the value of the S&P 500(R) on the Segment Date (1,000).
[Download Table]
(1,050 - 1,000)
-------------------------= 5.00%
1,000
Second, we multiply the lesser of the result (5.00%) and the Growth Cap
(6.00%) by the Participation Rate (140%). In this case, the result is lower
than the Growth Cap, so we multiply the result (5.00%) by the Participation
Rate (140%) to determine the Index Credit rate (7.00%).
Third, we determine the amount of the Index Credit. We multiply the Index
Credit rate (7.00%) by the Accumulation Value under the Segment at the end of
the Index Credit Term ($10,000).
[Download Table]
7.00% X $10,000 = $700
The Segment earned a $700.00 Index Credit. Thus, the Accumulation Value after
we credit the Index Credit equals $10,700 ($10,000 + $700).
EXAMPLE 2: PERCENTAGE INCREASE OF INDEX EXCEEDS GROWTH CAP
Assumptions are the same as Example 1, except:
. The value of the S&P 500(R) at the end of the Index Credit Term is 1,200.
First, we determine the rate for calculating the Index Credit. We subtract the
value of the S&P 500(R) on the Segment Date (1,000) from the value of the S&P
500(R) at the end of the Index Credit Term (1,200). We divide the result
(200) by the value of the S&P 500(R) on the Segment Date (1,000).
[Download Table]
(1,200 - 1,000)
-------------------------= 20.00%
1,000
Second, we multiply the lesser of the result (20.00%) and the Growth Cap
(6.00%) by the Participation Rate (140%). In this case, the result is higher
than the Growth Cap, so we multiply the Growth Cap (6.00%) by the Participation
Rate (140%) to determine the Index Credit rate (8.40%).
Third, we determine the amount of the Index Credit. We multiply the Index
Credit rate (8.40%) by the Accumulation Value under the Segment at the end of
the Index Credit Term ($10,000).
[Download Table]
8.40% X $10,000 = $840
The Segment earned a $840 Index Credit. Thus, the Accumulation Value after we
credit the Index Credit equals $10,840 ($10,000 + $840).
EXAMPLE 3: INDEX DECLINES
Assumptions are the same as Example 1, except:
. The value of the S&P 500(R) at the end of the Index Credit Term is 700.
PAGE 22
First, we determine the rate for calculating the Index Credit. We subtract the
value of the S&P 500(R) on the Segment Date (1,000) from the value of the S&P
500(R) at the end of the Index Credit Term (700). We divide the result (-300)
by the value of the S&P 500(R) on the Segment Date (1,000).
[Download Table]
(700 - 1,000)
-----------------------= -30.00%
1,000
Since the Index Credit cannot be less than zero, a 0% Index Credit rate is used.
The Segment earned a $0 Index Credit. Thus, the Accumulation Value after we
calculate the amount of the Index Credit equals $10,000 ($10,000 + $0).
GUARANTEED MINIMUM ACCUMULATION VALUE. The Policy has a guaranteed minimum
Accumulation Value that is available upon Termination or surrender of the
Policy, the death of the insured, or maturity. We calculate the guaranteed
minimum Accumulation Value for the Policy by crediting interest on the
Accumulation Value in the Guaranteed Interest Account, the Interim Account, and
Fixed Indexed Accounts, on a daily basis at a minimum annual rate of interest
of 2%. Deductions for current monthly Policy charges, excluding the Indexed
Account Charge, will reduce the guaranteed minimum Accumulation Value. In
addition, partial surrenders from and transfers of Accumulation Value out of
the Guaranteed Interest Account, Interim Account and Fixed Indexed Account
options will reduce the guaranteed minimum Accumulation Value. A partial
surrender of Accumulation Value from the Guaranteed Interest Account, Interim
Account or Fixed Indexed Account options will reduce the guaranteed minimum
Accumulation Value by the amount withdrawn. Likewise, a transfer of
Accumulation Value out of the Guaranteed Interest Account, Interim Account or
Fixed Indexed Account options will reduce the guaranteed minimum Accumulation
Value by the amount transferred.
We will assess the Partial Surrender Transaction Charge and the Transfer
Transaction Charge against the Policy's Accumulation Value in the same order as
we assess other charges against Accumulation Value. This means that the
guaranteed minimum Accumulation Value will only be affected by the Partial
Surrender Transaction Charge and the Transfer Transaction Charge if the
transfer occurs from the Guaranteed Interest Account, Interim Account or Fixed
Indexed Account options. See "Deduction of Accumulation Value Charges."
We use the guaranteed minimum Accumulation Value to calculate the Death Benefit
payable on the death of the Insured, any amount payable upon Surrender of the
Policy, upon Termination or maturity where the guaranteed minimum Accumulation
Value exceeds the Accumulation Value under the Guaranteed Interest Account,
Interim Account or Fixed Indexed Account options. For purposes of calculating
the Death Benefit or Surrender Value or amount payable upon Termination or
maturity, we compare the guaranteed minimum Accumulation Value for the
Guaranteed Interest Account, Interim Account and Fixed Indexed Account options
against the Accumulation Value in each of those Accounts. Where the guaranteed
minimum Accumulation Value exceeds the Accumulation Value in the investment
option at the date of death of the insured, surrender, Termination or maturity
of the Policy, we use the guaranteed minimum Accumulation Value to calculate
the death benefit payable, surrender value of the Policy or amount payable upon
Termination or maturity. Conversely, where the guaranteed minimum Accumulation
Value is less than the Accumulation Value in the Guaranteed Interest Account,
Interim Account or Fixed Indexed Account options, we will use the Accumulation
Value to calculate the Death Benefit payable, surrender value of the Policy or
amount payable upon Termination or maturity. We will not use the guaranteed
minimum Accumulation Value to calculate any other values under the Policy,
including amounts available for policy loan or partial surrender.
The guaranteed minimum Accumulation Value will not extend the time Your Policy
remains in force in the event of Policy Termination. In that event, we will
send you the remaining guaranteed
PAGE 23
minimum Accumulation Value, less any outstanding Policy loan, Policy loan
interest due, and any surrender charge that may apply, in the form of cash. If
the guaranteed minimum Accumulation Value for the Guaranteed Interest Account,
Interim Account or Fixed Indexed Account is less than the Accumulation Value
for that option, we will not pay you any amount for that General Account option
upon Termination of the Policy. The amount of cash you will receive upon Policy
Termination will be the sum of the excess of the guaranteed minimum
Accumulation Value over the Accumulation Value for each of the Guaranteed
Interest Account, Interim Account and Fixed Indexed Account options.
EXAMPLE: The example below compares the calculation of the guaranteed minimum
Accumulation Value and the Accumulation Value under Fixed Indexed Account A
over a five year period.
[Enlarge/Download Table]
------------------------------------------------------------------------------------------------------------
Fixed Indexed Account Information
Participation Rate:
Growth 100%
Cap 9% (assumed constant over 5 year period)
------------------------------------------------------------------------------------------------------
Greater of
Guaranteed Fixed Indexed
Minimum Account and
Annual Accumulation Guaranteed
Increase in Accumulation Value (using Minimum
External Segment Accumulation Value Index Value After 2% Interest Accumulation
Year Index Growth Cap Growth Rate Before Index Credit Credit Index Credit Credit) Value
1 -10% 9% -10.00% 880 - 880 899 899
2 -15% 9% -15.00% 1,760 - 1,760 1,815 1,815
3 7% 9% 7.00% 2,640 185 2,825 2,750 2,825
4 16% 9% 9.00% 3,705 333 4,038 3,704 4,038
5 20% 9% 9.00% 4,918 443 5,361 4,677 5,361
------------------------------------------------------------------------------------------------------------
Under the above example, if the insured were to die or the Owner were to
surrender the Policy in the first two years, we would use the guaranteed
minimum Accumulation Value to calculate the death benefit payable or Surrender
Value of the Policy since in each of those years the guaranteed minimum
Accumulation Value would exceed the Accumulation Value in Fixed Indexed Account
A. We would also use the guaranteed minimum Accumulation Value to calculate the
Death Benefit payable or Surrender Value of the Policy in the third year prior
to the end of the Index Credit Term since the guaranteed minimum Accumulation
Value would also exceed the Accumulation Value in Fixed Indexed Account A up to
that point. Remember, we credit Index Credits only at the end of the Index
Credit Term. After the end of the Index Credit Term in year three and for years
four and five, the Accumulation Value in Fixed Indexed Account A would exceed
the guaranteed minimum Accumulation Value. For those years, we would use the
Accumulation Value in Fixed Indexed Account A to calculate the death benefit
payable or Surrender Value of the Policy.
The example below shows the impact on both the guaranteed minimum Accumulation
Value and the Accumulation Value under the Fixed Indexed Accounts when a
partial surrender is requested.
EXAMPLE. In this example, a partial surrender is taken at the end of the
second year where all of the Fixed Indexed Account Accumulation Value is
withdrawn in the partial surrender of the Policy. This may occur only if there
is sufficient Accumulation Value in the other Accounts to prevent the Policy
from terminating. Since our policy is to take the partial surrender transaction
charge from the remaining Accounts in the order specified for Accumulation
Value Charges, the charge is ignored for purposes of this example. Using the
values in the prior example shown above, if all of the Fixed Indexed Account
Accumulation Value of $1,760 is surrendered, the Fixed Indexed Account
Accumulation Value will equal $0 and the guaranteed minimum Accumulation Value
related to the Fixed Indexed Accounts will equal $55 ($1,815 of guaranteed
minimum Accumulation Value less $1,760 of Accumulation Value withdrawn).
Assuming at least one other Account has sufficient
PAGE 24
Accumulation Value to prevent the Policy from terminating, we will continue to
credit interest at the guaranteed minimum rate on the remaining guaranteed
minimum Accumulation Value related to the Fixed Indexed Accounts of $55 while
the Policy remains in force. We will use the Fixed Indexed Account guaranteed
minimum Accumulation Value of $55 plus accrued interest at the guaranteed
minimum rate, as well as any additional guaranteed minimum Accumulation Value
related to the Guaranteed Interest or the Interim Accounts, to compute
surrender proceeds if the Policy is surrendered, to pay You in cash if the
Policy terminates or to calculate the Death Benefit if the insured dies.
EXAMPLE. In the following example we illustrate the impact of the guaranteed
minimum Accumulation Value when the Policy terminates. This example assumes the
Policy Owner has allocated amounts to both the Guaranteed Interest Account and
one or both of the Fixed Indexed Accounts while the Policy was in force, there
are no outstanding Policy loans and no Surrender charges apply. The Policy
terminates with the following Accumulation Value and guaranteed minimum
Accumulation Value for the Guaranteed Interest Account and the Fixed Indexed
Accounts:
[Download Table]
GUARANTEED MINIMUM
ACCOUNT ACCUMULATION VALUE ACCUMULATION VALUE
------- ------------------ ------------------
Guaranteed Interest Account. $0 $15
Fixed Indexed Accounts...... $0 $55
-- ---
Total.................... $0 $70
== ===
Since the Policy Accumulation Value of $0 is insufficient to pay the next
monthly Policy charges, the Policy will terminate. When this occurs, we will
send the Policy owner a check for the total amount of the guaranteed minimum
Accumulation Value, or $70. Since there are no outstanding Policy loans, no
Policy loan interest is due, and no surrender charges apply, the Policy Owner
would receive the entire $70 in the form of cash.
FIXED LOAN ACCOUNT VALUE. We bear the full investment risk for amounts
allocated to the Fixed Loan Account. The Fixed Loan Account Accumulation Value
is the sum of all fixed interest rate policy loans, less all fixed interest
rate policy loan repayments. This amount will be increased by any Fixed Loan
Account interest and reduced by any Fixed Loan Account interest allocated to
the Guaranteed Interest Account, the Fixed Indexed Accounts or the Variable
Account. The Fixed Loan Account Accumulation Value will be credited daily with
an annual rate of interest of not less than 3 percent. Any interest credited on
the Policy's Accumulation Value in the Fixed Loan Account in excess of the
guaranteed minimum rate will be determined at our sole discretion. You assume
the risk that interest credited may not exceed the guaranteed minimum rate.
PAYMENTS MADE BY UNDERLYING MUTUAL FUNDS
We pay the costs of selling Policies, some of which are described in more
detail in the "Compensation Paid for the Sale of Policies" section of this
prospectus. Sale of the Policies benefits the Funds by providing increased
distribution of the shares of the Funds. The Funds, or their investment
advisers or principal underwriters, may pay us (or our affiliates) a fee for
the purpose of reimbursing us for the costs of certain distribution or
operational services that we provide and that benefit the Funds. Payments from
an underlying fund that relate to distribution services are made pursuant to
the Fund's 12b-1 plan, under which the payments are deducted from the Fund's
assets and described in the fee table included in the Fund's prospectus. The
12b-1 payments from underlying funds range in amount from 0 percent to 0.25
percent of fund assets held in the Variable Account.
PAGE 25
In addition, payments may be made pursuant to service/administration agreements
between us (or our affiliates) and the underlying mutual fund's investment
adviser (or its affiliates), in which case payments are typically made from
assets of that firm and not from the assets of the fund. Service and
administrative payments are paid to us or our affiliates for such things as our
aggregation of all Policy Owner purchase, redemption, and transfer requests
within the Sub-Accounts of the Variable Account each business day and the
submission of one net purchase/redemption request to each underlying mutual
fund. When the Variable Account aggregates such transactions through the
Variable Account's omnibus account with an underlying mutual fund, the Fund
avoids the expenses associated with processing individual transactions. Service
and administrative payments received by us or our affiliates range in amount
from 0 percent to 0.20 percent of fund assets held in the Variable Account.
INFORMATION ABOUT THE POLICY
VARIABLE UNIVERSAL LIFE INSURANCE
This Policy is a universal life insurance policy which permits you to determine
the amount of life insurance protection and the amount of premiums you plan to
pay. Universal life allows you the flexibility to customize a Policy to meet
your needs and to change your Policy after issue to meet your changing needs
and objectives. You may change the Face Amount and Planned Premium subject to
the limitations described herein, so long as the Policy remains in force.
FLEXIBILITY AT ISSUE. Subject to certain minimums, maximums and our
underwriting standards, you may choose any level of premium or Death Benefit
that you wish. Under the Policy, the highest premium permitted at the time of
issue, for a specific Death Benefit, is one which is allowed under the Code for
the Policy to qualify as life insurance. The smallest premium that we will
accept at the time of issue is the Initial Minimum Premium (shown on your
policy data pages). The amount of the Initial Minimum Premium will depend on
the Policy's Initial Face Amount, the Death Benefit option selected; the
insured's Age at issue, gender, risk classification and any additional benefit
Agreements chosen. The minimum Initial Face Amount is $100,000.
POLICY CHANGES
The Policy allows you to change the Face Amount or the Death Benefit option of
the Policy after it has been issued, subject to the limitations described more
fully below. Changes in Face Amount or the Death Benefit option are referred to
as policy changes. A partial surrender of a Policy's Accumulation Value or a
change in risk classification is also considered a policy change. You may make
one policy change or a combination of policy changes at one time. Policy
changes may only be made after the first Policy Year.
A request to change your Policy's Face Amount must be made within the insured's
lifetime. The minimum change in Face Amount must be at least $5,000 except for
Face Amount changes which are the result of a partial surrender.
You must submit an Application in Good Order to us at our Home Office to
increase the Face Amount. The Application must include evidence of insurability
satisfactory to us. The effective date of the increase in Face Amount will be
the first monthly Policy Anniversary on or following the date we approve the
increase in Face Amount. Policy face increases made pursuant to the Guaranteed
Insurability Option or the Inflation Agreement will not require evidence of
insurability and must be made under the terms of those Agreements.
To decrease your Face Amount, you must send to us at our Home Office a Written
Request in Good Order. The Initial Face Amount or any subsequent increase in
Face Amount may be decreased if it has
PAGE 26
been in force for at least one year. The effective date of the decrease will be
the first monthly Policy Anniversary on or following the date we approve your
Written Request.
If there have been prior increases in Face Amount, any decrease in Face Amount
will be made in the following order:
1.first, from the most recent increase in Face Amount;
2.second, from the next most recent increase in Face Amount; and
3.finally, the Initial Face Amount.
If a Face Amount decrease would cause your Policy to be disqualified as life
insurance under the Code, we will not approve your request. Unless you have
specified otherwise in writing, we will not approve a Face Amount decrease that
would cause your Policy to be classified as a modified endowment contract under
the Code or to have other tax consequences. Other policy changes may also have
tax consequences. You should consult a tax advisor before requesting a policy
change. See "Federal Tax Status."
If you have chosen the Level Option Death Benefit and request a partial
surrender, we will reduce the Face Amount of the Policy by the amount of the
partial surrender. A partial surrender will not result in a reduction in the
Face Amount of your Policy if the Increasing Option Death Benefit is in effect.
If you have added the LTC Agreement, when you make a claim and we pay a
long-term care benefit, we will automatically transfer all of your Policy's
Accumulation Value that is in the Fixed Indexed Accounts and the Variable
Account to the Guaranteed Interest Account. Transfers of Accumulation Value
from the Fixed Indexed Accounts will occur at the end of any applicable Index
Credit Term. As long as we are paying long term care benefits, you will only be
able to allocate premium payments and loan repayments to the Guaranteed
Interest Account.
Whenever a policy change is made, we will provide you with new policy data
pages. The policy data pages will identify any new Face Amount, Death Benefit
option, Risk Class, Planned Premium or Age of the insured.
You may request a policy change by completing an Application for change and
submitting the Application in Good Order to us at our Home Office. Policy
changes will only be made on a monthly anniversary. You may make one or a
combination of policy changes on a given monthly Policy Anniversary. Policy
changes will be effective on the first monthly Policy Anniversary on or after
the date we approve the policy change.
CHARGE FOR POLICY CHANGE. Currently, we will assess a $60 charge to cover the
administrative costs associated with processing a policy change and in no event
will we increase the charge to more than $100. If, however, the only policy
change is a partial surrender, we will only assess a transaction charge equal
to 2 percent of the amount surrendered, not to exceed $25. Because of the
underwriting and selling expenses associated with any policy change resulting
in an increase in Face Amount, we will assess a Policy Issue Charge for such a
change. See "Policy Charges."
TRANSACTION REQUESTS. We process requests for financial transactions and
certain non-financial transactions under the Policy on the Valuation Date we
receive your request at our Home Office in Good Order. This means that if we
receive your request for a financial transaction prior to 3:00 p.m. Central
time on a Valuation Date, or prior to the end of the Valuation Date, we will
process the request at the Unit Values determined as of the end of that
Valuation Date. If we receive your request for a financial transaction at or
after 3:00 p.m. Central time, or after the end of the Valuation Date, or on a
non-Valuation Date, we will process the request at the Unit Values determined
as of the end of the next Valuation Date. We apply the same cutoff times for
processing requests for certain non-financial transactions as well.
PAGE 27
For transactions involving transfers out of any of the Fixed Indexed Accounts,
we will process transfers at the end of the current Segment Term(s).
Financial transactions include premium payments, surrenders, partial
surrenders, transfers, policy changes and policy loans. Non-financial
transactions subject to the same cutoff times as financial transactions
include, among other things, changes in allocation of Net Premium payments
among Investment Options. Requests for surrender, partial surrender and policy
changes must be received by us at our Home Office in writing in Good Order.
Requests for transfers, policy loans and changes in the allocation of Net
Premium payments may be made in writing or via telephone by you, or if
authorized by you, your agent may make a request for transfer or policy loan by
telephone and must be received by us in Good Order . Written requests may be
submitted to us by mail or by facsimile (FAX) transmission at 651-665-6955.
Telephone requests may be made by calling us at 1-800-277-9244 between the
hours of 8:00 a.m. and 5:00 p.m., Central time, our regular business hours.
Requests for one-time transfer, one-time rebalance, and allocation of Net
Premium changes may also be submitted through our internet eService Center at
www.minnesotalife.com. We treat requests made via telephone, facsimile (FAX),
and via our eService Center as received after the call or transmission ends and
we receive the request in Good Order. We treat requests submitted via mail as
received when received in Good Order in the mailroom of our Home Office.
PROOF OF INSURABILITY. We require proof of insurability for all policy changes
resulting in an increase in Death Benefit, except for increases made pursuant
to an additional Agreement. In addition, we require proof of insurability for
partial surrenders where, at the request of the Owner, no reduction is made in
the Policy's Death Benefit. Decreases in Face Amount do not require evidence of
insurability.
We may also require evidence of insurability to change the risk classification
of the insured or to add additional Agreements to the Policy.
APPLICATIONS AND POLICY ISSUE
You must send a completed Application in Good Order and an initial premium
payment to us at our Home Office to purchase the Policy. Before issuing a
Policy, we will require evidence of insurability of the insured satisfactory to
us, which in some cases will require a medical examination. The Policy is only
available for insureds between Issue Ages 0-85. Our approval of an Application
is subject to our underwriting rules and we reserve the right to reject an
Application for any reason.
If the Application is accompanied by a check for at least the Initial Minimum
Premium and we approve the Application, the Policy Date will be the issue date,
which is the date we approve the Application and issue the Policy. We use the
Policy Date to determine subsequent monthly policy anniversaries.
If we approve an Application that is not accompanied by a check for the Initial
Minimum Premium, we may issue the Policy with a Policy Date which is 28 days
after the issue date. If the Minimum Initial Premium is received prior to the
Policy Date, life insurance coverage will not begin until the Initial Minimum
Premium is paid. In order to comply with Federal Tax Law, we may hold that
amount in a non-interest bearing account until the Policy Date. If we hold the
premiums, on the Policy Date we will allocate the Initial Minimum Premium to
the Guaranteed Interest Account, the Sub-Account of the Variable Account, the
Interim Account, or the Fixed Indexed Accounts if the Policy Date is on the
Interim Account Transfer Date according to your instructions. We currently do
not enforce this right. If the Initial Minimum Premium is paid after the Policy
Date (and the Policy Date is not changed as described below), you will have
paid for insurance coverage during a period when no coverage was in force. In
that circumstance you may request that the Policy Date be the date on which our
Home Office receives the Initial Minimum Premium. We will forward to you
updated policy data pages to reflect the change in Policy Date. You must make
such request at or prior to the time you pay the Initial Minimum Premium.
PAGE 28
In certain cases it may be to your advantage to have the Policy Date be the
same as the issue date in order to preserve an Issue Age of the insured to
provide more favorable cost of insurance rates. In that case, the Initial
Minimum Premium must be paid when the Policy is delivered to you. When the
Policy is issued, the Face Amount, Planned Premium, Death Benefit option, and
any additional Agreements chosen will be listed on the policy data pages.
POLICY PREMIUMS
The amount of the Initial Minimum Premium will depend on the Policy's Initial
Face Amount, the Death Benefit option, the insured's age at issue, gender, risk
classification and any additional benefit Agreements chosen. The Initial
Minimum Premium is due as of the Policy Date and must be paid on or before the
date your Policy is delivered. Between the date we receive the Initial Minimum
Premium for the Policy and the date insurance coverage commences under the
Policy, the life of the insured may be covered under the terms of a temporary
insurance agreement. You may request temporary insurance coverage at the time
of application in an amount up to $250,000. In order to receive such coverage,
you must meet certain insurability requirements at the date of application,
complete the Application and pay the Initial Minimum Premium. You may call or
write us at our Home Office to obtain additional information regarding coverage
under a temporary insurance agreement or the application of your Initial
Minimum Premium.
All premiums after the Initial Minimum Premium should be mailed to us at our
Home Office. You may also elect to have premiums paid monthly under our
automatic payment plan through pre-authorized transfers from your account at a
bank or other financial institution, or if you meet the requirements to
establish a group billing plan through your employer.
Any premium payment after the Initial Minimum Premium must be at least $50; for
premiums paid under an automatic payment plan, the minimum premium payment must
be at least $25. You may pay premiums at any time. We reserve the right to
require evidence of insurability satisfactory to us for any premium payment
that would result in an immediate increase in the Net Amount at Risk under the
Policy.
When you apply for a Policy, you may elect to pay a Planned Premium which is
shown on the policy data pages. We will send you a notice for the Planned
Premium at the frequency shown on the policy data pages. You may request that
we send you notices once a year, twice a year or four times a year. The amount
of the Planned Premium and frequency you have chosen will be identified on the
notice. You may change the amount and frequency of your Planned Premium payment
at any time by Written Request. Payment of a Planned Premium does not guarantee
that the Policy will remain in force.
You may also pay your Planned Premium using the Premium Deposit Account
Agreement. Under the Premium Deposit Account Agreement, you can make up to
three payments that will be held in a Premium Deposit Account, a part of our
General Account, and use those payments and interest credited on those payments
to pay your Planned Premiums for up to ten years from the date of the payment.
We will credit an annual rate of interest at least equal to a minimum annual
rate of interest of 0.50% (the "PDA Minimum Rate") on each payment to the
Premium Deposit Account. The PDA Minimum Rate will be in effect for the
duration the payment remains in the Premium Deposit Account. In our sole
discretion, we may credit an annual rate of interest higher than the PDA
Minimum Rate on a payment to the Premium Deposit Account. We will send you a
confirmation for each deposit you make to the Premium Deposit Account. The
confirmation will indicate the annual rate of interest that is in effect for
that deposit. For more information about the Premium Deposit Account Agreement
see "Supplemental Agreements -- Premium Deposit Account Agreement."
We intend that this Policy will qualify as a life insurance policy as defined
by Code Section 7702. In order to maintain such qualification, we reserve the
right to increase the amount of insurance on the
PAGE 29
insured, to return any excess Accumulation Value or premium, to hold premium
until the Policy Date or Policy Anniversary, or to limit the amount of premium
we will accept. There may be tax consequences to you if we must return part of
the Accumulation Value in order to maintain the Policy's status as life
insurance. See "Federal Tax Status." In the event the Death Benefit is
increased to maintain qualification as a life insurance policy, we may make
appropriate adjustments to any monthly charges or supplemental benefits that
are consistent with the increase in the Death Benefit.
Unless you have specified otherwise in writing, we will not accept a premium
payment to the extent that it would cause your Policy to fail the life
insurance qualification test or become a modified endowment contract. See
"Federal Tax Status." In rare situations, if we receive and allocate the Net
Premium prior to the Policy's anniversary date, your Policy could fail to
qualify as life insurance or become a modified endowment contract (MEC). In
that event, unless you have specified otherwise in writing, to prevent your
Policy from failing to qualify as life insurance or becoming a MEC, we will
hold your premium in a non-interest bearing account until its anniversary date.
On the anniversary date, we will allocate the Net Premium to the Guaranteed
Interest Account, the Sub-Accounts of the Variable Account, the Interim Account
or the Fixed Indexed Accounts if the allocation takes place on an Interim
Account Transfer Date according to your instructions.
We assess a Premium Charge against each premium payment. The premium less the
Premium Charge results in the Net Premium. Net premiums are allocated to the
Guaranteed Interest Account, Interim Account, Fixed Indexed Accounts, or
sub-accounts of the Variable Account which Sub-Accounts, in turn, invest in
shares of the Portfolios.
You must designate the allocation of Net Premiums on your Application for the
Policy. You may change your allocation instructions for future premium payments
by forwarding to us a signed Written Request in Good Order, or by calling us at
1-800-277-9244 between the hours of 8:00 a.m. and 5:00 p.m., Central time, our
regular business hours, via facsimile (FAX) at 651-665-6955, and via our
eService Center. We treat requests to change your allocation instructions made
via telephone, facsimile (FAX), and via our eService Center as received after
the call or transmission ends and we receive the request in Good Order. The
allocation of Net Premiums to the Guaranteed Interest Account, Interim Account,
Fixed Indexed Accounts, or to any Sub-Account of the Variable Account must be
in multiples of 1 percent of the Net Premium.
We reserve the right to delay the allocation of Net Premiums to the
Sub-Accounts you designated for a period of up to 30 days after issuance of the
Policy or after a policy change. In no event will any such delay extend beyond
the Free Look Period that applies in the state in which the Policy is issued.
If we exercise this right, we will allocate Net Premiums to the Guaranteed
Interest Account until the end of the Free Look Period. This right, which as of
the date of the prospectus has not been implemented, will be exercised by us
only when we believe economic conditions make such an allocation necessary to
reduce our market risk during the Free Look Period.
If you choose to allocate premium to the Guaranteed Interest Account, we will
allocate an amount of the Net Premium, based on the percentage you have chosen,
to that Account on the date the premium is received.
If you choose to allocate Net Premium to the Fixed Indexed Accounts, we will
allocate the amount of the Net Premium, based on the percentages you have
chosen, to the Interim Account on the date the premium is received if the date
we receive the premium is not an Interim Account Transfer Date. On the next
Interim Account Transfer Date, your Accumulation Value in the Interim Account
will be transferred to the Fixed Indexed Accounts according to your current
allocation instructions. If we receive your premium payment on an Interim
Account Transfer Date, we will allocate the amount of the Net Premium, based on
the percentages you have chosen, directly to the Fixed Indexed Accounts.
PAGE 30
If mandated under applicable law, we may reject a premium. We reserve the right
to refuse a premium payment if appropriate under our policies related to
anti-money laundering or stranger owned life insurance policies. This means
that if we exercise these rights, you will be required to comply with our
anti-money laundering or stranger owned life insurance policies before we will
accept additional premium payments from you. We will continue to take all
Policy charges applicable to the Policy and optional Agreements from the Policy
Accumulation Value, which may result in your Policy terminating. You should
consider these premium payment limitations, and all other limitations in this
Policy, and how they may impact your long-term financial plans, especially
since this Policy provides a Death Benefit that will only be payable if the
Policy is still in force at the insured's death.
If we exercise these rights, there will be no impact to premium payments
received prior to the effective date of the limitation. In addition, Policy
Accumulation Value and optional Agreements will not be affected by the
restriction, but Policy charges will continue to apply. We will apply these
limitations in a non-discriminatory manner. See "Policy Loans-Termination" and
"Policy Charges." We may also provide information about an Owner and an Owner's
account to government regulators.
We reserve the right in our sole discretion to restrict, including eliminate
altogether, the allocation of Net Premium and transfer of Accumulation Value to
the Guaranteed Interest Account and Fixed Indexed Accounts.
FREE LOOK
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may request to cancel the Policy
and return the Policy to us or your agent within 30 days after you receive it.
We will send to you within seven days of the date we receive your notice of
cancellation and the Policy, the greater of (1) a full refund of the premiums
you have paid, or (2) the Surrender Value of the Policy.
If the Policy is changed, as described under the "Policy Changes" section of
this prospectus, and if the change results in an increase in Face Amount and/or
the addition of any Agreements, you will have a right to examine the changed
Policy and you may return the changed Policy within 30 days after you receive
it. If you return the changed Policy, the Face Amount increase and/or
additional Agreements will be cancelled, and the Policy will continue in force.
ACCUMULATION VALUE
Your Policy's Accumulation Value equals your investment in the Guaranteed
Interest Account, the Interim Account, the Fixed Indexed Accounts and the
Sub-Accounts of the Variable Account, plus any collateral held in the Fixed
Loan Account for any loans you have taken. The Accumulation Value of the Policy
varies with the interest crediting experience of the Guaranteed Interest
Account, Interim Account, Fixed Indexed Accounts, and Fixed Loan Account and
the investment experience of the Sub-Accounts of the Variable Account.
Unlike a traditional fixed benefit life insurance policy, your Policy's
Accumulation Value cannot be determined in advance, even if you pay premiums as
planned, because the Accumulation Value of the Variable Account varies daily
with the investment performance of the Sub-Accounts and the Accumulation Value
of the Fixed Indexed Accounts depends at least in part on positive changes in
value of the S&P 500(R) Index over Segment Terms. Even if you continue to pay
premiums as planned, your Accumulation Value in the Variable Account could
decline to zero because of unfavorable investment experience and the assessment
of charges.
Upon request, we will tell you the Accumulation Value of your Policy. We will
also send to you a report each year on the Policy Anniversary advising you of
your Policy's Accumulation Value, the
PAGE 31
Face Amount and the Death Benefit as of the date of the report. It will also
summarize your Policy transactions during the year. The information will be
current as of a date within two months of its mailing. You may also access
information regarding your Policy's Accumulation Value through our eService
Center at www.minnesotalife.com.
GUARANTEED INTEREST ACCOUNT ACCUMULATION VALUE. The Guaranteed Interest
Account Accumulation Value of your Policy equals the sum of the following:
. the Net Premiums you allocate to the Guaranteed Interest Account;
. plus, any interest credited thereto, any fixed loan repayments, any
transfers of Accumulation Value from the Sub-Accounts of the Variable
Account and from Segments of the Fixed Indexed Accounts and any allocation
of Fixed Loan Account interest; and
. less, any fixed interest rate policy loans, partial surrenders, transfers
of Accumulation Value to the Sub-Accounts of the Variable Account and
Segments of the Fixed Indexed Accounts and policy charges.
FIXED INDEXED ACCOUNT ACCUMULATION VALUE. The Fixed Indexed Account
Accumulation Value of your Policy equals the sum of the Accumulation Value of
all Segments in the Fixed Indexed Accounts. The value of a Segment on any day
after the Segment Date is equal to:
. the value of the Segment as of the prior day; plus
. any Index Credits earned on the Segment since the prior day; minus
. the amount of any transaction or monthly charges; or transfers or partial
surrenders from the Segment since the prior day.
VARIABLE ACCOUNT ACCUMULATION VALUE. The Accumulation Value of your Policy in
the Variable Account is not guaranteed. We determine your Policy's Variable
Account Accumulation Value by multiplying the current number of Sub-Account
Units for each Sub-Account in which you are invested by the current Sub-Account
Unit Value for that Sub-Account and adding those values together. A Sub-Account
Unit is a measure of your Policy's interest in a Sub-Account. The number of
Units credited with respect to each Net Premium payment is determined by
dividing the portion of the Net Premium payment allocated to each Sub-Account
by the then current Unit Value for that Sub-Account. The number of Units
credited is determined as of the end of the Valuation Date on which we receive
your premium payment at our Home Office in Good Order.
Once determined, the number of Units credited to your Policy will not be
affected by changes in Sub-Account Unit Values. However, the number of Units in
a Sub-Account will be increased by the allocation of subsequent Net Premiums,
fixed interest rate loan repayments, transfers and Fixed Loan Account interest
to the Sub-Account. The number of Units will be decreased by policy charges,
fixed interest rate policy loans, transfers and partial surrenders from the
Sub-Account. The number of Units in a Sub-Account will decrease to zero if the
Policy is surrendered or terminated.
The Unit value of a Sub-Account will be determined on each Valuation Date. The
amount of any increase or decrease will depend on the net investment experience
of the Sub-Account. The value of a Unit for each Sub-Account was originally set
at $1.00 on the first Valuation Date. For any subsequent Valuation Date, its
value is equal to its value on the preceding Valuation Date multiplied by the
net investment factor for that Sub-Account for the valuation period ending on
the subsequent Valuation Date.
The net investment factor is a measure of the net investment experience of a
Sub-Account. The net investment factor for a valuation period is: the gross
investment rate for such valuation period, plus any Unit Value Credit under the
Policy. We determine periodically whether Unit Value Credits apply.
PAGE 32
Unit value credits are not guaranteed. For any period we apply a Unit Value
Credit, we will apply the credit each day when we calculate the unit value for
the Sub-Account.
The gross investment rate is equal to:
1.the net asset value per share of a Fund share held in the Sub-Account of
the Variable Account determined at the end of the current valuation
period; plus
2.the per share amount of any dividend or capital gain distributions by the
Fund if the "ex-dividend" date occurs during the current valuation
period; with the sum divided by
3.the net asset value per share of that Fund share held in the Sub-Account
determined at the end of the preceding valuation period.
The table below identifies the annual Unit Value Credit that we may, in our
sole discretion, apply to each Sub-Account of the Variable Account. The annual
Unit Value Credit is expressed as a percentage of average annual Portfolio
assets held by the Sub-Account. The amount of the Unit Value Credit we may
apply varies among Sub-Accounts and some Sub-Accounts may receive larger Unit
Value Credits than other Sub-Accounts. Some Sub-Accounts are not eligible for a
Unit Value Credit. Our payment of Unit Value Credits may be discontinued at any
time.
[Enlarge/Download Table]
ANNUAL UNIT
VALUE
SUB-ACCOUNT CREDIT
----------- -----------
AllianceBernstein Dynamic Asset Allocation Portfolio - Class B Shares.... 0.25
American Funds International Fund/SM/ - Class 1 Shares................... 0.00
Franklin Small Cap Value VIP Fund - Class 1 Shares....................... 0.15
Invesco V.I. American Value Fund - Series I Shares....................... 0.00
Ivy Funds VIP Asset Strategy............................................. 0.25
Morgan Stanley UIF Emerging Markets Equity Portfolio - Class II Shares... 0.00
PIMCO VIT Global Diversified Allocation Portfolio - Advisor Class Shares. 0.25
SFT Advantus Bond Fund - Class 1 Shares.................................. 0.05
SFT Advantus Index 400 Mid-Cap Fund - Class 1 Shares..................... 0.05
SFT Advantus Index 500 Fund - Class 1 Shares............................. 0.10
SFT Advantus Managed Volatility Fund..................................... 0.25
SFT Advantus Real Estate Securities Fund - Class 1 Shares................ 0.10
SFT Ivy(R) Growth Fund................................................... 0.25
SFT Ivy(R) Small Cap Growth Fund......................................... 0.25
SFT Pyramis(R) Core Equity Fund - Class 1 Shares......................... 0.25
SFT T. Rowe Price Value Fund............................................. 0.25
TOPS(R) Managed Risk Flex ETF Portfolio.................................. 0.25
Vanguard(R) Small Company Growth Portfolio............................... 0.00
We determine the value of the Units in each Sub-Account on each day on which
the corresponding Portfolio values its shares. In general, the net asset value
of each Portfolio's shares is computed once daily as of the close of trading on
the New York Stock Exchange (typically 3:00 p.m. Central time).
Some investment advisers to the Funds or their affiliates have an agreement
with us or our affiliates to pay us or our affiliates for administrative,
recordkeeping and shareholder services we provide to the Funds' Portfolios. We
or our affiliates may also receive payments from the Funds, their investment
PAGE 33
advisers or principal underwriters to reimburse us for the costs of certain
distribution or operational services that we perform and that benefit the
Funds' Portfolios. See "Payments Made by Underlying Mutual Funds." The Unit
Value Credit represents a portion of or all of these amounts that we or our
affiliates may receive that we may, in our sole discretion, apply to the
Sub-Accounts that invest in the Funds' Portfolios. We will only provide Unit
Value Credits to a Sub-Account where the corresponding Portfolio, the
investment adviser of that Portfolio or their affiliates compensate us or our
affiliates for providing such services. Our decision to provide Unit Value
Credits to certain Sub-Accounts depends upon a number of factors, including,
but not limited to, the level of assets held in the Guaranteed Interest
Account, prevailing market interest rates, and anticipated future expenses and
anticipated future revenues from variable contract operation. From time to time
some of these arrangements may be renegotiated so that we receive a different
payment than previously paid. These fee arrangements do not result in any
additional charges to Owners.
All Unit Value Credits and any gains or losses attributable to such amounts are
treated as earnings under the Policy for tax purposes.
FIXED LOAN ACCOUNT ACCUMULATION VALUE. The Fixed Loan Account Accumulation
Value of your Policy equals the sum of the following:
. all fixed interest rate policy loans less all fixed interest rate policy
loan repayments;
. plus, any Fixed Loan Account interest; and
. less, any Fixed Loan Account interest allocated to the Guaranteed Interest
Account, Fixed Indexed Accounts or Variable Account.
We credit interest on the Fixed Loan Account Accumulation Value daily at an
annual rate of interest of not less than 3 percent. We may, at our sole
discretion, credit interest at a higher rate.
INTERIM ACCOUNT ACCUMULATION VALUE. The Interim Account Accumulation Value of
your Policy on any day equals the sum of the following:
. the Interim Account Accumulation Value as of the prior day; plus
. interest earned on Accumulation Value held in the Interim Account since
the prior day; plus
. the amount of any Net Premiums allocated to the Interim Account since the
prior day; plus
. any fixed interest rate policy loan repayment since the prior day; minus
. the amount of any charges assessed against the Interim Account since the
prior day; minus
. the amount of any transfer from the Interim Account since the prior day;
minus
. any applicable partial surrenders since the prior day.
We credit interest on Interim Account Accumulation Value at an annual rate of
interest of not less than 2 percent. We may, at our sole discretion, credit
interest at a higher rate.
TRANSFERS
You may transfer Accumulation Value between the Guaranteed Interest Account,
Interim Account, Fixed Indexed Accounts, and the Sub-Accounts of the Variable
Account and among the Sub-Accounts and Fixed Indexed Accounts.
VARIABLE ACCOUNT TRANSFERS. You may request a transfer or rebalance of
Accumulation Value at any time while the Policy remains in force, and you may
arrange in advance for systematic rebalance or systematic transfers. A
rebalance reallocates your Accumulation Value in the Sub-Accounts on a one-time
or systematic basis. A systematic transfer is a transfer of Accumulation Value
from one or
PAGE 34
more Sub-Account(s) to one or more other Sub-Account(s), one or more Fixed
Indexed Accounts, and/or the Guaranteed Interest Account, on a systematic
basis. Following your instructions as to the percentage of your Accumulation
Value you wish to have in each of your Sub-Accounts, we will transfer amounts
to and from those accounts to achieve the percentages you desire. We determine
the amount you have available for transfer at the end of the Valuation Date on
which we receive your request at our Home Office in Good Order. Your request
for transfer may be made in writing or you, or your agent if authorized by you,
may make a request for transfer by telephone. To do so, you may call us at
1-800-277-9244 between the hours of 8:00 a.m. and 5:00 p.m., Central time, our
regular business hours. You may also submit your request for transfer to us by
facsimile (FAX) transmission at 651-665-6955. You may also request a one-time
transfer or rebalance through our eService Center. We process transfers based
on the Unit Values determined at the end of the Valuation Date on which we
receive your request for transfer in Good Order at our Home Office. This means
that we must receive your request for transfer prior to 3:00 p.m. Central time
on a Valuation Date or prior to the end of a Valuation Date, in order to
process the request at the Unit Values determined as of that Valuation Date. If
we receive your request for transfer at or after 3:00 p.m. Central time, or
after the end of a Valuation Date, or on a non-Valuation Date, we will process
the request at the Unit Values determined as of the following Valuation Date.
We treat transfer requests made via telephone and facsimile (FAX) as received
once the call or transmission ends.
You may transfer Accumulation Value among the Sub-Accounts an unlimited number
of times in a Policy Year, subject to our limitations on market-timing and
frequent trading activities and Portfolio limitations on the frequent purchase
and redemption of shares.
FIXED INDEXED ACCOUNT TRANSFERS. Fixed Indexed Account Segments are funded by
Net Premium payments, Accumulation Value transferred from the Variable Account
or the Guaranteed Interest Account or from Accumulation Value rolled over from
a prior Segment following completion of the Index Credit Term. A new Segment is
created when you allocate Net Premium to a Fixed Indexed Account on an Interim
Account Transfer Date or you request to transfer Accumulation Value from the
Variable Account or the Guaranteed Interest Account to a Fixed Indexed Account
or among the Fixed Indexed Accounts. For transfers to a Fixed Indexed Account,
we will allocate your Accumulation Value to the Interim Account until the next
Interim Account Transfer Date and then transfer the Accumulation Value from the
Interim Account to the Fixed Indexed Accounts as you instructed. Accumulation
Value held in the Interim Account will earn interest at the current Interim
Account interest rate. A new Segment is also created when Accumulation Value
from a prior Segment is rolled over to a new Segment following completion of
the Index Credit Term of the prior Segment.
Once a Fixed Indexed Account Segment is created on a Segment Date, you may not
transfer Accumulation Value from the Segment to any other investment option
under the Policy before the end of the Index Credit Term. Each Segment has its
own Participation Rate and Growth Cap. The Participation Rates for Fixed
Indexed Account A and Fixed Indexed Account B are set at Policy Issue or when a
new Fixed Indexed Account is made available and will not change for any Index
Credit Term. The Growth Cap for a Fixed Indexed Account is that which is in
effect on a Segment Date and will remain in effect throughout the Index Credit
Term. The Growth Cap and Participation Rate in effect as of the Policy Date are
shown in the Policy Data Pages. We will notify you in your Annual Report or by
other written notice of the Growth Cap for new Segments beginning after the
date of the Annual Report.
Interim Account Transfer Dates are the dates when transfers into the Fixed
Indexed Account may occur, and are shown in your Policy Data Pages. We reserve
the right to change the Interim Account Transfer Dates and to limit transfers
into the Fixed Indexed Account. Since the Interim Account Transfer Date
coincides with the day of the month that S&P 500(R) Index options close,
changes in the
PAGE 35
Interim Account Transfer Date will coincide with any change in the day of the
month for closing S&P 500(R) Index options. Transfers to either of the Fixed
Indexed Accounts will be limited in those circumstances where we determine that
a Policy owner is engaging in market timing or disruptive trading activities.
See "Market Timing and Disruptive Trading." We will notify you in the Annual
Report or other written notice if we change the Interim Account Transfer Dates.
We will allocate Net Premium payments and transfer Accumulation Value in the
Interim Account attributable to Net Premium payments to the Fixed Indexed
Accounts based on your current allocation instructions on file with us. When
you allocate Net Premium to the Fixed Indexed Accounts on a date other than an
Interim Account Transfer Date, we will transfer the Net Premium to the Interim
Account. Your Net Premium will be allocated to the Interim Account on the day
it is received and will remain there until the next Interim Account Transfer
Date. We credit interest to and assess policy charges against your Accumulation
Value in the Interim Account. On the Interim Account Transfer Date, your
Accumulation Value in the Interim Account will be transferred to the Fixed
Indexed Accounts based upon your allocation instructions. Below is an example
of how we transfer Accumulation Value attributable to a premium payment to a
Fixed Indexed Account Segment.
EXAMPLE. We receive and apply a premium payment of $10,000 on January 2nd,
which corresponds to a Net Premium of $9,600. Based upon the Owner's
instruction to allocate 100% of the Net Premium to a Fixed Index Account, all
of the Net Premium is transferred to the Interim Account on that date and the
Interim Account balance is $9,600. Accumulation Value in the Interim Account
earns interest and Policy charges are deducted from Interim Account
Accumulation Value. On January 18th (the Interim Account Transfer Date), the
Accumulation Value in the Interim Account is equal to $9,500 and is transferred
to the Fixed Indexed Account. After the transfer, the Interim Account balance
will be zero.
You may also request that we transfer Accumulation Value from either the
Guaranteed Interest Account or the Variable Account to the Fixed Indexed
Accounts or among the Fixed Indexed Accounts. If you provide us with
instructions to transfer Accumulation Value from the Guaranteed Interest
Account or the Variable Account, we will transfer the amount to the Interim
Account on the date we receive your request in Good Order. On the Interim
Account Transfer Date, your Accumulation Value in the Interim Account will be
transferred to the Fixed Indexed Accounts as you instructed.
If you provide us instructions to transfer Accumulation Value from one Fixed
Indexed Account to another Fixed Indexed Account and we receive your request in
Good Order, we will transfer the amount to the Interim Account on the date the
Index Credit Term ends for the Segment from which the transfer is being made.
On the next Interim Transfer Date, your Accumulation Value in the Interim
Account will be transferred to the Fixed Indexed Account as you instructed.
Below is an example of how we transfer Accumulation Value from the Variable
Account to a Fixed Indexed Account Segment.
EXAMPLE. We receive your Written Request in Good Order on January 2nd to
transfer on a pro rata basis $10,000 of Accumulation Value from the
Sub-Accounts of the Variable Account to a Fixed Indexed Account. Pro-rata basis
means Accumulation Value will be transferred proportionally from each
Sub-Account in relation to the total Accumulation Value of all Sub-Accounts in
the Variable Account. Based upon your instructions, on January 2nd, $10,000 is
transferred to the Interim Account and the Accumulation Value in the Interim
Account is $10,000. Accumulation Value in the Interim Account earns interest
and Policy charges are deducted from Interim Account Accumulation Value. On
January 18th (the Interim Account Transfer Date), the Accumulation Value in the
Interim Account is equal to $9,900 and is transferred to the Fixed Indexed
Account. After the transfer, the Interim Account balance will be zero.
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Absent any instruction from you, Accumulation Value in a Fixed Indexed Account
Segment will automatically be rolled over from the Segment at the end of the
Index Credit Term to a new Segment. Alternatively, you may provide us with
instructions to allocate Accumulation Value in a Segment to another Investment
Option available under the Policy prior to the end of a Segment Term. We will
accept instructions up to and including the date on which the Index Credit Term
ends. Transfers from Fixed Indexed Account Segments are subject to the Policy's
transfer restrictions.
DOLLAR COST AVERAGING. You may elect to participate in dollar cost averaging
in the Application or by completing an election form that we receive. Dollar
cost averaging is a strategy designed to reduce the risks associated with
market fluctuations. The strategy spreads the allocation of your Net Premium
into the Sub-Accounts of the Variable Account or any of the Fixed Indexed
Accounts over a period of time, up to one year, by systematically and
automatically transferring, on a monthly basis, specified dollar amounts from
the Guaranteed Interest Account into the Variable Account or either of the
Fixed Indexed Accounts. This allows you to potentially reduce the risk of
allocating most of your Net Premium into the Sub-Accounts and Fixed Indexed
Accounts when prices are high. We do not assure the success of this strategy,
and success depends on market trends. We cannot guarantee that dollar cost
averaging will result in a profit or protect against loss.
Dollar cost averaging transfers will only take place on the Interim Transfer
Date. A transfer under this program is not considered a transfer for purposes
of assessing any Transfer Transaction Charge. We may modify, suspend, or
discontinue the dollar cost averaging at any time.
OTHER TRANSFER RESTRICTIONS. We reserve the right to limit transfers to and
from the Guaranteed Interest Account and the Fixed Indexed Accounts and to
eliminate such transfers altogether in our sole discretion. We also reserve the
right to restrict the dollar amount of any transfer to or from the Guaranteed
Interest Account and the Fixed Indexed Accounts.
The transfer transaction charge is guaranteed not to exceed $25. For purposes
of assessing the charge, we consider all telephone, facsimile, written and/or
eService Center requests processed on the same day to be one transfer,
regardless of the number of Sub-Accounts, Guaranteed Interest Account, or Fixed
Indexed Account Segments affected by the transfer(s). We currently do not
assess a transfer transaction charge.
We impose other restrictions on transfers. We reserve the right to require that
the amount transferred to or from a Sub-Account, Fixed Indexed Account
Segments, or the Guaranteed Interest Account be at least $250. If the
Accumulation Value in a Sub-Account, the Fixed Indexed Account, or the
Guaranteed Interest Account from which a transfer is to be made is less than
$250, the entire Accumulation Value attributable to the Sub-Account, the Fixed
Indexed Account or the Guaranteed Interest Account must be transferred. If a
transfer would reduce the Accumulation Value in the Sub-Account from which the
transfer is to be made to less than $250, we reserve the right to include that
remaining Sub-Account Accumulation Value in the amount transferred.
If you have added the LTC Agreement, when you make a claim and we pay a
long-term care benefit, we will automatically transfer all of your Policy's
Accumulation Value that is in the Variable Account to the Guaranteed Interest
Account. Your Accumulation Value in the Fixed Indexed Account Segments will
also be transferred to the Guaranteed Interest Account at the end of the
Segment Terms for each Segment. As long as we are paying long term care
benefits, you will only be able to allocate premium payments and loan
repayments to the Guaranteed Interest Account.
TELEPHONE TRANSFERS. A request for transfer submitted to us via telephone is
subject to the same conditions and procedures as would apply to a written
transfer request. However, during periods of marked economic or market changes,
you may have difficulty due to a heavy volume of telephone calls. In those
circumstances, you should consider submitting a written transfer request while
continuing to
PAGE 37
attempt to contact us via telephone. We reserve the right to restrict the
frequency of, or otherwise modify, condition, or terminate telephone transfer
privileges. For more information on telephone transactions, contact us at our
Home Office or at 1-800-277-9244 between the hours of 8:00 a.m. and 5:00 p.m.,
Central time.
With all telephone transactions, we will employ reasonable procedures to
satisfy ourselves that instructions received from Owners are genuine and, to
the extent that we do not, we may be liable for any losses due to unauthorized
or fraudulent instructions. We require Owners to identify themselves through
policy numbers, social security numbers and such other information we deem
reasonable. We record telephone transfer instruction conversations and we
provide Owners with a written confirmation of each telephone transfer.
MARKET-TIMING AND DISRUPTIVE TRADING. This Policy is not designed to be used
as a vehicle for frequent trading (i.e., frequent transfers) in response to
short-term fluctuations in the securities markets, often referred to as
"market-timing." Market-timing activity and frequent trading in your Policy can
disrupt the efficient management of the underlying Portfolios and their
investment strategies, dilute the value of Portfolio shares held by long term
shareholders, and increase Portfolio expenses (including brokerage or other
trading costs) for all Portfolio shareholders, including long term Policy
Owners invested in affected Portfolios who do not generate such expenses. It is
our policy to discourage market-timing and frequent transfer activity, and,
when we become aware of such activity, to take steps to attempt to minimize the
effect of frequent trading activity on affected Portfolios. You should not
purchase this Policy if you intend to engage in market-timing or frequent
transfer activity.
We have developed policies and procedures to detect and deter market-timing and
other frequent transfers, and we will not knowingly accommodate or create
exceptions for Policy Owners engaging in such activity. We employ various means
to attempt to detect and deter market-timing or other abusive transfers.
However, our monitoring may not be able to detect all harmful trading nor can
we ensure that the underlying Portfolios will not suffer disruptions or
increased expenses attributable to market-timing or abusive transfers resulting
from other insurance carriers which invest in the same Portfolios. In addition,
because our policies and procedures are discretionary, it is possible that some
Policy Owners may engage in market-timing and other frequent transfer activity
while others may bear the harm associated with such activity. Moreover, because
market-timing can only be detected after it has occurred to some extent, our
policies to stop market-timing activity do not go into effect until after we
have identified such activity.
We reserve the right to restrict the frequency of or otherwise modify,
condition or terminate any transfer method(s). Your transfer privilege is also
subject to modification if we determine that, in our sole discretion, the
exercise of the transfer privilege by one or more Policy Owners is or would be
to the disadvantage of other Policy Owners. Any new restriction that we would
impose will apply to your Policy without regard to when you purchased it. We
also reserve the right to implement, administer, and charge you for any fees or
restrictions, including redemption fees that may be imposed by a Portfolio
attributable to transfers in your Policy. One or more of the following factors
will be considered in determining whether to implement and administer any
restrictions and assess any fees:
. the dollar amount of the transfer(s);
. whether the transfers are part of a pattern of transfers that appears
designed to take advantage of market inefficiencies;
. whether a Portfolio has requested that we look into identified unusual or
frequent activity in the Portfolio;
. the number of transfers in the previous calendar quarter; and
PAGE 38
. whether the transfers during a quarter constitute more than two "round
trips" in a particular Portfolio. A round trip is a purchase into a
Portfolio and a subsequent redemption out of the Portfolio, without regard
to order.
In the event your transfer activity is identified as disruptive or otherwise
constitutes a pattern of market-timing, you will be notified in writing that
your transfer privileges will be restricted in the future if the activity
continues. Upon our detecting further prohibited activity, you will be notified
in writing that your transfer privileges are limited to transfer requests
delivered via regular U.S. mail only and may require your signature. No fax,
voice, internet, courier or express delivery requests will be accepted. The
limitations for the transfer privileges in your Policy will be permanent.
In our sole discretion, we may revise our policies and procedures to detect and
deter market-timing and other frequent trading activity at any time without
prior notice.
In addition to our market-timing procedures, the underlying Portfolios may have
their own market-timing policies and restrictions. While we reserve the right
to enforce the Portfolios' policies and procedures, Policy Owners and other
persons with interests under the policies should be aware that we may not have
the contractual authority or the operational capacity to apply the
market-timing policies and procedures of the Portfolios, except that, under SEC
rules, we are required to: (1) enter into a written agreement with each
Portfolio or its principal underwriter that obligates us to provide the
Portfolio promptly upon request certain information about the trading activity
of individual Policy Owners, and (2) execute instructions from the Portfolio to
restrict or prohibit further purchases or transfers by specific Policy Owners
who violate the market-timing policies established by the Portfolios.
In addition, the Funds may restrict the purchase of their shares in order to
protect shareholders. In such case, if you request a transfer to a
Sub-Account(s) that invests in a Fund that has restricted the purchase of its
shares, we will not redeem Accumulation Value from the Sub-Account(s) from
which the transfer would have otherwise been made, unless you submit a new
request for transfer to our Home Office designating a new Sub-Account(s) to
which the transfer should be made.
DEATH BENEFIT
DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will determine the amount of and pay the
Death Benefit proceeds on the Policy upon receipt at our Home Office of
satisfactory proof of the insured's death, plus written direction (from each
eligible recipient of Death Benefit proceeds) regarding how to pay the Death
Benefit payment, and any other documents, forms and information we need. We may
require return of the Policy. We will pay the Death Benefit proceeds to the
Beneficiary(ies), if living. If each Beneficiary dies before the insured, we
will pay the Death Benefit proceeds to the Owner or the Owner's estate, or, if
the Owner is a corporation, to it or its successor. We will pay the Death
Benefit proceeds in a lump sum or under a settlement option.
Death Benefit proceeds equal:
. the Death Benefit (described below);
. plus any additional insurance on the insured's life under the Level Term
Insurance Agreement;
. plus under the Level Option Death Benefit, any premium paid after the date
of the insured's death;
. minus any amounts paid under the Long Term Care Agreement;
. minus any unpaid monthly charges;
PAGE 39
. minus any outstanding Policy loan; and
. minus any accrued loan interest.
We may further adjust the amount of the Death Benefit proceeds if we contest
the Policy and the insured dies by suicide or you misstate the insured's age or
gender. See "Statement of Additional Information."
DEATH BENEFIT OPTIONS
The Policy provides a Death Benefit under either the Level or Increasing Death
Benefit Option. The Death Benefit is determined on each monthly Policy
Anniversary and as of the date of the insured's death. You must select one of
the two Death Benefit options we offer in your Application. If you do not
choose a Death Benefit option in your Application, the Level Option Death
Benefit will automatically be in effect.
The Policy is intended to qualify under Code Section 7702 as a life insurance
policy for federal tax purposes. The Death Benefit is intended to qualify for
the federal income tax exclusion. The provisions of the Policy and any attached
Agreement will be interpreted to ensure such qualification, regardless of any
language to the contrary.
To the extent the Death Benefit is increased to maintain qualification as a
life insurance policy, we will make appropriate adjustments to any monthly
charges or supplemental Agreements that are consistent with such an increase.
Adjustments will be reflected in the monthly charge assessment.
Under Code Section 7702, a Policy will generally be treated as life insurance
for federal tax purposes if at all times it meets either a "guideline premium
test (GPT)" or a "cash value accumulation test (CVAT)." You must choose either
the GPT or the CVAT before the Policy is issued. Once the Policy is issued, you
may not change to a different test. The Death Benefit will vary depending on
which test is used. If you chose the CVAT test, you may not have the Overloan
Protection Agreement on your Policy. See "Supplemental Agreements -- Overloan
Protection Agreement."
The GPT has two components, a premium limit component and a corridor component.
The premium limit restricts the amount of premium that can be paid into the
Policy. The corridor requires that the Death Benefit be at least a certain
percentage (varying each year by age of the insured) of the Accumulation Value.
The CVAT does not have a premium limit, but does have a corridor that requires
that the Death Benefit be at least a certain percentage (varying based on the
age and gender class of the insured) of the Accumulation Value.
The corridor under the CVAT is different than the corridor under the GPT.
Specifically, the CVAT corridor requires more Death Benefit in relation to
Accumulation Value than is required by the GPT corridor. Therefore, for a
Policy in the corridor with no additional Agreements, as your Accumulation
Value increases your Death Benefit will increase more rapidly under CVAT than
it would under GPT.
Your Policy will be issued using the GPT unless you choose otherwise. In
deciding whether or not to choose the CVAT, you should consider that the CVAT
generally permits more premiums to be contributed to a Policy, but may require
the Policy to have a higher Death Benefit, which may increase certain charges.
UNDER THE GUIDELINE PREMIUM TEST (GPT), THE LEVEL OPTION DEATH BENEFIT EQUALS
THE GREATEST OF:
1.the Face Amount on the insured's date of death; or
2.a specified "limitation percentage," called the Guideline Premium Test
Death Benefit Percentage Factor (GPT DBPF) on your Policy's data pages,
multiplied by the Accumulation Value on the insured's date of death.
PAGE 40
Under the Level Option, your Death Benefit remains level unless the limitation
percentage multiplied by the Accumulation Value is greater than the Face
Amount; then the Death Benefit will vary as the Accumulation Value varies.
The limitation percentage is the minimum percentage of Accumulation Value we
must pay as the Death Benefit under federal tax requirements. It is based on
the age of the insured at the beginning of
each Policy Year. The following table indicates the limitation percentages for
the guideline premium test for different ages:
[Download Table]
AGE LIMITATION PERCENTAGE
--- ---------------------
40 and under 250%
41 to 45 250% minus 7% for each year over age 40
46 to 50 215% minus 6% for each year over age 45
51 to 55 185% minus 7% for each year over age 50
56 to 60 150% minus 4% for each year over age 55
61 to 65 130% minus 2% for each year over age 60
66 to 70 l20% minus 1% for each year over age 65
71 to 75 115% minus 2% for each year over age 70
76 to 90 105%
91 to 95 105% minus 1% for each year over age 90
96 to 121 100%
If the Code requires us to determine the Death Benefit by reference to these
limitation percentages, the Policy is described as "in the corridor." An
increase in the Accumulation Value will increase our risk, and we will increase
the cost of insurance charge we assess from the Policy's Accumulation Value.
LEVEL OPTION GUIDELINE PREMIUM TEST EXAMPLE. Assume that the insured's age is
under 40. Under the Level Option, a Policy with a $100,000 Face Amount will
generally pay $100,000 in Death Benefits. However, because the Death Benefit
must be equal to or be greater than 250 percent of the Accumulation Value, any
time the Accumulation Value of the Policy exceeds $40,000, the Death Benefit
will exceed the $100,000 Face Amount. The figure $40,000 is derived because 250
percent of $40,000 equals $100,000. Every additional $100 added to the
Accumulation Value above $40,000 will increase the Death Benefit by $250.
Similarly, so long as the Accumulation Value exceeds $40,000, every $100 taken
out of the Accumulation Value will reduce the Death Benefit by $250. If at any
time the Accumulation Value multiplied by the limitation percentage is less
than the Face Amount, the Death Benefit will equal the Face Amount of the
Policy.
UNDER THE CASH VALUE ACCUMULATION TEST (CVAT), THE LEVEL OPTION DEATH BENEFIT
EQUALS THE GREATEST OF:
1.the Face Amount on the date of the insured's death; or
2.the amount required for the Policy to qualify as a life insurance policy
under Code Section 7702.
Under the Level Option, your Death Benefit remains level unless the
Accumulation Value is greater than the net single premium as specified under
Code Section 7702, multiplied by the Face Amount. The net single premium is
based on the insured's gender, age, tobacco status, and Risk Class.
Under the CVAT, a "limitation percentage" may be defined as the value "1"
divided by the net single premium. While the limitation percentages are defined
differently for the GPT and the CVAT, they work identically with respect to the
relationship between the Accumulation Value and the Death Benefit.
Specifically, the Death Benefit is never less than the Accumulation Value
multiplied by the applicable limitation percentage, regardless of whether the
Policy satisfies the GPT or CVAT.
PAGE 41
If the Code requires us to determine the Death Benefit by reference to these
limitation percentages, the Policy is described as "in the corridor." An
increase in the Accumulation Value will increase our risk, and we will increase
the cost of insurance charge we assess from the Accumulation Value.
LEVEL OPTION CASH VALUE ACCUMULATION TEST EXAMPLE. Assume that the Policy has
a Face Amount of $100,000, and the limitation percentage is 225 percent. Under
the Level Option, a Policy with a $100,000 Face Amount will generally pay
$100,000 in Death Benefits. However, because the Death Benefit for the Policy
must be equal to or be greater than 225 percent of the Accumulation Value, any
time the Accumulation Value of the Policy exceeds $44,444, the Death Benefit of
the Policy will exceed the $100,000 Face Amount. The figure $44,444 is derived
because 225 percent of $44,444 equals $100,000. Every additional $100 added to
the Accumulation Value above $44,444 will increase the Death Benefit of the
Policy by $225.
Similarly, so long as the Accumulation Value exceeds $44,444, every $100 taken
out of the Accumulation Value will reduce the Death Benefit of the Policy by
$225. If at any time the Accumulation Value multiplied by the limitation
percentage is less than the Face Amount, the Death Benefit of the Policy will
equal the Face Amount of the Policy.
UNDER THE GUIDELINE PREMIUM TEST, THE INCREASING OPTION DEATH BENEFIT EQUALS
THE GREATEST OF:
1.the Face Amount plus the Accumulation Value on the insured's date of
death; or
2.the limitation percentage (the GPT DBPF) multiplied by the Accumulation
Value on the insured's date of death.
Under the Increasing Option, the Death Benefit always varies as the
Accumulation Value varies.
INCREASING OPTION GUIDELINE PREMIUM TEST EXAMPLE. Assume that the insured's
age is under 40. Under the Increasing Option, a Policy with a Face Amount of
$100,000 will generally pay a Death Benefit of $100,000 plus the Accumulation
Value. Thus, a Policy with an Accumulation Value of $60,000 will generally have
a Death Benefit of $160,000 ($100,000 + $60,000). The Death Benefit, however,
must be at least 250 percent of the Accumulation Value. As a result, if the
Accumulation Value of the Policy exceeds $66,666, the Death Benefit will be
greater than the Face Amount plus the Accumulation Value. The figure of $66,666
is derived because 250 percent of $66,666 equals $100,000 + $66,666. Every
additional $100 of Accumulation Value above $66,666 will increase the Death
Benefit by $250.
Similarly, any time the Accumulation Value exceeds $66,666, every $100 taken
out of Accumulation Value will reduce the Death Benefit by $250. If at any time
the Accumulation Value multiplied by the limitation percentage is less than the
Face Amount plus the Accumulation Value, then the Death Benefit will be the
Face Amount plus the Accumulation Value of the Policy.
UNDER THE CASH VALUE ACCUMULATION TEST, THE INCREASING OPTION DEATH BENEFIT
EQUALS THE GREATEST OF:
1.the Face Amount plus the Accumulation Value on the insured's date of
death; or
2.the amount required for the Policy to qualify as a life insurance policy
under Code Section 7702.
Under the Increasing Option, the Death Benefit always varies as the
Accumulation Value varies.
INCREASING OPTION CASH VALUE ACCUMULATION TEST EXAMPLE. Assume that the Policy
has a Face Amount of $100,000, and the limitation percentage is 225 percent.
Under the Increasing Option, a Policy with a Face Amount of $100,000 will
generally pay a Death Benefit of $100,000 plus the Accumulation Value. Thus, a
Policy with an Accumulation Value of $65,000 will generally have a Death
Benefit of $165,000 ($100,000 + $65,000). The Death Benefit for the Policy must
be at least 225 percent of the Accumulation Value. As a result, if the
Accumulation Value of the Policy exceeds $80,000, the Death
PAGE 42
Benefit for the Policy will be greater than the Face Amount plus the
Accumulation Value. The figure of $80,000 is derived because 225 percent of
$80,000 equals $100,000 + $80,000. Every additional $100 of Accumulation Value
above $80,000 will increase the Death Benefit of the Policy by $225.
Similarly, any time Accumulation Value exceeds $80,000, every $100 taken out of
Accumulation Value will reduce the Death Benefit of the Policy by $225. If at
any time the Accumulation Value multiplied by the limitation percentage is less
than the Face Amount plus the Accumulation Value, then the Death Benefit for
the Policy will be the Face Amount plus the Accumulation Value of the Policy.
EFFECT OF PARTIAL SURRENDERS ON THE DEATH BENEFIT
If you choose the Level Option, a partial surrender will reduce the Face Amount
by an amount equal to the amount of the partial surrender. If you choose the
Increasing Option, your Face Amount will not be affected by a partial
surrender. Regardless of the Death Benefit option you choose, a partial
surrender will reduce the Death Benefit by at least the amount of the partial
surrender.
CHOOSING DEATH BENEFIT OPTIONS
You must choose one Death Benefit option on your Application. This is an
important decision. The Death Benefit option you choose will have an impact on
the dollar value of the Death Benefit, on your Accumulation Value, and on the
amount of cost of insurance charges you pay. If you do not select a Death
Benefit option on your Application, the Level Option will become the Death
Benefit option for your Policy, by default.
You may find the Level Option more suitable for you if your goal is to have Net
Premiums and positive investment experience reflected to the maximum extent in
Accumulation Value. You may find the Increasing Option more suitable if your
goal is to increase your total Death Benefit. Under the Increasing Option,
positive increases in the Accumulation Value would be reflected in your Death
Benefit, where the Death Benefit equals your initial Face Amount plus the
Policy's Accumulation Value.
CHANGING THE DEATH BENEFIT OPTION
After the first Policy Year, you may change your Death Benefit option once each
Policy Year. We will notify you of the new Face Amount.
. You must send your Written Request in Good Order to our Home Office.
. The effective date of the change will be the monthly Policy Anniversary on
or following the date we approve your request for a change in Good Order.
. Changing your Death Benefit option may cause you to receive taxable
income, may cause your Policy to become a modified endowment contract
(MEC) or may have other unintended adverse federal tax consequences. See
"Federal Tax Status." You should consult a tax adviser before changing
your Policy's Death Benefit option.
INCREASING/DECREASING THE FACE AMOUNT
You may increase or decrease the Face Amount of the Policy. An increase or
decrease in the Face Amount will affect your cost of insurance charge, your
guideline premium or cash value accumulation tax calculation, and may have
adverse federal tax consequences. You should consult a tax adviser before
increasing or decreasing your Policy's Face Amount.
PAGE 43
If you have added the LTC Agreement to your Policy, decreasing the Face Amount
of the Policy may lower the amount of long-term care benefit (LTC amount)
available under the LTC Agreement. If the Policy's Face Amount after the
decrease is less than the LTC amount before the decrease in Face Amount, the
LTC amount will be equal to the new decreased Face Amount.
An increase in Face Amount will be treated as an additional layer of coverage
with its own monthly Policy Issue Charge, surrender charge and surrender charge
period.
Conditions for and impact of decreasing the Face Amount:
. you must send your Written Request in Good Order to our Home Office;
. a decrease in a layer of coverage is only allowed if the coverage layer
has been in force for at least one year;
. we require your requested decrease in Face Amount to be at least $5,000;
. you may not decrease your Face Amount if it would disqualify your Policy
as life insurance under the Code;
. if the decrease in Face Amount would cause your Policy to be classified a
modified endowment contract (MEC) under the Code, we will not allow the
decrease in Face Amount, unless you specifically instruct us in writing
that you intend for the Policy to be classified as a MEC; and
. a decrease in Face Amount will take effect on the first monthly Policy
Anniversary on or after we receive and approve your Written Request.
Conditions for and impact of increasing the Face Amount:
. your request must be applied for on a supplemental Application and must
include evidence of insurability satisfactory to us;
. a requested increase in Face Amount requires our approval and will take
effect on the first monthly Policy Anniversary on or after the day we
approve your request;
. increases are only allowed after the first Policy Year;
. we require your requested increase in Face Amount to be at least $5,000;
. each increase in Face Amount will have its own surrender charge that
applies for 15 years after the date of the increase; and
. increases made under the Guaranteed Insurability Option or the Inflation
Agreement will be processed according to the provisions of that Agreement
and will not require evidence of insurability.
SETTLEMENT OPTIONS
There are several ways of receiving proceeds under the Death Benefit and
surrender provisions of the Policy, other than in a lump sum. These are
described under "Settlement Options" in your Policy and in the Statement of
Additional Information.
ABANDONED PROPERTY REQUIREMENTS
Every state has unclaimed property laws which generally declare insurance
policies to be abandoned after a period of inactivity of three to five years
from the policy's maturity date or date the death benefit is due and payable.
For example, if the payment of Death Benefit proceeds has been triggered, but,
if after a thorough search, we are still unable to locate the Beneficiary, or
the Beneficiary does not
PAGE 44
come forward to claim the Death Benefit proceeds in a timely manner, the Death
Benefit proceeds will be paid to the abandoned property division or unclaimed
property office of the state in which the Beneficiary or you last resided, as
shown on our books and records, or to our state of domicile. This "escheatment"
is revocable, however, and the state is obligated to pay the Death Benefit
proceeds (without interest) if your Beneficiary steps forward to claim it with
the proper documentation. To prevent such escheatment, it is important that you
update your Beneficiary designations, including addresses, if and as they
change. Please call us at 1-800-277-9244 between the hours of 8:00 a.m. and
5:00 p.m., Central time, to make such changes.
POLICY LOANS
While your Policy is in force, you may submit a request to our Home Office to
borrow money from us using only your Policy as the security for the loan. You
may obtain a Policy loan with a Written Request in Good Order by calling us at
1-800-277-9244 between the hours of 8:00 am and 5:00 pm, Central time, our
regular business hours. If you call us, you will be asked for security
purposes, for your personal identification and Policy number. We normally pay
the loan amount within seven days after we receive a proper loan request in
Good Order. We may postpone payment of loans under certain conditions as
described in the Statement of Additional Information. You may increase the risk
that the Policy will terminate if you take a loan. A loan that is taken from,
or secured by a Policy, may have adverse federal income tax consequences. See
"Federal Tax Status."
Your Policy will remain in force so long as the Accumulation Value less the sum
of the Policy loan and any unpaid Policy Loan Interest is sufficient to cover
the monthly charges when due. Otherwise, your Policy will terminate and there
may be adverse tax consequences. See "Federal Tax Status." To prevent your
Policy from terminating, you will have to make a loan repayment. We will notify
you 61 days in advance of the Termination of your Policy and the amount of the
loan repayment required to keep it in force. The time for repayment will be
within 61 days after our mailing of the notice.
You may request either a fixed interest rate Policy loan or a variable rate
Policy loan. Under a fixed interest rate Policy loan, the rate of interest we
charge for the Policy loan will not change for the duration of the loan.
However, under a variable rate Policy loan, the rate of interest we charge for
the loan can change annually for the duration of the loan. When you request a
Policy loan, you must inform us of whether you are choosing a fixed interest
rate Policy loan or a variable rate Policy loan.
FIXED INTEREST RATE POLICY LOAN. The maximum amount available for a fixed
interest rate Policy loan is the Policy Accumulation Value less any applicable
surrender charge and three (3) months of monthly charges. We determine this
amount on the Valuation Date we receive your request for a fixed interest rate
Policy loan at our Home Office in Good Order. There is no minimum amount we
require for a Policy loan. When you take a fixed interest rate Policy loan, we
will transfer an amount equal to the loan from your Accumulation Value in the
Guaranteed Interest Account, the Fixed Indexed Accounts and/or the Variable
Account to the Fixed Loan Account, part of our General Account. You may
instruct us as to which Account or Accounts and the proportion of the amount of
the fixed interest rate Policy loan that should be transferred from the
Accounts. However, if you instruct us to take a fixed interest rate Policy loan
from the Fixed Indexed Accounts, we will transfer the amount of the loan from
each Segment in the Fixed Indexed Accounts on a pro rata basis. Pro-rata basis
means the loan amount will be transferred proportionally from the Accumulation
Value in each Segment in relation to the total Accumulation Value of all
Segments in the Fixed Indexed Accounts.
PAGE 45
If you do not instruct us as to how we should transfer the amount of the fixed
interest rate Policy loan from the Accounts to the Fixed Loan Account, we will
transfer the fixed rate loan amount in the order described below.
1. The fixed rate loan amount will be transferred first from your
Accumulation Value in the Guaranteed Interest Account.
2. If the fixed rate loan amount exceeds your Accumulation Value in the
Guaranteed Interest Account, the remaining fixed rate loan amount will
be transferred from your Accumulation Value in the Variable Account on
a pro-rata basis from the Accumulation Value in each Sub-Account.
Pro-rata basis means the loan amount will be transferred
proportionally from the Accumulation Value of each Sub-Account in
relation to the total Accumulation Value of all Sub-Accounts in the
Variable Account.
3. If the fixed rate loan amount exceeds your Accumulation Value in the
Guaranteed Interest Account and the Variable Account, the remaining
fixed rate loan amount will be transferred from your Accumulation
Value in the Interim Account.
4. If the fixed rate loan amount exceeds your Accumulation Value in the
Guaranteed Interest Account, the Variable Account and the Interim
Account, the remaining fixed rate loan amount will be transferred from
your Accumulation Value in the Fixed Indexed Accounts on a pro-rata
basis from the Accumulation Value in each Segment. Pro-rata basis
means the loan amount will be transferred proportionally from the
Accumulation Value of each Segment in relation to the total
Accumulation Values of all Segments of the Fixed Indexed Accounts.
We hold the fixed rate loan amount as collateral for the loan in the Fixed Loan
Account. The fixed rate loan amount is not available for withdrawal from the
Policy.
FIXED INTEREST RATE POLICY LOAN INTEREST. We will charge you interest on a
fixed interest rate Policy loan at the annual rate of interest shown on the
Policy data pages of your Policy while your fixed interest rate policy loan is
outstanding. Currently, we charge an annual rate of interest of 4 percent on
fixed interest rate Policy loans. Policy loan interest becomes due and payable:
. on a Policy loan transaction (which is any transaction that affects the
loan amount);
. on each Policy Anniversary;
. on surrender or Termination of the Policy; or
. on the date of the death of the insured.
If you do not pay the interest on your loan when due, your Policy loan will be
increased by the amount of the unpaid interest.
We also credit interest to amounts held in the Fixed Loan Account as collateral
for Policy loans at a rate of interest at least equal to the interest rate
shown on the Policy data pages. Currently, we credit an annual rate of interest
which is not less than your fixed interest rate Policy Loan Interest rate minus
1 percent. However, if your Policy has been in force for ten years or more, we
will credit your loan amount with an annual rate of interest equal to the
Policy loan rate minus .10 percent. On the date of each Policy loan transaction
and Policy Anniversary, we will allocate any accrued Fixed Loan Account
interest to your Accumulation Value in the Guaranteed Interest Account, the
Fixed Indexed Accounts and the Sub-Accounts of the Variable Account on a
pro-rata basis. Pro-rata basis means interest will be credited proportionally
to the Accumulation Value in each Account in relation to the total Accumulation
Value of all Accounts listed.
PAGE 46
VARIABLE INTEREST RATE POLICY LOAN. If you have Accumulation Value in one or
more of the Fixed Indexed Accounts, you may request a variable interest rate
Policy loan. The maximum aggregate amount you may borrow under one or more
variable interest rate Policy loans under your Policy equals your Accumulation
Value in the Fixed Indexed Accounts, plus your Accumulation Value in the
Interim Account, less any applicable surrender charge and three (3) months of
monthly charges. We will determine the amount available for a variable interest
rate Policy loan as of the date we receive your request for a loan in Good
Order at our Home Office. Unlike a fixed interest rate Policy loan, when you
take a variable interest rate Policy loan, we will not transfer an amount equal
to the loan from your Accumulation Value in the Guaranteed Interest Account,
Fixed Indexed Accounts and/or the Variable Account to the Fixed Loan Account as
collateral for the policy loan.
On every loan transaction date and on each monthly Policy Anniversary, we will
compare the amount of a variable interest rate loan with the Accumulation Value
in the Fixed Indexed Accounts and the Interim Account and if the amount of a
variable interest rate loan exceeds the Accumulation Value in the Fixed Indexed
Accounts and the Interim Account, we will automatically convert the variable
interest rate loan to a fixed interest rate loan. You may request to convert
back to a new variable rate interest loan after you have either reduced the
loan balance by making a loan repayment or by increasing the amount of
Accumulation Value in the Fixed Indexed Accounts.
VARIABLE INTEREST RATE POLICY LOAN INTEREST. Under a variable interest rate
Policy loan, we may change the rate of interest we charge for the Policy loan
once a year on your Policy Anniversary. We will notify you at your Policy
Anniversary of any changes in the Policy Loan Interest rate for the coming year.
The rate of interest we charge for a variable interest rate Policy loan will
equal the greater of:
1. the published monthly average (Moody's Corporate Bond Yield
Average-Monthly Average Corporates) as published by Moody's Investors
Service, Inc. or its successor for the calendar month ending two
months prior to the date the rate of interest for the Policy loan is
determined, and
2. the guaranteed interest rate for the Guaranteed Interest Account shown
on the Policy data pages, plus one (1) percent per annum.
We may increase the rate of interest we charge for a variable rate Policy loan
on a Policy Anniversary where based on the above formula the rate of interest
for a variable rate Policy loan calculated prior to the Policy Anniversary
would be one-half percent or more higher than the rate of interest we currently
charge for the loan. We will decrease the rate of interest we charge for a
variable rate Policy loan on a Policy Anniversary where based on the above
formula the rate of interest for a variable rate Policy loan calculated prior
to the Policy Anniversary would be one-half percent or more lower than the rate
of interest we currently charge. We will calculate any change in the rate of
interest we charge for a variable rate Policy loan as of the Interim Account
Transfer Date in the second month preceding your Policy Anniversary.
Any change in the loan interest rate will apply to any new variable rate Policy
loans as well as variable rate Policy loans existing on your Policy
Anniversary. The rate of interest for a variable rate Policy loan in effect on
the Policy Date is shown on the Policy data pages. If that rate changes, we
will notify you in the Annual Report or by other written notice.
POLICY LOAN REPAYMENTS. If your Policy is in force, you may repay your loan in
part or in full at any time before the insured's death. Your loan may also be
repaid within 60 days after the date of the insured's death, if we have not
paid any of the benefits under the Policy. When we receive a payment from you,
we will automatically treat that payment as a premium payment unless you
specify that the
PAGE 47
payment is a loan repayment. Loan repayments are not subject to a premium
charge. If the insured dies with any loan outstanding, the amount of the Death
Benefit will be reduced by the outstanding loan balance.
When you repay a fixed interest rate Policy loan, we transfer the repayment
amount from the Fixed Loan Account to your Accumulation Value in the Guaranteed
Interest Account, the Fixed Indexed Accounts and the Variable Account. Unless
you instruct us otherwise, we will transfer the repayment amount on a pro-rata
basis to the Guaranteed Interest Account, the Fixed Indexed Accounts and the
Sub-Accounts of the Variable Account based on your Accumulation Value in each
investment option on the Valuation Date we receive your loan repayment in Good
Order at our Home Office. Pro-rata basis means the repayment amount will be
transferred from the Accumulation Value in each Account in relation to the
total Accumulation Value of all Accounts listed. We reserve the right to
restrict the amount of any loan repayment to the Guaranteed Interest Account.
A fixed interest rate Policy loan, whether or not it is repaid, will have a
permanent effect on your Accumulation Value, and depending upon the Death
Benefit option you have chosen, the Death Benefit. As long as a fixed interest
rate Policy loan is outstanding the collateral for the loan in the Fixed Loan
Account is not affected by the investment performance of Sub-Accounts and may
not be credited with the rates of interest we credit Accumulation Value in the
Guaranteed Interest Account or with Index Credits in the Fixed Indexed Accounts.
A variable interest rate Policy loan will not have a permanent effect on the
Accumulation Value of your Policy. If you make a repayment of a variable
interest rate loan, the loan balance will be reduced, however, the loan
repayment will not have an impact on the Policy's Accumulation Value.
TERMINATION. If the Accumulation Value less the sum of the Policy loan(s) and
any unpaid Policy Loan Interest is insufficient to cover the monthly charges on
a monthly Policy Anniversary, a 61-day Grace Period begins. We will send you a
written notice on the day your Policy goes into the Grace Period and inform you
of your options. Your Policy will remain in force during the Grace Period. You
may pay premiums during this Grace Period to cover the insufficiency and
continue your Policy in force beyond the Grace Period. In addition to a notice
that your Policy has gone into the Grace Period, we will send you and any
assignee of record, at the last known address, at least 31 days prior to the
end of the Grace Period, a written notice indicating the due date and the
payment required to keep your Policy in force.
The payment required to keep your Policy in force after the Grace Period
commences is equal to three times the sum of all the monthly charges that were
due at the beginning of the Grace Period, plus the premium charge that would
apply. If the payment is not paid by the end of the Grace Period, your Policy
will terminate without value. If the insured dies during the Grace Period, the
death proceeds will be paid to the Beneficiary. If the Policy were to terminate
with an outstanding loan balance, you will also be required to make a loan
repayment.
If the Policy terminates with an outstanding loan balance, the amount of that
outstanding loan will be treated as a distribution, which could be taxable
depending upon your investment in the Policy. This means that as a result of a
Policy termination, you could recognize taxable income without any distribution
of Policy Accumulation Value in the form of cash that could be used to pay any
income tax due. You should consult your tax advisor regarding the tax treatment
of a Policy termination with an outstanding loan balance. See "Federal Tax
Status."
PAGE 48
REINSTATEMENT. At any time within three years from the date of Policy
Termination while the insured is living, you may ask us to restore your Policy
to an in-force status, unless you surrendered your Policy. We will require each
of the following to reinstate your Policy:
1.your Written Request in Good Order to reinstate the Policy;
2.that you submit to us at our Home Office during the insured's lifetime
evidence satisfactory to us of the insured's insurability so that we may
have time to act on the evidence during the insured's lifetime;
3.a payment sufficient to cover all monthly charges and Policy Loan
Interest due and unpaid during the Grace Period; and
4.a premium sufficient to keep the Policy in force for three (3) months
after the date of the reinstatement.
The effective date of reinstatement will be the first monthly Policy
Anniversary on or following the date we approve your request for reinstatement.
The Surrender Charge and Policy Issue Charge schedules that were in place at
the end of the Grace Period will be effective at the reinstatement date. We
will send you new Policy data pages when your Policy is reinstated. Reinstating
your Policy may have adverse tax consequences. You should consult your tax
advisor before you reinstate your Policy. See "Federal Tax Status."
SURRENDER
You may request to surrender your Policy at any time while the insured is
living and the Policy is in force. A surrender may have tax consequences. See
"Federal Tax Status."
The Surrender Value of the Policy is the Accumulation Value less any unpaid
Policy charges which we assess against Accumulation Value, less any Policy
loan, less any unpaid Policy Loan Interest and less any Surrender Charges. We
determine the Surrender Value as of the Valuation Date on which we receive your
signed Written Request for surrender of the Policy in Good Order at our Home
Office. You may request that the Surrender Value be paid to you in cash or,
alternatively, paid under a settlement option we offer. We may require that you
return the Policy.
If you surrender your Policy during the first 15 Policy Years or during the
first 15 years following an increase in Face Amount, we will assess a Surrender
Charge, which may significantly reduce the Surrender Value. See "Policy
Charges."
The amount you receive on surrender may be more or less than the total premiums
you paid under the Policy. Once you surrender your Policy, all coverage and
other benefits under the Policy cease and cannot be reinstated. See
"Distributions Other Than Death Benefits from Modified Endowment Contracts" and
"Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts."
We will pay surrender proceeds as soon as possible, but not later than seven
days after we receive your Written Request in Good Order for surrender.
However, if any portion of the Accumulation Value to be surrendered is
attributable to a premium payment made by non-guaranteed funds such as a
personal check, we will delay mailing that portion of the surrender proceeds
until we have reasonable assurance that the check has cleared and the funds
have been collected.
If you have allocated Accumulation Value to any of the Fixed Indexed Accounts
during the period you owned the Policy, you may receive surrender proceeds
based upon the guaranteed minimum Accumulation Value amounts held in the Fixed
Indexed Accounts. Whether the guaranteed minimum Accumulation Value is
available upon surrender depends upon your Policy's particular facts and
PAGE 49
circumstances, including how much you allocated to the Fixed Indexed Accounts,
how long your Accumulation Value was allocated to those accounts and whether
Interest Credits were earned during that period. See "Guaranteed Minimum
Accumulation Value".
PARTIAL SURRENDER
While the insured is living and the Policy is in force, you may request a
partial surrender of the Accumulation Value of your Policy by forwarding your
request in Good Order to our Home Office. The partial surrender must be at
least $500. The maximum partial surrender we will allow is the Accumulation
Value: (i) less any outstanding Policy loan and accrued loan interest,
(ii) less the amount of any Surrender Charge applicable at that time, and
(iii) less three (3) months of monthly charges. For each partial surrender, we
assess a Partial Surrender Transaction Charge of 2 percent of the amount of the
partial surrender, up to $25. A partial surrender may have tax consequences.
See "Federal Tax Status".
You may tell us from which Sub-accounts of the Variable Account, any Fixed
Indexed Account and the Guaranteed Interest Account to make a partial
surrender. If you do not instruct us as to which Accounts we should take the
partial surrender, we will take the partial surrender from the Accounts in the
order described below:
1. The partial surrender will be taken first from your Accumulation Value
in the Guaranteed Interest Account.
2. If the partial surrender amount exceeds your Accumulation Value in the
Guaranteed Interest Account, the remaining partial surrender will be
taken from your Accumulation Value in the Variable Account on a
pro-rata basis from the Accumulation Value in each Sub-Account.
Pro-rata basis means Accumulation Value will be transferred
proportionally from each Sub-Account in relation to the total
Accumulation Value of all Sub-Accounts in the Variable Account.
3. If the partial surrender exceeds your Accumulation Value in the
Guaranteed Interest Account and the Variable Account, the remaining
partial surrender will be taken from your Accumulation Value in the
Interim Account.
4. If the partial surrender exceeds your Accumulation Value in the
Guaranteed Interest Account, the Variable Account and the Interim
Account, the remaining partial surrender will be taken from your
Accumulation Value in the Fixed Indexed Accounts on a pro-rata basis
from the Accumulation Value in each Segment. Pro-rata basis means
Accumulation Value will be transferred proportionally from each
Segment in relation to the total Accumulation Value of all Segments of
the Fixed Indexed Accounts.
We will process the partial surrender at the Unit Values next determined after
we receive your request in Good Order at our Home Office. This means that if we
receive your request for partial surrender prior to 3:00 p.m. Central time, or
prior to the end of a Valuation Date, we will process the request at the Unit
Values determined as of that Valuation Date. If we receive your request for
partial surrender at or after 3:00 p.m. Central time, or after the end of a
Valuation Date we will process the request at the Unit Values determined as of
3:00 p.m. Central time on the following Valuation Date.
If a partial surrender would cause your Policy to be disqualified as life
insurance under the Code, we will not process your request for partial
surrender. In addition, unless you have instructed us otherwise in writing, if
a partial surrender would cause your Policy to be classified as a modified
endowment contract under the Code, we will not process your request for partial
surrender. Under the Level Option Death Benefit, a partial surrender will cause
a decrease in the Face Amount of the Policy
PAGE 50
at least equal to the amount of the partial surrender. For each Death Benefit
option, a partial surrender will decrease the amount of the Death Benefit
proceeds payable.
We will pay partial surrender proceeds as soon as possible, but not later than
seven days after we receive your Written Request for partial surrender in Good
Order.
We reserve the right to defer the payment of surrender and partial surrender
proceeds for up to six months from the date of your Written Request, if such
proceeds would be paid exclusively from your Accumulation Value in the
Guaranteed Interest Account and the Fixed Indexed Accounts. In that case, if we
postpone payment for more than 31 days, we will pay you interest at 2 percent
annual rate for the period during which payment is postponed.
If mandated under applicable law, we may block an Owner's account and thereby
refuse to pay any request for surrender or partial surrender until instructions
are received from the appropriate regulator. We may also be required to provide
additional information about an Owner and Owner's account to government
regulators.
POLICY CHARGES
We assess certain charges against premiums and Accumulation Value under the
Policy. The maximum and minimum charges and the charges for certain specified
insureds are described in the "Fee Tables" section of this prospectus. The
charges compensate us for: (1) services and benefits we provide; (2) costs and
expenses we incur; and (3) risks we assume.
SERVICES AND BENEFITS WE PROVIDE:
. the Death Benefit, cash, and loan benefits under the Policy;
. investment options, including premium payment allocations;
. administration of elective options; and
. the distribution of reports to Owners.
COSTS AND EXPENSES WE INCUR:
. costs associated with processing and underwriting Applications, and with
issuing and administering the Policy (including any Agreements);
. overhead and other expenses for providing services and benefits, and sales
and marketing expenses, including compensation paid in connection with the
sale of the Policies; and
. other costs of doing business, such as collecting premium payments,
maintaining records, processing claims, effecting transactions, and paying
federal, state, and local premium and other taxes and fees.
RISKS WE ASSUME:
. that the cost of insurance charges we may assess are insufficient to meet
our actual claims because insureds die sooner than we estimate; and
. that the costs of providing the services and benefits under the Policies
exceed the charges we assess.
PREMIUM CHARGE. Prior to allocation of a premium payment, we assess a charge
from each premium payment to compensate us for distribution and administrative
expenses and certain taxes associated with our issuance and maintenance of the
Policy. We credit the remaining amount (the Net Premium)
PAGE 51
to your Policy's Accumulation Value according to your allocation instructions.
The current Premium Charge is 4.0 percent of each premium and is guaranteed not
to exceed 7.0 percent of each premium.
The premium charge includes premium taxes that we are required to pay to the
state in which this Policy is issued, which may range from 0 percent to 2.5
percent.
ACCUMULATION VALUE CHARGES. We assess the following charges against your
Accumulation Value: (1) a Monthly Policy Charge; (2) a Policy Issue Charge;
(3) a Cost of Insurance Charge; (4) a Mortality and Expense Risk Charge;
(5) Indexed Account Charge; (6) a Cash Extra Charge; (7) certain transaction
charges; (8) a Surrender Charge; and (9) charges for any Agreements you elect.
The deduction of monthly Policy charges will reduce your Accumulation Value.
Some of the Accumulation Value charges depend on the "Risk Class" of the
insured. The Risk Class of an insured is based, in part, upon the insured's
"Underwriting Class" and "Tobacco Class."
The Underwriting Class of the insured represents the level of mortality risk
that we assume. The Tobacco Class refers to the tobacco use habits of the
insured.
1. MONTHLY POLICY CHARGE. The Monthly Policy Charge is currently $8 per
month and is guaranteed not to exceed a monthly charge equal to
$12.00, plus $0.0125 per $1,000 of Face Amount under the Policy. The
Monthly Policy Charge compensates us for certain administrative
expenses we bear, including those attributable to the records we
create and maintain for your Policy.
2. POLICY ISSUE CHARGE. We assess a monthly Policy Issue Charge for the
first 15 years following issuance of the Policy and for the first 15
years following any increase in Face Amount. The charge varies based
upon the age, gender and Risk Class of the insured. The Policy Issue
Charge compensates us for our expenses of issuing, underwriting and
distributing the Policy. The minimum guaranteed charge is $0.11 per
$1,000 of Initial Face Amount or Face Amount increase and the maximum
guaranteed charge is $0.78 per $1,000 of Initial Face Amount or Face
Amount increase. The Policy Issue Charge for your Policy is shown on
the Policy data pages of the Policy.
3. COST OF INSURANCE CHARGE. We assess a monthly Cost of Insurance
Charge to compensate us for underwriting the Death Benefit. The
minimum guaranteed monthly charge is $0.015 per $1,000 of Net Amount
at Risk and the maximum guaranteed monthly charge is $83.33 per $1,000
of Net Amount at Risk. The charge depends on a number of variables
(insured's age, gender, Risk Class, and Face Amount) that would cause
it to vary from Policy to Policy and from monthly Policy Anniversary
to monthly Policy Anniversary. We calculate the Cost of Insurance
Charge separately for the Initial Face Amount and for any increase in
Face Amount, each a coverage layer. If we approve an increase in your
Policy's Face Amount, a different Risk Class (and a different cost of
insurance rate) may apply to the increase, based on the insured's
circumstances at the time of the increase in Face Amount.
The cost of insurance charge for a coverage layer is the Net Amount at
Risk for the coverage layer multiplied by the applicable cost of
insurance rate. The Net Amount at Risk varies with investment
performance, the payment of premiums and the assessment of Policy
charges. The Net Amount at Risk is equal to the Death Benefit payable
divided by the Net Amount at Risk divisor, as shown on the data pages
of your Policy, minus the Accumulation Value of the Policy.
The actual monthly cost of insurance rates are based on our
expectations as to future mortality and expense experience. The rates
will never be greater than the maximum guaranteed cost of insurance
rates for the Initial Face Amount shown on the Policy data
PAGE 52
pages of your Policy. The maximum guaranteed cost of insurance rates
for any increase in Face Amount will be shown on the Policy data pages
we send to you at the time of the increase in Face Amount. These
guaranteed rates are based on the 2001 Commissioner's Standard
Ordinary Tobacco Distinct or Smoker, Ultimate, Age Nearest Birthday,
Sex-Distinct Mortality Tables (2001 Commissioner's Standard Ordinary
Smoker Distinct, Ultimate, Age Nearest Birthday, Table B Mortality
Tables, if we issue the Policy on a unisex basis) and the insured's
age. We occasionally review the adequacy of our cost of insurance
rates and may adjust those charges prospectively depending upon our
expectations about our future mortality and expense experience, lapse
rates, Accumulation Value allocation, taxes, investment earnings and
profit considerations. Any change in the cost of insurance rates will
apply to all persons of the same age, Risk Class, and number of full
years insurance has been in force.
In general the longer you own your Policy, the higher the cost of
insurance rate will be as the insured grows older. Also our cost of
insurance rates will generally be lower if the insured is a female
than if a male, unless we issue the Policy on a unisex basis.
Similarly, our current cost of insurance rates are generally lower for
non-tobacco users than tobacco users, and for persons considered to be
in excellent health. On the other hand, insureds who present
particular health, occupational or non-work related risks may require
higher cost of insurance rates under their Policies.
4. MORTALITY AND EXPENSE RISK CHARGE. We assess a monthly Mortality and
Expense Risk charge to compensate us for certain mortality and expense
risks we assume. The mortality risk is that the insured will live for
a shorter time than we project. The expense risk is that the expenses
that we incur will exceed the administrative charge limits we set in
the Policy.
This charge currently is equal to a monthly rate of 0.025 percent of
the Accumulation Value less the Fixed Loan Account value of the Policy
in Policy Years one through fifteen. Currently, we do not assess a
charge after the 15th Policy Year. We reserve the right to increase
this charge to a maximum rate of .075 percent of the Accumulation
Value of the Policy.
If this charge does not cover our actual costs, we may absorb any such
loss. Conversely, if the charge more than covers actual costs, the
excess is added to our surplus. We expect to profit from this charge
and may use these profits for any lawful purpose including covering
distribution expenses.
5. INDEXED ACCOUNT CHARGE. We assess a monthly Indexed Account Charge to
compensate us for certain administrative and other expenses we assume
in making available the Fixed Indexed Account options. We currently do
not asses this charge for amounts allocated to Indexed Accounts A and
B. We reserve the right to assess this charge up to a maximum monthly
rate of 0.05 percent of the Accumulation Value held in Indexed
Accounts A and B and for amounts held in the Interim Account that are
scheduled to be transferred to Indexed Accounts A and B on an Interim
Account Transfer Date.
6. CASH EXTRA CHARGE. We may assess a monthly charge to compensate us
for providing the Death Benefit under the Policy where the insured
presents a heightened or increased level of mortality risk. The
minimum guaranteed monthly charge is $0.00 and the maximum guaranteed
monthly charge is $100.00 per $1,000 of Face Amount. An insured may
present increased mortality risk because of an outstanding medical
condition (e.g., cancer that is in remission), or occupation or
activity engaged in by the insured (e.g., sky-diving). We will assess
the Cash Extra Charge only for the period of time necessary to
compensate us for the
PAGE 53
heightened mortality risk we would bear as a result of an insured's
outstanding medical condition, occupation or activity. The Cash Extra
Charge, which is generally not applicable to most Policies, is
uniquely determined for each insured and may vary based upon factors
such as gender, Risk Class and age. The charge is defined as a level
cost per thousand dollars of Face Amount. If a Cash Extra Charge
applies to your Policy, the amount of the charge will be shown on the
Policy data pages of the Policy.
7. TRANSACTION CHARGES. We may assess certain transaction charges if you
elect to make a Policy change, take a partial surrender, request a
transfer Accumulation Value among the Sub-Accounts, the Guaranteed
Interest Account and the Fixed Indexed Accounts or request additional
illustrative reports. We assess transaction charges from the
Accumulation Value of your Policy.
a. POLICY CHANGE TRANSACTION CHARGE. We assess a Policy Change
Transaction Charge to compensate us for expenses associated with
processing a Policy change such as an increase or decrease in Face
Amount, a change in Death Benefit option or a change in your risk
classification. Currently, the charge is $60 for each policy
change. We guarantee the charge will not exceed $100.
b. PARTIAL SURRENDER TRANSACTION CHARGE. For each partial surrender,
we assess a processing fee of 2 percent of the amount surrendered,
up to $25, from the remaining Accumulation Value. The fee
compensates us for the administrative costs in generating the
withdrawal payment and in making all calculations which may be
required because of the partial surrender.
c. TRANSFER TRANSACTION CHARGE. The Transfer Transaction Charge is
guaranteed not to exceed $25. For purposes of assessing the
charge, we consider all telephone, facsimile, written and/or
eService Center requests processed on the same day to be one
transfer, regardless of the number of Sub-Accounts (or Guaranteed
Interest Account) affected by the transfer(s). We currently do not
assess a Transfer Transaction Charge.
8. SURRENDER CHARGE. If your Policy terminates or you fully surrender
your Policy during the first 15 Policy Years or within 15 years after
any increase in Face Amount, we assess a surrender charge from your
Accumulation Value and pay the remaining amount (less any unpaid
Policy charges, outstanding Policy loan and accrued interest) to you.
The payment you receive is called the Surrender Value.
The surrender charge equals the sum of any remaining Policy Issue
Charges for the Initial Face Amount or the Face Amount increase, as
applicable, measured from Policy Termination or full surrender to the
end of the 15 year surrender charge period. Increases in Face Amount
have their own surrender charge penalty period. THE SURRENDER CHARGE
MAY BE SIGNIFICANT. YOU SHOULD CAREFULLY CALCULATE THESE CHARGES
BEFORE YOU REQUEST A SURRENDER OR INCREASE IN FACE AMOUNT. UNDER SOME
CIRCUMSTANCES, THE LEVEL OF SURRENDER CHARGES MIGHT RESULT IN NO
SURRENDER VALUE BEING AVAILABLE.
We assess the Surrender Charge to compensate us partially for the cost
of administering, issuing, and selling the Policy, including agent
sales commissions, the cost of printing the prospectuses and sales
literature, any advertising costs, medical exams, review of
Applications for insurance, processing of the Applications,
establishing Policy records, and Policy issue. We do not expect
Surrender Charges to cover all of these costs. To the extent that they
do not, we will cover the short-fall from our General Account assets,
which may
include profits from the mortality and expense risk charge and cost of
insurance charge.
PAGE 54
9. ILLUSTRATIVE REPORT CHARGE. We may charge you up to $250 for each
illustrative report we provide you in a Policy Year after the first
illustrative report. An illustrative report is a hypothetical
projection of accumulation values and death benefit based upon certain
Policy assumptions, including but not limited to, insured's age,
gender, Accumulation Value, current and guaranteed charges and assumed
interest or policy earnings rate. The current charge for each
illustrative report $0.
10. CHARGES FOR AGREEMENTS. We assess monthly charges for supplemental
insurance benefits you add to your Policy by Agreement. Charges for
the Agreements are described in the "Periodic Charges Other Than
Investment Option Operating Expenses" table in the "Fee Tables"
section of this prospectus.
DEDUCTION OF ACCUMULATION VALUE CHARGES. We will assess monthly Policy charges
or Policy Transaction Charges against your Accumulation Value in the Guaranteed
Interest Account, the Variable Account, the Interim Account and the Fixed
Indexed Accounts in the order described below.
1. First, we will deduct monthly Policy charges or Policy Transaction
Charges from your Accumulation Value in the Guaranteed Interest
Account.
2. If the monthly Policy charges or Policy Transaction Charges exceed
your Accumulation Value in the Guaranteed Interest Account, the
remaining monthly Policy charges or Policy Transaction Charges will be
deducted from the Variable Account on a pro-rata basis from your
Accumulation Value in each Sub-Account. Pro-rata basis means charges
will be deducted proportionally from the Accumulation Value of each
Sub-Account in relation to the total Accumulation Value of all
Sub-Accounts in the Variable Account.
3. If the monthly Policy charges or Policy Transaction Charges exceed
your accumulation value in the Guaranteed Interest Account and the
Variable Account, the remaining monthly Policy charges or Policy
Transaction Charges will be deducted from your Accumulation Value in
the Interim Account.
4. If the monthly Policy charges exceed your Accumulation Value in the
Guaranteed Interest Account, the Variable Account and the Interim
Account, the remaining monthly Policy charges or Policy Transaction
Charges will be deducted from your Accumulation Value in the Fixed
Indexed Accounts on a pro-rata basis from the Accumulation Value in
each Segment. Pro-rata basis means charges will be deducted
proportionally from the Accumulation Value of each Segment in relation
to the total Accumulation Value of all Segments in the Fixed Indexed
Accounts.
However, if you instruct us in writing, we will assess the monthly Policy
charges or Policy Transaction Charges against the Guaranteed Interest Account,
the Fixed Indexed Accounts or any of the Sub-Accounts that you specify.
PORTFOLIO EXPENSES. The value of the net assets of each Sub-Account reflects
the management fees and other expenses incurred by the corresponding Portfolio
in which the Sub-Account invests. For further information, consult the
Portfolios' prospectuses and the Annual Portfolio Operating Expenses table
included in the "Fee Tables" section of this prospectus.
OTHER POLICY PROVISIONS
DEFERRAL OF PAYMENT. Normally, we will pay any proceeds under the Policy
within seven days after our receipt of all the documents required for such
payment. Other than the death proceeds, which are
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determined as of the date of death of the insured, we will determine the amount
of payment as of the end of the Valuation Date on which we receive the request
in Good Order at our Home Office.
We reserve the right to defer the payment of proceeds under the Policy,
including Policy loans, for up to six months from the date of your request, if
such payment would be taken from your Accumulation Value in the Guaranteed
Interest Account or the Fixed Indexed Accounts. In that case, if we postpone
payment, other than a Policy loan payment, for more than 31 days, we will pay
you interest at 2 percent annual rate for the period beyond 31 days that
payment has been postponed. We reserve the right to defer the payment of
surrender, partial surrender, loan and Death Benefit proceeds from the
Sub-Accounts and process transfers for the following: (a) any period during
which the New York Stock Exchange is closed for trading (except for normal
holiday closing); (b) when the SEC has determined that a state of emergency
exists which may make such payment impractical; or (c) the SEC, by order,
permits deferral for the protection of Policy Owners.
If mandated under applicable law, we may block an Owner's account and thereby
refuse to pay any request for surrender, partial surrender, transfer, loans or
Death Benefit proceeds until instructions are received from the appropriate
regulator. We may also be required to provide additional information about an
Owner and the Owner's account to government regulators.
BENEFICIARY. When we receive proof satisfactory to us of the insured's death,
we will pay the death proceeds of a Policy to the Beneficiary or Beneficiaries
named in the Application for the Policy unless the Owner has changed the
Beneficiary. In that event, we will pay the death proceeds to the Beneficiary
named in the last change of Beneficiary request.
If a Beneficiary dies before the insured, that Beneficiary's interest in the
Policy ends with that Beneficiary's death. Only Beneficiaries who survive the
insured will be eligible to share in the death proceeds. If no Beneficiary
survives the insured, we will pay the death proceeds of this Policy to the
Owner, if living, otherwise to the Owner's estate, or, if the Owner is a
corporation, to it or its successor.
You may change the Beneficiary designated to receive the proceeds. If you have
reserved the right to change the Beneficiary, you can file a Written Request
with us to change the Beneficiary. If you have not reserved the right to change
the Beneficiary, we will require the written consent of the irrevocable
Beneficiary.
Your Written Request to change the Beneficiary will not be effective until it
is recorded at our Home Office. After it has been so recorded, it will take
effect as of the date you signed the request. However, if the insured dies
before the request has been so recorded, the request will not be effective as
to any Death Benefit proceeds we have paid before your request was recorded in
our Home Office records.
SUPPLEMENTAL AGREEMENTS
The following Agreements offering supplemental benefits are available under the
Policy. Some of the Agreements are subject to our underwriting approval. Your
agent can help you determine whether certain of the Agreements are suitable for
you. These Agreements may not be available in all states. Please contact us for
further details.
WAIVER OF PREMIUM AGREEMENT. The Waiver of Premium Agreement provides that in
the event of the insured's total and permanent disability (as defined in the
Agreement), we will credit the specified premium payment identified in the
Policy to the Policy each month while the insured is disabled, subject to the
conditions set forth in the Agreement. This Agreement is available at issue
with underwriting approval and may also be added after the first Policy
Anniversary subject to underwriting approval. This Agreement is not available
if the Waiver of Charges Agreement is elected. We assess a separate monthly
charge for this Agreement.
PAGE 56
WAIVER OF CHARGES AGREEMENT. The Waiver of Charges Agreement provides that in
the event of the insured's total and permanent disability (as defined in the
Agreement), we will waive the monthly charges under the Policy each month while
the insured is disabled, subject to the conditions set forth in the Agreement.
This Agreement is available at issue with underwriting approval and may also be
added after the first Policy Anniversary subject to underwriting approval. This
Agreement is not available if the Waiver of Premium Agreement is elected. We
assess a separate monthly charge for this Agreement.
CHILDREN'S TERM AGREEMENT. The Children's Term Agreement provides fixed level
term insurance on each of the insured's children (as defined in the Agreement)
up to the first anniversary of the Agreement on or following the child's 25th
birthday, subject to the conditions set forth in the Agreement. This Agreement
is available at issue with underwriting approval and may be added after the
first Policy Anniversary subject to underwriting approval. We assess a separate
monthly charge for this Agreement.
ACCELERATED DEATH BENEFIT AGREEMENT. The Accelerated Death Benefit Agreement
allows you to receive a significant portion of your Policy's Death Benefit, if
the insured develops a terminal condition due to sickness or injury (as defined
in the Agreement). This Agreement is available at issue without underwriting
approval and may be added after the first Policy Anniversary, again without
underwriting approval. There is no separate charge for the Agreement.
ACCIDENTAL DEATH BENEFIT AGREEMENT. The Accidental Death Benefit Agreement
pays the stated Death Benefit if the insured dies as a result of an accident.
This Agreement is available at issue with underwriting approval and may also be
added after the first Policy Anniversary subject to underwriting approval.
Death by accidental injury is defined in the Agreement to include the insured's
death that results directly and independently from an accidental drowning or
from an accidental injury. The insured's death must occur within 180 days after
the date of the injury. If the insured's death is the result of an accidental
injury sustained while the insured was riding as a fare-paying passenger in an
aircraft or other public conveyance being commercially operated by a licensed
common carrier to transport passengers for hire, we will pay twice the amount
of the accidental Death Benefit shown on the policy data pages.
We will not pay the benefit if the insured dies as a result of any of the
following conditions:
1. suicide, whether sane or insane; or
2. the insured's commission of, or attempt to commit, a felony; or
3. bodily or mental infirmity, illness or disease; or
4. the result of the use of alcohol or drugs and associated mental health
issues, medications, poisons, gases, fumes or other substances taken,
absorbed, inhaled, ingested or injected, unless taken upon the advice
of a licensed physician in a verifiable prescribed manner and dosage;
or
5. the direct result of a motor vehicle collision or accident where the
insured is the operator of the motor vehicle and his or her blood
alcohol level meets or exceeds the level at which intoxication is
defined in the state where the collision or accident occurred,
regardless of the outcome of any legal proceedings connected thereto;
or
6. bacterial infection, other than infection occurring simultaneously
with, and as a result of, the accidental injury; or
7. travel or flight in, or descent from or with any aircraft, if the
insured is aboard that aircraft for any purpose other than that of
being transported as a passenger. Among those not
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included as "passengers" are pilots, crew members, flight instructors,
flight trainees, and persons operating or assisting in the operation
of the aircraft; or
8. war or any act of war, or service in the military, naval or air forces
of any country at war, declared or undeclared, provided the insured's
accidental death occurs while serving in such forces or within six
months after termination of service in such forces.
There is a monthly charge for this Agreement. You should consider purchasing
this Agreement if you want additional insurance coverage in the event the
insured dies as a result of an accident.
PREMIUM DEPOSIT AGREEMENT. The Premium Deposit Agreement allows you to send us
up to three payments to pay your annual premium for a period of two to ten
years. The payments will be held in a Premium Deposit Account, a part of our
General Account, and interest will be credited on those payments. We will
credit an annual rate of interest at least equal to a minimum annual rate of
interest of 0.50%, the PDA Minimum Rate, on each payment to the Premium Deposit
Account for the duration the payment remains in the Premium Deposit Account. In
our sole discretion, we may credit an annual rate of interest higher than the
PDA Minimum Rate on payments to the Premium Deposit Account for the duration
the payment remains in the Account. We will provide you with the current
Premium Deposit Account interest rate upon request.
Each year, we will withdrawal a portion of the payment(s) held in a Premium
Deposit Account and pay from our General Account interest credited on that
amount to pay your annual premium. Amounts held in the Premium Deposit Account
may only be used to pay Policy premiums.
When you add the Premium Deposit Agreement to your Policy, we will send you a
confirmation showing the annual withdrawal from the Premium Deposit Agreement
account and the interest we will credit on that amount. The following example
demonstrates how the Premium Deposit Agreement works:
The policy owner requests the Premium Deposit Account and wishes to have 10
annual premium payments of $10,000 each. Assuming an interest rate of 2.75%, we
would require a deposit into the Premium Deposit Account of $78,776.78. The
initial $10,000 premium payment would need to be made in addition to the
deposit into the Premium Deposit Account. The following chart depicts the
withdrawals and interest earned for each Premium payment made from the Premium
Deposit Amount:
[Download Table]
ANNUAL PREMIUM ANNUAL PREMIUM AMOUNT WITHDRAWN TAXABLE INTEREST
PAYMENT YEAR TO BE PAID FROM PDA EARNED
------------ -------------- ---------------- ----------------
2 $10,000.00 $9,732.36 $267.64
3 $10,000.00 $9,471.88 $528.12
4 $10,000.00 $9,218.38 $781.62
5 $10,000.00 $8,971.66 $1,028.34
6 $10,000.00 $8,731.54 $1,268.46
7 $10,000.00 $8,497.85 $1,502.15
8 $10,000.00 $8,270.41 $1,729.59
9 $10,000.00 $8,049.06 $1,950.94
10 $10,000.00 $7,833.64 $2,166.36
On the first Policy Anniversary (the second annual premium payment Year), we
would withdraw $9,732.36 from the Premium Deposit Account and credit $267.64 in
interest from our General Account to pay the annual premium of $10,000
($9,732.36 + $267.64 = 10,000). The interest of $267.64 will be reported to the
policy owner as taxable on an IRS Form 1099-INT.
If you request a surrender of any amount held by us under the Premium Deposit
Agreement, we will treat it as a request to surrender the Agreement and will
refund all of the remaining balance in the
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Premium Deposit Account to you along with interest credited at the PDA Minimum
Rate for the portion of each payment remaining in the Premium Deposit Account.
Interest will be credited from the date of your payment to the Premium Deposit
Account or if later, the date the last premium payment was made from the
Premium Deposit Account.
If the insured dies while the Policy and the Premium Deposit Account are in
force, we will pay the Death Benefit payable under the Policy as well as any
remaining balance in the Premium Deposit Account. We will pay you interest on
that remaining balance, using the then current interest rate for the Premium
Deposit Account. Interest will be credited from the date of your payment to the
Premium Deposit Account or if later, the date the last premium payment was made
from the Premium Deposit Account.
The Premium Deposit Agreement is available at issue without underwriting and is
available after the Policy is issued. You should consider adding this Agreement
to your Policy if you want to only make three or fewer payments during the life
of the Policy and would like us to automatically pay your Policy premiums for
the periods you elect. There is no charge for this Agreement.
LEVEL TERM INSURANCE AGREEMENT. The Level Term Insurance Agreement provides
additional level term insurance coverage on the life of the insured. The Level
Term Insurance Agreement provides coverage until the anniversary nearest the
insured's age 90, at which time it will terminate. Subject to underwriting
approval, this Agreement is available at issue and may not be added after
issue. We assess a separate monthly charge for this Agreement.
OVERLOAN PROTECTION AGREEMENT. The Overloan Protection Agreement provides that
the Policy will not terminate because of a Policy loan even where the
Accumulation Value of the Policy is insufficient to cover Policy charges. This
Agreement is available at issue without underwriting approval. The Policy Owner
must elect to use the guideline premium test and cannot have elected to use the
Accelerated Benefit Agreement, or waived charges or premiums under either the
Waiver of Premium Agreement or the Waiver of Charges Agreement. Once exercised,
the Death Benefit payable under the Policy will be the minimum Death Benefit
payable as permitted under the Code at the time the Overloan Protection
Agreement was exercised. The Agreement may be exercised on non-modified
endowment contracts after the Policy has been in force for at least 15 years
and the insured is over 75 years of age. Once elected, this Agreement will
remain in force until the Policy is surrendered or until the insured's death
and will reduce the Policy Death Benefit by the amount of the Fixed Loan
Account. We assess a one-time charge when the Agreement is exercised.
The tax treatment of the Overloan Protection Agreement is uncertain and it is
not clear whether the Overloan Protection Agreement will be effective to
prevent taxation of any outstanding loan balance as a distribution in those
situations where Overloan Protection takes effect. Anyone contemplating
exercise of the Policy's Overloan Protection Agreement should consult a tax
advisor.
GUARANTEED INSURABILITY OPTION. The Guaranteed Insurability Option ("GIO")
guarantees you the ability to purchase additional amounts of insurance
coverage, which is also referred to as additional coverage layers, on the
insured's life on specified option dates without additional underwriting. The
minimum amount of additional coverage layer available is $10,000 and the
maximum amount of additional coverage layer available is the lesser of $100,000
or the Face Amount of the base Policy on which the GIO is added. At the time
the GIO is purchased, the Owner specifies the maximum amount of insurance
coverage or additional coverage layer that may be added to the Policy on each
specified option date. The GIO is only available for insureds between the ages
of zero and thirty-nine. The Owner may purchase the GIO at issue subject to
underwriting of the insured. The Owner may also add the GIO after the Policy is
issued, subject to underwriting of the insured. The charge shown for the GIO is
a monthly charge and will apply from the time the GIO is added to the Policy
until the date the
PAGE 59
GIO terminates, which generally occurs on the last specified option date (which
is generally the Policy Anniversary nearest the insured's fortieth birthday).
The charge for the GIO will not be affected by the purchase of an additional
coverage layer on a specified option date.
The GIO guarantees that the Owner will be able to purchase an additional
coverage layer on the specified option dates, which occur on the Policy
Anniversary nearest to the insured's birthday at ages 22, 25, 28, 31, 34, 37
and 40. You will also be able to purchase an additional coverage layer in the
event the insured marries or enters into a legal partnership, experiences the
birth of a child or the legal adoption of a child, each known as an alternative
option date. If the Owner exercises the GIO on an alternative option date, the
next available specified option date will no longer be available. For example,
if the insured marries at age 26, the Owner may purchase an additional coverage
layer effective as of the date of the marriage. Since there is no specified
option date at age 26, the next specified option date available at age 28 will
no longer be available. All of the remaining specified option dates (at ages
31, 34, 37 and 40) will continue to be available. On each available specified
or alternative option date, the Owner will be able to purchase an additional
coverage layer up to the maximum amount elected under the GIO.
The Cost of Insurance Charge for any additional coverage layer will be
calculated using the insured's age and the most recent underwritten Risk Class
for the Policy at the time the GIO is exercised. The additional cost of
insurance charges for any additional coverage layer will be deducted monthly
from the Policy's Accumulation Value. There is no requirement to pay additional
premium when adding an additional coverage layer under the GIO. However, adding
additional coverage layers will increase the Cost of Insurance Charges under
the Policy and it may be necessary to pay additional premium to cover those
increased Cost of Insurance Charges. The Cost of Insurance Charge for each new
coverage layer is separate from and in addition to the charge you pay for
purchasing the GIO. The Policy Change Transaction Charge and a new Surrender
Charge and surrender charge period will apply to each new additional coverage
layer. The addition of an additional coverage layer under the Policy will not
result in any other charges.
The GIO and the monthly charge deducted for the GIO will terminate when the GIO
terminates at the Policy Anniversary nearest the insured's fortieth birthday,
which will correspond with the last specified option date under the GIO. The
GIO and the monthly charge deducted for the GIO may terminate earlier than the
Policy Anniversary nearest the insured's fortieth birthday if an alternative
option date occurs after the insured's thirty-seventh birthday and before the
Policy Anniversary nearest the insured's fortieth birthday and you elect to add
an additional coverage layer on that alternative option date. The additional
coverage layers purchased prior to termination of the GIO will continue after
the termination of the GIO, unless such additional coverage layer is
subsequently reduced or eliminated at the request of the Owner, subject to any
surrender charges. You should purchase the GIO if you believe that future
changes in the insured's life (e.g., marriage, children) will result in your
need for additional Death Benefit and you are concerned about the insured's
ability to qualify for additional insurance coverage because of health or
lifestyle concerns. If you purchase the GIO and do not exercise the right to
purchase additional insurance coverage or Face Amounts on the exercise date,
you will still pay a charge for the GIO.
LONG TERM CARE ("LTC") AGREEMENT. The LTC Agreement allows you to accelerate
Death Benefits by receiving monthly benefit payments upon the insured meeting
certain eligibility requirements. We will pay you a monthly benefit to assist
with the expenses associated with the insured's nursing home care or home
health care. To be eligible for benefits under this Agreement, the insured must
be certified by a licensed health care practitioner to be: (1) cognitively
impaired or (2) unable to do at least 2 of the following activities of daily
living: bathing, continence, dressing, eating, using the toilet facilities, or
transferring (moving into or out of bed, chair, or wheelchair). In
PAGE 60
addition, you must submit to us a plan for qualified long term care services
that is written by a licensed health care practitioner and which is based upon
an assessment that the insured requires long-term care services. Finally, the
insured must also meet a 90-day waiting period, referred to as an elimination
period, in which the insured is receiving long term care services. The
elimination period can be satisfied by any combination of days of long-term
care facility stay or days of home health care, as those terms are defined in
the Agreement. These days of care or services need not be continuous, but must
be accumulated within a continuous period of 730 days. The elimination period
has to be satisfied only once while this Agreement is in effect.
The benefit payments made under this Agreement may not cover all of the
Insured's long term care costs. The long-term care benefits paid under this
Agreement are intended to be "qualified long term care insurance" under federal
tax law, and may not be taxable to the Owner. See "Tax Treatment of Policy
Benefits." You should consult your tax advisor about the tax impact of
purchasing this Agreement.
This Agreement may be added to your Policy at any time after issue, subject to
providing us evidence of insurability. We will consider Applications for the
LTC Agreement if the insured is receiving long-term care at the time of the
request; however, it is unlikely that the insured's evidence of insurability
will be satisfactory for issuing the Agreement. This Agreement will be subject
to the incontestability provisions of the Policy, which are described in your
Policy and in the Statement of Additional Information. See "Statement of
Additional Information."
You will select the maximum amount of long-term care benefit (LTC amount) that
you want when you purchase this Agreement. The LTC amount cannot be less than
one hundred thousand dollars and cannot exceed the lesser of (i) the Policy
Face Amount or (ii) five million dollars. You may also select either a two
(2%) or four (4%) percent monthly benefit percentage that will be used to
calculate your monthly benefit payment.
If you decrease the Face Amount of the Policy, we may lower the amount of long
term care benefit (LTC amount) available under the Agreement. If the Policy's
Face Amount after the decrease is less than the LTC amount before the face
decrease, the LTC amount will be equal to the new decreased Face Amount. If you
request a partial surrender of your Accumulation Value, the LTC amount is set
equal to the LTC amount that was in effect immediately prior to the partial
surrender, multiplied by the ratio of the Death Benefit of the Policy (without
regard to any Policy loan) after the partial surrender to the Death Benefit of
the Policy (without regard to any policy loan) immediately prior to the partial
surrender. For example, if the Policy Death Benefit is $1,000,000 and the LTC
amount is $500,000, a partial surrender of $100,000 would reduce the LTC amount
to $450,000, which is calculated as follows: LTC amount before partial
surrender ($500,000) multiplied by the ratio of the Death Benefit after partial
surrender ($900,000) to the Death Benefit before partial surrender ($1,000,000)
or $500,000 x $900,000/$1,000,000 = $500,000 x .90 = $450,000.
The monthly charge for the LTC Agreement will be affected by changes in the
long term care Net Amount at Risk. A decrease in the Policy Face Amount will
change the long term care Net Amount at Risk even if the LTC amount does not
change because the proportion of the Accumulation Value used to reduce the LTC
amount to calculate long term care Net Amount at Risk will change. For example,
if the Policy face amount is $1,000,000, the LTC amount is $500,000 and the
Accumulation Value on the date of the Policy Face Amount reduction is $100,000,
the long term care Net Amount at Risk is $450,000, calculated as follows: LTC
amount ($500,000) minus $50,000, which is the product of the Accumulation Value
($100,000) and the ratio of the LTC amount to the Policy Face Value
($500,000/$1,000,000) or, $100,000 x .50 = $50,000. If the Policy Face Value is
reduced to $750,000, the new long term care Net Amount at Risk will be
$433,333, calculated as follows: LTC amount
PAGE 61
($500,000) minus $66,667, which is the product of the Accumulation Value
($100,000) and the ratio of the LTC amount to the Policy Face Value
($500,000/$750,000), or $100,000 x .66667 = 66,667. The long term care Net
Amount at Risk will not be impacted upon a partial surrender of the
Accumulation Value.
When you submit a request for benefits under this Agreement, we will determine
the amount of your benefit as a monthly amount. In order to begin receiving
monthly benefits after the insured is determined to be eligible, you will need
to submit evidence that the insured is continuing to incur monthly long term
care costs. We may require you to complete any benefit forms on a monthly
basis. Payments will generally be paid within fifteen days of when we receive
proof that monthly long term care services have been provided.
The maximum monthly benefit will be the lesser of:
1.The monthly benefit percentage you chose times the LTC amount in effect;
or
2.The per diem amount allowed by the Health Insurance Portability and
Accountability Act times the number of days in the month.
You may request to receive a monthly benefit less than the maximum we
determine. Choosing a lesser amount could extend the length of the benefit
period. If you request less than the maximum benefit, you may request that
benefit amount be changed, however, we will never pay more than the maximum
monthly benefit allowed under the Internal Revenue Code. We will continue to
make benefit payments to you until: 100% of the LTC amount has been paid, the
Insured is no longer eligible for the benefit, the Policy is surrendered, the
Policy terminates when the Policy loan plus the unpaid Policy loan interest
exceed the Accumulation Value, we receive a request to cancel this Agreement or
the Insured dies.
In order to continue receiving benefits, you must submit to us, on a monthly
basis, evidence that the insured is receiving long term care services. This
evidence generally includes invoices for long term care services the insured
receives. We may also require, no more frequently than annually, a
recertification by a licensed health care practitioner, that the insured is
either (1) cognitively impaired or (2) unable to do at least two of the
following activities of daily living: bathing, continence, dressing, eating,
using the toilet facilities, or transferring (moving into or out of bed, chair,
or wheelchair).
If you do not send us evidence that the insured is receiving long term care
services on a monthly basis, we will not send you the monthly benefit. If you
do not submit evidence that the insured is receiving long term care services
for a period of three consecutive months, you must submit a request to
reinstate monthly benefits and provide additional information to us that the
insured continues to be eligible for benefits under the Agreement. We will
require i) recertification by a licensed health care practitioner that the
insured is either (1) cognitively impaired or (2) unable to do at least two of
the following activities of daily living: bathing, continence, dressing,
eating, using the toilet facilities, or transferring (moving into or out of
bed, chair, or wheelchair), ii) resubmission of a plan for qualified long term
care services that is written by a licensed health care practitioner and which
is based upon an assessment that the insured requires long term care services
and iii) evidence that the insured is continuing to incur monthly long term
care costs.
If you have added the LTC Agreement, when you make a claim and we pay a
long-term care benefit, we will automatically transfer all of your Policy's
Accumulation Value that is in the Fixed Indexed Accounts and the Variable
Account to the Guaranteed Interest Account. Transfers of Accumulation Value
from the Fixed Indexed Accounts will occur at the end of any applicable Segment
Term. You will not be allowed to transfer amounts into either of the Fixed
Indexed Accounts or the Variable Account when benefits payments are being made
under this Agreement.
PAGE 62
We will waive the LTC Agreement charges while benefits are being paid under the
Agreement. However, other Policy charges will continue to be assessed against
your Accumulation Value. If your Accumulation Value goes to zero while long
term care benefits are being paid under this Agreement, we will waive any
additional Policy charges. While receiving LTC Agreement benefits, you may not
increase the Policy Death Benefit; request a policy loan, or partial surrenders
from the Policy. You may request to decrease the Death Benefit or request a
partial surrender to make a Policy loan payment. A request for benefits under
the Accelerated Death Benefit Agreement may also reduce the amount of benefits
you may receive under the LTC Agreement.
When we make a monthly benefit payment under this Agreement, we will reduce the
amount of the Death Benefit by the monthly payment. We will waive the Policy
Transaction Charge for the Death Benefit change made as a result of a benefit
payment under this Agreement. We will also reduce the Accumulation Value in
proportion to the reduction in the Death Benefit. The Accumulation Value
following an LTC benefit payment will equal the Accumulation Value immediately
prior to the LTC benefit payment multiplied by a factor. This factor will equal
the Policy Death Benefit (without regard to any outstanding Policy loan)
following the payment of an LTC benefit divided by the Policy Death Benefit
(without regard to any outstanding Policy loan) immediately prior to the LTC
benefit payment. If the Policy has an outstanding loan, a proportionate amount
of the loan will be repaid with the monthly benefit, which will reduce the
amount you receive.
This Agreement will terminate when i) we have paid the maximum LTC amount, ii)
the insured is no longer eligible for long term care benefits, iii) the Policy
terminates due to the loan balance exceeding the Accumulation Value, iv) the
Policy terminates due to the death of the Insured, v) the Policy terminates
upon a complete surrender of the Policy, vi) you terminate the Agreement by
Written Request to our Home Office, vii) or your Policy otherwise terminates
because a partial surrender or other reduction in Accumulation Value leaves the
Policy with insufficient amounts to cover Policy charges on the next monthly
Policy anniversary. See "Termination" and "Partial Surrender."
INFLATION AGREEMENT. The Inflation Agreement provides you the ability to
increase your Face Amount of insurance without underwriting every three years
based upon increases in the cost of living (the "Cost of Living") as measured
by changes in the U.S. Department of Labor Consumer Price Index ("CPI"). On the
third anniversary of the issue date of this Agreement, we will calculate a Cost
of Living increase and automatically increase the face value of your Policy. We
will calculate a Cost of Living Increase on every third Agreement anniversary
until the insured reaches the age of sixty. You may refuse to accept a Cost of
Living increase; however, if you do so and the insured is over the age of
twenty-one, no further Cost of Living increases may be made. If the insured is
under the age of twenty-one at the time you refuse a Cost of Living increase,
no additional Cost of Living increase offers will be made until after the
insured turns age twenty-one.
The amount of the Cost of Living increase will be the lesser of (1) the Policy
Face Amount multiplied by two times the increase in the CPI during the previous
three years or (2) $100,000. The increase in the CPI is calculated by dividing
the CPI on the date five months before the date of the Cost of Living increase
by the CPI on the date forty-one months before the Cost of Living increase and
subtracting one from that number.
The Inflation Agreement is only available for insureds under the age of
fifty-seven. The Owner may purchase the Inflation Agreement at issue subject to
underwriting of the insured. The Owner may also add the Inflation Agreement
after the Policy is issued, subject to underwriting of the insured. The charge
shown for the Inflation Agreement is a monthly charge and will apply from the
time the Inflation Agreement is added to the Policy until the date the
Inflation Agreement terminates. The charge for the Inflation Agreement will not
be affected by the purchase of additional insurance.
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The Cost of Insurance Charge for any additional insurance will be calculated
using the insured's age and the most recent underwritten Risk Class for the
Policy at the time the cost of living increase is accepted. The Cost of
Insurance Charges for any additional insurance will be deducted monthly from
the Policy's Accumulation Value. There is no requirement to pay additional
premium when adding additional insurance under the Inflation Agreement.
However, accepting the additional insurance increases the Cost of Insurance
Charge under the Policy and it may be necessary to pay additional premium to
cover the increased Cost of Insurance Charge. The Cost of Insurance Charge for
the additional insurance is separate from and in addition to the charge you pay
for purchasing the Inflation Agreement.
The Inflation Agreement and the monthly charge deducted for the Inflation
Agreement will terminate when the Inflation Agreement terminates. Additional
insurance purchased under this Agreement will remain in force until: the Policy
Face Amount is reduced or eliminated at the request of the Owner, the Policy
terminates or the insured dies.
The Inflation Agreement will terminate on the earliest of: 1) the Policy
anniversary nearest to the insured's 59th birthday, 2) the date this Policy is
terminated or surrendered, 3) the date we receive your Written Request in Good
Order to terminate the Agreement, 4) the date you refuse a Cost of Living
increase when the insured is over the age of twenty-one and 5) the insured's
date of death.
You should purchase the Inflation Agreement if you believe that the Policy Face
Amount needs to keep pace with increases in cost of living as measured by the
CPI and you are concerned about the insured's ability to qualify for additional
insurance coverage because of health or lifestyle concerns. If you purchase the
Inflation Agreement and do not accept the additional insurance coverage or Face
Amounts when offered, you will still pay a charge for the Inflation Agreement.
Increasing your Face Amount of insurance may have adverse tax consequences. If
you elect the Inflation Agreement, you should consult a tax advisor before
increasing your face amount of insurance.
OTHER MATTERS
FEDERAL TAX STATUS
INTRODUCTION. The discussion of federal taxes is general in nature and is not
intended as tax advice. Each person concerned should consult a tax adviser.
This discussion is based on our understanding of federal income tax laws as
they are currently interpreted. No representation is made regarding the
likelihood of continuation of current income tax laws or the current
interpretations of the Internal Revenue Service (the "IRS"). We have not
considered any applicable state or other tax laws.
TAXATION OF MINNESOTA LIFE AND THE INDIVIDUAL VARIABLE UNIVERSAL LIFE
ACCOUNT. We are taxed as a "life insurance company" under the Code. The
operations of the Variable Account form a part of, and are taxed with, our
other business activities. Currently, we pay no federal income tax on income
dividends received by the Variable Account or on capital gains arising from the
Variable Account's activities. The Variable Account is not taxed as a
"regulated investment company" under the Code and it does not anticipate any
change in that tax status.
At the present time, we make no charge to the Variable Account for any federal,
state or local taxes that we incur that may be attributable to such Account or
to the Policies. However, we reserve the right in the future to make a charge
for any such tax or other economic burden resulting from the application of the
tax laws that we determine to be properly attributable to the Variable Account
or the Policies.
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In calculating our corporate income tax liability, we derive certain corporate
income tax benefits associated with the investment of company assets, including
separate account assets that are treated as company assets under applicable
income tax law. These benefits, which reduce our overall corporate income tax
liability may include dividends received deductions and foreign tax credits
which can be material. We do not pass these benefits through to the separate
accounts, principally because: (i) the majority of the benefits results from
the dividends received deduction, which involves no reduction in the dollar
amount of dividends that the separate account receives; and (ii) under
applicable income tax law for purposes of both the dividends received
deductions and the foreign tax credits, contract Owners are not the Owners of
the assets generating those benefits.
TAX STATUS OF THE POLICY. In order to qualify as a life insurance contract for
federal income tax purposes and to receive the tax treatment normally accorded
life insurance contracts under federal tax law, a Policy must satisfy certain
requirements which are set forth in the Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that a
Policy issued on a standard rate class basis (other than those with a Cash
Extra Charge) should satisfy the applicable requirements. There is less
guidance, however, with respect to policies issued on a substandard basis or
with a Cash Extra Charge and it is not clear whether such policies will in all
cases satisfy the applicable requirements. If a Policy were determined not to
be a life insurance contract for federal income tax purposes, that Policy would
not provide most of the tax advantages normally provided by a life insurance
contract. If it is subsequently determined that a Policy does not satisfy the
applicable requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements and we reserve the right to restrict Policy
transactions in order to do so.
In some circumstances, Owners of life insurance contracts who retain excessive
control over the investment of underlying assets may be treated as the Owners
of those assets and may be subject to tax on income produced by those assets.
Although published guidance in this area does not address certain aspects of
the Policies, we believe that the Owner of a Policy should not be treated as
the Owner of the underlying assets. We reserve the right to modify the Policies
to bring them into conformity with applicable standards should such
modification be necessary to prevent Owners of the Policies from being treated
as the Owners of the underlying assets.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for federal income tax purposes. We intend that the Variable Account,
through the Funds and the Portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
GENERAL. We believe that the Death Benefit under a Policy should generally be
excludible from the gross income of the Beneficiary. Federal, state and local
transfer, and other tax consequences of Ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or Beneficiary. A tax adviser
should be consulted on these consequences.
Generally, the Policy Owner will not be deemed to be in constructive receipt of
the Policy Accumulation Value until there is a distribution. When distributions
from a Policy occur, or when loans are taken out from or secured by a Policy,
the tax consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as MECs, with less favorable income tax
treatment than other life insurance
PAGE 65
contracts. Due to the Policy's flexibility with respect to premium payments and
benefits, each Policy's circumstances will determine whether the Policy is a
MEC. In general, however, a Policy will be classified as a MEC if the amount of
premiums paid into the Policy causes the Policy to fail the "7-pay test." A
Policy will fail the 7-pay test if at any time in the first seven Policy Years,
the amount paid into the Policy exceeds the sum of the level premiums that
would have been paid at that point under a Policy that provided for paid-up
future benefits after the payment of seven level annual payments.
If there is a reduction in the benefits under the Policy during the first seven
Policy Years, for example, as a result of a partial surrender, the 7-pay test
will have to be reapplied as if the Policy had originally been issued at the
reduced Face Amount. If there is a "material change" in the Policy's benefits
or other terms, even after the first seven Policy Years, the Policy may have to
be retested as if it were a newly issued Policy. A material change can occur,
for example, when there is an increase in the Death Benefit which is due to the
payment of an unnecessary premium. Unnecessary premiums are premiums paid into
the Policy which are not needed in order to provide a Death Benefit equal to
the lowest Death Benefit that was payable in the first seven Policy Years. To
prevent your Policy from becoming a MEC, it may be necessary to limit premium
payments or to limit reductions in benefits. A current or prospective Policy
Owner should consult with a competent adviser to determine whether a Policy
transaction will cause the Policy to be classified as a MEC.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS
Policies classified as MECs are subject to the following tax rules:
1.All distributions other than Death Benefits, including distributions upon
surrender and withdrawals, from a MEC will be treated first as
distributions of gain taxable as ordinary income and as tax-free recovery
of the Policy Owner's investment in the Policy only after all gain has
been distributed.
2.Loans taken from or secured by a Policy classified as a MEC are treated
as distributions and taxed accordingly.
3.A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Policy Owner
has attained age 59 1/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or
life expectancy) of the Policy Owner or the joint lives (or joint life
expectancies) of the Policy Owner and the Policy Owner's Beneficiary or
designated Beneficiary.
If a Policy becomes a MEC, distributions that occur during the contract year
will be taxed as distributions from a MEC. In addition, distributions from a
Policy within two years before it becomes a MEC will be taxed in this manner.
This means that a distribution made from a Policy that is not a MEC could later
become taxable as a distribution from a MEC.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than Death Benefits from a Policy
that is not classified as a MEC are generally treated first as a recovery of
the Policy Owner's investment in the Policy and only after the recovery of all
investment in the Policy as taxable income. However, certain distributions
which must be made in order to enable the Policy to continue to qualify as a
life insurance contract for federal income tax purposes if Policy benefits are
reduced during the first 15 Policy Years may be treated in
whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not treated
as distributions. However, the tax consequences associated with fixed interest
rate Policy loans after your Policy has
PAGE 66
been in force for ten years or more are less clear and a tax adviser should be
consulted about such loans.
Finally, the 10 percent additional income tax does not apply to distributions
or loans from or secured by a Policy that is not a MEC.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax free.
SETTLEMENT OPTIONS. Even if the Death Benefit under the Policy is excludible
from income, payments under Settlement Options may not be excludible in full.
This is because earnings on the Death Benefit after the insured's death are
taxable and payments under the Settlement Options generally include such
earnings. You should consult a tax adviser as to the tax treatment of payments
under the Settlement Options.
MULTIPLE POLICIES. Under the Code, all MECs issued by us (or an affiliated
company) to the same Policy Owner during any calendar year will be treated as
one MEC for purposes of determining the amount includable in gross income under
Section 72(e) of the Code. Additional rules may be promulgated under this
provision to prevent avoidance of its effects through serial contracts or
otherwise. For further information on current aggregation rules under this
provision, see your own tax adviser.
POLICY LOANS. In general, interest on a Policy loan will not be deductible. If
a Policy loan is outstanding when a Policy is canceled or terminated, the
amount of the outstanding indebtedness will be added to the amount distributed
and will be taxed accordingly. Before taking out a Policy loan, you should
consult a tax adviser as to the tax consequences.
REINSTATEMENTS. You may have adverse tax consequences if you request that we
reinstate your Policy after it has terminated with no Accumulation Value or for
non-payment of premiums. For example, reinstatements that occur more than
ninety days after a Policy terminates with no Accumulation Value or for
non-payment of premium could automatically be classified as a MEC. You should
consult your tax advisor before you reinstate your Policy.
OVERLOAN PROTECTION AGREEMENT. Anyone contemplating the purchase of the Policy
with the Overloan Protection Agreement should be aware that the tax
consequences of the Overloan Protection Agreement have not been ruled on by the
IRS or the courts and it is possible that the IRS could assert that the
outstanding loan balance should be treated as a taxable distribution when the
Overloan Protection Agreement is exercised. You should consult a tax adviser as
to the tax risks associated with the Overloan Protection Agreement.
LONG TERM CARE AGREEMENT. We believe the LTC Agreement qualifies as long term
care insurance under the Code, however, you should be aware that the tax
treatment of long term care benefits is uncertain. The IRS could assert that a
portion or all of the long term care benefits could be taxable to the Owner of
the Policy when those benefits are paid. You should consult a tax advisor
regarding the tax risks associated with benefit payments from the LTC Agreement.
WITHHOLDING. To the extent Policy distributions are taxable, they are
generally subject to income tax withholding. Recipients can generally elect,
however, not to have tax withheld from distributions.
OTHER TRANSACTIONS. Changing the Policy Owner may have tax consequences.
Pursuant to Section 1035(a)(1) of the Code, exchanging this Policy for another
involving the same insureds should have no federal income tax consequences if
there is no debt and no cash or other property is received. The new Policy
would have to satisfy the 7-pay test from the date of the exchange to avoid
PAGE 67
characterization as a MEC. An exchange of a life insurance contract for a new
life insurance contract may, however, result in a loss of grandfathering status
for statutory changes made after the old Policy was issued.
BUSINESS USES OF POLICY. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuation plans,
split-dollar insurance plans, executive bonus plans, retiree medical benefit
plans and others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of such Policy in any arrangement the value of
which depends in part on its tax consequences, you should be sure to consult a
tax adviser regarding the tax attributes of the particular arrangement.
Moreover, in recent years, Congress has adopted new rules relating to corporate
owned life insurance. In particular, Section 101(j) of the Code, added in 2006,
denies the tax-free treatment of Death Benefits payable under an employer-owned
life insurance contract unless certain notice and consent requirements are met
and either (1) certain rules relating to the insured employee's status are
satisfied or (2) certain rules relating to the payment of the "amount received
under the contract" to, or for the benefit of, certain Beneficiaries or
successors of the insured employee are satisfied. The new rules apply to life
insurance contracts owned by corporations (including S corporations),
individual sole proprietors, estates and trusts and partnerships that are
engaged in a trade or business. Any business contemplating the purchase of a
Policy on the life of an employee should consult with its legal and tax
advisers regarding the applicability of to the proposed purchase.
If a Policy is owned or held by a corporation, trust or other non-natural
person, this could jeopardize some (or all) of such entity's interest deduction
under Code Section 264, even where such entity's indebtedness is in no way
connected to the Policy. In addition, under Section 264(f)(5), if a business
(other than a sole proprietorship) is directly or indirectly a Beneficiary of a
Policy, this Policy could be treated as held by the business for purposes of
the Section 264(f) entity-holder rules. Therefore, it would be advisable to
consult with a qualified tax adviser before any non-natural person is made an
Owner or holder of a Policy, or before a business (other than a sole
proprietorship) is made a Beneficiary of a Policy.
SPLIT-DOLLAR ARRANGEMENTS. A tax adviser should be consulted with respect to
the split-dollar regulations if you have purchased or are considering the
purchase of a Policy for a split-dollar insurance plan. Any business
contemplating the purchase of a new life insurance contract or a change in an
existing contract should consult a tax adviser.
Additionally, the Sarbanes-Oxley Act of 2002 (the "Act") prohibits, with
limited exceptions, publicly-traded companies, including non-U.S. companies
that have securities listed on exchanges in the United States, from extending,
directly or through a subsidiary, many types of personal loans to their
directors or executive officers. It is possible that this prohibition may be
interpreted as applying to split-dollar life insurance policies for directors
and executive officers of such companies, since such insurance arguably can be
viewed as involving a loan from the employer for at least some purposes. Any
affected business contemplating the payment of a premium on an existing Policy,
or the purchase of a new Policy, in connection with a split-dollar life
insurance arrangement should consult legal counsel.
ALTERNATIVE MINIMUM TAX. There may also be an indirect tax upon the income in
the Policy or the proceeds of a Policy under the federal corporate alternative
minimum tax, if the Policy Owner is subject to that tax.
ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES. The transfer of the
Policy or designation of a Beneficiary may have federal, state, and/or local
transfer and inheritance tax consequences,
PAGE 68
including the imposition of gift, estate, and generation-skipping transfer
taxes. For example, when the insured dies, the death proceeds will generally be
includable in the Policy Owner's estate for purposes of federal estate tax if
the insured owned the Policy. If the Policy Owner was not the insured, the fair
market value of the Policy would be included in the Policy Owner's estate upon
the Policy Owner's death. The Policy would not be includable in the insured's
estate if the insured neither retained incidents of ownership at death nor had
given up ownership within three years before death.
Moreover, under certain circumstances, the Code may impose a "generation
skipping transfer tax" when all or part of a life insurance Policy is
transferred to, or a Death Benefit is paid to, an individual two or more
generations younger than the Policy Owner. Regulations issued under the Code
may require us to deduct the tax from your Policy, or from any applicable
payment, and pay it directly to the IRS. Qualified tax advisers should be
consulted concerning the estate and gift tax consequences of Policy ownership
and distributions under federal, state and local law. The individual situation
of each Owner or Beneficiary will determine the extent, if any, to which
federal, state, and local transfer and inheritance taxes may be imposed and how
ownership or receipt of Policy proceeds will be treated for purposes of
federal, state and local estate, inheritance, generation-skipping and other
taxes.
AMERICAN TAXPAYER RELIEF ACT OF 2012 The American Taxpayer Relief Act of 2012
("ATRA") was enacted on January 2, 2013, and succeeds many of the provisions of
the Economic Growth and Tax Reconciliation Act of 2001 ("EGTRRA"), which
expired on December 31, 2012. ATRA establishes permanent exclusion amounts and
rate structures for transfer taxes resulting from deaths, gifts, and generation
skipping transfers that occur after December 31, 2012. The estate, gift, and
generation skipping transfer tax exclusion amounts established under ATRA are
annually adjusted for inflation. In addition, ATRA makes several transfer tax
provisions originally introduced by EGTRRA permanent.
For 2014, the federal estate tax, gift tax, and GST tax exemptions and maximum
rates are $5,340,000 and 40%, respectively.
The complexity of ATRA, together with how it may affect existing estate
planning, underscores the importance of seeking guidance from a qualified
adviser to help ensure that your estate plan adequately addresses your needs
and that of your Beneficiaries under all possible scenarios.
It should be understood that the foregoing description of the federal income,
gift and estate tax consequences under the Policies is not exhaustive and that
special rules are provided with respect to situations not discussed. Statutory
changes in the Code, with varying effective dates, and regulations adopted
thereunder may also alter the tax consequences of specific factual situations.
Due to the complexity of the applicable laws, a person contemplating the
purchase of a variable life insurance policy or exercising elections under such
a policy should consult a tax adviser.
TAX SHELTER REGULATIONS. Prospective owners that are corporations should
consult a tax advisor about the treatment of the policy under the Treasury
Regulations applicable to corporate tax shelters.
MEDICARE TAX ON INVESTMENT INCOME. Beginning in 2013, a 3.8% tax may be
applied to some or all of the taxable portion of some distributions (such as
payments under certain settlement options) from life insurance contracts to
individuals whose income exceeds certain threshold amounts ($200,000 for filing
single, $250,000 for married filing jointly and $125,000 for married filing
separately.) Please consult a tax advisor for more information.
LIFE INSURANCE PURCHASES BY RESIDENTS OF PUERTO RICO. In Rev. Rul. 2004-75,
2004-31 I.R.B. 109, the Internal Revenue Service announced that income received
by residents of Puerto Rico under life insurance contracts issued by a Puerto
Rico branch of a United States life insurance company is U.S.-source income
that is generally subject to United States Federal income tax.
PAGE 69
LIFE INSURANCE PURCHASES BY NONRESIDENT ALIENS AND FOREIGN
CORPORATIONS. Purchasers that are not U.S. citizens or residents will
generally be subject to U.S. federal withholding tax on taxable distributions
from life insurance policies at a 30% rate, unless a lower treaty rate applies.
In addition, such purchasers may be subject to state and/or municipal taxes and
taxes that may be imposed by the purchaser's country of citizenship or
residence. Additional withholding may occur with respect to entity purchasers
(including foreign corporations, partnerships, and trusts) that are not U.S.
residents. Prospective purchasers that are not U.S. citizens or residents are
advised to consult with a qualified tax adviser regarding U.S. and foreign
taxation with respect to a life insurance policy purchase.
VOTING RIGHTS
We will vote the Fund shares held in the various Sub-Accounts of the Variable
Account at regular and special shareholder meetings of the Funds in accordance
with your instructions. If, however, the 1940 Act or any regulation thereunder
should change and we determine that it is permissible to vote the Fund shares
in our own right, we may elect to do so. The number of votes as to which you
have the right to instruct will be determined by dividing your Policy's
Accumulation Value in a Sub-Account by the net asset value per share of the
corresponding Fund Portfolio. Fractional shares will be counted. The number of
votes as to which you have the right to instruct will be determined as of the
date coincident with the date established by the Funds for determining
shareholders eligible to vote at the meeting of the Funds. We will vote Fund
shares held by the Variable Account as to which no instructions are received in
proportion to the voting instructions which are received from Policy Owners
with respect to all policies participating in the Variable Account.
Proportional voting may result in a small number of Policy Owners determining
the outcome of the vote.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in sub-classification or investment policies of the Funds or
approve or disapprove an investment advisory contract of the Funds. In
addition, we may disregard voting instructions in favor of changes in the
investment policies or the investment advisers of the Funds if we reasonably
disapprove of such changes. A change would be disapproved only:
. if the proposed change is contrary to state law or disapproved by state
regulatory authorities on a determination that the change would be
detrimental to the interests of Policy Owners, or
. if we determined that the change would be inconsistent with the investment
objectives of the Funds or would result in the purchase of securities for
the Funds which vary from the general quality and nature of investments
and investment techniques utilized by other separate accounts created by
us or any of our affiliates which have similar investment objectives.
In the event that we disregard voting instructions, a summary of that action
and the reason for such action will be included in your next annual report or
through a special notice.
COMPENSATION PAID FOR THE SALE OF POLICIES
Securian Financial Services, Inc. ("Securian Financial"), whose address is 400
Robert Street North, St. Paul, Minnesota 55101-2098, is a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
Financial Industry Regulatory Authority. Securian Financial was incorporated in
1984 under the laws of the state of Minnesota. Securian Financial, an affiliate
of Minnesota Life, is the principal underwriter of the Policies. Securian
Financial and other authorized broker-dealers sell the Policies through their
registered representatives, each of whom is also an insurance agent appointed
by Minnesota Life. Commissions for the sale of Policies by broker-dealers other
than Securian Financial are paid directly to such broker-dealers by Minnesota
Life, in all cases as agent for Securian Financial,
PAGE 70
and as authorized by the broker-dealers. The amount of commission received by
an individual registered representative in connection with the sale of a Policy
is determined by his or her brokerdealer. In the case of Policies sold by
registered representatives of Securian Financial, commissions are paid directly
to such registered representatives by Minnesota Life as agent for Securian
Financial. Minnesota Life also pays compensation as agent for Securian
Financial to general agents of Minnesota Life who are also Securian Financial
registered representatives, which is described in more detail below. Securian
Financial may also receive compensation from an underlying Fund or its
affiliates as described in more detail in the "Payments Made by Underlying
Mutual Funds" section of this prospectus. The commissions and compensation
described in this paragraph, and the payments to broker-dealers described
below, do not result in charges to the Policy that are in addition to the
Policy charges described elsewhere in this prospectus.
PAYMENTS TO REGISTERED REPRESENTATIVES OF SECURIAN FINANCIAL. Commissions to
registered representatives of Securian Financial on the sale of Policies
include:
. Up to 62.1 percent of gross premium paid in the first twenty four months
after the Policy is issued (initial commissions), however, we will limit
the amount of gross premium on which we will pay initial commissions to an
annual target premium we establish based upon the age, gender and Risk
Class of the insured and Face Amount of the insurance for the Policy.
. Up to 3.24 percent of the gross premium paid between the twelfth and
twenty fourth months (up to the target premium for gross premiums paid
between the twelfth and twenty fourth months), however, gross premium that
counts toward initial commissions will not be counted for this portion of
the commission.
. We will also pay up to 3.24 percent on all premiums (up to the target
premium) paid in years three through ten.
. On premiums received in excess of the target premium we will pay
commissions up to 1.89 percent in Policy Years one through ten and .81
percent in Policy Years 11 and greater.
In addition, based uniformly on the sales of all insurance policies by
registered representatives of Securian Financial, we and Securian Financial
will award credits which allow those registered representatives who are
responsible for sales of the Policies to attend conventions and other meetings
sponsored by us or our affiliates for the purpose of promoting the sale of
insurance and/or investment products offered by us and our affiliates. Such
credits may cover the registered representatives' transportation, hotel
accommodations, meals, registration fees and the like. We may also pay
registered representatives additional amounts based upon their production and
the persistency of life insurance and annuity business placed with us. Finally,
registered representatives may also be eligible for financing arrangements,
company-paid training, insurance benefits, and other benefits, including
occasional entertainment, based on their contract with us.
We make additional payments for sales of the Policies to general agents who
manage registered representatives. Payments to general agents vary and depend
on many factors including the commissions and amount of proprietary products
sold by registered representatives supervised by the general agent. General
agents may also be eligible for insurance benefits, other cash benefits, and
non-cash compensation such as conventions and other meetings.
PAYMENTS TO BROKER-DEALERS. We pay compensation for the sale of the Policies
by affiliated and unaffiliated broker-dealers. The compensation that we pay to
broker-dealers for the sale of the Polices is generally not expected to exceed,
on a present value basis, the aggregate amount of compensation that we pay with
respect to sales made by registered representatives of Securian Financial.
Broker-dealers pay their registered representatives all or a portion of the
commissions received for their sales
PAGE 71
of the Policy. We may also pay other broker-dealers amounts to compensate them
for training and education meetings for their registered representatives.
All of the compensation described here, and other compensation or benefits
provided by Minnesota Life or our affiliates, may be more or less than the
overall compensation on similar or other products. The amount and/or structure
of the compensation may influence your registered representative, broker-dealer
or selling institution to present this Policy over other investment
alternatives. However, the differences in compensation may also reflect
differences in sales effort or ongoing customer services expected of the
registered representative or the broker-dealer. You may ask your registered
representative about these differences and how he or she and his or her
broker-dealer are compensated for selling the Policies.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits, including
class action lawsuits. In some class action and other lawsuits involving
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, we believe that, as of the date of this prospectus,
there are no pending or threatened lawsuits that will have a materially adverse
impact on the Individual Variable Universal Life Account, the ability of
Securian Financial Services, Inc. to perform its contract with the Individual
Variable Universal Life Account, or the ability of Minnesota Life to meet its
obligations under the Policies. In addition, we are, from time to time,
involved as a party to various governmental and administrative proceedings.
There are no pending or threatened lawsuits that will materially impact the
Individual Variable Universal Life Account.
FINANCIAL STATEMENTS
The financial statements of the Minnesota Life Individual Variable Universal
Account and Minnesota Life are contained in the Statement of Additional
Information. The Statement of Additional Information is available, free of
charge, from us upon request. To request a Statement of Additional Information,
call us at 1-800-277-9244 or write to us at: Minnesota Life Insurance Company,
400 Robert Street North, Saint Paul, Minnesota 55101.
REGISTRATION STATEMENT
We have filed with the SEC a registration statement under the Securities Act of
1933, as amended, with respect to the Policies offered hereby. This prospectus
does not contain all the information set forth in the registration statement
thereto and the exhibits filed as a part thereof, to all of which reference is
hereby made for further information concerning the Variable Account, Minnesota
Life, and the Policies. Statements contained in this prospectus as to the
contents of Policies and other legal instruments are summaries, and reference
is made to such instruments as filed.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, with the same date, containing further
information about the Variable Account and the Policy is available without
charge from us at your request. It has been filed with the SEC and is
incorporated by reference into this prospectus. In addition, you may order a
personalized illustration of Death Benefits, cash Surrender Values, and cash
values, without charge, from us. To request a Statement of Additional
Information, a personalized illustration or any information about your Policy
call us at 1-800-277-9244 or write to us at: Minnesota Life Insurance Company,
400 Robert Street North, Saint Paul, Minnesota 55101.
PAGE 72
Information about the Variable Account (including the Statement of Additional
Information) can be reviewed and copied at the SEC's Public Reference Room in
Washington, DC (information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-202-551-8090 or at the SEC's website,
http://www.sec.gov. Copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC, 100 F
Street, NE, Washington, DC 20549-0102. You can also call the SEC at
1-202-551-8090.
The table of contents for the Statement of Additional Information is as follows:
General Information and History
Services
Additional Information
Underwriters
Underwriting Procedures
Settlement Options
Illustrations
Experts
Other Information
Financial Statements
Investment Company Act No. 811-22093
PAGE 73
APPENDIX -- GLOSSARY
ACCUMULATION VALUE: The sum of the values under the Policy in the Minnesota
Life Individual Variable Universal Life Account, the Guaranteed Interest
Account, the Fixed Indexed Accounts, the Interim Account and the Fixed Loan
Account.
AGE: The Issue Age plus the number of complete Policy Years elapsed.
AGREEMENT: Any benefit, other than the base Policy, made a part of this Policy.
APPLICATION: The form completed by the proposed insured and/or proposed Owner
when applying for coverage under the Policy. This includes any:
. amendments or endorsements;
. supplemental Applications; or
. reinstatement Applications.
BENEFICIARY(IES): The person(s) so named in the Application, unless later
changed, to whom any Death Benefit is payable upon the death of an insured,
subject to the conditions and provisions of the Policy.
CODE: The U.S. Internal Revenue Code of 1986, as amended.
DEATH BENEFIT: The amount payable to the Beneficiary upon the death of the
insured, according to the conditions and provisions of the Policy.
FACE AMOUNT: The amount we use in determining the insurance coverage of an
insured's life.
FIXED INDEXED ACCOUNT: A Fixed Indexed Account is part of our General Account.
We may credit Index Credits to your Accumulation Value allocated to Segments in
the Fixed Indexed Accounts based in part on the investment performance of the
S&P 500(R) , subject to any Growth Cap and Participation Rate. We make
available two Fixed Indexed Account options under the Policy, Indexed Account A
and Indexed Account B.
FIXED LOAN ACCOUNT: Part of our General Account where we transfer amounts from
the Minnesota Life Individual Variable Universal Life Account, the Guaranteed
Interest Account and the Fixed Indexed Accounts as collateral for fixed
interest rate Policy loans.
FREE LOOK PERIOD: The period during which you may examine and return the Policy
to us at our Home Office and receive a refund.
FUND: An open-end diversified management investment company or unit investment
trust in which the Minnesota Life Individual Variable Universal Life Account
invests.
GENERAL ACCOUNT: All assets of the Minnesota Life Insurance Company other than
those in the Minnesota Life Individual Variable Universal Life Account or other
separate accounts established by us.
GOOD ORDER: This means the actual receipt by us of the instructions relating to
a transaction in writing-or when appropriate by telephone or the internet along
with all completed forms, documents, information and supporting legal
documentation (including any required consents) we require in order to effect
the transaction. To be in "Good Order," instructions must be sufficiently clear
so that we do not need to exercise any discretion to follow such instructions.
We reserve the right to change our requirements for what constitutes Good Order
and which documents and forms are required in order for us to complete a
transaction request.
GRACE PERIOD: A 61-day period after which a Policy will terminate if you do not
make a sufficient payment.
GROWTH CAP: The Growth Cap is the maximum growth rate for a Segment that is
used to determine the amount of any Index Credit for the Segment.
A-1
GUARANTEED INTEREST ACCOUNT: The Guaranteed Interest Account is part of our
General Account. We credit Accumulation Value in the Guaranteed Interest
Account with a fixed rate of interest guaranteed to be no less than a 2 percent
annually.
HOME OFFICE: Our office at 400 Robert Street North, St. Paul, Minnesota
55101-2098, telephone: 651-665-3500.
INDEX OR S&P 500(R). Standard & Poor's 500(R) Composite Stock Price Index.
INDEX CREDIT: The amount of interest we may credit for an Index Credit Term to
your Accumulation Value allocated to a Segment. The amount of an Index Credit
is determined by reference to the investment performance of the S&P 500(R) over
the Index Credit Term, subject to certain conditions, including any Growth Cap
and Participation Rate.
INDEX CREDIT TERM: The time period over which changes in the underlying indices
of a Segment are measured for purposes of calculating the Index Credit for that
Segment. Currently, all Index Credit Terms and Segments have durations of one
year.
INITIAL FACE AMOUNT: The Face Amount on the Policy Date.
INITIAL MINIMUM PREMIUM: The amount of premium required to put the Policy in
force. The Initial Minimum Premium is the monthly Initial Minimum Premium shown
on the Policy data pages multiplied by three (3) months plus the number of
complete months from the Policy Date to the date of payment.
ISSUE AGE: The insured's age at nearest birthday as of the Policy Date.
INTERIM ACCOUNT: The Interim Account is part of our General Account and
contains Net Premiums and Accumulation Value transferred from the Guaranteed
Interest Account and the Variable Account that you have directed us to place in
a Fixed Indexed Account. On each Interim Account Transfer Date, we transfer
Accumulation Value in the Interim Account to the Fixed Indexed Accounts
according to your allocation instructions.
INTERIM ACCOUNT TRANSFER DATE: The third Friday of each month, which is the
date we transfer your Accumulation Value in the Interim Account, including
interest credited on amounts in the Interim Account, to a Fixed Indexed Account
according to your allocation instructions.
MEC: A modified endowment contract, as defined under the Code.
NET AMOUNT AT RISK: The value equal to the Death Benefit as of the most recent
monthly Policy Anniversary divided by the Net Amount at Risk divisor (as shown
on the Policy data pages), and reduced by the Policy Accumulation Value at the
beginning of the Policy month, before deduction of the current month's Cost of
Insurance Charge.
NET PREMIUM: The amount of premium after the Premium Charge has been deducted.
OWNER (YOU, YOUR): The person named in the Application as the Owner, unless
later changed.
PARTICIPATION RATE: A percentage of the growth rate for a Segment used to
determine the amount of any Index Credit for the Segment at the end of the
Segment Term.
PLANNED PREMIUM: The amount of premium you plan to pay for the Policy on a
periodic basis. Planned premiums serve as the basis for premium payment
reminder notices. Payment of Planned Premiums may not necessarily keep the
Policy in force.
POLICY ANNIVERSARY: The same day and month as your Policy Date for each
succeeding year your Policy remains in force. A monthly Policy Anniversary is
the same day as your Policy Date for each succeeding month your Policy remains
in force.
POLICY DATE: The date shown on the Policy data pages, which is the date from
which we determine Policy Anniversaries, Policy years, and monthly Policy
Anniversaries.
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POLICY LOAN INTEREST: The amount of interest we charge you on any outstanding
Policy loan balance under your Policy.
POLICY YEAR: A year that starts on the Policy Date or on a Policy Anniversary.
PORTFOLIO: A separate investment Portfolio of a Fund. Each Sub-Account invests
exclusively in one Portfolio of a Fund.
RISK CLASS: The classification of the insured, based on the Underwriting Class
combined with the Tobacco Class.
SEC: The Securities and Exchange Commission, a United States government agency.
SEGMENT: A Segment is part of a Fixed Indexed Account and is created by the
allocation of Net Premium, transfer of Accumulation Value from the Interim
Account or rollover of Accumulation Value from a prior Segment. We may credit
an Index Credit to your Accumulation Value allocated to a Segment based in part
on the investment performance of the S&P 500(R) , subject to any Growth Cap and
Participation Rate.
SEGMENT DATE: The Segment Date is the date a Segment is created. Segment years,
Segment anniversaries, and Segment terms are all measured from that date.
SUB-ACCOUNT: A subdivision of the Minnesota Life Individual Variable Universal
Life Account. We invest each Sub-Account's assets exclusively in shares of one
Portfolio.
SURRENDER VALUE: The amount available to you when your Policy is surrendered or
terminates. The Surrender Value equals the Accumulation Value, less any unpaid
policy charges, any outstanding Policy loan, and unpaid Policy Loan Interest
and any applicable Surrender Charge.
TERMINATION: When your Policy terminates without value after a Grace Period.
You may reinstate a terminated Policy, subject to certain conditions.
TOBACCO CLASS: Based on the tobacco use habits of the insured, with the insured
designated as either "tobacco" or "non-tobacco."
UNDERWRITING CLASS: The classification of the insured based upon the level of
mortality risk that we assume.
UNIT: A measure of your interest in a Sub-Account of the Minnesota Life
Individual Variable Universal Life Account.
UNIT VALUES: The value of a Sub-Account Unit that is multiplied by the number
of Units in the Sub-Account to determine the Sub-Account value. The Unit Value
is calculated as of the end of a Valuation Date by multiplying its value on the
preceding Valuation Date by the investment factor determined for that
Sub-Account.
UNIT VALUE CREDIT: A credit we may provide which is used in the determination
of the net investment factor for each Sub-Account.
VALUATION DATE: A Valuation Date is any date on which the New York Stock
Exchange ("NYSE") is open for trading, except for any days specified in the
prospectus for the Policy and any day the Portfolio corresponding to a
Sub-Account does not value its shares. A Valuation Date ends at the close of
trading on the NYSE for that day.
VARIABLE ACCOUNT: The Minnesota Life Individual Variable Universal Life Account.
WRITTEN REQUEST: A request in writing signed by you. We may require that your
Policy be sent in with a Written Request.
A-3
STATEMENT OF ADDITIONAL INFORMATION
MINNESOTA LIFE INSURANCE COMPANY
400 ROBERT STREET NORTH
SAINT PAUL, MINNESOTA 55101
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
VARIABLE UNIVERSAL LIFE DEFENDER INSURANCE POLICY
This Statement of Additional Information contains additional information to the
prospectus for the variable universal life insurance policy (the "Policy")
offered by Minnesota Life Insurance Company ("Minnesota Life"). This Statement
of Additional Information is not a prospectus, and it should be read only in
conjunction with the prospectus for the Policy and the prospectuses for the
investment options. The prospectus for the Policy is dated the same date as
this Statement of Additional Information. Unless otherwise indicated, all terms
used in this Statement of Additional Information have the same meaning as when
used in the prospectus. You may obtain a copy of the prospectus by calling
Minnesota Life Insurance Company at 1-800-277-9244, or writing to Minnesota
Life at 400 Robert Street North, Saint Paul, Minnesota 55101.
, 2014
TABLE OF CONTENTS
[Download Table]
GENERAL INFORMATION AND HISTORY 2
SERVICES 2
ADDITIONAL INFORMATION 2
UNDERWRITERS 3
UNDERWRITING PROCEDURES 4
SETTLEMENT OPTIONS 5
ILLUSTRATIONS 6
EXPERTS 11
OTHER INFORMATION 11
FINANCIAL STATEMENT
VUL Defender 1
GENERAL INFORMATION AND HISTORY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly
known as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a
mutual life insurance company organized in 1880 under the laws of Minnesota.
Effective October 1, 1998, Minnesota Mutual reorganized by forming a mutual
insurance holding company named "Minnesota Mutual Companies, Inc." Minnesota
Mutual continued its corporate existence following conversion to a Minnesota
stock life insurance company named "Minnesota Life Insurance Company." All of
the shares of the voting stock of Minnesota Life are owned by a second tier
intermediate stock holding company named "Securian Financial Group, Inc.,"
which in turn is a wholly-owned subsidiary of a first tier intermediate stock
holding company named "Securian Holding Company," which in turn is a
wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc.
Our home office is at 400 Robert Street North, St. Paul, Minnesota 55101-2098,
telephone: (651) 665-3500. We are licensed to conduct life insurance business
in all states of the United States (except New York), the District of Columbia,
Canada, Puerto Rico and Guam.
On June 11, 2007, our Board of Directors established a separate account, called
the Minnesota Life Individual Variable Universal Life Account ("the Account"),
in accordance with certain provisions of the Minnesota insurance law. The
Account is registered as a unit investment trust separate account with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940 ("1940 Act"). Registration under the 1940 Act does not signify that the
SEC supervises the management, or the investment practices or policies, of the
Account.
SERVICES
Minnesota Life provides accounting oversight, financial reporting, legal and
other administrative services. Additional accounting and administrative
services are performed by State Street Bank and Trust Company, which includes
overnight calculation of unit value amounts. Minnesota Life oversees State
Street's performance of these services. State Street provides Minnesota Life
with monthly invoices detailing each service provided and agreed upon
transaction charges for each specific service.
ADDITIONAL INFORMATION
ASSIGNMENT You may assign this policy by forwarding to us a written request in
good order in advance of such assignment. We reserve the right, except to the
extent prohibited by applicable state law or regulation or by the action of the
appropriate state regulatory authority, or any agency or officer performing
like functions of the applicable State, to require that assignment will be
effective only upon our acceptance, and to refuse assignments at any time on a
non-discriminatory basis. No assignment applies to any action we take before
receiving your written request. We assume no responsibility for the validity or
effect of any assignment of the Policy or of any interest in it. Any proceeds
which become payable to an assignee will be payable in a single sum. Any claim
made by an assignee will be subject to proof of the assignee's interest and the
extent of the assignment.
MISSTATEMENT OF AGE OR GENDER If the insured's age or gender has been
misstated, we will adjust the proceeds payable under the Policy based on what
the last monthly charges would have purchased at the correct age or gender.
VUL Defender 2
INCONTESTABILITY After a Policy has been in force during the insured's
lifetime for two years from the original policy date, we may not contest the
Policy, except in the case of fraud. However, if there has been a policy change
or reinstatement for which we required evidence of insurability, we may contest
that policy change or reinstatement for two years with respect to information
provided at that time, during the lifetime of the insured, from the effective
date of the policy change or reinstatement.
SUICIDE If the insured, whether sane or insane, dies by suicide, within two
years of the original policy date, our liability will be limited to an amount
equal to the premiums paid for the Policy less any policy loan, unpaid loan
interest and partial surrenders. If there has been a policy change or
reinstatement for which we required evidence of insurability, and if the
insured dies by suicide within two years from the effective date of the policy
change or reinstatement, our liability with respect to the policy change or
reinstatement will be limited to an amount equal to the portion of the monthly
charges associated with that policy change or reinstatement.
REPORTS At least once each year we will send you a report. This report will
include the accumulation value, the face amount and the death benefit as of the
date of the report. It will also show the premiums paid during the policy year
and policy loan activity. We will send the report to you without cost. The
information in the report will be current as of a date within two months of its
mailing.
UNDERWRITERS
The Policies are sold in a continuous offering by state licensed life insurance
producers who are also registered representatives of Securian Financial
Services, Inc. ("Securian Financial") or other broker-dealers who have entered
into selling agreements with Securian Financial. We anticipate continuing to
offer the Policies, but reserve the right to discontinue the offering. Securian
Financial acts as principal underwriter for the Policies. Both Securian
Financial and Minnesota Life are wholly-owned subsidiaries of Securian
Financial Group, Inc., which is a second-tier subsidiary of a mutual insurance
holding company called Minnesota Mutual Companies, Inc.
Securian Financial, whose address is 400 Robert Street North, St. Paul,
Minnesota 55101-2098, is registered as a broker-dealer under the Securities
Exchange Act of 1934 and a member of FINRA. Securian Financial was incorporated
in 1984 under the laws of the State of Minnesota.
SALES BY SECURIAN FINANCIAL REGISTERED REPRESENTATIVES. Commissions to
registered representatives of Securian Financial on the sale of Policies
include:
. Up to 62.1 percent of gross premium paid in the first twenty four months
after the Policy is issued (initial commissions), however, we will limit
the amount of gross premium on which we will pay initial commissions to an
annual target premium we establish based upon the age, gender and Risk
Class of the insured and Face Amount of the insurance for the Policy.
. Up to 3.24 percent of the gross premium paid between the twelfth and
twenty fourth months (up to the target premium for gross premiums paid
between the twelfth and twenty fourth months), however, gross premium that
counts toward initial commissions will not be counted for this portion of
the commission.
VUL Defender 3
. We will also pay up to 3.24 percent on all premiums (up to the target
premium) paid in years three through ten.
. On premiums received in excess of the target premium we will pay
commissions up to 1.89 percent in Policy Years one through ten and .81
percent in Policy Years 11 and greater.
In addition, Securian Financial or we will award, based uniformly on the sales
of insurance policies by registered representatives of Securian Financial,
credits which allow those registered representatives who are responsible for
sales of the Policies to attend conventions and other meetings sponsored by us
or our affiliates for the purpose of promoting the sale of insurance and/or
investment products offered by us and our affiliates. Such credits may cover
the registered representatives' transportation, hotel accommodations, meals,
registration fees and the like. We may also pay registered representatives
additional amounts based upon their production and the persistency of life
insurance and annuity business placed with us. Finally, registered
representatives may also be eligible for financing arrangements, company-paid
training, insurance benefits, and other benefits, including occasional
entertainment, based on their contract with us. The underwriter may also
receive amounts from certain Funds for services provided under a 12b-1 plan of
distribution. For providing these distribution services, the underwriter may
receive a portion or all of the 12b-1 fees up to .25 percent of the average
daily net assets of the Portfolios of the Fund attributable to the Policies.
We make additional payments for sales of the Policies to general agents who
manage registered representatives and to the business unit responsible for the
operation of our distribution system. Payments to general agents vary and
depend on many factors including the compensation and amount of proprietary
products sold by registered representatives supervised by the general agent.
SALES BY UNAFFILIATED BROKER DEALERS. We pay compensation to affiliated and
unaffiliated broker-dealers for the sale of the Policies. The compensation that
we pay to broker-dealers for the sale of the Polices is generally not expected
to exceed, on a present value basis, the aggregate amount of compensation that
we pay with respect to sales made by registered representatives of Securian
Financial. Broker-dealers pay their sales representatives all or a portion of
the commissions received for their sales of the Policy.
Amounts paid by Minnesota Life to the underwriters of the Policies during 2013,
2012, and 2011, were $8,347,795, $6,310,785, and $7,346,089, respectively,
which include amounts paid for other contracts issued through the Individual
Variable Universal Life Account.
UNDERWRITING PROCEDURES
We require proof of insurability for policy issue and all policy changes
resulting in an increase in face amount or other changes that result in an
increase in the net amount at risk under the Policy. Proof of insurability and
classification for cost of insurance charges are determined by our underwriting
rules and procedures which utilize factors such as age, gender, health and
occupation. Persons who present a lower mortality risk are charged the most
favorable cost of insurance rates. Requirements may be waived or modified for
Policies issued as a result of conversion from existing Policies, for Policies
issued as part of a small group case or for face amount increases pursuant to
an additional benefit agreement.
VUL Defender 4
The basis for the mortality charges guaranteed in the Policies are determined
by the gender, tobacco habits, and age of each insured and are based on the
2001 Commissioners Standard Ordinary Composite, Ultimate, Age Nearest Birthday,
Sex-Distinct Mortality Tables. In instances where the insurance is required to
be provided on a Unisex basis, the guaranteed mortality charges are based on
the 2001 CSO Unisex Table B.
FACE AMOUNT INCREASES
When a Policy Face Amount increase is effective, we will assess the Policy
Issue Charge, the Cost of Insurance on the Face Increase amount as well as any
applicable Agreement charges that are based upon the increased net amount at
risk.
In addition, for any Policy Face Amount increase, we will allocate Accumulation
Value to the base Policy face amount and the increased face amount in the
following manner:
STEP 1. We allocate Accumulation Value to the base Policy face amount first. We
will allocate Accumulation Value to the base Policy face amount to the extent
it does not exceed the application IRC Section 7702 corridor factor. If the
guideline premium test applies, then the corridor factor is the published value
in IRC Section 7702(d)(2). If the cash value accumulation test applies, then
the corridor factor is 1 divided by the net single premium (1/NSP).
Once we have allocated Accumulation Value to the base Policy face amount, we
will use the same factors to allocate to the additional coverage layers,
beginning with the first coverage layer issued. We will use the same
methodology, allocating up to the IRC Section 7702 limits, for each coverage
layer. If we allocate Accumulation Value to all of the coverage layers and
Accumulation has not been completely allocated, we will proceed to Step 2.
STEP 2. In this step, the allocation of any remaining Accumulation Value
depends on the death benefit option chosen by the Policy Owner.
. If the death benefit option is Level, we apply any remaining Accumulation
Value to the last (most recently added) coverage layer. Note that this
layer would be the 'worst' underwriting class. Thus by allocating all the
excess to this layer, the Policy Owner would have the lowest Cost of
Insurance charge.
. If the death benefit option is the Increasing Option, we cycle through the
coverage layers again, in order, and fill up each of the coverage layers
to the point where we would otherwise need to increase the death benefit
to satisfy the minimum IRC Section 7702 requirements. If, after cycling
through all coverage layers, there is still Accumulation Value remaining,
we allocate the remaining amount to the last coverage layer.
SETTLEMENT OPTIONS
The proceeds of the Policy are payable upon surrender, or upon our receipt of
satisfactory proof of the insured's death while the Policy is in force. We will
pay the proceeds in a lump sum unless a settlement option has been selected. We
will deduct any outstanding policy loan, any accrued loan interest and unpaid
monthly charges from the proceeds we pay. Proof of any claim under this Policy
must be submitted in writing to our home office.
We will pay interest on any death benefit proceeds payable if payment is to be
made in a lump sum. Interest will accrue on the death benefit proceeds payable
from the date of the insured's death until the date of payment. Interest will
be credited at a rate which we shall determine in our discretion. Such credited
interest will never be less than a 1 percent annual rate.
You may, during the lifetime of the insured, request that we pay the proceeds
of the Policy under one of the settlement options described below. We may also
offer other methods of payment that are agreeable to both you and us. A
settlement option may be selected only if payments are to be made to a natural
person in that person's own right.
During the lifetime of the insured, you may also choose to place the proceeds
in a Minnesota Life Benefit Account until you elect a single sum payment or a
settlement option. The Benefit Account is an interest-bearing account. Account
information, along with a book of drafts (which will function like a
checkbook), will be sent to you, and you will have access to funds in the
account simply by writing a draft for all or part of the amount of the
available balance, and depositing or using the draft as desired. When the draft
is paid through the bank that administers the account for Minnesota Life, the
bank will receive the amount you request as a transfer from our general
account. The Benefit Account is not a bank account, and it is not insured by
the FDIC or any other government agency. As part of our general account, the
Benefit Account is backed by the financial strength of Minnesota Life, although
it is subject to the claims of our creditors. We receive a benefit from amounts
left in the Benefit Account. We pay interest on proceeds held in the Benefit
Account as required by state law. Any interest paid on proceeds in the Benefit
Account is currently taxable.
Each settlement option described below is payable only in fixed amounts. The
payments do not vary with the investment performance of the Account.
OPTION 1 -- INTEREST PAYMENTS
We will pay interest on the proceeds at such times and for such period that
is agreeable to you and us. Withdrawals of proceeds may be made in amounts
of at least $500. At the end of the period, any remaining proceeds will be
paid in either a lump sum or under any other method we approve.
VUL Defender 5
OPTION 2 -- PAYMENTS FOR A SPECIFIED PERIOD
We will make payments for a specified number of years.
OPTION 3 -- LIFE INCOME
We will make payments monthly during the lifetime of a payee, terminating
with the last monthly payment immediately preceding the payee's death. We
may require proof of the payee's age and gender. Monthly payments can be
guaranteed for 5, 10 or 20 years.
OPTION 4 -- PAYMENTS OF A SPECIFIED AMOUNT
We will pay a specified amount until the proceeds and interest thereto are
fully paid.
If you request a settlement option, you will be asked to sign an agreement
covering the settlement option which will state the terms and conditions of the
payments. Unless you specify otherwise, the beneficiary may select a settlement
option after the insured's death.
The minimum rate of interest we will credit under any settlement option is a 1
percent annual rate of interest. We may, in our sole discretion, credit higher
rates of interest on monies held by us in our general account which are to be
paid under a settlement option.
ILLUSTRATIONS
To illustrate the operation of the Policy under certain assumptions, we have
prepared the following tables along with explanatory text that may be of
assistance.
The following tables illustrate how the accumulation value, cash surrender
value and death benefit of a Policy change with the investment experience of
the sub-accounts of the Account. The tables show how the accumulation value,
cash surrender value and death benefit of a Policy for an insured of a given
age and at a given premium would vary over time if the investment return on the
assets held in each sub-account of the Account were a uniform, gross, after-tax
rate of 0 percent and 6 percent. The actual cash values and death benefits
would be different from those shown if the returns averaged 0 percent and 6
percent but fluctuated over the life of the Policy.
The tables illustrate a Policy issued to an insured male age 45 in the
preferred select non-tobacco risk class with a Level Death Benefit Option. The
tables assume an initial face amount of $500,000 and an annual planned premium
payment of $4,800. The tables also assume that the Guideline Premium Test for
definition of life insurance has been elected. The tables reflect both
guaranteed maximum and current charges for all charges under the Policy, except
charges for partial surrenders, transfers and any optional Agreements. The
tables assume that there have been no allocations made to the Guaranteed
Interest Account or the Fixed Indexed Accounts.
Guaranteed maximum cost of insurance charges will vary by age, gender, and risk
class. We use the male, female and unisex Tobacco Distinct 2001 Commissions
Standard Ordinary Mortality Table ("2001 CSO"), as appropriate. The unisex
tables are used in circumstances where legal considerations require the
elimination of gender-base distinctions in the calculation of mortality costs.
Our maximum cost of insurance charges are based on an assumption of the
mortality rates reflected in 2001 CSO Tables.
VUL Defender 6
In many cases we intend to impose cost of insurance charges which are lower
than the maximum charges described above. In addition to the factors governing
maximum cost of insurance charges, actual charges will vary depending on the
risk category of the insured. Current cost of insurance charges reflect our
current practices with respect to mortality charges for this class of Policies.
We occasionally review the adequacy of our cost of insurance rates and may
adjust those charges prospectively depending upon our expectations about our
future mortality and expense experience, lapse rates, taxes, accumulation value
allocation, investment earnings and profit considerations. Similarly, we impose
a current monthly policy charge which is less than the guaranteed contractual
charge. We expect that these current charges will compensate us for the actual
costs of administration. If the actual costs change, this charge may increase
or decrease as necessary, although it may not exceed the maximum stated in the
Policy.
The amounts shown for the hypothetical accumulation value and death benefit as
of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because a daily investment management fee assessed against the net assets of
the Portfolio is deducted from the gross return. The investment management fee
illustrated is 0.60 percent and represents the arithmetic average of the annual
fee charged for all Portfolios available under the Policy. The illustrations
also reflect a deduction for those Fund costs and expenses borne by the Funds
and for distribution (12b-1) fees. Fund expenses illustrated are 0.20 percent,
representing the arithmetic average of the 2013 expense ratios of the
Portfolios available under the Policy. Certain expenses for certain portfolios
of the Funds were waived or reduced, however the averages used in these
illustrations do not reflect the waivers or reductions. The 12b-1 fee
illustrated is 0.14 percent and represents the arithmetic average of those fees
charged for all Portfolios that assess a 12b-1 fee. Lastly, the net return is
increased by any unit value credit that we are currently providing. The unit
value credit illustrated is 0.18 percent and represents the arithmetic average
of the unit value credit for all Portfolios available under the Policy. For the
maximum contractual charges illustration, no unit value credit is assumed so
the net annual rates of return shown are -0.94 and 5.06 percent (gross annual
rate of return less average annual Portfolio management fee, average other
expenses and average 12b-1 fee). Therefore, gross annual rates of return of 0
and 6 percent correspond to approximate net annual rates of return of -0.75 and
5.25 percent on the current charges illustration (net annual rate of return
plus average unit value credit).
The illustration reflects the fact that no charges for federal, state or local
income taxes are currently made against the Account. If such charges are
deducted in the future, the hypothetical net annual rates of return would be
lower.
If a particular Policy would be subject to different levels of charges, the
accumulation values, cash surrender values and death benefits would vary from
those shown in the tables. The accumulation values, cash surrender values and
death benefits would also vary if premiums were paid in other amounts or at
other than annual intervals, or accumulation values were allocated differently
among individual sub-accounts with varying rates of return. In addition, the
accumulation values, cash surrender values and death benefits would also vary
between tables depending upon whether the Level Option or Increasing Option
death benefit is illustrated.
VUL Defender 7
Upon request, we will furnish a personalized illustration based upon a proposed
insured's age, gender and risk classification, and on the face amount, premium,
death benefit option and gross annual rate of return requested. Those
illustrations may be materially different from the sample illustration included
in this Statement of Additional Information, depending upon the proposed
insured's actual situation. For example, illustrations for females, tobacco
users or individuals who are rated sub-standard will differ materially in
premium amount and illustrated values, even though the proposed insured may be
the same age as the proposed insured in our sample illustrations. You may
request a personalized illustration, without charge, from us by calling us at
1-800-277-9244 or writing to us at: Minnesota Life Insurance Company at 400
Robert Street North, Saint Paul, Minnesota 55101.
VUL Defender 8
VUL DEFENDER
DEATH BENEFIT OPTION--LEVEL OPTION
ASSUMING GUIDELINE PREMIUM TEST
MALE ISSUE AGE 45, PREFERRED SELECT NON-TOBACCO
INITIAL FACE AMOUNT -- $500,000
$4,800 ANNUAL PREMIUM/1/
USING GUARANTEED MAXIMUM CONTRACTUAL CHARGES/2/
-- ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF --
[Download Table]
0% GROSS 6% GROSS
-0.94% NET 5.06% NET
[Enlarge/Download Table]
CASH CASH
POLICY ATTAINED ANNUAL ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR(3) AGE PREMIUM VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------- -------- ------- ------------ --------- ------- ------------ --------- -------
1 45 4,800 1,460 0 500,000 1,631 0 500,000
2 46 4,800 2,788 0 500,000 3,221 0 500,000
3 47 4,800 3,977 0 500,000 4,759 0 500,000
4 48 4,800 5,080 0 500,000 6,295 0 500,000
5 49 4,800 6,087 0 500,000 7,818 0 500,000
6 50 4,800 6,966 0 500,000 9,293 0 500,000
7 51 4,800 7,701 0 500,000 10,699 0 500,000
8 52 4,800 8,244 0 500,000 11,983 0 500,000
9 53 4,800 8,585 0 500,000 13,126 510 500,000
10 54 4,800 8,673 0 500,000 14,067 3,553 500,000
15 59 4,800 12,105 12,105 500,000 23,273 23,273 500,000
20 64 4,800 4,555 4,555 500,000 22,961 23,961 500,000
25 69 4,800 0 0 0 1,968 1,968 500,000
30 74 0 0 0 0 0 0 0
/1/ A premium payment of $4,800 is assumed to be paid annually at the
beginning of each policy year.
/2/ The actual cost of insurance charges of a Policy depends on a variety of
factors as described in the prospectus. The initial assumed monthly cost of
insurance (COI) rate per $1,000 of insurance, for a male, age 45, preferred
select non-tobacco risk class used for the purposes of this illustration is
$0.19. The cost of insurance charge will increase as the insured ages.
/3/ Assumes that no policy loans have been made, no partial surrenders have
been made, that no transfer charges were incurred and that no optional
Agreements have been requested.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY THE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFITS AND
POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0 AND 6 PERCENT OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY
WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE FUNDS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
VUL Defender 9
VUL DEFENDER
DEATH BENEFIT OPTION--LEVEL OPTION
ASSUMING GUIDELINE PREMIUM TEST
MALE ISSUE AGE 45, PREFERRED SELECT NON-TOBACCO
INITIAL FACE AMOUNT -- $500,000
$4,800 ANNUAL PREMIUM/1/
USING CURRENT CHARGES/2/
-- ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF --
[Download Table]
0% GROSS 6% GROSS
-0.75% NET 5.25% NET
[Enlarge/Download Table]
CASH CASH
POLICY ATTAINED ANNUAL ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR(3) AGE PREMIUM VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------- -------- ------- ------------ --------- ------- ------------ --------- ---------
1 45 4,800 2,520 0 500,000 2,730 0 500,000
2 46 4,800 4,984 0 500,000 5,565 0 500,000
3 47 4,800 7,390 0 500,000 8,509 0 500,000
4 48 4,800 9,758 0 500,000 11,588 0 500,000
5 49 4,800 12,085 0 500,000 14,804 0 500,000
6 50 4,800 14,359 0 500,000 18,155 2,513 500,000
7 51 4,800 16,574 1,295 500,000 21,640 6,361 500,000
8 52 4,800 18,712 3,799 500,000 25,247 10,335 500,000
9 53 4,800 20,766 8,150 500,000 28,978 16,362 500,000
10 54 4,800 22,718 12,205 500,000 32,820 22,307 500,000
15 59 4,800 38,431 38,431 500,000 62,663 62,663 500,000
20 64 4,800 49,851 49,851 500,000 97,573 97,573 500,000
25 69 4,800 54,484 54,484 500,000 137,059 137,059 500,000
30 74 4,800 49,604 49,604 500,000 181,623 181,623 500,000
35 79 4,800 27,214 27,214 500,000 229,824 229,824 500,000
40 84 4,800 0 0 0 278,879 278,879 500,000
45 89 4,800 0 0 0 327,781 327,781 500,000
50 94 4,800 0 0 0 380,670 380,670 500,000
55 99 4,800 0 0 0 460,603 460,603 500,000
60 104 4,800 0 0 0 615,939 615,939 615,939
65 109 4,800 0 0 0 821,900 821,900 821,900
70 114 4,800 0 0 0 1,087,908 1,087,908 1,087,908
75 119 4,800 0 0 0 1,431,470 1,431,470 1,431,470
/1/ A premium payment of $4,800 is assumed to be paid annually at the
beginning of each policy year.
/2/ The actual cost of insurance charges of a Policy depends on a variety of
factors as described in the prospectus. The initial assumed monthly cost of
insurance (COI) rate per $1,000 of insurance, for a male, age 45, preferred
select non-tobacco risk class used for the purposes of this illustration is
$0.07. The cost of insurance charge will increase as the insured ages.
/3/ Assumes that no policy loans have been made, no partial surrenders have
been made, that no transfer charges were incurred and that no optional
Agreements have been requested.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY THE
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY THE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFITS AND
POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0 AND 6 PERCENT OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY
WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE FUNDS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
VUL Defender 10
EXPERTS
Actuarial matters included in the prospectus have been examined by Robert J.
Ehren, Senior Vice President.
The financial statements of the Minnesota Life Individual Variable Universal
Life Account as of December 31, 2013, and the consolidated financial statements
and supplementary schedules of Minnesota Life Insurance Company and
subsidiaries (the Company) as of December 31, 2013 have been audited by our
independent registered public accounting firm, KPMG LLP, 4200 Wells Fargo
Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, whose reports
thereon appears elsewhere herein, and have been so included in reliance upon
the reports of KPMG LLP and upon the authority of said firm as experts in
accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act
of 1933 as amended, with respect to the Policy discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information as to the contents of the Policy and other legal instruments are
summaries. For a complete statement of the terms of these documents, reference
is made to such instruments as filed.
VUL Defender 11
[KPMG LOGO]
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Financial Statements
December 31, 2013 and 2012
(With Report of Independent Registered Public Accounting Firm Thereon)
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
TABLE OF CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm 1
Statements of Assets and Liabilities 2
Statements of Operations 12
Statements of Changes in Net Assets 22
Notes to Financial Statements 32
[KPMG LOGO]
KPMG LLP
4200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of Minnesota Life Insurance Company and
Policy Owners of Minnesota Life Individual Variable Universal Life Account:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Minnesota Life Individual Variable Universal Life Account (the
Variable Account) as of December 31, 2013, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Variable Account's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Investments owned at December 31, 2013
were confirmed to us by the respective sub-account mutual fund or their transfer
agents, or for Securian Funds Trust, verified by examination of the underlying
portfolios. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the assets and liabilities of
the sub-accounts of Minnesota Life Individual Variable Universal Life Account as
of December 31, 2013, the results of operations for the year then ended, the
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Minneapolis, Minnesota
March 31, 2014
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
("KPMG International"), a Swiss entity.
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
ALLIANBERN FIDELITY VIP FRANKLIN VIP IBBOTSON IBBOTSON
VPS INTL VAL EQUITY-INCOME FIDELITY VIP SM CAP VAL AGGRESSIVE BALANCED
CL A IC MID CAP IC CL 1 GRWTH ETF1 ETF1
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 386,928 1,270,943 1,501,085 1,872,118 15,683,666 6,573,146
Receivable from Minnesota Life
for policy purchase payments 2 33 357 377 -- 356
Receivable for investments sold -- -- -- -- 15,338 --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 386,930 1,270,976 1,501,442 1,872,495 15,699,004 6,573,502
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- 15,338 --
Payable for investments purchased 2 33 357 377 -- 356
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 2 33 357 377 15,338 356
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 386,928 1,270,943 1,501,085 1,872,118 15,683,666 6,573,146
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 386,928 1,270,943 1,501,085 1,872,118 15,683,666 6,573,146
Investment shares 25,812 54,570 41,250 76,288 1,366,173 587,938
Investments at cost $ 350,069 1,123,854 1,325,022 1,293,348 12,901,088 6,060,406
See accompanying notes to financial statements.
(continued)
2
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
IBBOTSON IBBOTSON
CONSERVATIVE IBBOTSON INCOME & IVY VIP ASSET IVY VIP
ETF1 GROWTH ETF1 GROWTH ETF1 STRATEGY BALANCED IVY VIP BOND
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 1,979,971 42,171,285 1,845,599 6,922,598 100,831 304,382
Receivable from Minnesota Life 7 1,334 6 4,097 1 4
for policy purchase payments -- -- -- -- -- --
Receivable for investments sold -------------- -------------- -------------- -------------- -------------- --------------
1,979,978 42,172,619 1,845,605 6,926,695 100,832 304,386
Total assets -------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- -- --
Payable for investments purchased 7 1,334 6 4,097 1 4
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 7 1,334 6 4,097 1 4
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 1,979,971 42,171,285 1,845,599 6,922,598 100,831 304,382
============== ============== ============== ============== ============== ==============
Policy owners' equity
Total policy owners' equity $ 1,979,971 42,171,285 1,845,599 6,922,598 100,831 304,382
Investment shares 176,154 3,865,379 169,321 522,515 9,641 55,449
Investments at cost $ 1,994,021 36,268,810 1,793,211 5,275,270 93,236 317,836
See accompanying notes to financial statements.
(continued)
3
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
IVY VIP CORE IVY VIP IVY VIP IVY VIP GLBL IVY VIP IVY VIP
EQUITY DIVIDEND OPP ENERGY NATURAL RES GLOBAL BOND GROWTH
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 1,079,795 341,783 246,511 1,484,267 24,574 1,072,202
Receivable from Minnesota Life
for policy purchase payments 93 220 139 298 40 153
Receivable for investments sold -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 1,079,888 342,003 246,650 1,484,565 24,614 1,072,355
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- -- --
Payable for investments purchased 93 220 139 298 40 153
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 93 220 139 298 40 153
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 1,079,795 341,783 246,511 1,484,267 24,574 1,072,202
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 1,079,795 341,783 246,511 1,484,267 24,574 1,072,202
Investment shares 71,353 37,790 32,852 273,200 4,766 80,419
Investments at cost $ 884,668 260,247 196,320 1,477,205 24,208 843,711
See accompanying notes to financial statements.
(continued)
4
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
IVY VIP IVY VIP
IVY VIP HIGH IVY VIP INTL IVY VIP INTL LIMITED-TERM MICRO CAP IVY VIP MID
INCOME CORE EQUITY GROWTH BOND GROWTH CAP GROWTH
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 534,171 1,276,750 600,340 26,287 350,936 397,389
Receivable from Minnesota Life
for policy purchase payments 279 504 47 -- 44 45
Receivable for investments sold -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 534,450 1,277,254 600,387 26,287 350,980 397,434
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and -- -- -- -- -- --
expense charges
Payable for investments purchased 279 504 47 -- 44 45
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 279 504 47 -- 44 45
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 534,171 1,276,750 600,340 26,287 350,936 397,389
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 534,171 1,276,750 600,340 26,287 350,936 397,389
Investment shares 133,680 64,644 61,166 5,378 11,044 37,058
Investments at cost $ 487,846 1,046,137 496,740 26,861 232,709 310,191
See accompanying notes to financial statements.
(continued)
5
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
IVY VIP IVY VIP IVY VIP IVY VIP IVY VIP
IVY VIP PATHFINDER PATHFINDER PATHFINDER PATHFINDER PATHFINDER
MONEY MARKET AGGRESSIVE CONSERV MOD AGGR MOD CONS MODERATE
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 19,764 3,035,588 54,155 5,816,512 780,257 3,030,456
Receivable from Minnesota Life
for policy purchase payments -- 463 1 1,121 -- 133
Receivable for investments sold -- -- -- -- 4,312 --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 19,764 3,036,051 54,156 5,817,633 784,569 3,030,589
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- 4,312 --
Payable for investments purchased -- 463 1 1,121 -- 133
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities -- 463 1 1,121 4,312 133
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 19,764 3,035,588 54,155 5,816,512 780,257 3,030,456
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 19,764 3,035,588 54,155 5,816,512 780,257 3,030,456
Investment shares 19,764 510,406 9,387 912,022 129,289 493,897
Investments at cost $ 19,764 2,497,753 50,798 4,786,668 697,153 2,584,110
See accompanying notes to financial statements.
6
(continued)
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
IVY VIP
IVY VIP REAL SCIENCE & IVY VIP SMALL IVY VIP SMALL JANUS ASPEN
ESTATE SEC TECH CAP GROWTH CAP VALUE IVY VIP VALUE JANUS IS
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 159,735 1,725,183 377,256 242,796 231,649 1,053,176
Receivable from Minnesota Life
for policy purchase payments 2 333 5 99 3 87
Receivable for investments sold -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 159,737 1,725,516 377,261 242,895 231,652 1,053,263
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- -- --
Payable for investments purchased 2 333 5 99 3 87
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 2 333 5 99 3 87
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 159,735 1,725,183 377,256 242,796 231,649 1,053,176
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 159,735 1,725,183 377,256 242,796 231,649 1,053,176
Investment shares 20,216 64,896 27,423 12,200 29,639 30,795
Investments at cost $ 120,389 1,214,263 270,796 196,210 173,305 748,298
See accompanying notes to financial statements.
(continued)
7
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
SFT
MORGSTANLEY SFT ADVANTUS SFT SFT
JANUS ASPEN UIF EMG MK ADVANTUS INDEX 400 MC ADVANTUS ADVANTUS INTL
OVERSEAS IS EQ CL 2 BOND CL 1 CL 1 INDEX 500 CL 1 BOND CL 1
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 1,845,901 991,519 789,304 730,984 1,491,004 755,909
Receivable from Minnesota Life
for policy purchase payments 172 62 127 1 4 104
Receivable for investments sold -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 1,846,073 991,581 789,431 730,985 1,491,008 756,013
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and -- -- -- -- -- --
expense charges
Payable for investments purchased 172 62 127 1 4 104
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 172 62 127 1 4 104
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 1,845,901 991,519 789,304 730,984 1,491,004 755,909
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 1,845,901 991,519 789,304 730,984 1,491,004 755,909
Investment shares 43,929 67,727 391,478 219,938 218,558 306,229
Investments at cost $ 1,813,189 957,031 743,993 545,263 1,154,466 693,111
See accompanying notes to financial statements.
(continued)
8
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
SFT SFT VANGUARD VI VANGUARD VI
ADVANTUS ADVANTUS REAL VANGUARD VI CAPITAL DIVERSIFIED VANGUARD VI
MORTGAGE CL 1 ESTATE CL 1 BALANCED GROWTH VALUE EQUITY INCOME
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 168,258 919,084 895,360 1,481,119 578,821 1,709,931
Receivable from Minnesota Life
for policy purchase payments 167 55 -- -- -- 20
Receivable for investments sold -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 168,425 919,139 895,360 1,481,119 578,821 1,709,951
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- -- --
Payable for investments purchased 167 55 -- -- -- 20
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 167 55 -- -- -- 20
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 168,258 919,084 895,360 1,481,119 578,821 1,709,931
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 168,258 919,084 895,360 1,481,119 578,821 1,709,931
Investment shares 97,220 292,402 37,843 62,759 31,979 76,473
Investments at cost $ 166,692 811,363 767,668 1,127,879 428,884 1,297,859
See accompanying notes to financial statements.
(continued)
9
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
VANGUARD VI VANGUARD VI VANGUARD VI VANGUARD VI
HIGH YIELD VANGUARD VI VANGUARD VI SHT-TRM INV- SMALL CO TOTAL BOND
BOND INTERNATIONAL MONEY MARKET GR GROWTH MARKET
-------------- -------------- -------------- -------------- -------------- --------------
Assets:
Investments at net asset value $ 668,608 1,210,004 535,214 381,703 1,948,415 927,494
Receivable from Minnesota Life
for policy purchase payments 10 -- 2 -- 15 --
Receivable for investments sold -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 668,618 1,210,004 535,216 381,703 1,948,430 927,494
-------------- -------------- -------------- -------------- -------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- -- -- -- -- --
Payable for investments purchased 10 -- -- -- 15 --
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities 10 -- -- -- 15 --
-------------- -------------- -------------- -------------- -------------- --------------
Net assets applicable to policy
owners $ 668,608 1,210,004 535,216 381,703 1,948,415 927,494
============== ============== ============== ============== ============== ==============
Policy owners' equity:
Total policy owners' equity $ 668,608 1,210,004 535,216 381,703 1,948,415 927,494
Investment shares 81,142 54,309 535,214 35,740 72,432 79,070
Investments at cost $ 639,120 977,898 535,214 382,734 1,422,646 959,416
See accompanying notes to financial statements.
(continued)
10
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Assets and Liabilities
December 31, 2013
[Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------
VANGUARD VI
TOTAL STOCK
MARKET TOTAL
-------------- --------------
Assets:
Investments at net asset value $ 834,923 123,437,639
Receivable from Minnesota Life
for policy purchase payments -- 11,422
Receivable for investments sold -- 19,650
-------------- --------------
Total assets 834,923 123,468,711
-------------- --------------
Liabilities:
Payable to Minnesota Life for
policy terminations, withdrawal
payments and mortality and
expense charges -- 19,650
Payable for investments purchased -- 11,420
-------------- --------------
Total liabilities -- 31,070
-------------- --------------
Net assets applicable to policy
owners $ 834,923 123,437,641
============== ==============
Policy owners' equity:
Total policy owners' equity $ 834,923 123,437,641
Investment shares 26,083 12,754,299
Investments at cost $ 682,573 104,549,520
See accompanying notes to financial statements.
11
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
ALLIANBERN FIDELITY VIP FRANKLIN VIP IBBOTSON IBBOTSON
VPS INTL VAL EQUITY-INCOME FIDELITY VIP SM CAP VAL AGGRESSIVE BALANCED
CL A IC MID CAP IC CL 1 GRWTH ETF1 ETF1
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income
distributions from
underlying mutual fund $ 21,172 29,206 6,725 21,813 187,622 101,480
Mortality, expense charges and
administrative charges (note 3) 492 1,048 1,201 2,250 15,166 6,453
------------- ------------- ------------- ------------- ------------- -------------
Investment income
(loss) - net 21,664 30,254 7,926 24,063 202,788 107,933
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- 76,856 167,682 24,155 109,441 34,106
Realized gains (losses) on sales
of investments:
Proceeds from sales 36,938 199,665 148,814 165,653 505,835 287,316
Cost of investments sold (38,436) (144,714) (96,486) (93,412) (298,267) (253,114)
------------- ------------- ------------- ------------- ------------- -------------
(1,498) 54,951 52,328 72,241 207,568 34,202
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments (1,498) 131,807 220,010 96,396 317,009 68,308
Net change in unrealized
appreciation or
(depreciation) of investments 49,157 92,024 142,950 350,640 1,653,635 446,490
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments 47,659 223,831 362,960 447,036 1,970,644 514,798
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 69,323 254,085 370,886 471,099 2,173,432 622,731
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
12
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IBBOTSON IBBOTSON
CONSERVATIVE IBBOTSON INCOME & IVY VIP ASSET IVY VIP
ETF1 GROWTH ETF1 GROWTH ETF1 STRATEGY BALANCED IVY VIP BOND
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income
distributions from underlying
mutual fund $ 30,397 533,462 31,503 69,655 919 12,698
Mortality, expense charges and
administrative charges (note 3) 2,320 42,617 2,213 24,959 305 1,498
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss)
- net 32,717 576,079 33,716 94,614 1,224 14,196
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions
from underlying mutual fund 24,202 49,206 17,211 -- 5,285 6,005
Realized gains (losses) on sales
of investments:
Proceeds from sales 435,156 1,523,311 802,589 247,480 7,827 108,256
Cost of investments sold (413,320) (959,502) (744,023) (177,352) (6,236) (110,542)
------------- ------------- ------------- ------------- ------------- -------------
21,836 563,809 58,566 70,128 1,591 (2,286)
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments 46,038 613,015 75,777 70,128 6,876 3,719
Net change in unrealized
appreciation or
(depreciation)of investments (22,312) 4,347,339 12,512 1,144,138 6,449 (24,311)
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments 23,726 4,960,354 88,289 1,214,266 13,325 (20,592)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 56,443 5,536,433 122,005 1,308,880 14,549 (6,396)
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
13
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP CORE IVY VIP IVY VIP IVY VIP GLBL IVY VIP IVY VIP
EQUITY DIVIDEND OPP ENERGY NATURAL RES GLOBAL BOND GROWTH
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 4,268 4,490 -- -- -- 3,447
Mortality, expense charges and
administrative charges (note 3) 3,708 1,281 946 5,781 67 3,736
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss)
- net 7,976 5,771 946 5,781 67 7,183
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 62,834 6,101 716 -- -- 61,625
Realized gains (losses) on sales
of investments:
Proceeds from sales 76,281 22,066 14,343 71,595 921 47,522
Cost of investments sold (54,082) (12,574) (8,138) (53,874) (910) (36,012)
------------- ------------- ------------- ------------- ------------- -------------
22,199 9,492 6,205 17,721 11 11,510
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments 85,033 15,593 6,921 17,721 11 73,135
Net change in unrealized
appreciation or (depreciation)
of investments 150,099 52,886 42,031 79,592 364 188,906
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments 235,132 68,479 48,952 97,313 375 262,041
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 243,108 74,250 49,898 103,094 442 269,224
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
14
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP IVY VIP
IVY VIP HIGH IVY VIP INTL IVY VIP INTL LIMITED-TERM MICRO CAP IVY VIP MID
INCOME CORE EQUITY GROWTH BOND GROWTH CAP GROWTH
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 19,622 15,469 4,250 -- -- --
Mortality, expense charges and
administrative charges (note 3) 1,942 4,447 2,195 97 1,268 1,461
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss) - net 21,564 19,916 6,445 97 1,268 1,461
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- -- 9,093 23 11,567 10,442
Realized gains (losses) on sales
of investments:
Proceeds from sales 37,137 60,022 24,597 2,730 37,578 32,293
Cost of investments sold (30,208) (47,558) (18,383) (2,811) (19,641) (14,929)
------------- ------------- ------------- ------------- ------------- -------------
6,929 12,464 6,214 (81) 17,937 17,364
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
investments 6,929 12,464 15,307 (58) 29,504 27,806
Net change in unrealized
appreciation or (depreciation)
of investments 16,096 199,282 69,766 (85) 97,970 56,730
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments 23,025 211,746 85,073 (143) 127,474 84,536
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations $ 44,589 231,662 91,518 (46) 128,742 85,997
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
15
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP IVY VIP IVY VIP IVY VIP IVY VIP
IVY VIP PATHFINDER PATHFINDER PATHFINDER PATHFINDER PATHFINDER
MONEY MARKET AGGRESSIVE CONSERV MOD AGGR MOD CONS MODERATE
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 4 181,159 2,708 265,367 37,753 115,039
Mortality, expense charges and
administrative charges (note 3) 93 11,367 225 22,593 2,950 11,284
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss) - net 97 192,526 2,933 287,960 40,703 126,323
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- -- -- -- -- --
Realized gains (losses) on sales
of investments:
Proceeds from sales 10,418 134,713 7,784 425,282 48,416 147,060
Cost of investments sold (10,418) (90,853) (7,300) (350,882) (35,477) (120,202)
------------- ------------- ------------- ------------- ------------- -------------
-- 43,860 484 74,400 12,939 26,858
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments -- 43,860 484 74,400 12,939 26,858
Net change in unrealized
appreciation or (depreciation)
of investments -- 382,816 3,587 736,134 57,280 336,717
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments -- 426,676 4,071 810,534 70,219 363,575
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 97 619,202 7,004 1,098,494 110,922 489,898
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
16
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP
IVY VIP REAL SCIENCE & IVY VIP SMALL IVY VIP SMALL JANUS ASPEN
ESTATE SEC TECH CAP GROWTH CAP VALUE IVY VIP VALUE JANUS IS
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 1,726 -- -- 1,741 1,503 7,003
Mortality, expense charges and
administrative charges (note 3) 706 5,491 1,365 932 867 876
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss) - net 2,432 5,491 1,365 2,673 2,370 7,879
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- 66,977 -- 12,882 4,828 --
Realized gains (losses) on sales
of investments:
Proceeds from sales 12,334 173,247 22,644 21,456 17,846 94,960
Cost of investments sold (5,539) (109,474) (14,016) (13,370) (9,545) (55,557)
------------- ------------- ------------- ------------- ------------- -------------
6,795 63,773 8,628 8,086 8,301 39,403
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments 6,795 130,750 8,628 20,968 13,129 39,403
Net change in unrealized
appreciation or (depreciation)
of investments (7,205) 421,383 100,019 35,088 42,180 188,832
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments (410) 552,133 108,647 56,056 55,309 228,235
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 2,022 557,624 110,012 58,729 57,679 236,114
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
17
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
SFT SFT
MORGSTANLEY SFT ADVANTUS ADVANTUS SFT
JANUS ASPEN UIF EMG MK ADVANTUS INDEX 400 MC INDEX 500 ADVANTUS INTL
OVERSEAS IS EQ CL 2 BOND CL 1 CL 1 CL 1 BOND CL 1
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 50,386 9,247 -- -- -- --
Mortality, expense charges and
administrative charges (note 3) 1,591 2,966 341 281 1,045 --
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss) -
net 51,977 12,213 341 281 1,045 --
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions
from underlying mutual fund -- -- -- -- -- --
Realized gains (losses) on
sales of investments:
Proceeds from sales 218,631 90,218 111,063 93,703 138,199 96,664
Cost of investments sold (250,553) (72,838) (86,727) (56,986) (89,598) (71,671)
------------- ------------- ------------- ------------- ------------- -------------
(31,922) 17,380 24,336 36,717 48,601 24,993
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments (31,922) 17,380 24,336 36,717 48,601 24,993
Net change in unrealized
appreciation or (depreciation)
of investments 203,281 (29,936) (26,616) 120,666 241,241 (21,898)
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments 171,359 (12,556) (2,280) 157,383 289,842 3,095
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 223,336 (343) (1,939) 157,664 290,887 3,095
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
18
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
SFT SFT VANGUARD VI VANGUARD VI
ADVANTUS ADVANTUS REAL VANGUARD VI CAPITAL DIVERSIFIED VANGUARD VI
MORTGAGE CL 1 ESTATE CL 1 BALANCED GROWTH VALUE EQUITY INCOME
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ -- -- 16,254 10,510 9,764 28,453
Mortality, expense charges and
administrative charges (note 3) 91 840 -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss) -
net 91 840 16,254 10,510 9,764 28,453
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- -- 14,185 19,759 -- --
Realized gains (losses) on sales
of investments:
Proceeds from sales 93,088 90,229 128,350 72,218 32,477 80,612
Cost of investments sold (83,440) (44,106) (98,835) (43,651) (22,708) (53,522)
------------- ------------- ------------- ------------- ------------- -------------
9,648 46,123 29,515 28,567 9,769 27,090
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments 9,648 46,123 43,700 48,326 9,769 27,090
Net change in unrealized
appreciation or (depreciation)
of investments (12,568) (41,111) 73,898 276,200 101,538 280,616
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments (2,920) 5,012 117,598 324,526 111,307 307,706
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ (2,829) 5,852 133,852 335,036 121,071 336,159
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
19
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
VANGUARD VI VANGUARD VI VANGUARD VI VANGUARD VI
HIGH YIELD VANGUARD VI VANGUARD VI SHT-TRM INV- SMALL CO TOTAL BOND
BOND INTERNATIONAL MONEY MARKET GR GROWTH MARKET
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 26,135 10,516 636 6,665 8,837 22,068
Mortality, expense charges and
administrative charges (note 3) -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Investment income (loss) -
net 26,135 10,516 636 6,665 8,837 22,068
------------- ------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- -- -- 2,553 97,594 9,808
Realized gains (losses) on sales
of investments:
Proceeds from sales 86,585 64,767 199,666 12,779 151,731 122,090
Cost of investments sold (76,142) (50,821) (199,666) (12,570) (88,643) (120,512)
------------- ------------- ------------- ------------- ------------- -------------
10,443 13,946 -- 209 63,088 1,578
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses)
on investments 10,443 13,946 -- 2,762 160,682 11,386
Net change in unrealized
appreciation or (depreciation)
of investments (10,568) 176,776 -- (5,651) 385,605 (52,770)
------------- ------------- ------------- ------------- ------------- -------------
Net gains (losses) on
investments (125) 190,722 -- (2,889) 546,287 (41,384)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 26,010 201,238 636 3,776 555,124 (19,316)
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
20
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Operations
Year ended December 31, 2013
[Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------
VANGUARD VI
TOTAL STOCK
MARKET TOTAL
------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 8,524 1,920,196
Mortality, expense charges and
administrative charges (note 3) -- 193,355
------------- -------------
Investment income (loss) -
net 8,524 2,113,551
------------- -------------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 19,694 924,830
Realized gains (losses) on sales
of investments:
Proceeds from sales 97,821 7,992,976
Cost of investments sold (76,431) (6,056,577)
------------- -------------
21,390 1,936,399
------------- -------------
Net realized gains (losses)
on investments 41,084 2,861,229
Net change in unrealized
appreciation or (depreciation)
of investments 128,676 13,236,558
------------- -------------
Net gains (losses) on
investments 169,760 16,097,787
------------- -------------
Net increase (decrease) in
net assets resulting from
operations $ 178,284 18,211,338
============= =============
See accompanying notes to financial statements.
21
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
ALLIANBERN FIDELITY VIP FIDELITY FRANKLIN IBBOTSON IBBOTSON
VPS INTL VAL EQUITY-INCOME VIP MID VIP SM CAP AGGRESSIVE BALANCED
CL A IC CAP IC VAL CL 1 GRWTH ETF1 ETF1
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 4,857 26,334 6,629 11,424 138,081 79,485
Net realized gains (losses) on
investments 4,129 69,823 102,196 28,668 80,213 221,759
Net change in unrealized
appreciation or
(depreciation)of investments 26,537 13,767 (2,252) 136,755 848,988 110,664
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting
from operations 35,523 109,924 106,573 176,847 1,067,282 411,908
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and
6):
Policy purchase payments 63,330 249,630 275,925 301,587 2,687,261 1,078,903
Policy terminations, withdrawal
payments and charges (22,060) (57,187) (60,927) (60,705) (188,983) (268,025)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 41,270 192,443 214,998 240,882 2,498,278 810,878
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 76,793 302,367 321,571 417,729 3,565,560 1,222,786
Net assets at the beginning of
year 212,055 546,402 629,376 781,046 6,338,321 3,375,799
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 288,848 848,769 950,947 1,198,775 9,903,881 4,598,585
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 21,664 30,254 7,926 24,063 202,788 107,933
Net realized gains (losses) on
investments (1,498) 131,807 220,010 96,396 317,009 68,308
Net change in unrealized
appreciation or
(depreciation)of investments 49,157 92,024 142,950 350,640 1,653,635 446,490
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 69,323 254,085 370,886 471,099 2,173,432 622,731
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and
6):
Policy purchase payments 65,827 368,072 328,388 368,506 4,114,803 1,641,637
Policy terminations, withdrawal
payments and charges (37,070) (199,983) (149,136) (166,262) (508,450) (289,807)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 28,757 168,089 179,252 202,244 3,606,353 1,351,830
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 98,080 422,174 550,138 673,343 5,779,785 1,974,561
Net assets at the beginning of year 288,848 848,769 950,947 1,198,775 9,903,881 4,598,585
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 386,928 1,270,943 1,501,085 1,872,118 15,683,666 6,573,146
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(Continued)
22
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IBBOTSON IBBOTSON
CONSERVATIVE IBBOTSON INCOME & IVY VIP ASSET IVY VIP
ETF1 GROWTH ETF1 GROWTH ETF1 STRATEGY BALANCED IVY VIP BOND
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 29,863 450,823 31,478 56,344 706 8,239
Net realized gains (losses) on
investments 57,969 2,290,700 61,097 14,955 2,391 6,828
Net change in unrealized
appreciation or
(depreciation)of investments (1,338) 412,254 15,738 562,334 798 1,685
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 86,494 3,153,777 108,313 633,633 3,895 16,752
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and
6):
Policy purchase payments 661,760 6,137,281 463,270 1,189,891 22,180 147,898
Policy terminations, withdrawal
payments and charges (358,402) (1,062,541) (120,930) (96,104) (2,976) (65,219)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 303,358 5,074,740 342,340 1,093,787 19,204 82,679
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 389,852 8,228,517 450,653 1,727,420 23,099 99,431
Net assets at the beginning
of year 1,427,920 21,492,750 1,231,164 2,766,037 26,717 237,759
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 1,817,772 29,721,267 1,681,817 4,493,457 49,816 337,190
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 32,717 576,079 33,716 94,614 1,224 14,196
Net realized gains (losses) on
investments 46,038 613,015 75,777 70,128 6,876 3,719
Net change in unrealized
appreciation or
(depreciation)of investments (22,312) 4,347,339 12,512 1,144,138 6,449 (24,311)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 56,443 5,536,433 122,005 1,308,880 14,549 (6,396)
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and
6):
Policy purchase payments 542,288 8,446,011 845,658 1,373,275 44,417 82,410
Policy terminations, withdrawal
payments and charges (436,532) (1,532,426) (803,881) (253,014) (7,951) (108,822)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 105,756 6,913,585 41,777 1,120,261 36,466 (26,412)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 162,199 12,450,018 163,782 2,429,141 51,015 (32,808)
Net assets at the beginning of
year 1,817,772 29,721,267 1,681,817 4,493,457 49,816 337,190
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 1,979,971 42,171,285 1,845,599 6,922,598 100,831 304,382
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(Continued)
23
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP CORE IVY VIP IVY VIP IVY VIP GLBL IVY VIP IVY VIP
EQUITY DIVIDEND OPP ENERGY NATURAL RES GLOBAL BOND GROWTH
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 5,287 2,799 610 4,156 257 2,917
Net realized gains (losses) on
investments 59,470 2,908 2,335 66,825 17 48,197
Net change in unrealized
appreciation or
(depreciation)of investments 21,332 15,540 (700) (47,028) 94 16,617
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from operations 86,089 21,247 2,245 23,953 368 67,731
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and
6):
Policy purchase payments 165,501 69,787 51,200 349,927 5,128 161,474
Policy terminations, withdrawal
payments and charges (45,526) (9,546) (5,947) (44,568) (593) (41,461)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 119,975 60,241 45,253 305,359 4,535 120,013
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 206,064 81,488 47,498 329,312 4,903 187,744
Net assets at the beginning of
year 404,124 137,058 117,731 752,483 3,861 466,857
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 610,188 218,546 165,229 1,081,795 8,764 654,601
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 7,976 5,771 946 5,781 67 7,183
Net realized gains (losses) on
investments 85,033 15,593 6,921 17,721 11 73,135
Net change in unrealized
appreciation or
(depreciation)of investments 150,099 52,886 42,031 79,592 364 188,906
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 243,108 74,250 49,898 103,094 442 269,224
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and
6):
Policy purchase payments 303,683 71,640 46,121 372,304 16,312 197,156
Policy terminations, withdrawal
payments and charges (77,184) (22,653) (14,737) (72,926) (944) (48,779)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 226,499 48,987 31,384 299,378 15,368 148,377
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 469,607 123,237 81,282 402,472 15,810 417,601
Net assets at the beginning of
year 610,188 218,546 165,229 1,081,795 8,764 654,601
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 1,079,795 341,783 246,511 1,484,267 24,574 1,072,202
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(Continued)
24
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP IVY VIP
IVY VIP HIGH IVY VIP INTL IVY VIP INTL LIMITED-TERM MICRO CAP IVY VIP MID
INCOME CORE EQUITY GROWTH BOND GROWTH CAP GROWTH
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 18,220 17,039 7,829 458 856 950
Net realized gains (losses) on
investments 7,361 15,711 26,535 387 18,671 24,187
Net change in unrealized
appreciation or
(depreciation) of investments 22,982 48,114 24,953 (504) 931 931
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 48,563 80,864 59,317 341 20,458 26,068
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3
and 6):
Policy purchase payments 111,895 268,292 98,356 12,266 49,023 66,352
Policy terminations, withdrawal
payments and charges (28,350) (37,765) (16,868) (1,962) (12,554) (8,349)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 83,545 230,527 81,488 10,304 36,469 58,003
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 132,108 311,391 140,805 10,645 56,927 84,071
Net assets at the beginning of
year 222,666 462,770 280,317 3,111 156,528 166,360
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 354,774 774,161 421,122 13,756 213,455 250,431
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 21,564 19,916 6,445 97 1,268 1,461
Net realized gains (losses) on
investments 6,929 12,464 15,307 (58) 29,504 27,806
Net change in unrealized
appreciation or
(depreciation) of investments 16,096 199,282 69,766 (85) 97,970 56,730
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 44,589 231,662 91,518 (46) 128,742 85,997
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3
and 6):
Policy purchase payments 172,577 331,918 113,066 15,349 46,932 93,761
Policy terminations, withdrawal
payments and charges (37,769) (60,991) (25,366) (2,772) (38,193) (32,800)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 134,808 270,927 87,700 12,577 8,739 60,961
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 179,397 502,589 179,218 12,531 137,481 146,958
Net assets at the beginning of
year 354,774 774,161 421,122 13,756 213,455 250,431
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 534,171 1,276,750 600,340 26,287 350,936 397,389
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(Continued)
25
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP IVY VIP IVY VIP IVY VIP IVY VIP IVY VIP
MONEY PATHFINDER PATHFINDER PATHFINDER PATHFINDER PATHFINDER
MARKET AGGRESSIVE CONSERV MOD AGGR MOD CONS MODERATE
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 78 25,489 508 46,740 5,209 25,167
Net realized gains (losses) on
investments -- 107,619 1,262 124,275 16,792 79,789
Net change in unrealized
appreciation or
(depreciation) of investments -- 79,363 177 217,477 8,051 66,983
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 78 212,471 1,947 388,492 30,052 171,939
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3
and 6):
Policy purchase payments 5,966 354,372 18,871 1,197,395 88,981 568,127
Policy terminations, withdrawal
payments and charges (1,472) (99,927) (2,657) (194,084) (29,798) (302,529)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 4,494 254,445 16,214 1,003,311 59,183 265,598
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 4,572 466,916 18,161 1,391,803 89,235 437,537
Net assets at the beginning of
year 13,931 1,596,180 21,556 3,045,146 312,500 1,587,740
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 18,503 2,063,096 39,717 4,436,949 401,735 2,025,277
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 97 192,526 2,933 287,960 40,703 126,323
Net realized gains (losses) on
investments -- 43,860 484 74,400 12,939 26,858
Net change in unrealized
appreciation or
(depreciation) of investments -- 382,816 3,587 736,134 57,280 336,717
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting from
operations 97 619,202 7,004 1,098,494 110,922 489,898
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3
and 6):
Policy purchase payments 11,616 492,536 15,273 715,513 317,805 668,035
Policy terminations, withdrawal
payments and charges (10,452) (139,246) (7,839) (434,444) (50,205) (152,754)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy
transactions 1,164 353,290 7,434 281,069 267,600 515,281
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets 1,261 972,492 14,438 1,379,563 378,522 1,005,179
Net assets at the beginning of
year 18,503 2,063,096 39,717 4,436,949 401,735 2,025,277
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 19,764 3,035,588 54,155 5,816,512 780,257 3,030,456
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(Continued)
26
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
IVY VIP
IVY VIP REAL SCIENCE & IVY VIP SMALL IVY VIP SMALL JANUS ASPEN
ESTATE SEC TECH CAP GROWTH CAP VALUE IVY VIP VALUE JANUS IS
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 1,445 2,961 843 1,077 1,966 4,403
Net realized gains (losses) on
investments 3,309 72,196 5,879 10,532 13,865 27,969
Net change in unrealized appreciation
or (depreciation)of investments 15,604 80,480 (102) 7,675 5,015 70,533
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 20,358 155,637 6,620 19,284 20,846 102,905
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 24,364 264,867 80,171 58,960 45,153 133,154
Policy terminations, withdrawal
payments and charges (6,908) (80,860) (6,124) (7,425) (14,554) (42,428)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 17,456 184,007 74,047 51,535 30,599 90,726
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 37,814 339,644 80,667 70,819 51,445 193,631
Net assets at the beginning of year 105,496 506,750 141,384 80,690 94,438 526,883
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 143,310 846,394 222,051 151,509 145,883 720,514
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 2,432 5,491 1,365 2,673 2,370 7,879
Net realized gains (losses) on
investments 6,795 130,750 8,628 20,968 13,129 39,403
Net change in unrealized appreciation
or (depreciation)of investments (7,205) 421,383 100,019 35,088 42,180 188,832
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 2,022 557,624 110,012 58,729 57,679 236,114
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 27,002 496,250 68,368 54,455 46,371 191,800
Policy terminations, withdrawal
payments and charges (12,599) (175,085) (23,175) (21,897) (18,284) (95,252)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 14,403 321,165 45,193 32,558 28,087 96,548
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 16,425 878,789 155,205 91,287 85,766 332,662
Net assets at the beginning of year 143,310 846,394 222,051 151,509 145,883 720,514
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 159,735 1,725,183 377,256 242,796 231,649 1,053,176
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
27
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
SFT SFT
MORGSTANLEY SFT ADVANTUS ADVANTUS SFT
JANUS ASPEN UIF EMG MK ADVANTUS INDEX 400 MC INDEX 500 ADVANTUS INTL
OVERSEAS IS EQ CL 2 BOND CL 1 CL 1 CL 1 BOND CL 1
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 9,623 1,955 259 176 630 --
Net realized gains (losses) on
investments 162,758 10,822 5,391 10,725 11,599 6,802
Net change in unrealized appreciation
or (depreciation)of investments (22,528) 91,028 32,373 41,597 69,131 69,489
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 149,853 103,805 38,023 52,498 81,360 76,291
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 520,693 274,832 171,719 171,110 313,133 158,992
Policy terminations, withdrawal
payments and charges (129,869) (35,448) (24,186) (34,539) (47,668) (23,915)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 390,824 239,384 147,533 136,571 265,465 135,077
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 540,677 343,189 185,556 189,069 346,825 211,368
Net assets at the beginning of year 855,387 412,691 421,404 248,559 420,719 394,770
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 1,396,064 755,880 606,960 437,628 767,544 606,138
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 51,977 12,213 341 281 1,045 --
Net realized gains (losses) on
investments (31,922) 17,380 24,336 36,717 48,601 24,993
Net change in unrealized appreciation
or (depreciation)of investments 203,281 (29,936) (26,616) 120,666 241,241 (21,898)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 223,336 (343) (1,939) 157,664 290,887 3,095
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 445,532 326,662 295,409 229,476 571,128 243,340
Policy terminations, withdrawal
payments and charges (219,031) (90,680) (111,126) (93,784) (138,555) (96,664)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 226,501 235,982 184,283 135,692 432,573 146,676
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 449,837 235,639 182,344 293,356 723,460 149,771
Net assets at the beginning of year 1,396,064 755,880 606,960 437,628 767,544 606,138
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 1,845,901 991,519 789,304 730,984 1,491,004 755,909
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
28
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
SFT SFT VANGUARD VI VANGUARD VI
ADVANTUS ADVANTUS REAL VANGUARD VI CAPITAL DIVERSIFIED VANGUARD VI
MORTGAGE CL 1 ESTATE CL 1 BALANCED GROWTH VALUE EQUITY INCOME
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 98 612 13,415 5,064 7,302 17,759
Net realized gains (losses) on
investments 8,161 26,941 16,095 20,456 16,144 25,171
Net change in unrealized appreciation
or (depreciation)of investments (1,056) 67,961 30,761 53,460 25,985 53,998
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 7,203 95,514 60,271 78,980 49,431 96,928
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 58,155 208,256 185,710 213,267 97,272 309,004
Policy terminations, withdrawal
payments and charges (57,682) (44,137) (79,954) (43,386) (46,399) (76,339)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 473 164,119 105,756 169,881 50,873 232,665
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 7,676 259,633 166,027 248,861 100,304 329,593
Net assets at the beginning of year 196,315 457,859 424,647 435,837 272,862 625,612
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 203,991 717,492 590,674 684,698 373,166 955,205
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 91 840 16,254 10,510 9,764 28,453
Net realized gains (losses) on
investments 9,648 46,123 43,700 48,326 9,769 27,090
Net change in unrealized appreciation
or (depreciation)of investments (12,568) (41,111) 73,898 276,200 101,538 280,616
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations (2,829) 5,852 133,852 335,036 121,071 336,159
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 60,222 286,120 299,184 533,603 117,061 499,179
Policy terminations, withdrawal
payments and charges (93,126) (90,380) (128,350) (72,218) (32,477) (80,612)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions (32,904) 195,740 170,834 461,385 84,584 418,567
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets (35,733) 201,592 304,686 796,421 205,655 754,726
Net assets at the beginning of year 203,991 717,492 590,674 684,698 373,166 955,205
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 168,258 919,084 895,360 1,481,119 578,821 1,709,931
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
29
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
VANGUARD VI VANGUARD VI VANGUARD VI VANGUARD VI
HIGH YIELD VANGUARD VI VANGUARD VI SHT-TRM INV- SMALL CO TOTAL BOND
BOND INTERNATIONAL MONEY MARKET GR GROWTH MARKET
------------- ------------- ------------- ------------- ------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 19,591 8,410 997 6,422 1,768 16,745
Net realized gains (losses) on
investments 6,877 9,698 -- 321 51,957 7,388
Net change in unrealized appreciation
or (depreciation)of investments 25,469 68,860 -- 4,601 53,428 2,174
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 51,937 86,968 997 11,344 107,153 26,307
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 132,532 215,778 283,264 71,182 377,341 275,283
Policy terminations, withdrawal
payments and charges (25,966) (28,398) (274,429) (15,290) (71,039) (32,234)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 106,566 187,380 8,835 55,892 306,302 243,049
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 158,503 274,348 9,832 67,236 413,455 269,356
Net assets at the beginning of year 319,768 338,430 666,599 232,548 620,127 551,033
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 478,271 612,778 676,431 299,784 1,033,582 820,389
============= ============= ============= ============= ============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 26,135 10,516 636 6,665 8,837 22,068
Net realized gains (losses) on
investments 10,443 13,946 -- 2,762 160,682 11,386
Net change in unrealized appreciation
or (depreciation)of investments (10,568) 176,776 -- (5,651) 385,605 (52,770)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations 26,010 201,238 636 3,776 555,124 (19,316)
------------- ------------- ------------- ------------- ------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 250,912 460,755 57,815 90,922 511,440 248,511
Policy terminations, withdrawal
payments and charges (86,585) (64,767) (199,666) (12,779) (151,731) (122,090)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net
assets from policy transactions 164,327 395,988 (141,851) 78,143 359,709 126,421
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets 190,337 597,226 (141,215) 81,919 914,833 107,105
Net assets at the beginning of year 478,271 612,778 676,431 299,784 1,033,582 820,389
------------- ------------- ------------- ------------- ------------- -------------
Net assets at the end of year $ 668,608 1,210,004 535,216 381,703 1,948,415 927,494
============= ============= ============= ============= ============= =============
See accompanying notes to financial statements.
(continued)
30
MINNESOTA LIFE INDIVIDUAL VARIABLE UNIVERSAL LIFE ACCOUNT
Statements of Changes in Net Assets
Years ended December 31, 2013 and 2012
[Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------
VANGUARD VI
TOTAL STOCK
MARKET TOTAL
------------- -------------
Year ended December 31, 2012:
Operations:
Investment income (loss) - net $ 4,751 1,137,104
Net realized gains (losses) on
investments 22,103 4,096,228
Net change in unrealized appreciation
or (depreciation)of investments 17,910 3,465,089
------------- -------------
Net increase (decrease) in net
assets resulting from operations 44,764 8,698,421
------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 133,971 21,699,992
Policy terminations, withdrawal
payments and charges (33,695) (4,530,887)
------------- -------------
Increase (decrease) in net
assets from policy transactions 100,276 17,169,105
------------- -------------
Increase (decrease) in net assets 145,040 25,867,526
Net assets at the beginning of year 245,164 58,412,237
------------- -------------
Net assets at the end of year $ 390,204 84,279,763
============= =============
Year ended December 31, 2013:
Operations:
Investment income (loss) - net $ 8,524 2,113,551
Net realized gains (losses) on
investments 41,084 2,861,229
Net change in unrealized appreciation
or (depreciation)of investments 128,676 13,236,558
------------- -------------
Net increase (decrease) in net
assets resulting from operations 178,284 18,211,338
------------- -------------
Policy transactions (notes 3 and 6):
Policy purchase payments 364,256 28,998,662
Policy terminations, withdrawal
payments and charges (97,821) (8,052,122)
------------- -------------
Increase (decrease) in net
assets from policy transactions 266,435 20,946,540
------------- -------------
Increase (decrease) in net assets 444,719 39,157,878
Net assets at the beginning of year 390,204 84,279,763
------------- -------------
Net assets at the end of year $ 834,923 123,437,641
============= =============
See accompanying notes to financial statements.
31
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Individual Variable Universal Life Account (the Account), was
established on June 12, 2007 as a segregated asset account of Minnesota
Life Insurance Company (Minnesota Life) under Minnesota law and is
registered as a unit investment trust under the Investment Company Act of
1940 (as amended). The Account commenced operations on February 11, 2008.
The Account currently offers policies consisting of fifty-five segregated
sub-accounts to which policy owners may allocate their purchase. The
Account charges a mortality and expense risk charge. The financial
statements presented herein include two types of individual variable
universal life policies, Accumulator Variable Universal Life (2008
inception) and ML Premier Variable Universal Life (2013 inception), offered
by the Account.
The assets of each segregated sub-account are held for the exclusive
benefit of the variable life policy owners and are not chargeable with
liabilities arising out of the business conducted by any other account or
by Minnesota Life.
Variable universal life policy owners allocate their purchase payments to
one or more of the fifty-five segregated sub-accounts. Such payments are
then invested in shares of the following portfolios available under the
policy (collectively, the Underlying Funds):
- AllianceBernstein VPS International Value Portfolio - Class A Shares
(AllianBern VPS Intl Val Cl A)
- Fidelity(R) VIP Fund - Equity-Income Portfolio - Initial Class
(Fidelity VIP Equity-Income IC)
- Fidelity(R) VIP Fund - Mid Cap Portfolio - Initial Class (Fidelity VIP
Mid Cap IC)
- Franklin Templeton VIP Trust Franklin Small Cap Value Securities Fund
- Class 1 (Franklin VIP Sm Cap Val Cl 1)
- ALPS VIT Ibbotson Aggressive Growth ETF Asset Allocation Portfolio -
Class 1 (Ibbotson Aggressive Grwth ETF1)
- ALPS VIT Ibbotson Balanced ETF Asset Allocation Portfolio - Class
1 (Ibbotson Balanced ETF1)
- ALPS VIT Ibbotson Conservative ETF Asset Allocation Portfolio -
Class 1 (Ibbotson Conservative ETF1)
- ALPS VIT Ibbotson Growth ETF Asset Allocation Portfolio - Class 1
(Ibbotson Growth ETF1)
- ALPS VIT Ibbotson Income and Growth ETF Asset Allocation
Portfolio - Class 1 (Ibbotson Income & Growth ETF1)
- Ivy Funds VIP - Asset Strategy (Ivy VIP Asset Strategy)
- Ivy Funds VIP - Balanced (Ivy VIP Balanced)
- Ivy Funds VIP - Bond (Ivy VIP Bond)
- Ivy Funds VIP - Core Equity (Ivy VIP Core Equity)
- Ivy Funds VIP - Dividend Opportunities (Ivy VIP Dividend Opp)
(Continued)
32
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
- Ivy Funds VIP - Energy (Ivy VIP Energy)
- Ivy Funds VIP - Global Natural Resources (Ivy VIP Glbl Natural Res)
- Ivy Funds VIP - Global Bond (Ivy VIP Global Bond)
- Ivy Funds VIP - Growth (Ivy VIP Growth)
- Ivy Funds VIP - High Income (Ivy VIP High Income)
- Ivy Funds VIP - International Core Equity (Ivy VIP Intl Core Equity)
- Ivy Funds VIP - International Growth (Ivy VIP Intl Growth)
- Ivy Funds VIP - Limited-Term Bond (Ivy VIP Limited-Term Bond)
- Ivy Funds VIP - Micro Cap Growth (Ivy VIP Micro Cap Growth)
- Ivy Funds VIP - Mid Cap Growth (Ivy VIP Mid Cap Growth)
- Ivy Funds VIP - Money Market (Ivy VIP Money Market)
- Ivy Funds VIP - Pathfinder Aggressive (Ivy VIP Pathfinder Aggressive)
- Ivy Funds VIP - Pathfinder Conservative (Ivy VIP Pathfinder Conserv)
- Ivy Funds VIP - Pathfinder Moderately Aggressive (Ivy VIP Pathfinder
Mod Aggr)
- Ivy Funds VIP - Pathfinder Moderately Conservative (Ivy VIP Pathfinder
Mod Cons)
- Ivy Funds VIP - Pathfinder Moderate (Ivy VIP Pathfinder Moderate)
- Ivy Funds VIP - Real Estate Securities (Ivy VIP Real Estate Sec)
- Ivy Funds VIP - Science and Technology (Ivy VIP Science & Tech)
- Ivy Funds VIP - Small Cap Growth (Ivy VIP Small Cap Growth)
- Ivy Funds VIP - Small Cap Value (Ivy VIP Small Cap Value)
- Ivy Funds VIP - Value (Ivy VIP Value)
- Janus Aspen Series - Janus Portfolio - Institutional Shares (Janus
Aspen Janus IS)
- Janus Aspen Series - Overseas Portfolio - Institutional Shares (Janus
Aspen Overseas IS)
- The Universal Institutional Funds, Inc. Morgan Stanley UIF Emerging
Markets Equity Portfolio - Class II Shares (MorgStanley UIF Emg Mk Eq
Cl 2)
- Securian Funds Trust - Advantus Bond Fund - Class 1 Shares (SFT
Advantus Bond Cl 1)
- Securian Funds Trust - Advantus Index 400 Mid-Cap Fund - Class 1
Shares (SFT Advantus Index 400 MC Cl 1)
- Securian Funds Trust - Advantus Index 500 Fund - Class 1 Shares (SFT
Advantus Index 500 Cl 1)
(Continued)
33
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
- Securian Funds Trust - Advantus International Bond Fund - Class 1
Shares (SFT Advantus Intl Bond Cl 1)
- Securian Funds Trust - Advantus Mortgage Securities Fund - Class 1
Shares (SFT Advantus Mortgage Cl 1)
- Securian Funds Trust - Advantus Real Estate Securities Fund - Class 1
Shares (SFT Advantus Real Estate Cl 1)
- Vanguard(R) Variable Insurance Fund Balanced Portfolio (Vanguard VI
Balanced)
- Vanguard(R) Variable Insurance Fund Capital Growth Portfolio (Vanguard
VI Capital Growth)
- Vanguard(R) Variable Insurance Fund Diversified Value Portfolio
(Vanguard VI Diversified Value)
- Vanguard(R) Variable Insurance Fund Equity Income Portfolio (Vanguard
VI Equity Income)
- Vanguard(R) Variable Insurance Fund High Yield Bond Portfolio
(Vanguard VI High Yield Bond)
- Vanguard(R) Variable Insurance Fund International Portfolio (Vanguard
VI International)
- Vanguard(R) Variable Insurance Fund Money Market Portfolio (Vanguard
VI Money Market)
- Vanguard(R) Variable Insurance Fund Short-Term Investment-Grade
Portfolio (Vanguard VI Sht-Trm Inv-Gr)
- Vanguard(R) Variable Insurance Fund Small Company Growth Portfolio
(Vanguard VI Small Co Growth)
- Vanguard(R) Variable Insurance Fund Total Bond Market Portfolio
(Vanguard VI Total Bond Market)
- Vanguard(R) Variable Insurance Fund Total Stock Market Portfolio
(Vanguard VI Total Stock Market)
The Securian Funds Trust was organized by Minnesota Life as the investment
vehicle for its variable life insurance policies and variable annuity
contracts. Each of the Underlying Funds is registered under the Investment
Company Act of 1940 (as amended) as a diversified (except Advantus
International Bond Fund, which is nondiversified), open-end management
investment company.
Securian Financial Services, Inc. (Securian) acts as the underwriter for
the Account. Advantus Capital Management, Inc. (Advantus) acts as the
investment adviser for the Securian Funds Trust. Both Securian and Advantus
are affiliate companies of Minnesota Life.
(Continued)
34
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
The following sub-accounts had name changes during 2013 and 2012:
[Enlarge/Download Table]
FORMER NAME CURRENT NAME EFFECTIVE DATE
--------------------------------------- -------------------------------------- ---------------
Ibbotson Aggressive Growth ETF, Class 1 ALPS VIT Ibbotson Aggressive 20-May-2013
Growth ETF Asset Allocation
Portfolio - Class 1
Ibbotson Balanced ETF, Class 1 ALPS VIT Ibbotson Balanced ETF 20-May-2013
Asset Allocation Portfolio - Class 1
Ibbotson Conservative ETF, Class 1 ALPS VIT Ibbotson Conservative 20-May-2013
ETF Asset Allocation Portfolio -
Class 1
Ibbotson Growth ETF, Class 1 ALPS VIT Ibbotson Growth ETF 20-May-2013
Asset Allocation Portfolio - Class 1
Ibbotson Income & Growth ETF, Class 1 ALPS VIT Ibbotson Income and 20-May-2013
Growth ETF Asset Allocation
Portfolio - Class 1
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Underlying Funds are investment companies and follow accounting and
reporting guidance under Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 946, FINANCIAL SERVICES -
INVESTMENT COMPANIES. The significant accounting policies followed
consistently by the Underlying Funds are as follows:
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts in the
financial statements and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
(B) INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of the Underlying Funds are stated at fair value
which is the net asset value per share as determined daily by each
Underlying Fund. Investment transactions are recorded on a trade date
basis. The cost of investments sold is determined on the first in
first out (FIFO) basis.
Realized gains (losses) on investments include realized gain (loss)
distributions received from the respective funds and gains (losses) on
the sale of fund shares as determined by the average cost method.
Realized gain (loss) distributions are reinvested in the respective
funds.
All dividend distributions received from the Underlying Funds are
reinvested in additional shares of the Underlying Funds and are
recorded by the sub-accounts on the ex-dividend date. The
nonaffiliated funds may utilize consent dividends to effectively
distribute income for income tax
(Continued)
35
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
purposes. The Account "consents" to treat these amounts as dividend
income for tax purposes although they are not paid by the Underlying
Funds. Therefore, no dividend income is recorded in the statements of
operations related to such consent dividends.
(C) FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Life for federal income
tax purposes. Under current interpretation of existing federal income
tax law, no income taxes are payable on investment income or capital
gain distributions received by the Account from the Underlying Funds.
Any applicable taxes will be the responsibility of the policy owners
or beneficiaries upon termination or withdrawal.
(3) EXPENSES AND RELATED PARTY TRANSACTIONS
The ML Premier Variable Universal Life product was introduced in May 2013.
The expense structure is the same for both the Accumulator Variable
Universal Life product and the ML Premier Universal Life product as
described below:
There are no mortality and expense charges deducted through the daily unit
value calculation. Mortality and expense charges are deducted from policy
holders' accounts at each month-end as an account level charge. These
charges are included in the cash value charges table as discussed below.
The only income/expense item charged/credited through the daily unit value
calculation is the unit value credit. The unit value credit is available to
policy holders at the discretion of Minnesota Life. The unit value credit
is a pass through of revenue Minnesota Life receives from the advisors to
the underlying funds and is intended to reduce expenses otherwise charged
to the policies by Minnesota Life. This credit is expressed as a percentage
of average annual portfolio assets held by the sub-account and ranges from
0.00% to 0.45%. The unit value credits assessed for the year ended December
31, 2013 is reported as a unit value credit on the statements of
operations.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A premium charge of up to 7.00% is deducted from each premium payment. This
charge is intended to cover the costs of issuing the policy and includes
the premium taxes that are sent to the state in which the policy is issued.
Total premium charges for the year ended December 31, 2013 and 2012
amounted to $1,529,172 and $1,916,820, respectively.
In addition to deductions from premium payments, accumulation value
charges, if any, are assessed from the actual accumulation value of each
policy. These charges are paid by redeeming units of the Account held by
the individual policy owner. The following charges may be included in the
accumulation value charges:
A policy issue charge is assessed monthly for the first ten years
following issuance of the policy and for the first ten years following
any increase in the face amount. The minimum guaranteed charge is
$0.04 per $1,000 of initial face amount or face amount increase and
the maximum guaranteed charge is $0.53 per $1,000 of initial face
amount or face amount increase. The monthly policy charge covers
certain administrative charges and is $8 per month and is guaranteed
not to exceed $12 per month, plus $0.0125 per $1,000 of face amount.
(Continued)
36
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
The transaction charges are for expenses incurred by Minnesota Life
for processing certain transactions. A charge of $25 to $100 is
assessed for each policy adjustment. A charge not to exceed $25 may be
assessed for each transfer of actual cash value among the segregated
sub-accounts.
The cost of insurance charge varies with the amount of insurance, the
insured's age, sex, risk class, level of scheduled premium and
duration of the policy.
The mortality and expense charge paid to Minnesota Life is computed
daily and is equal, on an annual basis, to 0.03% of the accumulation
value less policy loans for years one through ten of the policy. The
charge may be raised to 0.075% of the accumulation value.
The charge for substandard risks is for providing death benefits for
policies which have mortality risks in excess of the standard.
The surrender charge is equal to 1.40 times the lesser of: (a) 60
times the policy issue charge for the initial face amount or the face
amount increase as applicable, or (b) the sum of any remaining policy
issue charges for the initial face amount or the face amount increase,
as applicable, measured from policy termination or full surrender to
the end of the ten year surrender charge period.
See the table below for these charges paid to Minnesota Life during
the years ended December 31, 2013 and 2012.
Minnesota Life also assesses charges for the agreements purchased with the
policy. The following eleven Agreements are available to provide
supplemental insurance benefits under the policy: Death Benefit Guarantee,
Family Term - Children, Interest Accumulation Agreement, Overloan
Protection, Term Insurance, Waiver of Charges, Early Values Agreement,
Waiver of Premium Agreement, Guaranteed Insurability Option, Long Term Care
Agreement, and Inflation Agreement. The charges for these agreements are
set forth in the prospectus.
To the extent the Account invests in the Securian Funds Trust, the Account
indirectly incurs management fees that are payable to Advantus. The
advisory fee agreement provides for payments ranging from 0.15% to 0.70% of
average daily net assets. In addition, the Securian Funds Trust has adopted
a Rule 12b-1 distribution plan covering all of the funds. Under the plan,
the Securian Funds Trust pays distribution fees equal to 0.25% of average
daily net assets to Securian. Each fund pays an annual fee ranging from
0.02% to 0.10% of net assets to State Street, Inc. for daily fund
accounting services. Securian Funds Trust also pays an administrative
services fee to Minnesota Life.
(Continued)
37
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
The total of accumulation value charges (which may include a policy issue
charge, a monthly policy charge, certain transaction charges, a cost of
insurance charge, mortality and expense risk charges, charges for sub-standard
risks and surrender charges) for the years ended December 31, 2013 and 2012 for
each segregated sub-account is as follows:
[Download Table]
2013 2014
--------------- ---------------
AllianBern VPS Intl Val Cl A $ 10,060 8,880
Fidelity VIP Equity-Income IC 34,760 28,172
Fidelity VIP Mid Cap IC 32,582 27,107
Franklin VIP Sm Cap Val Cl 1 47,114 39,338
Ibbotson Aggressive Grwth ETF1 356,785 282,858
Ibbotson Balanced ETF1 256,410 222,138
Ibbotson Conservative ETF1 160,972 148,412
Ibbotson Growth ETF1 1,188,776 1,031,471
Ibbotson Income & Growth ETF1 80,257 73,422
Ivy VIP Asset Strategy 193,654 162,415
Ivy VIP Balanced 3,937 2,278
Ivy VIP Bond 10,858 10,669
Ivy VIP Core Equity 27,607 19,705
Ivy VIP Dividend Opp 7,499 6,398
Ivy VIP Energy 6,598 5,540
Ivy VIP Glbl Natural Res 43,478 40,303
Ivy VIP Global Bond 739 299
Ivy VIP Growth 23,536 20,125
Ivy VIP High Income 12,557 10,420
Ivy VIP Intl Core Equity 30,261 24,318
Ivy VIP Intl Growth 12,135 10,983
Ivy VIP Limited-Term Bond 733 455
Ivy VIP Micro Cap Growth 5,569 4,638
Ivy VIP Mid Cap Growth 8,856 7,077
Ivy VIP Money Market 852 851
Ivy VIP Pathfinder Aggressive 90,617 82,569
Ivy VIP Pathfinder Conserv 2,046 1,993
Ivy VIP Pathfinder Mod Aggr 201,364 189,551
Ivy VIP Pathfinder Mod Cons 26,841 22,648
Ivy VIP Pathfinder Moderate 95,435 79,488
Ivy VIP Real Estate Sec 4,342 3,859
Ivy VIP Science & Tech 40,817 27,543
Ivy VIP Small Cap Growth 7,407 5,974
Ivy VIP Small Cap Value 5,956 4,694
Ivy VIP Value 4,988 3,446
Janus Aspen Janus IS 31,819 28,104
Janus Aspen Overseas IS 54,569 49,494
MorgStanley UIF Emg Mk Eq Cl 2 28,059 23,338
SFT Advantus Bond Cl 1 24,079 21,473
(Continued)
38
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Download Table]
2013 2014
--------------- ---------------
SFT Advantus Index 400 MC Cl 1 $ 23,076 16,020
SFT Advantus Index 500 Cl 1 42,539 25,004
SFT Advantus Intl Bond Cl 1 23,796 20,726
SFT Advantus Mortgage Cl 1 6,043 6,885
SFT Advantus Real Estate Cl 1 27,378 22,848
Vanguard VI Balanced 32,690 23,853
Vanguard VI Capital Growth 33,997 23,362
Vanguard VI Diversified Value 15,885 14,062
Vanguard VI Equity Income 47,508 34,897
Vanguard VI High Yield Bond 18,690 13,800
Vanguard VI International 29,807 17,466
Vanguard VI Money Market 24,923 29,217
Vanguard VI Sht-Trm Inv-Gr 12,373 10,732
Vanguard VI Small Co Growth 47,822 33,426
Vanguard VI Total Bond Market 32,905 29,870
Vanguard VI Total Stock Market 25,229 12,984
(4) FAIR VALUE MEASUREMENTS
In accordance with FASB ASC Topic 820, FAIR VALUE MEASUREMENT (FASB ASC
820), fair value is defined as the price that the Account would receive
upon selling an investment in a timely transaction to an independent buyer
in the principal or most advantageous market of the investment.
The fair value of the Account's financial assets and financial liabilities
has been determined using available market information as of December 31,
2013 and 2012. Considerable judgment is required to interpret market data
to develop the estimates of fair value. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability (exit price) in an orderly transaction
between market participants at the measurement date. In determining fair
value, the Account uses the market approach which utilizes relevant
information generated by market transactions involving identical or
comparable assets or liabilities. When applying the market approach, the
Account maximizes the use of observable inputs and minimizes the use of
unobservable inputs. Observable inputs reflect the assumptions market
participants would use in valuing a financial instrument based on market
data obtained from sources independent of the Account. Unobservable inputs
reflect the Account's estimates about the assumptions market participants
would use in valuing financial assets and financial liabilities based on
the best information available in the circumstances.
(Continued)
39
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
The Account is required to categorize its financial assets and financial
liabilities recorded on the balance sheets according to a three-level
hierarchy. A level is assigned to each financial asset and financial
liability based on the lowest level input that is significant to the fair
value measurement in its entirety. The levels of fair value hierarchy are
as follows:
Level 1 - Fair value is based on unadjusted quoted prices for
identical assets or liabilities in an active market.
Level 2 - Fair value is based on other significant observable
market-based inputs (including quoted prices for similar securities,
interest rates, credit risk and prepayment speed).
Level 3 - Fair value is based on at least one or more significant
unobservable inputs, which may include the Account's own assumptions
in determining the fair value of investments.
The Account uses prices and inputs that are current as of the measurement
date. In periods of market disruption, the ability to observe prices and
inputs may be reduced, which could cause an asset or liability to be
reclassified to a lower level. Inputs used to measure fair value of an
asset or liability may fall into different levels of the fair value
hierarchy. In these situations, the Account will determine the level in
which the fair value falls based upon the lowest level input that is
significant to the determination of the fair value.
As of December 31, 2013, all of the Account's investments are in mutual
funds and are classified as Level 2 as the values are based upon quoted
prices or reported net asset values provided by the fund managers with
little readily determinable public pricing information. It has been
determined that no transfers between levels occurred during the year. The
characterization of the underlying securities held by the funds in
accordance with the fair value measurement and disclosures topic of the
FASB ASC 820 differs from the characterization of an investment in the
fund.
(5) INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments
during the year ended December 31, 2013 were as follows:
[Download Table]
PURCHASES SALES
--------------- ---------------
AllianBern VPS Intl Val Cl A $ 87,359 36,938
Fidelity VIP Equity-Income IC 474,865 199,665
Fidelity VIP Mid Cap IC 503,674 148,814
Franklin VIP Sm Cap Val Cl 1 416,114 165,653
Ibbotson Aggressive Grwth ETF1 4,424,417 505,835
Ibbotson Balanced ETF1 1,781,185 287,316
Ibbotson Conservative ETF1 597,830 435,156
Ibbotson Growth ETF1 9,062,181 1,523,311
Ibbotson Income & Growth ETF1 895,292 802,589
Ivy VIP Asset Strategy 1,462,355 247,480
Ivy VIP Balanced 50,802 7,827
(Continued)
40
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Download Table]
PURCHASES SALES
--------------- ---------------
Ivy VIP Bond $ 102,045 108,256
Ivy VIP Core Equity 373,590 76,281
Ivy VIP Dividend Opp 82,926 22,066
Ivy VIP Energy 47,389 14,343
Ivy VIP Glbl Natural Res 376,754 71,595
Ivy VIP Global Bond 16,356 921
Ivy VIP Growth 264,707 47,522
Ivy VIP High Income 193,510 37,137
Ivy VIP Intl Core Equity 350,865 60,022
Ivy VIP Intl Growth 127,835 24,597
Ivy VIP Limited-Term Bond 15,428 2,730
Ivy VIP Micro Cap Growth 59,152 37,578
Ivy VIP Mid Cap Growth 105,156 32,293
Ivy VIP Money Market 11,680 10,418
Ivy VIP Pathfinder Aggressive 680,529 134,713
Ivy VIP Pathfinder Conserv 18,151 7,784
Ivy VIP Pathfinder Mod Aggr 994,311 425,282
Ivy VIP Pathfinder Mod Cons 356,719 48,416
Ivy VIP Pathfinder Moderate 788,664 147,060
Ivy VIP Real Estate Sec 29,170 12,334
Ivy VIP Science & Tech 566,881 173,247
Ivy VIP Small Cap Growth 69,201 22,644
Ivy VIP Small Cap Value 69,569 21,456
Ivy VIP Value 53,131 17,846
Janus Aspen Janus IS 199,387 94,960
Janus Aspen Overseas IS 497,109 218,631
MorgStanley UIF Emg Mk Eq Cl 2 338,412 90,218
SFT Advantus Bond Cl 1 295,688 111,063
SFT Advantus Index 400 MC Cl 1 229,676 93,703
SFT Advantus Index 500 Cl 1 571,818 138,199
SFT Advantus Intl Bond Cl 1 243,339 96,664
SFT Advantus Mortgage Cl 1 60,275 93,088
SFT Advantus Real Estate Cl 1 286,808 90,229
Vanguard VI Balanced 329,623 128,350
Vanguard VI Capital Growth 563,872 72,218
Vanguard VI Diversified Value 126,826 32,477
Vanguard VI Equity Income 527,631 80,612
Vanguard VI High Yield Bond 277,047 86,585
Vanguard VI International 471,272 64,767
Vanguard VI Money Market 58,452 199,666
Vanguard VI Sht-Trm Inv-Gr 100,140 12,779
Vanguard VI Small Co Growth 617,872 151,731
Vanguard VI Total Bond Market 280,387 122,090
Vanguard VI Total Stock Market 392,474 97,821
(Continued)
41
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
(6) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 2013 and 2012 were as follows:
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
ALLIANBERN FIDELITY VIP FRANKLIN VIP IBBOTSON IBBOTSON
VPS INTL VAL EQUITY-INCOME FIDELITY VIP SM CAP VAL AGGRESSIVE BALANCED
CL A IC MID CAP IC CL 1 GRWTH ETF1 ETF1
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 337,774 574,235 582,750 686,800 6,468,055 3,159,895
Contract purchase payments 95,504 239,344 233,966 248,293 2,529,374 949,594
Contract terminations,
withdrawal payments and
charges (32,160) (53,947) (50,708) (48,764) (178,077) (236,378)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 401,118 759,632 766,008 886,329 8,819,352 3,873,111
Contract purchase payments 83,732 285,180 224,685 241,981 3,403,298 1,305,045
Contract terminations,
withdrawal payments and
charges (48,663) (158,072) (103,993) (109,690) (412,866) (231,777)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 436,187 886,740 886,700 1,018,620 11,809,784 4,946,379
============= ============= ============= ============= ============= =============
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IBBOTSON IBBOTSON
CONSERVATIVE IBBOTSON INCOME & IVY VIP ASSET IVY VIP IVY
ITF1 GROWTH ETF1 GROWTH ETF1 STRATEGY BALANCED VIP BOND
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 1,257,943 21,079,197 1,119,888 2,843,335 23,951 190,495
Contract purchase payments 564,517 5,592,422 397,005 1,103,175 18,284 114,669
Contract terminations,
withdrawal payments and
charges (306,034) (963,303) (104,835) (88,156) (2,451) (50,922)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 1,516,426 25,708,316 1,412,058 3,858,354 39,784 254,242
Contract purchase payments 450,295 6,974,017 688,749 1,108,460 30,441 62,664
Contract terminations,
withdrawal payments and
charges (358,694) (1,181,542) (661,448) (198,982) (5,420) (83,556)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 1,608,027 31,500,791 1,439,359 4,767,832 64,805 233,350
============= ============= ============= ============= ============= =============
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP CORE IVY VIP IVY VIP IVY VIP GLBL IVY VIP IVY VIP
EQUITY DIVIDEND OPP ENERGY NATURAL RES GLOBAL BOND GROWTH
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 356,611 156,498 149,320 1,089,585 3,870 440,220
Contract purchase payments 130,386 72,944 63,940 505,793 4,911 139,934
Contract terminations,
withdrawal payments and
charges (35,042) (9,944) (7,469) (64,869) (567) (35,138)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 451,955 219,498 205,791 1,530,509 8,214 545,016
Contract purchase payments 191,011 63,458 48,511 509,629 15,193 140,084
Contract terminations,
withdrawal payments and
charges (46,607) (19,300) (15,057) (100,960) (878) (33,838)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 596,359 263,656 239,245 1,939,178 22,529 651,262
============= ============= ============= ============= ============= =============
(Continued)
42
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP IVY VIP
IVY VIP HIGH IVY VIP INTL IVY VIP INTL LIMITED-TERM MICRO CAP IVY VIP MID
INCOME CORE EQUITY GROWTH BOND GROWTH CAP GROWTH
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 158,871 504,603 336,528 3,036 136,638 127,490
Contract purchase payments 71,885 274,850 107,941 11,753 38,928 46,636
Contract terminations,
withdrawal payments and
charges (18,358) (37,930) (18,136) (1,866) (9,713) (5,884)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 212,398 741,523 426,333 12,923 165,853 168,242
Contract purchase payments 96,851 286,584 104,676 14,399 28,248 54,777
Contract terminations,
withdrawal payments and
charges (21,134) (53,467) (23,536) (2,604) (21,510) (18,480)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 288,115 974,640 507,473 24,718 172,591 204,539
============= ============= ============= ============= ============= =============
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP IVY VIP IVY VIP IVY VIP IVY VIP
IVY VIP PATHFINDER PATHFINDER PATHFINDER PATHFINDER PATHFINDER
MONEY MARKET AGGRESSIVE CONSERV MOD AGGR MOD CONS MODERATE
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 13,219 1,576,863 19,737 2,931,098 289,632 1,498,878
Contract purchase payments 5,731 324,340 16,439 1,078,988 78,435 507,727
Contract terminations,
withdrawal payments and
charges (1,414) (92,584) (2,327) (173,419) (26,155) (268,874)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 17,536 1,808,619 33,849 3,836,667 341,912 1,737,731
Contract purchase payments 11,104 382,849 12,198 557,583 258,309 520,578
Contract terminations,
withdrawal payments and
charges (9,984) (107,574) (6,003) (350,224) (38,585) (116,063)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 18,656 2,083,894 40,044 4,044,026 561,636 2,142,246
============= ============= ============= ============= ============= =============
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
IVY VIP
IVY VIP REAL SCIENCE & IVY VIP SMALL IVY VIP SMALL JANUS ASPEN
ESTATE SEC TECH CAP GROWTH CAP VALUE IVY VIP VALUE JANUS IS
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 105,818 453,352 130,511 73,189 97,194 533,186
Contract purchase payments 21,966 196,751 68,735 48,210 41,887 119,256
Contract terminations,
withdrawal payments and
charges (6,220) (60,414) (5,216) (6,079) (13,354) (38,148)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 121,564 589,689 194,030 115,320 125,727 614,294
Contract purchase payments 22,141 269,852 50,609 36,290 33,827 147,679
Contract terminations,
withdrawal payments and
charges (10,325) (94,402) (15,724) (13,831) (12,698) (73,690)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 133,380 765,139 228,915 137,779 146,856 688,283
============= ============= ============= ============= ============= =============
(Continued)
43
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
SFT
MORGSTANLEY SFT ADVANTUS SFT SFT
JANUS ASPEN UIF EMG MK ADVANTUS INDEX 400 MC ADVANTUS ADVANTUS INTL
OVERSEAS IS EQ CL 2 BOND CL 1 CL 1 INDEX 500 CL 1 BOND CL 1
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 1,062,156 491,886 353,447 215,141 413,196 286,688
Contract purchase payments 606,810 295,206 138,329 133,459 279,831 107,097
Contract terminations,
withdrawal payments and
charges (142,735) (37,940) (19,265) (26,484) (42,213) (15,896)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 1,526,231 749,152 472,511 322,116 650,814 377,889
Contract purchase payments 468,522 330,285 235,380 154,395 424,858 152,467
Contract terminations,
withdrawal payments and
charges (235,015) (89,272) (86,238) (60,941) (103,273) (59,909)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 1,759,738 990,165 621,653 415,570 972,399 470,447
============= ============= ============= ============= ============= =============
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
SFT SFT VANGUARD VI VANGUARD VI VANGUARD VI
ADVANTUS ADVANTUS REAL VANGUARD VI CAPITAL DIVERSIFIED EQUITY
MORTGAGE CL 1 ESTATE CL 1 BALANCED GROWTH VALUE INCOME
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 182,228 392,980 370,263 390,016 273,262 566,308
Contract purchase payments 52,820 161,147 150,573 175,798 88,277 259,375
Contract terminations,
withdrawal payments and
charges (52,628) (33,625) (63,286) (35,208) (40,755) (63,200)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 182,420 520,502 457,550 530,606 320,784 762,483
Contract purchase payments 54,253 204,243 210,017 344,065 87,547 342,563
Contract terminations,
withdrawal payments and
charges (83,632) (62,773) (89,037) (45,839) (23,795) (55,455)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 153,041 661,972 578,530 828,832 384,536 1,049,591
============= ============= ============= ============= ============= =============
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------------------
VANGUARD VI VANGUARD VI VANGUARD VI VANGUARD VI VANGUARD VI
HIGH YIELD VANGUARD VI VANGUARD VI SHT-TRM INV- SMALL CO TOTAL BOND TOTAL STOCK
BOND INTERNATIONAL MONEY MARKET GR GROWTH MARKET MARKET
------------- ------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2011 $ 240,447 375,207 645,024 200,554 484,182 438,604 236,517
Contract purchase
payments 92,324 218,308 273,885 59,841 269,594 214,243 116,205
Contract terminations,
withdrawal payments
and charges (18,123) (28,024) (265,315) (12,793) (49,907) (25,106) (29,116)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2012 314,648 565,491 653,594 247,602 703,869 627,741 323,606
Contract purchase
payments 162,496 403,470 55,830 74,797 301,860 192,874 265,069
Contract terminations,
withdrawal payments
and charges (55,602) (57,013) (192,832) (10,490) (87,459) (94,291) (69,153)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2013 $ 421,542 911,948 516,592 311,909 918,270 726,324 519,522
============= ============= ============= ============= ============= ============= =============
(Continued)
44
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
(7) FINANCIAL HIGHLIGHTS
A summary of units outstanding, unit values, net assets, investment
income and expense ratios, and total returns for the years ended
December 31, 2013, 2012, 2011, 2010, and 2009 is as follows:
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- ---------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
AllianBern VPS Intl Val Cl A
2013 436,187 0.89 $ 386,928 6.44% (0.15)% 23.19%
2012 401,118 0.72 288,848 1.80 (0.15) 14.71
2011 337,774 0.63 212,055 4.60 (0.15) (19.13)
2010 229,500 0.78 178,162 3.76 (0.15) 4.75
2009 132,675 0.74 98,327 1.89 (0.15) 34.88
Fidelity VIP Equity-Income IC
2013 886,740 1.43 1,270,943 2.78% (0.10)% 28.28%
2012 759,632 1.12 848,769 3.57 (0.10) 17.42
2011 574,235 0.95 546,402 3.06 (0.10) 1.07
2010 393,101 0.94 370,081 2.27 (0.10) 15.26
2009 237,580 0.82 194,047 3.17 (0.10) 30.34
Fidelity VIP Mid Cap IC
2013 886,700 1.69 1,501,085 0.56% (0.10)% 36.37%
2012 766,008 1.24 950,947 0.71 (0.10) 14.95
2011 582,750 1.08 629,376 0.31 (0.10) (10.52)
2010 392,106 1.21 473,284 0.58 (0.10) 28.96
2009 248,051 0.94 232,162 0.92 (0.10) 40.23
Franklin VIP Sm Cap Val Cl 1
2013 1,018,620 1.19 to 1.85 1,872,118 1.45% (0.15)% 0.00% to 36.37%
2012 886,329 1.35 1,198,775 1.02 (0.15) 18.93
2011 686,800 1.14 781,046 0.91 (0.15) (3.38)
2010 500,902 1.18 589,562 0.87 (0.15) 28.68
2009 283,863 0.91 259,624 1.83 (0.15) 29.74
Ibbotson Aggressive Grwth ETF1
2013 11,809,784 1.07 to 1.33 15,683,666 1.48% (0.12)% 0.00% to 18.67%
2012 8,819,352 1.12 9,903,881 1.62 (0.12) 14.59
2011 6,468,055 0.98 6,338,321 1.36 (0.12) (4.74)
2010 4,405,454 1.03 4,531,566 0.63 (0.12) 15.72
2009 2,412,675 0.88 2,144,664 0.00 (0.12) 27.94
Ibbotson Balanced ETF1
2013 4,946,379 1.04 to 1.33 6,573,146 1.88% (0.12)% 0.00% to 12.32%
2012 3,873,111 1.19 4,598,585 1.88 (0.12) 11.14
2011 3,159,895 1.07 3,375,799 1.33 (0.12) (0.44)
2010 2,077,426 1.07 2,229,083 0.96 (0.12) 11.98
2009 1,161,044 0.95 1,112,592 0.00 (0.12) 19.89
(Continued)
45
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- ---------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Ibbotson Conservative ETF1
2013 1,608,027 1.00 to 1.23 $ 1,979,971 1.56% (0.12)% 0.00% to 2.89%
2012 1,516,426 1.20 1,817,772 1.69 (0.12) 5.61
2011 1,257,943 1.13 1,427,920 1.51 (0.12) 3.54
2010 1,134,465 1.10 1,243,741 1.37 (0.12) 6.79
2009 1,029,433 1.02 1,056,689 0.00 (0.12) 8.70
Ibbotson Growth ETF1
2013 31,500,791 1.06 to 1.35 42,171,285 1.50% (0.12)% 0.00% to 16.92%
2012 25,708,316 1.16 29,721,267 1.63 (0.12) 13.38
2011 21,079,197 1.02 21,492,750 1.45 (0.12) (3.39)
2010 15,570,028 1.06 16,430,931 0.97 (0.12) 14.32
2009 9,514,213 0.92 8,782,912 0.00 (0.12) 25.09
Ibbotson Income & Growth ETF1
2013 1,439,359 1.02 to 1.28 1,845,599 1.70% (0.12)% 0.00% to 7.71%
2012 1,412,058 1.19 1,681,817 2.11 (0.12) 8.31
2011 1,119,888 1.10 1,231,164 1.17 (0.12) 1.49
2010 842,491 1.08 912,243 0.70 (0.12) 9.17
2009 313,816 0.98 311,770 0.00 (0.12) 13.86
Ivy VIP Asset Strategy
2013 4,767,832 1.14 to 1.46 6,922,598 1.25% (0.45)% 0.00% to 25.7%
2012 3,858,354 1.16 4,493,457 1.09 (0.45) 19.71
2011 2,843,335 0.97 2,766,037 0.98 (0.45) (6.79)
2010 1,827,786 1.04 1,907,587 0.98 (0.45) 9.16
2009 933,473 0.96 892,442 0.30 (0.45) 25.61
Ivy VIP Balanced
2013 64,805 1.56 100,831 1.36% (0.45)% 24.26%
2012 39,784 1.25 49,816 1.41 (0.45) 12.25
2011 23,951 1.12 26,717 1.49 (0.45) 3.78
2010 14,510 1.07 15,597 1.87 (0.45) 17.63
2009 10,442 0.91 9,538 1.98 (0.45) 13.74
Ivy VIP Bond
2013 233,350 1.30 304,382 3.82% (0.45)% (1.65)%
2012 254,242 1.33 337,190 2.48 (0.45) 6.26
2011 190,495 1.25 237,759 2.82 (0.45) 7.79
2010 102,803 1.16 119,027 2.38 (0.45) 6.52
2009 38,187 1.09 41,518 3.76 (0.45) 7.65
Ivy VIP Core Equity
2013 596,359 1.81 1,079,795 0.52% (0.45)% 34.11%
2012 451,955 1.35 610,188 0.56 (0.45) 19.14
2011 356,611 1.13 404,124 0.34 (0.45) 2.12
2010 247,979 1.11 275,188 0.81 (0.45) 21.44
2009 114,910 0.91 105,007 0.61 (0.45) 24.58
(Continued)
46
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- ---------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Ivy VIP Dividend Opp
2013 263,656 1.30 $ 341,783 1.58% (0.45)% 30.20%
2012 219,498 1.00 218,546 1.07 (0.45) 13.69
2011 156,498 0.88 137,058 1.01 (0.45) (4.26)
2010 117,516 0.91 107,499 1.06 (0.45) 16.89
2009 78,427 0.78 61,374 0.93 (0.45) 18.42
Ivy VIP Energy
2013 239,245 1.03 246,511 0.00% (0.45)% 28.33%
2012 205,791 0.80 165,229 0.00 (0.45) 1.84
2011 149,320 0.79 117,731 0.00 (0.45) (8.67)
2010 106,463 0.86 91,906 0.23 (0.45) 22.50
2009 58,318 0.70 41,096 0.00 (0.45) 41.12
Ivy VIP Glbl Natural Res
2013 1,939,178 0.77 1,484,267 0.00% (0.45)% 8.29%
2012 1,530,509 0.71 1,081,795 0.00 (0.45) 2.35
2011 1,089,585 0.69 752,483 0.00 (0.45) (21.09)
2010 740,177 0.88 647,816 0.00 (0.45) 17.59
2009 383,085 0.74 285,123 0.00 (0.45) 74.43
Ivy VIP Global Bond
2013 22,529 1.09 24,574 0.00% (0.45)% 2.20%
2012 8,214 1.07 8,764 3.87 (0.45) 6.90
2011(a) 3,870 1.00 3,861 2.02 (0.45) (0.20)
Ivy VIP Growth
2013 651,262 1.65 1,072,202 0.41% (0.45)% 37.07%
2012 545,016 1.20 654,601 0.06 (0.45) 13.25
2011 440,220 1.06 466,857 3.82 (0.45) 2.58
2010 329,865 1.03 341,019 0.57 (0.45) 13.09
2009 187,308 0.91 171,234 0.41 (0.45) 27.65
Ivy VIP High Income
2013 288,115 1.85 534,171 4.55% (0.45)% 11.00%
2012 212,398 1.67 354,774 5.99 (0.45) 19.18
2011 158,871 1.40 222,666 7.16 (0.45) 5.73
2010 102,000 1.33 135,207 6.90 (0.45) 15.38
2009 59,975 1.15 68,906 7.60 (0.45) 47.08
Ivy VIP Intl Core Equity
2013 974,640 1.31 1,276,750 1.56% (0.45)% 25.47%
2012 741,523 1.04 774,161 2.26 (0.45) 13.84
2011 504,603 0.92 462,770 1.48 (0.45) (13.50)
2010 306,407 1.06 324,850 1.22 (0.45) 14.61
2009 149,540 0.93 138,336 3.62 (0.45) 37.59
(Continued)
47
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- ---------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Ivy VIP Intl Growth
2013 507,473 1.18 $ 600,340 0.87% (0.45)% 19.76%
2012 426,333 0.99 421,122 1.82 (0.45) 18.59
2011 336,528 0.83 280,317 0.40 (0.45) (6.91)
2010 235,629 0.89 210,826 0.87 (0.45) 15.30
2009 135,519 0.78 105,162 1.16 (0.45) 27.47
Ivy VIP Limited-Term Bond
2013 24,717 1.06 26,287 0.00% (0.45)% (0.09)%
2012 12,923 1.06 13,756 4.04 (0.45) 3.84
2011 3,036 1.03 3,111 1.62 (0.45) 2.45
Ivy VIP Micro Cap Growth
2013 172,590 2.03 350,936 0.00% (0.45)% 57.99%
2012 165,853 1.29 213,455 0.00 (0.45) 12.35
2011 136,638 1.15 156,528 0.00 (0.45) (6.60)
2010 102,825 1.23 126,109 0.00 (0.45) 41.49
2009 62,800 0.87 54,438 0.00 (0.45) 41.93
Ivy VIP Mid Cap Growth
2013 204,539 1.94 397,389 0.00% (0.45)% 30.52%
2012 168,242 1.49 250,431 0.00 (0.45) 14.07
2011 127,490 1.30 166,360 0.01 (0.45) (0.12)
2010 100,224 1.31 130,929 0.03 (0.45) 32.15
2009 64,882 0.99 64,141 0.00 (0.45) 47.32
Ivy VIP Money Market
2013 18,656 1.05 19,764 0.02% (0.45)% 0.46%
2012 17,536 1.06 18,503 0.02 (0.45) 0.47
2011 13,219 1.04 13,931 0.02 (0.45) 0.46
2010 26,883 1.03 27,996 0.06 (0.45) 0.52
2009 22,330 1.04 23,166 1.76 (0.45) 1.47
Ivy VIP Pathfinder Aggressive
2013 2,083,894 1.46 3,035,588 7.15% (0.45)% 27.70%
2012 1,808,619 1.14 2,063,096 0.92 (0.45) 12.70
2011 1,576,863 1.01 1,596,180 1.22 (0.45) (3.72)
2010 1,293,636 1.05 1,360,036 1.06 (0.45) 16.05
2009 729,402 0.91 660,797 0.39 (0.45) 23.87
Ivy VIP Pathfinder Conserv
2013 40,044 1.35 54,155 5.39% (0.45)% 15.26%
2012 33,849 1.17 39,717 1.00 (0.45) 7.44
2011 19,737 1.09 21,556 1.43 (0.45) 1.20
2010 7,450 1.08 8,040 1.03 (0.45) 9.87
2009 5,603 0.98 5,503 0.07 (0.45) 13.46
(Continued)
48
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- ---------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Ivy VIP Pathfinder Mod Aggr
2013 4,044,026 1.44 $ 5,816,512 5.27% (0.45)% 24.37%
2012 3,836,667 1.17 4,436,949 0.76 (0.45) 11.32
2011 2,931,098 1.04 3,045,146 0.79 (0.45) (2.58)
2010 2,356,506 1.07 2,512,962 0.74 (0.45) 14.98
2009 1,063,636 0.93 986,502 0.21 (0.45) 21.25
Ivy VIP Pathfinder Mod Cons
2013 561,636 1.39 780,257 5.73% (0.45)% 18.24%
2012 341,912 1.17 401,735 0.93 (0.45) 8.90
2011 289,632 1.08 312,500 1.08 (0.45) 0.45
2010 228,256 1.07 245,171 0.91 (0.45) 11.47
2009 128,061 0.96 123,400 0.13 (0.45) 15.64
Ivy VIP Pathfinder Moderate
2013 2,142,246 1.41 3,030,456 4.57% (0.45)% 21.38%
2012 1,737,731 1.17 2,025,277 0.92 (0.45) 10.03
2011 1,498,878 1.06 1,587,740 1.03 (0.45) (1.02)
2010 1,157,414 1.07 1,238,577 0.63 (0.45) 13.14
2009 441,401 0.95 417,513 0.18 (0.45) 18.49
Ivy VIP Real Estate Sec
2013 133,380 1.20 159,735 1.10% (0.45)% 1.59%
2012 121,564 1.18 143,310 0.71 (0.45) 18.25
2011 105,818 1.00 105,496 0.75 (0.45) 5.48
2010 95,836 0.95 90,580 1.80 (0.45) 29.09
2009 76,121 0.73 55,735 2.92 (0.45) 24.18
Ivy VIP Science & Tech
2013 765,139 2.25 1,725,183 0.00% (0.45)% 57.09%
2012 589,689 1.44 846,394 0.00 (0.45) 28.41
2011 453,352 1.12 506,750 0.00 (0.45) (5.35)
2010 321,547 1.18 379,709 0.00 (0.45) 13.26
2009 186,787 1.04 194,746 0.00 (0.45) 44.49
Ivy VIP Small Cap Growth
2013 228,915 1.65 377,256 0.00% (0.45)% 44.01%
2012 194,030 1.14 222,051 0.00 (0.45) 5.64
2011 130,511 1.08 141,384 0.00 (0.45) (10.20)
2010 88,062 1.21 106,235 0.00 (0.45) 29.43
2009 50,620 0.93 47,182 0.19 (0.45) 35.33
Ivy VIP Small Cap Value
2013 137,779 1.76 242,796 0.84% (0.45)% 34.13%
2012 115,320 1.31 151,509 0.44 (0.45) 19.17
2011 73,189 1.10 80,690 0.48 (0.45) (12.40)
2010 50,410 1.26 63,442 0.07 (0.45) 26.98
2009 24,565 0.99 24,348 0.00 (0.45) 29.73
(Continued)
49
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- ---------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Ivy VIP Value
2013 146,856 1.58 $ 231,649 0.78% (0.45)% 35.94%
2012 125,727 1.16 145,883 1.19 (0.45) 19.42
2011 97,194 0.97 94,438 0.75 (0.45) (6.90)
2010 72,325 1.04 75,483 0.86 (0.45) 19.24
2009 53,422 0.88 46,758 2.13 (0.45) 27.21
Janus Aspen Janus IS
2013 688,283 1.53 1,053,176 0.80% (0.10)% 30.47%
2012 614,294 1.17 720,514 0.58 (0.10) 18.71
2011 533,186 0.99 526,883 0.61 (0.10) (5.21)
2010 441,599 1.04 460,411 1.14 (0.10) 14.53
2009 297,395 0.91 270,500 0.56 (0.10) 36.49
Janus Aspen Overseas IS
2013 1,759,738 1.05 1,845,901 3.16% (0.10)% 14.68%
2012 1,526,231 0.91 1,396,064 0.75 (0.10) 13.58
2011 1,062,156 0.81 855,387 0.47 (0.10) (32.10)
2010 705,742 1.19 837,058 0.74 (0.10) 25.43
2009 454,869 0.95 430,113 0.60 (0.10) 79.74
MorgStanley UIF Emg Mk Eq Cl 2
2013 990,165 1.00 991,519 1.09% (0.35)% (0.76)%
2012 749,152 1.01 755,880 0.00 (0.35) 20.26
2011 491,886 0.84 412,691 0.38 (0.35) (17.95)
2010 310,370 1.02 317,357 0.54 (0.35) 19.36
2009 170,492 0.86 146,052 0.00 (0.35) 70.72
SFT Advantus Bond Cl 1
2013 621,653 0.98 to 1.28 789,304 0.00% (0.05)% 0.35)% to 0.00%
2012 472,511 1.28 606,960 0.00 (0.05) 7.74
2011 353,447 1.19 421,404 0.00 (0.05) 8.35
2010 301,224 1.10 331,464 0.00 (0.05) 9.74
2009 193,703 1.00 194,227 0.00 (0.05) 15.91
SFT Advantus Index 400 MC Cl 1
2013 415,570 1.12 to 1.81 730,984 0.00% (0.05)% 0.00% to 33.18%
2012 322,116 1.36 437,628 0.00 (0.05) 17.60
2011 215,141 1.16 248,559 0.00 (0.05) (1.97)
2010 151,799 1.18 178,904 0.00 (0.05) 26.31
2009 94,425 0.93 88,107 0.00 (0.05) 36.84
SFT Advantus Index 500 Cl 1
2013 972,399 1.12 to 1.56 1,491,004 0.00% (0.10)% to (0.05)% 0.00% to 32.17%
2012 650,814 1.18 767,544 0.00 (0.10) 15.83
2011 413,196 1.02 420,719 0.00 (0.10) 1.95
2010 251,896 1.00 251,576 0.00 (0.10) 14.94
2009 149,088 0.87 129,546 0.00 (0.10) 26.30
(Continued)
50
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- -------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
SFT Advantus Intl Bond Cl 1
2013 470,447 1.61 $ 755,909 --% --% 0.17%
2012 377,889 1.60 606,138 -- -- 16.49
2011 286,688 1.38 394,770 -- -- (0.01)
2010 212,834 1.38 293,108 -- -- 14.19
2009 114,797 1.21 138,452 -- -- 17.85
SFT Advantus Mortgage Cl 1
2013 153,041 1.10 168,258 --% (0.05)% (1.68)%
2012 182,420 1.12 203,991 -- (0.05) 3.80
2011 182,228 1.08 196,315 -- (0.05) 7.05
2010 156,462 1.01 157,452 -- (0.05) 7.08
2009 83,018 0.94 78,022 -- (0.05) 8.37
SFT Advantus Real Estate Cl 1
2013 661,972 0.87 to 1.40 919,084 --% (0.10)% 0.00% to 1.50%
2012 520,502 1.38 717,492 -- (0.10) 18.32
2011 392,980 1.17 457,859 -- (0.10) 5.79
2010 279,423 1.10 307,747 -- (0.10) 29.36
2009 155,991 0.85 132,813 -- (0.10) 25.03
Vanguard VI Balanced
2013 578,530 1.55 895,360 2.13% --% 19.88%
2012 457,550 1.29 590,674 2.55 -- 12.56
2011 370,263 1.15 424,647 2.28 -- 3.70
2010 215,262 1.11 238,074 2.71 -- 11.02
2009 131,437 1.00 130,940 3.67 -- 22.90
Vanguard VI Capital Growth
2013 828,832 1.79 1,481,119 0.99% --% 38.48%
2012 530,606 1.29 684,698 0.89 -- 15.47
2011 390,016 1.12 435,837 0.77 -- (0.93)
2010 229,078 1.13 258,408 0.77 -- 13.08
2009 128,272 1.00 127,959 0.77 -- 34.30
Vanguard VI Diversified Value
2013 384,536 1.51 578,821 2.02% --% 29.40%
2012 320,784 1.16 373,166 2.14 -- 16.50
2011 273,262 1.00 272,862 1.85 -- 3.92
2010 207,898 0.96 199,764 2.11 -- 9.33
2009 114,180 0.88 100,347 3.71 -- 26.93
Vanguard VI Equity Income
2013 1,049,591 1.63 1,709,931 2.13% --% 30.04%
2012 762,483 1.25 955,205 2.22 -- 13.40
2011 566,308 1.10 625,612 2.11 -- 10.26
2010 383,736 1.00 384,455 2.44 -- 14.71
2009 192,201 0.87 167,865 4.53 -- 16.77
(Continued)
51
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- -------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Vanguard VI High Yield Bond
2013 421,542 1.59 $ 668,608 4.66% 0.00% 4.35%
2012 314,648 1.52 478,271 4.98 0.00 14.30
2011 240,447 1.33 319,768 6.81 0.00 6.93
2010 152,127 1.24 189,193 5.87 0.00 12.11
2009 79,210 1.11 87,873 6.68 0.00 38.85
Vanguard VI International
2013 911,948 1.12 to 1.34 1,210,004 1.20% 0.00% 0.00% to 23.26%
2012 565,491 1.08 612,778 1.79 0.00 20.14
2011 375,207 0.90 338,430 1.31 0.00 (13.54)
2010 230,501 1.04 240,458 1.24 0.00 15.72
2009 118,146 0.90 106,504 2.68 0.00 42.78
Vanguard VI Money Market
2013 516,592 1.04 535,216 0.11% 0.00% 0.11%
2012 653,594 1.03 676,431 0.14 0.00 0.14
2011 645,024 1.03 666,599 0.17 0.00 0.17
2010 679,824 1.03 701,402 0.23 0.00 0.23
2009 859,589 1.03 884,811 0.37 0.00 0.61
Vanguard VI Sht-Trm Inv-Gr
2013 311,909 1.22 381,703 1.97% 0.00% 1.08%
2012 247,602 1.21 299,784 2.41 0.00 4.42
2011 200,554 1.16 232,548 3.09 0.00 2.02
2010 156,762 1.14 178,175 2.61 0.00 5.22
2009 105,466 1.08 113,925 3.24 0.00 13.86
Vanguard VI Small Co Growth
2013 918,270 1.23 to 2.15 1,948,415 0.61% 0.00% 0.00% to 46.54%
2012 703,869 1.47 1,033,582 0.21 0.00 14.65
2011 484,182 1.28 620,127 0.16 0.00 1.36
2010 298,149 1.26 376,743 0.27 0.00 31.79
2009 163,516 0.96 156,783 0.93 0.00 39.38
Vanguard VI Total Bond Market
2013 726,324 1.28 927,494 2.50% 0.00% (2.29)%
2012 627,741 1.31 820,389 2.46 0.00 4.02
2011 438,604 1.26 551,033 3.08 0.00 7.65
2010 339,983 1.17 396,772 2.74 0.00 6.50
2009 149,309 1.10 163,615 3.25 0.00 5.94
Vanguard VI Total Stock Market
2013 519,522 1.61 834,923 1.34% 0.00% 33.28%
2012 323,606 1.21 390,204 1.49 0.00 16.33
2011 236,517 1.04 245,164 1.28 0.00 0.83
2010 212,289 1.03 218,234 1.67 0.00 17.11
2009 127,708 0.88 112,104 0.06 0.00 28.25
(Continued)
52
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
[Enlarge/Download Table]
DECEMBER 31 YEARS OR PERIODS ENDED DECEMBER 31
---------------------------------------- -------------------------------------------------
UNITS UNIT INVESTMENT EXPENSE TOTAL
OUTSTANDING FAIR VALUE NET ASSETS INCOME RATIO* RATIO** RETURN***
------------ ------------ ------------ ------------- ---------------- --------------
Vanguard VI High Yield Bond
2013 421,542 1.59 $ 668,608 4.66% 0.00% 4.35%
2012 314,648 1.52 478,271 4.98 0.00 14.30
2011 240,447 1.33 319,768 6.81 0.00 6.93
2010 152,127 1.24 189,193 5.87 0.00 12.11
2009 79,210 1.11 87,873 6.68 0.00 38.85
Vanguard VI International
2013 911,948 1.12 to 1.34 1,210,004 1.20% 0.00% 23.26%
2012 565,491 1.08 612,778 1.79 0.00 20.14
2011 375,207 0.90 338,430 1.31 0.00 (13.54)
2010 230,501 1.04 240,458 1.24 0.00 15.72
2009 118,146 0.90 106,504 2.68 0.00 42.78
Vanguard VI Money Market
2013 516,592 1.04 535,216 0.11% 0.00% 0.11%
2012 653,594 1.03 676,431 0.14 0.00 0.14
2011 645,024 1.03 666,599 0.17 0.00 0.17
2010 679,824 1.03 701,402 0.23 0.00 0.23
2009 859,589 1.03 884,811 0.37 0.00 0.61
Vanguard VI Sht-Trm Inv-Gr
2013 311,909 1.22 381,703 1.97% 0.00% 1.08%
2012 247,602 1.21 299,784 2.41 0.00 4.42
2011 200,554 1.16 232,548 3.09 0.00 2.02
2010 156,762 1.14 178,175 2.61 0.00 5.22
2009 105,466 1.08 113,925 3.24 0.00 13.86
Vanguard VI Small Co Growth
2013 918,270 1.23 to 2.15 1,948,415 0.61% 0.00% 46.54%
2012 703,869 1.47 1,033,582 0.21 0.00 14.65
2011 484,182 1.28 620,127 0.16 0.00 1.36
2010 298,149 1.26 376,743 0.27 0.00 31.79
2009 163,516 0.96 156,783 0.93 0.00 39.38
Vanguard VI Total Bond Market
2013 726,324 1.28 927,494 2.50% 0.00% (2.29)%
2012 627,741 1.31 820,389 2.46 0.00 4.02
2011 438,604 1.26 551,033 3.08 0.00 7.65
2010 339,983 1.17 396,772 2.74 0.00 6.50
2009 149,309 1.10 163,615 3.25 0.00 5.94
Vanguard VI Total Stock Market
2013 519,522 1.61 834,923 1.34% 0.00% 33.28%
2012 323,606 1.21 390,204 1.49 0.00 16.33
2011 236,517 1.04 245,164 1.28 0.00 0.83
2010 212,289 1.03 218,234 1.67 0.00 17.11
2009 127,708 0.88 112,104 0.06 0.00 28.25
(Continued)
53
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
Notes to Financial Statements
December 31, 2013 and 2012
* These amounts represent the dividends, excluding distributions of
capital gains, received by the sub-account from the underlying mutual
fund, net of expenses assessed by the fund, dividend by the average
net assets. These ratios exclude those expenses, such as mortality
and expense charges, that result in a direct reduction in the unit
values. The recognition of investment income by the sub-account is
affected by the timing of the declaration of dividends by the
underlying fund in which the sub-account invests, and to the extent
the underlying fund utilizes consent dividend rather than paying
dividends in cash or reinvested shares, the Account does not record
investment income.
** This ratio represents the annualized policy expenses of the separate
account, consisting primarily of mortality and expense charges. The
ratios include only those expenses that result in a direct reduction
to unit values. Charges made directly to a policy owner's account
through the redemption of units and expenses of the underlying fund
are excluded. Investment options with a date notation indicate the
effective date of that investment option in the variable account. For
periods less than one year, the ratios have been annualized.
*** These amounts represent the total return for the period indicated,
including changes in the value of the underlying fund, and reflect
deductions for all items included in the expense ratio. The total
return does not include any expenses assessed through the redemption
for units. Inclusion of these expenses in the calculation would
result in a reduction in the total return presented. Investment
options with a date notation indicate the effective date of that
investment option in the variable account. The total return is
calculated from the period indicated or from the effective date
through the end of the reporting period.
(a) For the period from May 2, 20111 (Commencement of operations)
to December 31, 2011.
(8) SUBSEQUENT EVENTS
Management has evaluated subsequent events through March 31, 2014, the
date these financial statements were issued, and has concluded there were
no events that require financial statement disclosure and/or adjustments
to the financial statements.
54
MINNESOTA LIFE INSURANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY SCHEDULES
DECEMBER 31, 2013, 2012 AND 2011
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Minnesota Life Insurance Company:
We have audited the accompanying consolidated financial statements of Minnesota
Life Insurance Company and subsidiaries (collectively, the Company), which
comprise the consolidated balance sheets as of December 31, 2013 and 2012, and
the related consolidated statements of operations and comprehensive income
(loss), changes in stockholder's equity, and cash flows for each of the years in
the three-year period ended December 31, 2013, and the related notes to the
consolidated financial statements.
MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with U.S. generally accepted
accounting principles; this includes the design, implementation, and maintenance
of internal control relevant to the preparation and fair presentation of
consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
AUDITORS' RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditors' judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Minnesota Life
Insurance Company and subsidiaries as of December 31, 2013 and 2012, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2013 in accordance with U.S. generally
accepted accounting principles.
OTHER MATTERS
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements as a whole. The information contained in
Schedule I, Schedule III, and Schedule IV are presented for purposes of
additional analysis and is not a required part of the consolidated financial
statements. Such information is the responsibility of management and was derived
from and relates directly to the underlying accounting and other records used to
prepare the consolidated financial statements. The information has been
subjected to the auditing procedures applied in the audit of the consolidated
financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other
records used to prepare the consolidated financial statements or to the
consolidated financial statements themselves, and other additional procedures in
accordance with auditing standards generally accepted in the United States of
America. In our opinion, the information is fairly stated in all material
respects in relation to the consolidated financial statements as a whole.
/s/ KPMG LLP
Minneapolis, Minnesota
March 4, 2014
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2013 AND 2012
(IN THOUSANDS)
[Enlarge/Download Table]
ASSETS 2013 2012
----------- -----------
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost $10,782,877 and $10,134,588) $11,151,480 $11,155,562
Equity securities, at fair value (cost $336,108 and $271,869) 403,409 317,272
Mortgage loans, net 1,760,316 1,538,502
Finance receivables, net 261,519 236,762
Policy loans 356,696 352,756
Alternative investments (cost $407,663 and $424,367) 495,219 494,890
Fixed maturity securities on loan, at fair value
(amortized cost $40,659 and $43,649) 40,662 47,560
Equity securities on loan, at fair value (cost $1,403 and $4,789) 1,656 5,692
Derivative instruments 224,375 195,693
Other invested assets 45,618 75,409
----------- -----------
Total investments 14,740,950 14,420,098
Cash and cash equivalents 293,622 268,990
Securities held as collateral 21,613 28,241
Deferred policy acquisition costs 1,038,386 685,217
Accrued investment income 126,185 121,967
Premiums and fees receivable 238,867 202,160
Property and equipment, net 90,718 82,339
Reinsurance recoverables 1,061,220 1,025,915
Goodwill and intangible assets, net 53,772 45,825
Other assets 100,330 83,016
Separate account assets 18,044,905 14,373,479
----------- -----------
Total assets $35,810,568 $31,337,247
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and contract account balances $ 8,368,493 $ 7,690,938
Future policy and contract benefits 2,856,092 3,014,902
Pending policy and contract claims 465,117 421,875
Other policyholder funds 1,096,356 922,453
Policyholder dividends payable 30,810 34,013
Unearned premiums and fees 319,079 208,183
Pension and other postretirement benefits 9,893 20,023
Income tax liability:
Current 2,248 7,326
Deferred 185,715 354,530
Securities in transit 47,001 74,674
Accrued commissions and expenses 195,368 167,831
Other liabilities 436,941 282,336
Short-term debt 50,000 50,000
Long-term debt 318,000 268,000
Securities lending collateral 30,748 40,740
Separate account liabilities 18,044,905 14,373,479
----------- -----------
Total liabilities 32,456,766 27,931,303
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares authorized,
issued and outstanding 5,000 5,000
Additional paid in capital 179,522 179,522
Accumulated other comprehensive income (loss) 269,108 492,466
Retained earnings 2,900,172 2,728,956
----------- -----------
Total stockholder's equity 3,353,802 3,405,944
----------- -----------
Total liabilities and stockholder's equity $35,810,568 $31,337,247
=========== ===========
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
(IN THOUSANDS)
[Enlarge/Download Table]
2013 2012 2011
------------- ------------- --------------
Revenues:
Premiums $ 1,786,106 $ 1,663,828 $ 1,541,999
Policy and contract fees 603,380 554,007 535,352
Net investment income 639,008 629,333 618,124
Net realized investment gains (losses)
Other-than-temporary-impairments on fixed maturity securities (495) (287) (6,707)
Other-than-temporary-impairments on fixed maturity securities
transferred to other comprehensive income - - 1,169
Other net realized investment gains (losses) (36,333) 83,016 57,113
------------- ------------- --------------
Total net realized investment gains (losses) (36,828) 82,729 51,575
Finance charge income 77,112 70,851 64,691
Commission income 126,558 118,742 103,426
Other income 37,937 31,219 30,546
------------- ------------- --------------
Total revenues 3,233,273 3,150,709 2,945,713
------------- ------------- --------------
Benefits and expenses:
Policyholder benefits 1,728,152 1,626,322 1,533,956
Interest credited to policies and contracts 382,393 353,976 344,290
General operating expenses 598,030 577,793 534,822
Commissions 321,629 253,255 232,404
Administrative and sponsorship fees 64,188 53,219 60,142
Dividends to policyholders 6,609 7,679 8,637
Interest expense 10,143 9,821 10,025
Amortization of deferred policy acquisition costs 185,790 180,467 169,181
Capitalization of policy acquisition costs (292,898) (254,022) (236,356)
------------- ------------- --------------
Total benefits and expenses 3,004,036 2,808,510 2,657,101
------------- ------------- --------------
Income from operations before taxes 229,237 342,199 288,612
Income tax expense (benefit):
Current 103,174 86,495 56,455
Deferred (45,153) 17,612 28,470
------------- ------------- --------------
Total income tax expense 58,021 104,107 84,925
------------- ------------- --------------
Net income $ 171,216 $ 238,092 $ 203,687
============= ============= ==============
Other comprehensive income (loss), before tax:
Unrealized holding gains (losses) on securities arising during
the period $ (605,396) $ 279,833 $ 252,358
Unrealized gains (losses) on securities - other than temporary
impairments (8,352) 17,222 30,660
Adjustment to deferred policy acquisition costs 246,061 (89,533) (99,889)
Adjustment to reserves 110,274 (44,051) (72,822)
Adjustment to unearned policy and contract fees (99,756) 9,761 57,267
Adjustment to pension and other retirement plans 10,149 (1,438) (9,688)
------------- ------------- --------------
Other comprehensive income (loss), before tax (347,020) 171,794 157,886
Income tax benefit (expense) related to items of other
comprehensive income 123,662 (61,279) (54,850)
------------- ------------- --------------
Other comprehensive income (loss), net of tax (223,358) 110,515 103,036
------------- ------------- --------------
Total comprehensive income (loss) $ (52,142) $ 348,607 $ 306,723
============= ============= ==============
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
(IN THOUSANDS)
[Enlarge/Download Table]
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME (LOSS) EARNINGS EQUITY
------------- -------------- ------------- ------------- -------------
2011:
Balance, beginning of year $ 5,000 $ 179,522 $ 278,915 $ 2,287,177 $ 2,750,614
Comprehensive income:
Net income - - - 203,687 203,687
Other comprehensive income - - 103,036 - 103,036
-------------
Total comprehensive income 306,723
------------- -------------- ------------- ------------- -------------
Balance, end of year $ 5,000 $ 179,522 $ 381,951 $ 2,490,864 $ 3,057,337
============= ============== ============= ============= =============
2012:
Balance, beginning of year $ 5,000 $ 179,522 $ 381,951 $ 2,490,864 $ 3,057,337
Comprehensive income:
Net income - - - 238,092 238,092
Other comprehensive income - - 110,515 - 110,515
-------------
Total comprehensive income 348,607
------------- -------------- ------------- ------------- -------------
Balance, end of year $ 5,000 $ 179,522 $ 492,466 $ 2,728,956 $ 3,405,944
============= ============== ============= ============= =============
2013:
Balance, beginning of year $ 5,000 $ 179,522 $ 492,466 $ 2,728,956 $ 3,405,944
Comprehensive loss:
Net income - - - 171,216 171,216
Other comprehensive loss - - (223,358) - (223,358)
-------------
Total comprehensive loss (52,142)
------------- -------------- ------------- ------------- -------------
Balance, end of year $ 5,000 $ 179,522 $ 269,108 $ 2,900,172 $ 3,353,802
============= ============== ============= ============= =============
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
(IN THOUSANDS)
[Enlarge/Download Table]
CASH FLOWS FROM OPERATING ACTIVITIES 2013 2012 2011
------------- -------------- -------------
Net income $ 171,216 $ 238,092 $ 203,687
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Interest credited to annuity and insurance contracts 281,102 273,272 278,048
Fees deducted from policy and contract balances (413,537) (394,293) (385,411)
Change in future policy benefits 11,421 65,510 82,457
Change in other policyholder liabilities, net 271,230 141,129 95,550
Amortization of deferred policy acquisition costs 185,790 180,467 169,181
Capitalization of policy acquisition costs (292,898) (254,022) (236,356)
Change in premiums and fees receivable (36,707) (20,386) (13,552)
Deferred tax provision (45,153) 17,612 28,470
Change in income tax liabilities - current (5,078) (30,188) (7,086)
Net realized investment losses (gains) 36,828 (82,729) (51,575)
Change in reinsurance recoverables (35,305) (67,689) (50,721)
Other, net 88,687 (114,481) 191,953
------------- -------------- -------------
Net cash provided by (used for) operating activities 217,596 (47,706) 304,645
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Fixed maturity securities 2,148,291 2,511,574 2,460,836
Equity securities 131,008 118,434 116,027
Alternative investments 101,227 85,957 164,218
Derivative instruments 210,822 210,393 379,135
Other invested assets 1,758 11,970 7,103
Proceeds from maturities and repayments of:
Fixed maturity securities 1,126,231 920,428 851,157
Mortgage loans 183,406 157,892 126,268
Purchases and originations of:
Fixed maturity securities (3,909,623) (4,137,220) (3,870,310)
Equity securities (171,521) (197,096) (106,974)
Mortgage loans (405,975) (287,442) (276,558)
Alternative investments (69,464) (91,969) (68,671)
Derivative instruments (179,294) (259,027) (305,437)
Other invested assets (2,456) (10,062) (4,363)
Finance receivable originations or purchases (195,711) (174,796) (160,025)
Finance receivable principal payments 159,839 145,441 133,449
Securities in transit 2,496 177,441 (261,399)
Other, net (155,245) (100,732) (54,604)
------------- -------------- -------------
Net cash used for investing activities (1,024,211) (918,814) (870,148)
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits credited to annuity and insurance contracts 3,143,717 2,974,152 2,842,495
Withdrawals from annuity and insurance contracts (2,384,980) (2,203,911) (2,364,401)
Change in amounts drawn in excess of cash balances 18,077 10,047 (980)
Proceeds from issuance of short-term debt 200,000 84,000 -
Payment on short-term debt (200,000) (84,000) -
Proceeds from issuance of long-term debt 50,000 150,000 -
Payment on long-term debt - (2,000) -
Other, net 4,433 (812) 60,102
------------- -------------- -------------
Net cash provided by financing activities 831,247 927,476 537,216
------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 24,632 (39,044) (28,287)
Cash and cash equivalents, beginning of year 268,990 308,034 336,321
------------- -------------- -------------
Cash and cash equivalents, end of year $ 293,622 $ 268,990 $ 308,034
============= ============== =============
See accompanying notes to consolidated financial statements.
6
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013, 2012 AND 2011
(IN THOUSANDS)
(1) NATURE OF OPERATIONS
ORGANIZATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Minnesota Life Insurance Company (a wholly-owned subsidiary of Securian
Financial Group, Inc. (SFG)) and its wholly-owned subsidiaries. Minnesota Life
Insurance Company, both directly and through its subsidiaries (collectively,
the Company), provides a diversified array of insurance and financial products
and services designed principally to protect and enhance the long-term
financial well-being of individuals and families.
The Company, which primarily operates in the United States, has divided its
businesses into four strategic business units, which focus on various markets:
Individual Financial Security, Financial Institution Group, Group Insurance,
and Retirement. Revenues, including net realized investment gains (losses),
for these strategic business units and revenues reported by the Company's
subsidiaries and corporate product line for the years ended December 31 were
as follows:
[Enlarge/Download Table]
2013 2012 2011
--------------- --------------- ---------------
Individual Financial Security $ 669,677 $ 629,501 $ 567,807
Financial Institution Group 398,866 389,629 345,279
Group Insurance 1,599,431 1,478,486 1,364,200
Retirement 390,239 458,900 479,702
--------------- --------------- ---------------
Total strategic business units 3,058,213 2,956,516 2,756,988
Subsidiaries and corporate product line 175,060 194,193 188,725
--------------- --------------- ---------------
Total $ 3,233,273 $ 3,150,709 $ 2,945,713
=============== =============== ===============
The Company serves more than 12 million people through more than 5,000 home
office associates and field representatives located at its St. Paul, Minnesota
headquarters and in sales offices nationwide.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP). The
consolidated financial statements include the accounts of Minnesota Life
Insurance Company and its subsidiaries. All material intercompany transactions
and balances have been eliminated.
The preparation of consolidated financial statements in conformity with GAAP
requires management to make certain estimates and assumptions that affect
reported assets and liabilities, including reporting or disclosure of
contingent assets and liabilities as of the balance sheet date and the
reported amounts of revenues and expenses during the reporting period. Future
events, including but not limited to, changes in mortality, morbidity,
interest rates and asset valuations, could cause actual results to differ from
the estimates used in the consolidated financial statements, and such changes
in estimates are generally recorded on the consolidated statements of
operations and comprehensive income (loss) in the period in which they are
made.
The most significant estimates include those used in determining the balance
and amortization of deferred policy acquisition costs for traditional and
nontraditional insurance products, policyholder liabilities, valuation of and
impairment losses on investments, valuation allowances or impairments for
mortgage loans on real estate, income taxes, goodwill, intangible assets, and
pension and other postretirement employee benefits. Although some variability
is inherent in these estimates, the recorded amounts reflect management's best
estimates based on facts and circumstances as of the balance sheet date.
Management believes the amounts provided are appropriate.
7
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE REVENUES AND EXPENSES
Premiums on traditional life insurance products, which include individual
whole life and term insurance and immediate annuities, are recognized as
revenue when due. For accident and health and group life insurance products,
premiums are recognized as revenue over the contract period when earned. To
the extent that this revenue is unearned, it is reported as part of unearned
premiums and fees on the consolidated balance sheets. Benefits and expenses
are recognized in relation to premiums over the contract period via a
provision for future policyholder benefits and the amortization of deferred
policy acquisition costs.
Nontraditional life insurance products include individual adjustable life,
universal life and variable life insurance and group universal and variable
universal life insurance. Revenue from nontraditional life insurance products
and deferred annuities is comprised of policy and contract fees charged for
the cost of insurance, policy administration and surrenders and is assessed on
a daily or monthly basis and recognized as revenue when assessed and earned.
Expenses include both the portion of claims not covered by and the interest
credited to the related policy and contract account balances. Deferred policy
acquisition costs are amortized relative to the emergence of estimated gross
profits.
Any premiums on both traditional and nontraditional products due as of the
date of the consolidated financial statements that have not yet been received
and posted are included in premiums and fees receivable on the consolidated
balance sheets.
Certain nontraditional life insurance products, specifically individual
adjustable and variable life insurance, require payment of fees in advance for
services that will be rendered over the estimated lives of the policies. These
payments are established as unearned revenue reserves upon receipt and are
included in unearned premiums and fees on the consolidated balance sheets.
These unearned revenue reserves are amortized over the estimated lives of
these policies and contracts in relation to the emergence of estimated gross
profits. Unearned revenue reserves are adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities available-for-sale.
The adjustment represents the changes in amortization that would have been
recorded had such unrealized amounts been realized. This adjustment is
recorded through other comprehensive income on the consolidated statements of
operations and comprehensive income (loss). During 2012, the Company made an
adjustment to unearned premiums and fees and other comprehensive income to
reflect the impact of unrealized gains and losses on fixed maturity securities
available-for-sale related to prior periods. The impact of this adjustment
related to prior periods resulted in a $23,015 reduction to other
comprehensive income in 2012. Management has determined that the effect of
this adjustment is not material to the consolidated financial statements for
the current and prior periods presented.
COMMISSION INCOME
Commission income on insurance products is recognized as earned, net of the
amount required to be remitted to the various underwriters responsible for
providing the policy. Commissions are refunded on cancelled policies based on
the unearned portion of the premium payments.
Commission income on investment related products is recognized on the date of
sale. Related commission expense due to agents on such sales is also
recognized on the date of sale.
ADMINISTRATIVE AND SPONSORSHIP FEES
The Company pays administrative fees to financial institutions for
administrative duties performed including, but not limited to, collection and
remittance of premium, assistance with premium billing, communication with
loan customers and other additional clerical functions. The expense due is
estimated and accrued on a quarterly basis. The Company also pays certain
financial institutions sponsorship fees which are primarily based on the loss
experience of the business placed by the financial institution with the
Company, which are estimated and accrued on a quarterly basis based on recent
historical experience and are trued up at each profit sharing year-end which
occur throughout the year.
VALUATION OF INVESTMENTS AND NET INVESTMENT INCOME
Fixed maturity securities, which may be sold prior to maturity and include
fixed maturity securities on loan, are classified as available-for-sale and
are carried at fair value. Premiums and discounts are amortized or accreted
using the interest yield method. The Company recognizes the excess of all cash
flows over the initial investment attributable to its beneficial interest in
asset-backed securities estimated at the acquisition/transaction date as
interest income over the life of the Company's beneficial interest using the
effective interest yield method. The Company does not accrete the discount for
fixed maturity securities that are in default.
8
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS AND NET INVESTMENT INCOME (CONTINUED)
The Company uses book value, defined as original cost adjusted for impairments
and discount accretion or premium amortization, as cost for applying the
retrospective adjustment method to loan-backed fixed maturity securities
purchased. Prepayment assumptions for single class and multi-class
mortgage-backed securities were obtained using a commercial software
application or internal estimates.
Marketable equity securities and equity securities on loan are generally
classified as available-for-sale and are carried at fair value. Mutual funds
and exchange-traded fund investments are carried at fair value, which
generally are quoted market prices of the funds' net asset value.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of adjustments to deferred policy acquisition costs,
reserves and deferred income tax, reported as a separate component of
accumulated other comprehensive income (loss) in stockholder's equity.
Mortgage loans and mortgage loans held for investment are carried at amortized
cost less any valuation allowances. Premiums and discounts are amortized or
accreted over the terms of the mortgage loans based on the effective interest
yield method. Mortgage loans for which the Company has recorded a specific
valuation allowance are held at the present value of the expected future cash
flows discounted at the loan's original effective interest rate, or the
estimated fair value of the loan's underlying collateral.
Alternative investments include private equity funds, mezzanine debt funds and
hedge funds investing in limited partnerships. These investments are carried
on the consolidated balance sheets at the amount invested, adjusted to
recognize the Company's ownership share of the earnings or losses of the
investee after the date of the acquisition, and adjusted for any distributions
received (equity method accounting). In-kind distributions are recorded as a
return of capital for the cost basis of the stock received. The Company's
income from these alternative investments is accounted for using the equity
method and is included in net investment income or net realized investment
gains (losses) on the consolidated statements of operations and comprehensive
income (loss) based on information provided by the investee. The valuation of
alternative investments is recorded based on the partnership financial
statements from the previous quarter plus contributions and distributions
during the fourth quarter. Any undistributed amounts held by the investee are
recorded, based on the Company's ownership share, as unrealized gains or
losses on the consolidated statements of operations and comprehensive income
(loss). The Company believes this valuation represents the best available
estimate, however, to the extent that market conditions fluctuate
significantly, any change in the following quarter partnership financial
statements could be material to the Company's unrealized gains or losses
included in stockholder's equity. The Company evaluates partnership financial
statements received subsequent to December 31 up to the financial statements
issue date for material fluctuations in order to determine if an adjustment
should be recorded as of December 31.
Real estate, included in other invested assets on the consolidated balance
sheets, represents commercial real estate acquired in satisfaction of mortgage
loan debt. The real estate acquired is considered held for sale for accounting
purposes and is carried at the lower of cost or fair value less estimated cost
to sell. As of December 31, 2013 and 2012, the Company had $4,560 and $4,755,
respectively, of real estate held for sale.
For non-structured fixed maturity securities, the Company recognizes interest
income using the interest method without anticipating the impact of
prepayments. The Company recognizes dividend income on equity securities upon
the declaration of the dividend.
For structured fixed maturity securities, excluding interest-only securities,
the Company recognizes income using a constant effective yield method based on
prepayment assumptions obtained from outside service providers or upon analyst
review of the underlying collateral and the estimated economic life of the
securities. When estimated prepayments differ from the anticipated
prepayments, the effective yield is recalculated to reflect actual prepayments
to date and anticipated future payments. Any resulting adjustment is included
in net investment income.
Policy loans are carried at the unpaid principal balance.
Cash and cash equivalents of sufficient credit quality are carried at cost,
which approximates fair value. The Company considers all money market funds
and commercial paper with original maturity dates of less than three months to
be cash equivalents. The Company places its cash and cash equivalents with
high quality financial institutions and, at times, these balances may be in
excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit.
9
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS AND NET INVESTMENT INCOME (CONTINUED)
A portion of the funds collected by the Company from its financial institution
customers is restricted in its use because the Company is acting as an agent
on behalf of certain insurance underwriters. As an agent, the Company has a
fiduciary responsibility to remit the appropriate percentage of monies
collected to the corresponding insurance underwriters. This sum of money is
defined as unremitted premiums payable and is recorded in other liabilities on
the consolidated balance sheets as discussed in detail in note 15. The use of
restricted funds is limited to the satisfaction of the unremitted premiums and
claims payable owed to the underwriter.
The amount of restricted cash reported in cash and cash equivalents on the
consolidated balance sheets is $21,530 and $21,615 at December 31, 2013 and
2012, respectively.
Finance receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances reduced by an allowance for loan losses.
The interest rates on the receivables outstanding at December 31, 2013 and
2012 are consistent with the rates at which loans would currently be made to
borrowers of similar credit quality and for the same maturities and security;
as such, the carrying value of the receivables outstanding at December 31,
2013 and 2012 approximate the fair value at that date.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of derivatives, including swaps, swaptions,
futures, caps, floors, forwards and option contracts, to manage the risks
associated with cash flows or changes in estimated fair values related to the
Company's financial instruments. The Company currently enters into derivative
transactions that do not qualify for hedge accounting or in certain cases,
elects not to utilize hedge accounting.
Derivative instruments are carried at fair value, with changes in fair value
of derivative instruments and economically hedged items recorded in net
realized investment gains (losses) or, in the case of certain life insurance
product economic hedging, in policyholder benefits on the consolidated
statements of operations and comprehensive income (loss). Interest income
generated by derivative instruments is reported in net realized investment
gains (losses) on the consolidated statements of operations and comprehensive
income (loss). The Company does not offset the fair value amounts recognized
for derivatives executed with the same counterparty under the same master
netting agreement.
Several life insurance and annuity products in the Company's liability
portfolio contain investment guarantees which are deemed to be embedded
derivatives. These guarantees take the form of guaranteed withdrawal benefits
on variable annuities, a guaranteed payout floor on a variable payout annuity,
and equity linked interest credits on both fixed annuity and fixed universal
life products. The embedded derivative is bifurcated from the host insurance
contract and accounted for as a freestanding derivative. Embedded derivatives
are carried on the consolidated balance sheets at estimated fair value and are
included within policy and contract account balances and future policy and
contract benefits on the consolidated balance sheets. Changes in estimated
fair value are reported in net realized investment gains (losses) or in
policyholder benefits on the consolidated statements of operations and
comprehensive income (loss).
The Company holds "To-Be-Announced" (TBA) Government National Mortgage
Association forward contracts that require the Company to take delivery of a
mortgage-backed security at a settlement date in the future. A majority of the
TBAs are settled at the first available period allowed under the contract.
However, the deliveries of some of the Company's TBA securities happen at a
later date, thus extending the forward contract date. These securities are
reported at fair value as derivative instruments with the changes in fair
value reported in net realized investment gains (losses) on the consolidated
statements of operations and comprehensive income (loss).
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized and unrealized gains and losses are determined using the specific
security identification method. The Company regularly reviews each investment
in its various asset classes to evaluate the necessity of recording impairment
losses for other-than-temporary declines in fair value. During these reviews,
the Company evaluates many factors, including, but not limited to, the length
of time and the extent to which the current fair value has been below the cost
of the security, specific credit issues such as collateral, financial
prospects related to the issuer, the Company's intent to hold or sell the
security, and current economic conditions.
10
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES (CONTINUED)
An other-than-temporary impairment (OTTI) is recognized in earnings for a
fixed maturity security in an unrealized loss position when it is anticipated
that the amortized cost will not be recovered. In such situations, the OTTI
recognized in earnings is the entire difference between the fixed maturity
security's amortized cost and its fair value only when either the Company has
the intent to sell the fixed maturity security or it is more likely than not
that the Company will be required to sell the fixed maturity security before
recovery of the decline in the fair value below amortized cost. If neither of
these two conditions exists, the difference between the amortized cost basis
of the fixed maturity security and the present value of the projected future
cash flows expected to be collected is recognized as an OTTI in earnings
(credit loss). If the fair value is less than the present value of projected
future cash flows expected to be collected, this portion of the OTTI related
to other-than credit factors (noncredit loss) is recorded as an other
comprehensive loss. When an unrealized loss on a fixed maturity security is
considered temporary, the Company continues to record the unrealized loss in
accumulated other comprehensive income (loss) and not in earnings.
For non-structured fixed maturity securities, an OTTI is recorded when the
Company does not expect to recover the entire amortized cost basis of the
security. The Company estimates the credit component of the loss based on a
number of various liquidation scenarios that it uses to assess the revised
expected cash flows from the security.
For structured fixed maturity securities, an OTTI is recorded when the Company
believes that based on expected discounted cash flows, the Company will not
recover all amounts due under the contractual terms of the security. The
credit loss component considers inputs from outside sources, including but not
limited to, default rates, delinquency rates, loan to collateral ratios,
third-party guarantees, current levels of subordination, vintage, geographic
concentration, credit ratings and other information that management deems
relevant in forming its assessment.
The Company utilizes an accretable yield which is the equivalent of book yield
at purchase date as the factor to discount the cash flows. The book yield is
also analyzed to see if it warrants any changes due to prepayment assumptions.
For equity securities, an OTTI is recorded when the Company does not have the
ability and intent to hold the security until forecasted recovery, or if the
forecasted recovery is not within a reasonable period. When an OTTI has
occurred, the entire difference between the equity security's cost and its
fair value is charged to earnings. Equity securities that have been in an
unrealized loss position of greater than 20% for longer than six months are
reviewed specifically using available third party information based on the
investee's current financial condition, liquidity, near-term recovery
prospects, and other factors. In addition, all equity securities that have an
unrealized loss position greater than $100 are reviewed based on the
individual characteristics of the security. For all such equity security
considerations, the Company further considers the likelihood of recovery
within a reasonable period of time, as well as the intent and ability to hold
such securities.
Alternative investments that have been in an unrealized loss position of
greater than 20% for longer than two years are analyzed on a fund by fund
basis using current and forecasted expectations for future fund performance,
the age of the fund, general partner commentary and underlying investments
within the fund. If facts and circumstances indicate that the value of the
investment will not recover in a reasonable time period, the cost of the
investment is written down and an OTTI is recorded in net realized investment
gains (losses) on the consolidated statements of operations and comprehensive
income (loss).
All other material unrealized losses are reviewed for any unusual event that
may trigger an OTTI. Determination of the status of each analyzed investment
as other-than-temporarily impaired or not is made based on these evaluations
with documentation of the rationale for the decision.
The Company may, from time to time, sell invested assets subsequent to the
balance sheet date that were considered temporarily impaired at the balance
sheet date for several reasons. The rationale for the change in the Company's
intent to sell generally focuses on unforeseen changes in the economic facts
and circumstances related to the invested asset subsequent to the balance
sheet date, significant unforeseen changes in the Company's liquidity needs,
or changes in tax laws or the regulatory environment. The Company had no
material sales of invested assets, previously considered OTTI or in an
unrealized loss position, subsequent to the balance sheet dates for either
December 31, 2013 or 2012.
11
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES (CONTINUED)
The mortgage loan valuation allowance is estimated based on an evaluation of
known and inherent risks within the loan portfolio and consists of an
evaluation of a specific loan loss allowance and a general loan loss
allowance. A specific loan loss allowance is recognized when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan. A
nonperforming loan is defined as a loan that is not performing to the
contractual terms of the loan agreement. Examples of nonperforming loans may
include delinquent loans, requests for forbearance and loans in the process of
foreclosure. The specific valuation allowance is equal to the excess carrying
value of the loan over the present value of expected future cash flows
discounted at the loan's original effective interest rate, or, if the loan is
in the process of foreclosure or otherwise collateral dependent, the estimated
fair value of the loan's underlying collateral, less estimated selling costs.
Mortgage loans that are deemed uncollectible are generally written-off against
the valuation allowance, and recoveries, if any, are credited to the valuation
allowance. The Company may recognize a general loan loss valuation allowance
when it is probable that a credit event has occurred and the amount of the
loss can be reasonably estimated. Changes in the valuation allowance are
recorded in net realized investment gains (losses) on the consolidated
statements of operations and comprehensive income (loss).
For a small portion of the portfolio, classified as troubled debt
restructurings (TDRs), the Company grants concessions related to the
borrowers' financial difficulties. The types of concessions may include: a
permanent or temporary modification of the interest rate, extension of the
maturity date at a lower interest rate and/or a reduction of accrued interest.
If a loan is considered a TDR, the Company impairs the loan and records a
specific valuation allowance, if applicable.
SECURITIES LENDING
The Company, through an agent, lends certain portfolio holdings and in turn
receives cash collateral to be invested pursuant to the terms of an agreement
with the lending agent.
The Company accounts for its securities lending transactions as secured
borrowings, in which the collateral received and the related obligation to
return the collateral are recorded on the consolidated balance sheets as
securities held as collateral and securities lending collateral, respectively.
Securities on loan remain on the Company's consolidated balance sheets and
interest and dividend income earned by the Company on loaned securities is
recognized in net investment income on the consolidated statements of
operations and comprehensive income (loss).
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered by an unaffiliated asset management firm. These segregated funds
are invested by both an unaffiliated asset management firm and an affiliate of
the Company for the exclusive benefit of the Company's pension, variable
annuity and variable life insurance policyholders and contractholders. Assets
consist principally of marketable securities and are reported at the fair
value of the investments held in the segregated funds. Investment income and
gains and losses accrue directly to the policyholders and contractholders. The
activity of the separate accounts is not reflected on the consolidated
statements of operations and comprehensive income (loss) except for the fees
the Company received, which are assessed on a daily or monthly basis and
recognized as revenue when assessed and earned, and the activity related to
guaranteed minimum death and withdrawal benefits.
The Company periodically invests money in its separate accounts. At December
31, 2013 and 2012, the fair value of these investments included within equity
securities on the consolidated balance sheets was $72,497 and $38,032,
respectively.
FINANCE CHARGE INCOME AND RECEIVABLES
The Company's finance receivables portfolio primarily comprises smaller
balance homogeneous direct installment loans, which are originated at the
Company's network of over 135 retail branch locations in Illinois, Indiana,
Kentucky, Missouri, Tennessee, and Wisconsin. The Company also holds a smaller
portfolio of retail installment notes that are primarily originated through
contracts with retail stores within the same regions as the branch locations.
12
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCE CHARGE INCOME AND RECEIVABLES (CONTINUED)
The Company uses the interest (actuarial) method of accounting for unearned
finance charges and interest on finance receivables. Finance receivables are
reported net of unearned finance charges. Accrual of finance charges, interest
and late fees on smaller balance and homogeneous finance receivables is
suspended once an account has recognized 60-days of accrued charges. The
account is subsequently accounted for on a cash basis. Accrual is resumed when
there are less than 60-days of accrued charges. Accrual of finance charges and
interest is suspended on other receivables at the earlier of when they are
contractually past due for more than 30 days or if they are considered by
management to be impaired.
The majority of the Company's finance receivables are smaller balance
homogeneous loans evaluated collectively for impairment. The Company applies a
general valuation allowance to its entire loan portfolio via a direct charge
to operations through the provision for credit losses at an amount, which in
management's judgment, based on the overall risk characteristics of the
portfolio, changes in the character or size of the portfolio and the level of
nonperforming assets is adequate to absorb probable losses on existing
receivables. Risk characteristics include consideration of historical loss
experience, adjusted for current economic conditions such as delinquency
rates, unemployment, and regulatory changes. The underlying assumptions,
estimates, and assessments used are updated periodically to reflect
management's view of current conditions. Changes in estimates can
significantly affect the allowance for losses.
It is the Company's general policy to charge off finance receivable accounts
(net of unearned finance charges) when they are deemed uncollectible or when
no collections were received during the preceding six months, except for
certain accounts that have been individually reviewed by management and are
deemed to warrant further collection effort.
The adequacy of the allowance for losses is highly dependent upon management's
estimates of variables affecting valuation, appraisals of collateral,
evaluations of performance and status, and the amounts and timing of future
cash flows expected to be received on impaired loans. Such estimates,
appraisals, evaluations, and cash flows may be subject to frequent adjustments
due to changing economic prospects of borrowers or collateral. These estimates
are reviewed periodically and adjustments, if necessary, are recorded in the
provision for credit losses in the periods in which they become known.
Impaired loans not considered TDRs are generally larger (greater than $50)
real estate secured loans that are at least 60 days past due. A loan is
classified as impaired when, based upon current information and events, it is
probable that the Company will be unable to collect all amounts due according
to all of the contractual terms of the loan agreement. A specific valuation
allowance is calculated based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the observable market price of the loan or the fair value of the
collateral if the loan is collateral dependent. Interest payments received on
impaired loans are generally applied to principal unless the remaining
principal balance is considered to be fully collectible.
TDRs are those loans for which the Company has granted a concession to a
borrower experiencing financial difficulties without the receipt of additional
compensation. TDRs generally occur as a result of loan modifications forced by
personal bankruptcy court rulings, where the Company is required to reduce the
remaining future principal and/or interest payments on a loan, or due to a
borrower rolling an existing loan into a newly issued loan with extended
terms. The Company expects borrowers whose loans have been modified under
these situations to be able to meet their contractual obligations for the
remaining term of the loan. As a result, the Company generally does not
increase the general allowance already recognized, based on a TDR.
DEFERRED POLICY ACQUISITION COSTS
The costs after the effects of reinsurance, which relate directly to the
successful acquisition of new or renewal contracts, are generally deferred to
the extent recoverable from future premiums or expected gross profits.
Deferrable costs that can be capitalized in the successful acquisition of new
or renewal contracts include incremental direct costs of acquisitions, as well
as certain costs related directly to acquisition activities such as
underwriting, policy issuance and processing, medical and inspection and sales
force contract selling. Deferred policy acquisition costs (DAC) are subject to
loss recognition and recoverability testing at least annually.
For traditional life insurance, accident and health and group life insurance
products, DAC are amortized with interest over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate premium
revenues. The ultimate premium revenues are estimated based upon the same
assumptions used to calculate the future policy benefits.
13
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS (CONTINUED)
For nontraditional life insurance products and deferred annuities, DAC are
amortized with interest over the expected life of the contracts in relation to
the present value of estimated gross profits from investment, mortality,
expense, and lapse margins. The Company reviews actuarial assumptions used to
project estimated gross profits, such as mortality, persistency, expenses,
investment returns and separate account returns, periodically throughout the
year. These assumptions reflect the Company's best estimate of future
experience.
For future separate account returns, the Company utilizes a mean reversion
process. The Company determines an initial starting date (anchor date) to
which a long-term separate account return assumption is applied in order to
project an estimated mean return. The Company's future long-term separate
account return assumption was 8% at December 31, 2013 and 2012. Factors
regarding economic outlook and management's current view of the capital
markets along with a historical analysis of long-term investment returns are
considered in developing the Company's long-term separate account return
assumption. If the actual separate account return varies from the long-term
assumption, a modified yield assumption is projected over the next five years
such that the mean return equals the long-term assumption. The modified yield
assumption is not permitted to be negative or in excess of 15% during the
five-year reversion period.
Changes in assumptions can have a significant impact on the amount of DAC
reported for nontraditional life insurance products and deferred annuities,
and the related amortization patterns. In the event actual experience differs
from expected experience or future assumptions are revised to reflect
management's new best estimate, the Company records an increase or decrease in
DAC amortization expense, which could be significant. Any resulting impact to
financial results from a change in an assumption is included in amortization
of DAC on the consolidated statements of operations and comprehensive income
(loss).
DAC are adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale. The adjustment represents the changes
in amortization that would have been recorded had such unrealized amounts been
realized. This adjustment is recorded through other comprehensive income
(loss) on the consolidated statements of operations and comprehensive income
(loss).
The Company assesses internal replacements on insurance contracts to determine
whether such modifications significantly change the contract terms. An
internal replacement represents a modification in product benefits, features,
rights or coverages that occurs by the exchange of an insurance contract for a
new insurance contract, or by amendment, endorsement or rider to a contract,
or by the election of a feature or coverage within a contract. If the
modification substantially changes the contract, the remaining DAC on the
original contract are immediately expensed and any new DAC on the replacement
contract are deferred. If the contract modification does not substantially
change the contract, DAC amortization on the original contract continues and
any new acquisition costs associated with the modification are immediately
expensed.
SALES INDUCEMENTS
The Company defers sales inducements and amortizes them over the life of the
policy utilizing the same methodology and assumptions used to amortize DAC.
Deferred sales inducements are included in other assets on the consolidated
balance sheets. The Company offers sales inducements for individual annuity
products that credits the policyholder with a higher interest rate than the
normal general account interest rate for the first year of the deposit and
another sales inducement that offers an upfront bonus on variable annuities.
Changes in deferred sales inducements for the periods ended December 31 were
as follows:
2013 2012
--------------- ---------------
Balance at beginning of year $ 13,962 $ 11,851
Capitalization 11,259 3,826
Amortization and interest (1,189) (1,918)
Adjustment for unrealized losses 1,180 203
--------------- ---------------
Balance at end of year $ 25,212 $ 13,962
=============== ===============
14
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
In connection with acquisitions of operating entities, the Company recognizes
the excess of the purchase price over the fair value of net assets acquired as
goodwill. Goodwill is not amortized. The Company may choose to perform a
qualitative assessment in which the Company determines if the fair value of
the reporting unit is, more likely than not, greater than the carrying value
of the reporting unit. If the fair value of the reporting unit is, more likely
than not, greater than the carrying value of the reporting unit, then no
further review or testing is required. If the fair value of the reporting
entity is not, more likely than not, greater than the carrying value of the
reporting unit, or if the Company chooses not to perform a qualitative
assessment, the goodwill is tested for impairment at the reporting unit level.
The assessment or testing of goodwill is performed at least annually and
between annual evaluations if events occur or circumstances change that would
more likely than not reduce the fair value of the reporting unit below its
carrying amount. Such circumstances could include, but are not limited to: (1)
a significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether goodwill is impaired, the Company compares
the fair value of the reporting unit to which the goodwill is assigned to the
reporting unit's carrying amount, including goodwill. When the Company chooses
to perform or determines that testing is required, the fair value of the
reporting unit is estimated using a combination of the income or discounted
cash flows approach and the market approach, which utilizes comparable
companies' data, when available. If the carrying amount of a reporting unit
exceeds its fair value, then the amount of the impairment loss must be
measured. The impairment loss would be calculated by comparing the implied
fair value of reporting unit goodwill to its carrying amount. In calculating
the implied fair value of reporting unit goodwill, the fair value of the
reporting unit is allocated to all of the other assets and liabilities of that
unit based on their fair values. The excess of the fair value of a reporting
unit over the amount assigned to its other assets and liabilities is the
implied fair value of goodwill. An impairment loss would be recognized when
the carrying amount of goodwill exceeds its implied fair value.
The Company also evaluates the recoverability of other intangible assets with
finite useful lives whenever events or changes in circumstances indicate that
an intangible asset's carrying amount may not be recoverable. Such
circumstances could include, but are not limited to: (1) a significant
decrease in the fair value of an asset, (2) a significant adverse change in
the extent or manner in which an asset is used, or (3) an accumulation of
costs significantly in excess of the amount originally expected for the
acquisition of an asset. The Company measures the carrying amount of the asset
against the estimated undiscounted future cash flows associated with it.
Should the sum of the expected future net cash flows be less than the carrying
value of the asset being evaluated, an impairment loss would be recognized.
The impairment loss would be determined as the amount by which the carrying
value of the asset exceeds its fair value. The fair value is measured based on
quoted market prices, if available. If quoted market prices are not available,
the estimate of fair value is based on various valuation techniques, including
the discounted value of estimated future cash flows. The evaluation of asset
impairment requires the Company to make assumptions about future cash flows
over the life of the asset being evaluated. These assumptions require
significant judgment and actual results may differ from assumed and estimated
amounts.
SOFTWARE
Computer software costs incurred for internal use are capitalized and
amortized over a three to five-year period. Computer software costs include
application software, purchased software packages and significant upgrades to
software and are included in property and equipment, net on the consolidated
balance sheets. The Company had unamortized software costs of $53,491 and
$45,369 as of December 31, 2013 and 2012, respectively, and amortized software
expense of $18,122, $17,172 and $16,290 for the years ended December 31, 2013,
2012 and 2011, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation of
$142,847 and $138,864 at December 31, 2013 and 2012, respectively. Buildings
are depreciated over 40 years and equipment is generally depreciated over 5 to
10 years. Depreciation expense for the years ended December 31, 2013, 2012 and
2011, was $9,958, $9,679, and $9,386, respectively.
15
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured business.
Reinsurance premiums ceded and recoveries on benefits and claims incurred are
deducted from the respective income and expense accounts.
POLICYHOLDER LIABILITIES
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life insurance products and deferred annuities.
Additions to account balances include premiums, deposits and interest credited
by the Company. Deductions to account balances include surrenders,
withdrawals, benefit payments and charges assessed for the cost of insurance,
policy administration and surrenders.
Future policy and contract benefits are comprised of reserves for traditional
life insurance, group life insurance, accident and health products, and
guarantees on certain deferred annuity contracts. The reserves were calculated
using the net level premium method based upon assumptions regarding investment
yield, mortality, morbidity and withdrawal rates determined at the date of
issue, commensurate with the Company's experience. Provision has been made in
certain cases for adverse deviations from these assumptions. When estimating
the expected gross margins for traditional life insurance products as of
December 31, 2013, the Company has assumed an average rate of investment
yields ranging from 3.79% to 5.36%.
Future policy and contract benefits are adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities available for sale.
The adjustment to future policy benefits and claims represents the increase in
policy reserves that would have been recorded had such unrealized amounts been
realized. This adjustment is recorded through other comprehensive income
(loss) on the consolidated statements of operations and comprehensive income
(loss).
Pending policy and contract claims primarily represent amounts estimated for
claims incurred but not reported and claims that have been reported but not
settled. Such liabilities are estimated based upon the Company's historical
experience and other actuarial assumptions that consider current developments
and anticipated trends.
Other policyholder funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
PARTICIPATING BUSINESS
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations, which
take into consideration current mortality, interest earnings, expense factors
and federal income taxes. Dividends are recognized as expenses consistent with
the recognition of premiums. At December 31, 2013 and 2012, the total
participating business in force was $2,468,845 and $2,319,864, respectively.
As a percentage of total life insurance in force, participating business in
force represents 0.4% at both December 31, 2013 and 2012.
INCOME TAXES
The Company files a life/non-life consolidated federal income tax return with
Minnesota Mutual Companies, Inc., the Company's ultimate parent. The Company
utilizes a consolidated approach to the allocation of current taxes, whereby,
the tax benefits resulting from any losses by the Company, which would be
realized by Minnesota Mutual Companies, Inc. on a consolidated return, go to
the benefit of the Company. Intercompany tax balances are settled annually
when the tax return is filed with the Internal Revenue Service (IRS).
16
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Inherent in the provision for federal income taxes are estimates regarding the
deductibility of certain items and the realization of certain tax credits. In
the event the ultimate deductibility of certain items or the realization of
certain tax credits differs from estimates, the Company may be required to
significantly change the provision for federal income taxes recorded on the
consolidated financial statements. Any such change could significantly affect
the amounts reported on the consolidated statements of operations and
comprehensive income (loss). Management has used best estimates to establish
reserves based on current facts and circumstances regarding tax exposure items
where the ultimate deductibility is open to interpretation. Management
evaluates the appropriateness of such reserves based on any new developments
specific to their fact patterns. Information considered includes results of
completed tax examinations, Technical Advice Memorandums and other rulings
issued by the IRS or the tax courts.
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under this method, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established when it is determined that it is more likely than
not that the deferred tax asset will not be fully realized. Current income
taxes are charged to operations based upon amounts estimated to be payable as
a result of taxable operations for the current year.
(3) RISKS
The following is a description of certain significant risks facing the
Company:
CREDIT AND CASH FLOW ASSUMPTION RISK:
Credit and cash flow assumption risk is the risk that issuers of investment
securities, mortgagees on mortgage loans or other parties, including
reinsurers and derivatives counterparties, default on their contractual
obligations or experience adverse changes to the contractual cash flow
streams. The Company attempts to minimize the adverse impact of this risk by
monitoring portfolio diversification by asset class, creditor, industry, and
by complying with investment limitations governed by state insurance laws and
regulations as applicable. The Company also considers relevant objective
information available in estimating the cash flows related to structured
securities. The Company monitors and manages exposures, determines whether
securities are impaired or loans are deemed uncollectible, and takes charges
in the period such assessments are made.
Following below is discussion regarding particular asset class concentration
of credit risk:
CONCENTRATION OF CREDIT RISK:
CASH AND CASH EQUIVALENTS:
Certain financial instruments, consisting primarily of cash and cash
equivalents, potentially subject the Company to concentration of credit
risk. The Company places its cash and cash equivalents in investment grade
securities and limits the amount of credit exposure with any one
institution.
17
(3) RISKS (CONTINUED)
CONCENTRATION OF CREDIT RISK (CONTINUED):
FINANCIAL INSTRUMENTS:
Management attempts to limit the concentration of credit risk with respect
to mortgages, fixed maturity securities, and other invested assets by
diversifying the geographic base and industries of the underlying issuers.
This diversity is an integral component of the portfolio management process.
Management attempts to achieve equity security diversification through the
use of style diversification and through limiting exposure to a single
issuer. Alternative investment diversification is sought by dividing the
portfolio between direct venture company funds, mezzanine debt funds and
hedge and other types of alternative instruments. In addition, this
portfolio is managed by diversifying industry sectors to limit exposure to
any one type of fund.
DERIVATIVES:
The Company executes derivative transactions with ongoing counterparty
exposure exclusively with highly rated counterparties. The Company has
collateral arrangements in place that generally require a counterparty to
post collateral when the fair value of the counterparty's derivatives
reaches a pre-determined threshold. The aggregate counterparty exposure for
a single counterparty is limited to 1% of admitted assets for AAA rated
counterparties and 0.75% of admitted assets for A or AA rated
counterparties. In addition, the combined exposure to any one issuer,
including common stock, direct credit and net counterparty exposures is
limited to 3% of admitted assets. Admitted assets in this context are
defined as the Company's admitted assets as defined by Statutory Accounting
guidance authored by the National Association of Insurance Commissioners
(NAIC).
The Company does not anticipate nonperformance by any of its derivative
instrument counterparties. The Company is required to pledge collateral in
order to trade in futures contracts. The Company maintains ownership of
pledged securities at all times.
The Company attempts to minimize the adverse impact of any exposure to
potential loss in the event of credit default by the Company's futures
contracts by the fact that the futures contracts are exchange-traded
instruments and if the broker could not perform its intermediary obligations
concerning the Company's futures contracts, these contracts could be
transferred to a new broker with little or no financial impact to the
Company.
EQUITY MARKET RISK:
Equity market risk is the risk that significant adverse fluctuations in the
equity market can affect financial results. Risks may include, but are not
limited to, potential impairments to equity security holdings, changes in the
amount of fee revenue a company may be able to realize from its separate
account assets, impacting estimations of future profit streams from variable
products or increasing potential claims under certain contracts with
guaranteed minimum benefit features and, as discussed in credit risk above,
investing in equity securities as a part of the insurance company investment
portfolio.
As of December 31, 2013, approximately 91.7% of separate account assets were
exposed to equity market risks across the Company's variable product
offerings. The Company attempts to minimize the impact of this risk with its
product offerings in traditional insurance products, which do not expose fee
revenue to equity market risk and by collecting fee revenue on a transactional
or annual basis rather than an asset-based basis.
The Company holds derivative instruments in its efforts to minimize the
adverse impact of equity market risks embedded within certain individual
annuity and life products.
As discussed above, the Company monitors its overall exposure to the equity
market and attempts to maintain a diversified investment portfolio limiting
its exposure to any single issuer.
18
(3) RISKS (CONTINUED)
INTEREST RATE RISK:
Interest rate risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments relative to the value of its
liabilities. In a declining or low interest rate environment, the Company is
generally not able to reinvest at comparable yields. Lower interest rates
could also result in lower net investment income, guaranteed crediting rates
on certain products and increased pension and other postretirement benefit
obligations due to a decreased discount rate assumption. Continued low
interest rates also impact DAC estimated gross profit, recoverability and
other projections as well as increase the risk for loss recognition events
that may require higher reserves. The Company attempts to minimize the adverse
impact of this risk by maintaining a diversified portfolio of investments and
monitoring cash flow patterns in order to approximately match the expected
maturity of its liabilities, by employing disciplined new product development
procedures and by offering a wide range of products and by operating
throughout the United States.
LEGAL/REGULATORY RISK:
Legal or regulatory risk is the risk that changes in the legal or regulatory
environment in which an insurer operates could result in increased
competition, reduced demand for a company's products, or additional
unanticipated expenses in the pricing of a company's products. Changes in tax,
fiscal and other legislation may increase corporate taxes and impact the
Company's business. The Company attempts to minimize the adverse impact of
this risk by offering a wide range of products and by operating throughout the
United States. The Company specifically monitors its risk toward any one
particular product or particular jurisdictions. The Company employs compliance
practices that identify and assist in minimizing the adverse impact of this
risk.
MORTALITY RISK:
Mortality risk is the risk that overall life expectancy assumptions used by
the Company in the pricing of its life insurance and annuity products prove to
be too aggressive. This situation could occur, for example, as a result of
pandemics, terrorism, natural disasters, or acts of war. The Company's main
strategy to reduce this risk is to limit the concentration of mortality risk
through geographical diversification and the purchase of reinsurance.
RATINGS RISK:
Ratings risk is the risk that rating agencies change their outlook or rating
of the Company or a subsidiary of the Company, where such change or changes in
the Company's underlying business or a combination of both could negatively
impact the Company. The Company employs a strategic planning process,
disciplined new product procedures, monitors its risk-based capital and other
capital ratios for adequacy and maintains regular communications with the
rating agencies in its efforts to minimize the adverse impact of this risk.
REINSURANCE RISK:
Reinsurance risk is the risk that reinsurance companies, where a company has
ceded a portion of its underwriting risk, may default on their obligation. The
Company has entered into certain reinsurance contracts to cede a portion of
its life and health business. The Company established a trust agreement when
assets connected to the ceding of its Individual Disability line of business
were sold. The assets in the trust are actively monitored for potential credit
risk and are replaced as necessary. The Company also monitors the ratings of
reinsurance companies it chooses to cede risk to and follows up on any
outstanding balances with reinsurance companies.
19
(4) NEW ACCOUNTING PRONOUNCEMENTS
In June 2013, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2013-08, Financial Services - Investment
Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure
Requirements, which provides comprehensive accounting guidance for assessing
whether an entity is an investment company. ASU 2013-08 requires that all
entities regulated under the Investment Company Act of 1940 automatically
qualify as investment companies, while all other entities need to consider
both the fundamental and typical characteristics of an investment company in
determining whether they qualify as investment companies. ASU 2013-08 is
effective for the annual reporting period beginning January 1, 2014 and is
required to be applied prospectively. Beginning on January 1, 2014, changes in
undistributed amounts related to the Company's alternative investments in
entities that meet the ASU 2013-08 investment company definition will be
recorded in other net realized investment gains (losses) rather than as
unrealized gains or losses on the consolidated statements of operations and
comprehensive income (loss). The Company is currently evaluating the impact of
this new guidance and does not expect the adoption of ASU 2013-08 to have a
material effect on the Company's consolidated financial position.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic
220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income, which requires an entity to provide information about significant
amounts, by component, reclassified out of accumulated other comprehensive
income either on the face of the statement where net income is presented or in
the notes to the financial statements. The Company had no material impact to
its consolidated results of operations or financial position as a result of
the prospective adoption of ASU 2013-02, effective January 1, 2013, and has
provided the required disclosures in note 20.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities, which requires entities
to disclose information about offsetting and related arrangements.
Subsequently in January 2013, the FASB issued ASU 2013-01 Balance Sheet (Topic
210): Clarifying the Scope of Disclosures about Offsetting Assets and
Liabilities. ASU 2011-11 and ASU 2013-01 were effective for annual reporting
periods beginning on or after January 1, 2013 on a retrospective basis. The
Company's adoption of ASU 2011-11 and ASU 2013-01 did not have any impact to
its consolidated results of operations and financial position.
In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A
Creditor's Determining of Whether a Restructuring Is a Troubled Debt
Restructuring, which clarifies when creditors should classify a loan
modification as a troubled debt restructuring (TDR). ASU 2011-02 was effective
for non-public entities for reporting periods ending after December 15, 2012.
The Company had no material impact to its consolidated results of operations
and financial position due to the adoption of ASU 2011-02.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE
The fair value of the Company's financial assets and financial liabilities has
been determined using available market information as of December 31, 2013 and
2012. Although the Company is not aware of any factors that would
significantly affect the fair value of financial assets and financial
liabilities, such amounts have not been comprehensively revalued since those
dates. Therefore, estimates of fair value subsequent to the valuation dates
may differ significantly from the amounts presented herein. Considerable
judgment is required to interpret market data to develop the estimates of fair
value. The use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability (exit price) in an orderly transaction between
market participants at the measurement date. In determining fair value, the
Company primarily uses the market approach which utilizes prices and other
relevant information generated by market transactions involving identical or
comparable assets or liabilities. To a lesser extent, the Company also uses
the income approach which uses discounted cash flows to determine fair value.
When applying either approach, the Company maximizes the use of observable
inputs and minimizes the use of unobservable inputs. Observable inputs reflect
the assumptions market participants would use in valuing a financial
instrument based on market data obtained from sources independent of the
Company. Unobservable inputs reflect the Company's estimates about the
assumptions market participants would use in valuing financial assets and
financial liabilities based on the best information available in the
circumstances.
20
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The Company is required to categorize its financial assets and financial
liabilities recorded on the consolidated balance sheets according to a
three-level hierarchy. A level is assigned to each financial asset and
financial liability based on the lowest level input that is significant to the
fair value measurement in its entirety. The levels of fair value hierarchy are
as follows:
Level 1 - Fair value is based on unadjusted quoted prices for identical
assets or liabilities in an active market. The types of assets and
liabilities utilizing Level 1 valuations generally include U.S. government
securities, money-market funds, actively-traded U.S. and international
equities, investments in mutual funds with quoted market prices, certain
separate account assets, and listed derivatives.
Level 2 - Fair value is based on significant inputs, other than quoted
prices included in Level 1, that are observable in active markets for
identical or similar assets and liabilities. The types of assets and
liabilities utilizing Level 2 valuations generally include U.S. government
securities not backed by the full faith of the U.S. government, publicly
traded corporate fixed maturity securities, structured notes, municipal
fixed maturity securities, certain mortgage and asset-backed securities,
certain separate account assets, and certain derivatives.
Level 3 - Fair value is based on at least one or more significant
unobservable inputs. These inputs reflect the Company's assumptions about
the inputs market participants would use in pricing the assets or
liabilities. The types of assets and liabilities utilizing Level 3
valuations generally include certain mortgage and asset backed securities,
certain privately placed corporate fixed maturity securities, certain
separate account assets and certain derivatives, including embedded
derivatives associated with living benefit guarantees and equity-indexed
features on certain life and annuity contracts.
The Company uses prices and inputs that are current as of the measurement
date. In periods of market disruption, the ability to observe prices and
inputs may be reduced, which could cause an asset or liability to be
reclassified to a lower level.
Inputs used to measure fair value of an asset or liability may fall into
different levels of the fair value hierarchy. In these situations, the Company
will determine the level in which the fair value falls based upon the lowest
level input that is significant to the determination of the fair value.
21
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The following tables summarize the Company's financial assets and financial
liabilities measured at fair value on a recurring basis:
[Enlarge/Download Table]
DECEMBER 31, 2013
------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------- -------------- ------------- -------------
Fixed maturity securities, available-for-sale:
U.S. government securities $ 349,284 $ - $ - $ 349,284
Agencies not backed by the full faith and
credit of the U.S. government - 358,396 1,468 359,864
Foreign government securities - 48,422 - 48,422
Corporate securities - 5,911,591 937,909 6,849,500
Asset-backed securities - 310,046 140,060 450,106
Commercial mortgage-backed securities (CMBS) - 1,135,614 14,520 1,150,134
Residential mortgage-backed securities (RMBS) - 1,943,883 287 1,944,170
------------- -------------- ------------- -------------
Total fixed maturity securities, available-
for-sale 349,284 9,707,952 1,094,244 11,151,480
Equity securities, available-for-sale 403,213 - 196 403,409
Fixed maturity securities on loan:
U.S. government securities 13,627 - - 13,627
Corporate securities - 24,026 - 24,026
Asset-backed securities - - 3,009 3,009
------------- -------------- ------------- -------------
Total fixed maturity securities on loan 13,627 24,026 3,009 40,662
Equity securities on loan 1,656 - - 1,656
Derivative instruments:
TBA derivative instruments - 28,703 - 28,703
Other derivative instruments 9 195,663 - 195,672
------------- -------------- ------------- -------------
Total derivative instruments 9 224,366 - 224,375
------------- -------------- ------------- -------------
Total investments 767,789 9,956,344 1,097,449 11,821,582
Cash equivalents 220,013 50 - 220,063
Securities held as collateral 3,728 17,885 - 21,613
Separate account assets 2,860,719 15,179,921 4,265 18,044,905
------------- -------------- ------------- -------------
Total financial assets $ 3,852,249 $ 25,154,200 $ 1,101,714 $ 30,108,163
============= ============== ============= =============
Policy and contract account balances (1) $ - $ - $ 125,087 $ 125,087
Future policy and contract benefits (1) - - (853) (853)
Derivative instruments (2) 9 101,197 - 101,206
Securities lending collateral 3,728 27,020 - 30,748
------------- -------------- ------------- -------------
Total financial liabilities $ 3,737 $ 128,217 $ 124,234 $ 256,188
============= ============== ============= =============
(1) Policy and contract account balances and future policy and contract
benefits balances reported in this table relate to embedded derivatives
associated with living benefit guarantees and equity-indexed features on
certain annuity and life insurance products. The Company's guaranteed
minimum withdrawal benefits, guaranteed payout annuity floor, and
equity-indexed annuity and life products are considered embedded
derivatives, resulting in the related liabilities being separated from
the host contract and recognized at fair value. The fair value of the
minimum guaranteed withdrawal benefits embedded derivatives was a net
asset and the amount was reported as a contra liability.
(2) Included in other liabilities on the consolidated balance sheets.
22
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The following tables summarize the Company's financial assets and financial
liabilities measured at fair value on a recurring basis (Continued):
[Enlarge/Download Table]
DECEMBER 31, 2012
------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------- -------------- ------------- -------------
Fixed maturity securities, available-for-sale:
U.S. government securities $ 387,852 $ - $ - $ 387,852
Agencies not backed by the full faith and
credit of the U.S. government - 194,560 4,648 199,208
Foreign government securities - 57,504 - 57,504
Corporate securities - 6,020,295 1,070,286 7,090,581
Asset-backed securities - 331,855 147,988 479,843
CMBS - 1,098,174 17,809 1,115,983
RMBS - 1,821,944 2,647 1,824,591
------------- -------------- ------------- -------------
Total fixed maturity securities, available-
for-sale 387,852 9,524,332 1,243,378 11,155,562
Equity securities, available-for-sale 317,084 - 188 317,272
Fixed maturity securities on loan:
U.S. government securities 9,144 - - 9,144
Corporate securities - 30,699 - 30,699
Asset-backed securities - - 7,717 7,717
------------- -------------- ------------- -------------
Total fixed maturity securities on loan 9,144 30,699 7,717 47,560
Equity securities on loan 5,692 - - 5,692
Derivative instruments:
TBA derivative instruments - 48,161 - 48,161
Other derivative instruments 12 147,520 - 147,532
------------- -------------- ------------- -------------
Total derivative instruments 12 195,681 - 195,693
------------- -------------- ------------- -------------
Total investments 719,784 9,750,712 1,251,283 11,721,779
Cash equivalents 201,699 50 - 201,749
Securities held as collateral 9,052 19,189 - 28,241
Separate account assets (1) 2,411,027 11,962,006 446 14,373,479
------------- -------------- ------------- -------------
Total financial assets $ 3,341,562 $ 21,731,957 $ 1,251,729 $ 26,325,248
============= ============== ============= =============
Policy and contract account balances (2) $ - $ - $ 58,942 $ 58,942
Future policy and contract benefits (2) - - 60,284 60,284
Derivative instruments (3) 4 13,717 - 13,721
Securities lending collateral 9,052 31,688 - 40,740
------------- -------------- ------------- -------------
Total financial liabilities $ 9,056 $ 45,405 $ 119,226 $ 173,687
============= ============== ============= =============
(1) $11,787,137 of separate account assets previously included in Level 1 at
December 31, 2012 have been reclassified to Level 2 to conform to the
December 31, 2013 presentation.
(2) Policy and contract account balances and future policy and contract
benefits balances reported in this table relate to embedded derivatives
associated with living benefit guarantees and equity-indexed features on
certain annuity and life insurance products. The Company's guaranteed
minimum withdrawal benefits, guaranteed payout annuity floor, and
equity-indexed annuity and life products are considered embedded
derivatives, resulting in the related liabilities being separated from
the host contract and recognized at fair value.
(3) Included in other liabilities on the consolidated balance sheets.
23
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The methods and assumptions used to estimate the fair value of financial
assets and liabilities are summarized as follows:
FIXED MATURITY SECURITIES, AVAILABLE-FOR-SALE AND ON LOAN
When available, fair values of fixed maturity are based on quoted market
prices of identical assets in active markets and are reflected in Level 1.
When quoted prices are not available, the Company's process is to obtain
prices from third party pricing services, when available. The Company
generally receives prices from pricing services and maintains a vendor
hierarchy by asset type based on historical pricing experience and vendor
expertise. The Company's primary pricing service has policies and processes to
ensure that it is using objectively verifiable observable market data. The
pricing service regularly reviews the evaluation inputs for securities covered
and publishes and updates a summary of inputs used in its valuations by major
security type. The market inputs utilized in the pricing evaluation depend on
asset class and market conditions but typically include: benchmark yields,
reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids, offers, reference data, and industry and economic events. If the pricing
service determines it does not have sufficient objectively verifiable
information about a security's valuation, it discontinues providing a
valuation for the security. In this instance, the Company would be required to
produce an estimate of fair value.
Prices are reviewed by affiliated asset managers and management to validate
reasonability. Fixed maturity securities with validated prices from pricing
services are generally reflected in Level 2. If the pricing information
received from third party pricing services is not reflective of market
activity or other inputs observable in the market, the Company may challenge
the price through a formal process with the pricing service. If the pricing
service updates the price to be more consistent in comparison to the presented
market observations, the security remains within Level 2.
For fixed maturity securities where quoted market prices are not available or
the Company concludes the pricing information received from third party
pricing services is not reflective of market activity - generally private
placement securities or securities that do not trade regularly - an internally
developed matrix pricing, discounted cash flow or other model is used. The
internal pricing models are developed by obtaining spreads versus the U.S.
Treasury yield for corporate securities with varying weighted average lives
and bond ratings. The weighted average life and bond rating of a particular
fixed maturity security to be priced are important inputs into the model and
are used to determine a corresponding spread that is added to the U.S.
Treasury yield to create an estimated market yield for that security. The
estimated market yield, liquidity premium, any adjustments for known credit
risk, and other relevant factors are then used to estimate the fair value of
the particular fixed maturity security. Certain other valuations are based on
independent non-binding broker quotes. Fixed maturity securities valued using
internally developed pricing models or broker quotes are reflected in Level 3.
As of December 31, 2013, 91.2% of fixed maturity fair values were obtained
from third party pricing services and 8.8% from the internal methods described
above. As of December 31, 2012, 89.7% of fixed maturity fair values were
obtained from third party pricing services and 10.3% from the internal methods
described above.
EQUITY SECURITIES, AVAILABLE-FOR-SALE AND ON LOAN
The Company's equity securities consist primarily of investments in common
stock of publicly traded companies. The fair values of equity securities are
based on quoted market prices in active markets for identical assets and are
classified within Level 1. The Company carries a small amount of non-exchange
traded equity securities classified within Level 3.
24
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
DERIVATIVE INSTRUMENTS
Derivative instrument fair values are based on quoted market prices when
available. If a quoted market price is not available, fair value is estimated
using current market assumptions and modeling techniques, which are then
compared with quotes from counterparties.
The majority of the Company's derivative positions are traded in the
over-the-counter (OTC) derivative market and are classified as Level 2. The
fair values of most OTC derivatives are determined using discounted cash flow
pricing models. The significant inputs to the pricing models are observable in
the market or can be derived principally from or corroborated by observable
market data. Significant inputs that are observable generally include:
interest rates, foreign currency exchange rates, interest rate curves, credit
curves and volatility. However, certain OTC derivatives may rely on inputs
that are significant to the estimated fair value that are not observable in
the market or cannot be derived principally from or corroborated by observable
market data. Significant inputs that are unobservable generally include:
independent broker quotes and inputs that are outside the observable portion
of the interest rate curve, credit curve, volatility or other relevant market
measure. These unobservable inputs may involve significant management judgment
or estimation. In general, OTC derivatives are compared to an outside broker
quote when available and are reviewed in detail through the Company's
valuation oversight group. OTC derivatives valued using significant
unobservable inputs would be classified as Level 3.
The credit risk of both the counterparty and the Company are considered in
determining the estimated fair value for all OTC derivatives after taking into
account the effects of netting agreements and collateral arrangements.
CASH EQUIVALENTS
Cash equivalents include money market instruments and highly rated commercial
paper. Money market instruments are generally valued using unadjusted quoted
prices in active markets and are reflected in Level 1. The remaining
instruments are typically not traded in active markets and their fair values
are based on market observable inputs and, accordingly, have been classified
as Level 2.
SEPARATE ACCOUNT ASSETS
Separate account assets are reported as a summarized total and are carried at
estimated fair value based on the underlying assets in which the separate
accounts are invested. Valuations for fixed maturity securities, equity
securities and cash equivalents are determined consistent with similar
instruments as previously described. Valuations for certain mutual funds and
pooled separate accounts are classified as Level 2 as the values are based
upon quoted prices or reported net asset values provided by the fund managers
with little readily determinable public pricing information.
POLICY AND CONTRACT ACCOUNT BALANCES AND FUTURE POLICY AND CONTRACT ACCOUNT
BENEFITS
Policy and contract account balances and future policy and contract account
benefits include liabilities for living benefit guarantees and equity-indexed
features on certain annuity contracts and life insurance policies accounted
for as embedded derivatives. These guarantees take the form of guaranteed
withdrawal and income benefits on variable annuities, a guaranteed payout
floor on a variable payout annuity, and equity linked interest credits on both
fixed annuity and fixed universal life products.
The fair value for embedded derivatives is estimated using the present value
of future benefits less the present value of future fees over the expected
lives of the contracts using various capital market and actuarial assumptions.
The cash flows are projected under multiple capital market scenarios using
observable risk free rates. The valuation of these embedded derivatives
includes an adjustment for the Company's own credit risk and other non-capital
market inputs. The Company's own credit adjustment is determined taking into
consideration publicly available information relating to peer companies' debt
ratings and the Company's own claims paying ability.
25
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
POLICY AND CONTRACT ACCOUNT BALANCES AND FUTURE POLICY AND CONTRACT ACCOUNT
BENEFITS (CONTINUED)
Other significant inputs to the valuation models for the embedded derivatives
associated with the optional living benefit features of the Company's variable
annuity products include capital market assumptions, such as interest rate and
implied volatility assumptions, as well as various policyholder behavior
assumptions that are actuarially determined, including lapse rates, benefit
utilization rates, mortality rates and withdrawal rates.
These assumptions are reviewed at least annually, and updated based upon
historical experience. Since many of the assumptions utilized in the valuation
of embedded derivatives are unobservable and are considered to be significant
inputs to the valuations, the embedded derivatives have been reflected within
Level 3.
The following table provides a summary of changes in fair value of Level 3
financial assets held at fair value on a recurring basis during the year ended
December 31, 2013:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS
(LOSSES) INCLUDED IN:
-------------------------
OTHER
COMPRE- TRANSFERS TRANSFERS PURCHASES,
BALANCE AT NET HENSIVE IN TO OUT OF SALES AND BALANCE AT
BEGINNING INCOME INCOME LEVEL 3 LEVEL 3 SETTLEMENTS, END OF
OF YEAR (1) (LOSS) (2) (2) NET (3) YEAR
----------- ---------- ----------- ---------- --------- ------------ -----------
Fixed maturity securities,
available-for sale:
Agencies not backed by
the full faith and
credit of the U.S.
government $ 4,648 $ - $ (130) $ - $ - $ (3,050) $ 1,468
Corporate securities 1,070,286 - (54,273) - (26,503) (51,601) 937,909
Asset-backed
securities 147,988 3,708 (10,900) 3,801 - (4,537) 140,060
CMBS 17,809 1,902 957 - - (6,148) 14,520
RMBS 2,647 286 (238) - - (2,408) 287
----------- ---------- ----------- ---------- --------- ------------ -----------
Total fixed maturity
securities,
available-for-sale 1,243,378 5,896 (64,584) 3,801 (26,503) (67,744) 1,094,244
Equity securities,
available-for-sale 188 1 8 - - (1) 196
Fixed maturity securities,
on loan:
Asset-backed securities 7,717 44 (216) - - (4,536) 3,009
Separate account assets 446 - 1,076 208 - 2,535 4,265
----------- ---------- ----------- ---------- --------- ------------ -----------
Total financial assets $1,251,729 $ 5,941 $ (63,716) $ 4,009 $(26,503) $ (69,746) $1,101,714
=========== ========== =========== ========== ========= ============ ===========
(1) The amounts included in this column are reported in net realized
investment gains (losses) on the consolidated statements of operations
and comprehensive income (loss).
(2) Transfers in to/out of Level 3 are primarily due to the availability of
quoted market prices or changes in the Company's conclusion that pricing
information received from a third party pricing service is not reflective
of market activity.
(3) The following table provides the bifurcation of the net purchases, sales
and settlements.
26
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The following table provides the bifurcation of the net purchases, sales and
settlements during the year ended December 31, 2013:
[Enlarge/Download Table]
PURCHASES,
SALES AND
SETTLEMENTS,
PURCHASES SALES SETTLEMENTS NET
--------------- -------------- -------------- --------------
Fixed maturity securities,
available-for-sale:
Agencies not backed by the full faith and
credit of the U.S. government $ 450 $ - $ (3,500) $ (3,050)
Corporate securities 31,095 - (82,696) (51,601)
Asset-backed securities 37,646 (11,849) (30,334) (4,537)
CMBS - (3,242) (2,906) (6,148)
RMBS - (2,303) (105) (2,408)
--------------- -------------- -------------- --------------
Total fixed maturity securities,
available-for-sale 69,191 (17,394) (119,541) (67,744)
Equity securities, available-for-sale - (1) - (1)
Fixed maturity securities, on loan:
Asset-backed securities 4,036 (855) (7,717) (4,536)
Separate account assets 2,954 (316) (103) 2,535
--------------- -------------- -------------- --------------
Total financial assets $ 76,181 $ (18,566) $ (127,361) $ (69,746)
=============== ============== ============== ==============
27
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The following table provides a summary of changes in fair value of Level 3
financial assets held at fair value on a recurring basis during the year ended
December 31, 2012:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS
(LOSSES) INCLUDED IN:
-------------------------
OTHER
COMPRE- TRANSFERS TRANSFERS PURCHASES,
BALANCE AT NET HENSIVE IN TO OUT OF SALES AND BALANCE AT
BEGINNING INCOME INCOME LEVEL 3 LEVEL 3 SETTLEMENTS, END OF
OF YEAR (1) (LOSS) (2) (2) NET (3) YEAR
----------- ---------- ----------- ---------- --------- ------------ -----------
Fixed maturity securities,
available-for sale:
Agencies not backed by
the full faith and
credit of the U.S.
government $ 6,883 $ - $ (235) $ - $ - $ (2,000) $ 4,648
Corporate securities 804,515 52 27,931 45,541 - 192,247 1,070,286
Asset-backed securities 132,336 - 1,812 20,645 (3,601) (3,204) 147,988
CMBS 11 457 2,064 19,523 - (4,246) 17,809
RMBS 1,027 (259) 830 22 - 1,027 2,647
----------- ---------- ----------- ---------- --------- ------------ -----------
Total fixed maturity
securities, available-
for-sale 944,772 250 32,402 85,731 (3,601) 183,824 1,243,378
Equity securities,
available-for-sale 3 3 28 - - 154 188
Fixed maturity securities,
on loan:
Asset-backed securities - - 533 7,753 - (569) 7,717
Separate account assets - - (117) 381 - 182 446
----------- ---------- ----------- ---------- --------- ------------ -----------
Total financial assets $ 944,775 $ 253 $ 32,846 $ 93,865 $ (3,601) $ 183,591 $1,251,729
=========== ========== =========== ========== ========= ============ ===========
(1) The amounts included in this column are reported in net realized
investment gains (losses) on the consolidated statements of operations
and comprehensive income (loss).
(2) Transfers in to/out of Level 3 are primarily due to the availability of
quoted market prices or changes in the Company's conclusion that pricing
information received from a third party pricing service is not reflective
of market activity.
(3) The following table provides the bifurcation of the net purchases, sales
and settlements.
28
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The following table provides the bifurcation of the net purchases, sales and
settlements during the year ended December 31, 2012:
[Enlarge/Download Table]
PURCHASES,
SALES AND
SETTLEMENTS,
PURCHASES SALES SETTLEMENTS NET
--------------- -------------- -------------- --------------
Fixed maturity securities, available-for-sale:
Agencies not backed by the full faith and
credit of the U.S. government $ - $ - $ (2,000) $ (2,000)
Corporate securities 264,494 (902) (71,345) 192,247
Asset-backed securities 28,471 - (31,675) (3,204)
CMBS 202 (631) (3,817) (4,246)
RMBS 2,179 (395) (757) 1,027
--------------- -------------- -------------- --------------
Total fixed maturity securities,
available-for-sale 295,346 (1,928) (109,594) 183,824
Equity securities, available-for-sale 157 (3) - 154
Fixed maturity securities, on loan:
Asset-backed securities 105 - (674) (569)
Separate account assets 182 - - 182
--------------- -------------- -------------- --------------
Total financial assets $ 295,790 $ (1,931) $ (110,268) $ 183,591
=============== ============== ============== ==============
Transfers of securities among the levels occur at the beginning of the
reporting period.
There were no transfers between Level 1 and Level 2 for the years ended
December 31, 2013 and 2012.
There were no changes in unrealized gains (losses) included in net income
related to Level 3 assets held as of December 31, 2013 and 2012.
The following table provides a summary of changes in fair value of Level 3
financial liabilities held at fair value on a recurring basis during the year
ended December 31, 2013:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS
(LOSSES) INCLUDED IN:
-------------------------
OTHER
COMPRE-
BALANCE AT NET HENSIVE TRANSFERS TRANSFERS BALANCE AT
BEGINNING INCOME INCOME IN TO OUT OF END OF
OF YEAR (1) (LOSS) LEVEL 3 LEVEL 3 SETTLEMENTS YEAR
----------- ---------- ----------- ---------- --------- ------------ -----------
Policy and contract
account balances $ 58,942 $ 66,145 $ - $ - $ - $ - $ 125,087
Future policy and contract
benefits 60,284 (60,981) - - - (156) (853)
----------- ---------- ----------- ---------- --------- ------------ ----------
Total financial
liabilities $ 119,226 $ 5,164 $ - $ - $ - $ (156) $ 124,234
=========== ========== =========== ========== ========= ============ ==========
(1) The amounts in this column related to future policy and contract benefits
are reported as losses within net realized investment gains (losses) on
the consolidated statements of operations and comprehensive income (loss)
and the amounts related to the policy and contract account balances are
reported as losses within policyholder benefits on the consolidated
statements of operations and comprehensive income (loss).
29
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE (CONTINUED)
The following table provides a summary of changes in fair value of Level 3
financial liabilities held at fair value on a recurring basis during the year
ended December 31, 2012:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS
(LOSSES) INCLUDED IN:
-------------------------
OTHER
COMPRE-
BALANCE AT NET HENSIVE TRANSFERS TRANSFERS BALANCE AT
BEGINNING INCOME INCOME IN TO OUT OF END OF
OF YEAR (1) (LOSS) LEVEL 3 LEVEL 3 SETTLEMENTS YEAR
----------- ---------- ----------- ---------- --------- ------------ -----------
Policy and contract
account balances $ 35,469 $ 23,473 $ - $ - $ - $ - $ 58,942
Future policy and
contract benefits 81,183 (20,597) - - - (302) 60,284
----------- ---------- ----------- ---------- --------- ------------ ----------
Total financial
liabilities $ 116,652 $ 2,876 $ - $ - $ - $ (302) $ 119,226
=========== ========== =========== ========== ========= ============ ==========
(1) The amounts in this column related to future policy and contract benefits
are reported as gains within net realized investment gains (losses) on
the consolidated statements of operations and comprehensive income (loss)
and the amounts related to the policy and contract account balances are
reported as losses within policyholder benefits on the consolidated
statements of operations and comprehensive income (loss).
The change in unrealized (gains) losses included in net income related to
liabilities held as of December 31, 2013 was $(7,185), of which $59,090 was
included in net realized investment gains (losses) and $(66,275) was included
in policyholder benefits on the consolidated statements of operations and
comprehensive income (loss). The change in unrealized (gains) losses included
in net income related to liabilities held as of December 31, 2012 was
$(4,796), of which $18,727 was included in net realized investment gains
(losses) and $(23,523) was included in policyholder benefits on the
consolidated statements of operations and comprehensive income (loss).
30
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
QUANTITATIVE INFORMATION REGARDING LEVEL 3 ASSETS AND LIABILITIES
The following table provides a summary of the significant unobservable inputs
used in the fair value measurements developed by the Company or reasonably
available to the Company of Level 3 assets and liabilities at December 31,
2013:
[Enlarge/Download Table]
RANGE
LEVEL 3 INSTRUMENT FAIR VALUE VALUATION TECHNIQUE UNOBSERVABLE INPUT (WEIGHTED AVERAGE)
--------------------------- ----------- ------------------------- -------------------- ---------------------
Fixed maturity securities,
available-for-sale:
Agencies not backed by
the full faith and
credit of the U.S. Yield/spread to
government $ 1,024 Discounted cash flow U.S. Treasuries (1) 57 bps
Yield/spread to 47 bps - 366 bps
Corporate securities 935,202 Discounted cash flow U.S. Treasuries (1) (165 bps)
Yield/spread to 47 bps - 792 bps
Asset-backed securities 72,615 Discounted cash flow U.S. Treasuries (1) (204 bps)
Liabilities:
Policy and contract Discounted cash flow/ Mortality rates (2) Annuity 2000 table
account balances $ 125,087 Option pricing techniques Lapse rates (3) 0% to 16%
Market volatility (6) 0% to 20%
1983a and
Future policy and Discounted cash flow/ Mortality rates (2) annuity 2000 table
contract benefits (853) Option pricing techniques Lapse rates (3) 0% to 15%
Utilization rates (4) 0% to 100%
Withdrawal rates (5) 0% to 7%
Market volatility (6) 0% to 20%
Nonperformance risk
spread (7) 0.2%
(1) The yield/spread to U.S. Treasuries input represents an estimated market
participant composite adjustment attributable to liquidity premiums,
expected durations, structures and credit quality that would be applied
to the market observable information of an investment.
(2) The mortality rate input represents the estimate probability of when an
individual belonging to a particular group categorized according to age
or some other factor such as occupation, will die.
(3) The lapse rate input represents the estimated probability of a contract
surrendering during a year, and thereby forgoing any future benefits. The
range represents the lapse rate during the surrender charge period for
indexed annuity contracts.
(4) The utilization rate input represents the estimated percentage of
contract holders that utilize the guaranteed withdrawal feature.
(5) The withdrawal rate input represents the estimated magnitude of annual
contract holder withdrawals relative to the contracts' benefit base.
(6) The market volatility input represents overall volatilities assumed for
underlying equity indexed and variable annuity funds, which include a
mixture of equity and fixed income assets.
(7) The nonperformance risk spread input represents the estimated additional
own credit spread that market participants would apply to the market
observable discount rate when pricing a contract.
31
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
QUANTITATIVE INFORMATION REGARDING LEVEL 3 ASSETS AND LIABILITIES
The following table provides a summary of the significant unobservable inputs
used in the fair value measurements developed by the Company or reasonably
available to the Company of Level 3 assets and liabilities at December 31,
2012:
[Enlarge/Download Table]
RANGE
LEVEL 3 INSTRUMENT FAIR VALUE VALUATION TECHNIQUE UNOBSERVABLE INPUT (WEIGHTED AVERAGE)
--------------------------- ----------- ------------------------- -------------------- ---------------------
Fixed maturity securities,
available-for-sale:
Agencies not backed by
the full faith and
credit of the U.S. Yield/spread to
government $ 4,648 Discounted cash flow U.S. Treasuries (1) 63 bps
Yield/spread to 90 bps - 479 bps
Corporate securities 1,028,566 Discounted cash flow U.S. Treasuries (1) (185 bps)
Yield/spread to 53 bps - 465 bps
Asset-backed securities 85,041 Discounted cash flow U.S. Treasuries (1) (165 bps)
Liabilities:
Policy and contract Discounted cash flow/ Mortality rates (2) Annuity 2000 table
account balances $ 58,942 Option pricing techniques Lapse rates (3) 0% to 16%
Market volatility (6) 0% to 25%
1983a and
Future policy and Discounted cash flow/ Mortality rates (2) annuity 2000 table
contract benefits 60,284 Option pricing techniques Lapse rates (3) 0% to 15%
Utilization rates (4) 0% to 100%
Withdrawal rates (5) 0% to 7%
Market volatility (6) 0% to 23%
Nonperformance risk
spread (7) 0.2%
(1) The yield/spread to U.S. Treasuries input represents an estimated market
participant composite adjustment attributable to liquidity premiums,
expected durations, structures and credit quality that would be applied
to the market observable information of an investment.
(2) The mortality rate input represents the estimate probability of when an
individual belonging to a particular group categorized according to age
or some other factor such as occupation, will die.
(3) The lapse rate input represents the estimated probability of a contract
surrendering during a year, and thereby forgoing any future benefits. The
range represents the lapse rate during the surrender charge period for
indexed annuity contracts.
(4) The utilization rate input represents the estimated percentage of
contract holders that utilize the guaranteed withdrawal feature.
(5) The withdrawal rate input represents the estimated magnitude of annual
contract holder withdrawals relative to the contracts' benefit base.
(6) The market volatility input represents overall volatilities assumed for
underlying equity indexed and variable annuity funds, which include a
mixture of equity and fixed income assets.
(7) The nonperformance risk spread input represents the estimated additional
own credit spread that market participants would apply to the market
observable discount rate when pricing a contract.
32
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
QUANTITATIVE INFORMATION REGARDING LEVEL 3 ASSETS AND LIABILITIES (CONTINUED)
Level 3 measurements not included in the tables above are obtained from
non-binding broker quotes where observable inputs are not reasonably available
to the Company.
SENSITIVITY OF FAIR VALUE MEASUREMENTS TO CHANGES IN UNOBSERVABLE INPUTS
The following is a general description of sensitivities of significant
unobservable inputs and their impact on the fair value measurement for the
assets and liabilities previously described:
FIXED MATURITY SECURITIES, AVAILABLE-FOR-SALE
For any increase (decrease) in the yield/spread to U.S. Treasuries, the fair
value of the assets will decrease (increase).
POLICY AND CONTRACT ACCOUNT BALANCES AND FUTURE POLICY AND CONTRACT BENEFITS
For any increase (decrease) in mortality rate, lapse rate and nonperformance
risk spread inputs, the fair value of the liabilities will decrease
(increase). For any increase (decrease) in the utilization, withdrawal and
market volatility rates, the fair value of the liabilities will increase
(decrease).
For each category discussed above, the unobservable inputs are not
inter-related; therefore, a directional change in one input will not affect
the other inputs.
NON-RECURRING FAIR VALUE MEASUREMENTS
The following tables summarize the Company's financial assets measured at fair
value on a non-recurring basis:
[Enlarge/Download Table]
DECEMBER 31, 2013
------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------- -------------- ------------- -------------
Other invested assets:
Real estate held for sale $ - $ - $ 4,560 $ 4,560
------------- -------------- ------------- -------------
Total financial assets $ - $ - $ 4,560 $ 4,560
============= ============== ============= =============
DECEMBER 31, 2012
------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------- -------------- ------------- -------------
Other invested assets:
Real estate held for sale $ - $ - $ 4,755 $ 4,755
------------- -------------- ------------- -------------
Total financial assets $ - $ - $ 4,755 $ 4,755
============= ============== ============= =============
Real estate held for sale represents commercial real estate acquired in
satisfaction of mortgage loan debt. The estimated fair value is obtained from
third-party and/or internal appraisals for each of the acquired properties
less estimated costs to sell. The estimated fair value is categorized as Level
3 due to lack of transparency and unobservability in collateral valuation.
33
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT OTHER THAN FAIR VALUE
The Company uses various methods and assumptions to estimate the fair value of
financial assets and financial liabilities that are not carried at fair value
on the consolidated balance sheets.
The table below presents the carrying amount and fair value by fair value
hierarchy level of certain financial instruments that are not reported at fair
value. However, in some cases, as described below, the carrying amount equals
or approximates fair value.
[Enlarge/Download Table]
DECEMBER 31, 2013
------------------------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE
-------------- ------------------------------------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------- ------------- ------------- ------------- -------------
Assets:
Mortgage loans, net $ 1,760,316 $ - $ - $ 1,768,515 $ 1,768,515
Policy loans 356,696 - - 410,567 410,567
Liabilities:
Deferred annuities $ 2,464,519 $ - $ - $ 2,559,824 $ 2,559,824
Annuity certain contracts 78,251 - - 82,937 82,937
Other fund deposits 1,954,808 - - 1,950,305 1,950,305
Supplementary contracts
without life contingencies 76,613 - - 76,613 76,613
Short-term debt 50,000 - - 50,000 50,000
Long-term debt 318,000 - - 320,311 320,311
Separate account liabilities 11,738,365 2,860,719 8,873,381 4,265 11,738,365
DECEMBER 31, 2012
------------------------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE
-------------- ------------------------------------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------- ------------- ------------- ------------- -------------
Assets:
Mortgage loans, net $ 1,538,502 $ - $ - $ 1,621,871 $ 1,621,871
Policy loans 352,756 - - 432,372 432,372
Liabilities:
Deferred annuities $ 2,566,965 $ - $ - $ 2,719,308 $ 2,719,308
Annuity certain contracts 81,624 - - 91,152 91,152
Other fund deposits 1,913,680 - - 1,925,248 1,925,248
Supplementary contracts
without life contingencies 72,361 - - 72,361 72,361
Short-term debt 50,000 - - 50,000 50,000
Long-term debt 268,000 - - 270,236 270,236
Separate account liabilities 9,578,276 2,411,027 7,166,803 446 9,578,276
34
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT OTHER THAN FAIR VALUE
(CONTINUED)
Fair values of mortgage loans are based upon matrix pricing and discounted
cash flows which may not necessarily equal the exit price a market participant
would pay for the loan. Fair values of policy loans are estimated by
discounting expected cash flows. The expected cash flows reflect an estimate
for the timing of repayment of the loans and weighted average loan interest
rates.
The fair values of deferred annuities and other fund deposits, which have
guaranteed interest rates and surrender charges, are estimated to be the
amount payable on demand as of December 31, 2013 and 2012 as those investment
contracts have no defined maturity, are similar to a deposit liability and are
based on the current interest rate environment relative to the guaranteed
interest rates. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments.
The fair values of supplementary contracts without life contingencies and
annuity certain contracts are calculated using discounted cash flows, based on
interest rates currently offered for similar products with maturities
consistent with those remaining for the contracts being valued.
The carrying amount of short-term debt approximates the fair value. The fair
value of long-term debt is estimated based primarily on borrowing rates
currently available to the Company for debt and financial instruments with
similar terms and remaining maturities.
Certain separate account liabilities represent balances due to policyholders
under contracts that are classified as investment contracts. Since these
separate account liabilities are fully funded by the cash flows from the
separate account assets which are recognized at estimated fair value, the
value of those assets approximates the carrying and fair value of the related
separate account liabilities. The valuation techniques and inputs for separate
account liabilities are similar to those described for separate account
assets.
(6) INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The Company's fixed maturity portfolio consists primarily of public and
private corporate fixed maturity securities, mortgage and other asset backed
securities, and U.S. government and agency obligations.
The carrying value of the Company's fixed maturity portfolio totaled
$11,192,142 and $11,203,122 at December 31, 2013 and 2012, respectively. Fixed
maturity securities represent 76.1% and 77.7% of total invested assets at
December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012
publicly traded fixed maturity securities comprised 79.2% and 79.3%,
respectively, of the total fixed maturity portfolio.
The Company invests in private placement fixed maturity securities to enhance
the overall value of its portfolio, increase diversification and obtain higher
yields than are possible with comparable publicly traded securities.
Generally, private placement fixed maturity securities provide broader access
to management information, strengthened negotiated protective covenants, call
protection features and, frequently, improved seniority of collateral
protection. Private placement securities generally are only tradable subject
to restrictions by federal and state securities laws and are, therefore, less
liquid than publicly traded fixed maturity securities.
The Company holds CMBS that may be originated by single or multiple issuers,
which are collateralized by mortgage loans secured by income producing
commercial properties such as office buildings, multi-family dwellings,
industrial, retail, hotels and other property types.
35
(6) INVESTMENTS (CONTINUED)
FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
The Company's RMBS portfolio consists of pass-through securities, which are
pools of mortgage loans collateralized by single-family residences and
primarily issued by government sponsored entities (E.G., GNMA, FNMA and
FHLMC), and structured pass-through securities, such as collateralized
mortgage obligations, that may have specific prepayment and maturity profiles
and may be issued by either government sponsored entities or "private label"
issuers. The Company's RMBS portfolio primarily contains loans made to
borrowers with strong credit histories. The Company's portfolio consisted of
$1,834,149 and $1,628,421 agency backed RMBS and $110,021 and $196,170
non-agency backed RMBS as of December 31, 2013 and 2012, respectively. The
Company's RMBS portfolio also includes Alt-A mortgage loans to customers who
have good credit ratings but have limited documentation for their source of
income or some other standards used to underwrite the mortgage loan, and
subprime residential loans to customers with weak credit profiles, including
mortgages originated using relaxed mortgage-underwriting standards. The fair
value of the Company's subprime securities as of December 31, 2013 was $24,772
with unrealized losses totaling $372. The fair value of the Company's subprime
securities as of December 31, 2012 was $54,144 with unrealized losses totaling
$1,158.
The Company's asset-backed securities investment portfolio consists of
securities collateralized by the cash flows of receivables relating to credit
cards, automobiles, manufactured housing and other asset class loans.
The equity securities portfolio is managed with the objective of capturing
long-term capital gains with a moderate level of current income. The carrying
value of the Company's equity security portfolio totaled $405,065 and $322,964
as of December 31, 2013 and 2012, respectively.
The amortized cost, gross unrealized gains and losses, OTTI recognized in
accumulated other comprehensive loss (AOCL) and fair value of fixed maturity
and equity securities by type of investment were as follows:
[Enlarge/Download Table]
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED OTTI IN
DECEMBER 31, 2013 COST GAINS LOSSES AOCL (1) FAIR VALUE
------------------------------------- ------------ ------------- ------------- ------------ -------------
U.S. government securities $ 334,064 $ 21,479 $ 6,259 $ - $ 349,284
Agencies not backed by the full faith
and credit of the U.S. government 381,881 4,332 26,349 - 359,864
Foreign government securities 44,558 3,864 - - 48,422
Corporate securities 6,545,791 392,515 92,743 (3,937) 6,849,500
Asset-backed securities 432,732 20,601 4,530 (1,303) 450,106
CMBS 1,137,387 34,851 30,578 (8,474) 1,150,134
RMBS 1,906,464 63,243 21,813 3,724 1,944,170
------------ ------------- ------------- ------------ -------------
Total fixed maturity securities,
available-for-sale 10,782,877 540,885 182,272 (9,990) 11,151,480
Equity securities - unaffiliated 336,108 73,038 5,737 - 403,409
------------ ------------- ------------- ------------ -------------
Total $11,118,985 $ 613,923 $ 188,009 $ (9,990) $ 11,554,889
============ ============= ============= ============ =============
(1) Amounts include net unrealized (gains) losses on OTTI fixed maturity
securities subsequent to the impairment measurement date.
36
(6) INVESTMENTS (CONTINUED)
FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
The amortized cost, gross unrealized gains and losses, OTTI recognized in
accumulated other comprehensive loss (AOCL) and fair value of fixed maturity
and equity securities by type of investment were as follows (Continued):
[Enlarge/Download Table]
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED OTTI IN
DECEMBER 31, 2012 COST GAINS LOSSES AOCL (1) FAIR VALUE
------------------------------------- ------------ ------------- ------------- ------------ -------------
U.S. government securities $ 351,678 $ 36,616 $ 442 $ - $ 387,852
Agencies not backed by the full faith
and credit of the U.S. government 189,441 11,209 1,442 - 199,208
Foreign government securities 48,309 9,195 - - 57,504
Corporate securities 6,392,095 696,526 5,783 (7,743) 7,090,581
Asset-backed securities 436,413 39,777 689 (4,342) 479,843
CMBS 1,029,303 74,369 2,322 (14,633) 1,115,983
RMBS 1,687,349 146,730 1,112 8,376 1,824,591
------------ ------------- ------------- ------------ -------------
Total fixed maturity securities,
available-for-sale 10,134,588 1,014,422 11,790 (18,342) 11,155,562
Equity securities - unaffiliated 271,869 49,030 3,627 - 317,272
------------ ------------- ------------- ------------ -------------
Total $10,406,457 $ 1,063,452 $ 15,417 $ (18,342) $ 11,472,834
============ ============= ============= ============ =============
(1) Amounts include net unrealized (gains) losses on OTTI fixed maturity
securities subsequent to the impairment measurement date.
The amortized cost, gross unrealized gains and losses, OTTI recognized in AOCL
and fair value of fixed maturity and equity securities on loan by type of
investment were as follows:
[Enlarge/Download Table]
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED OTTI IN
DECEMBER 31, 2013 COST GAINS LOSSES AOCL FAIR VALUE
------------------------------------- ------------ ------------- ------------- ------------ -------------
U.S. government securities $ 13,829 $ - $ 202 $ - $ 13,627
Corporate securities 23,806 1,090 870 - 24,026
Asset-backed securities 3,024 - 15 - 3,009
------------ ------------- ------------- ------------ -------------
Total fixed maturity securities 40,659 1,090 1,087 - 40,662
Equity securities - unaffiliated 1,403 253 - - 1,656
------------ ------------- ------------- ------------ -------------
Total $ 42,062 $ 1,343 $ 1,087 $ - $ 42,318
============ ============= ============= ============ =============
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED OTTI IN
DECEMBER 31, 2012 COST GAINS LOSSES AOCL FAIR VALUE
------------------------------------- ------------ ------------- ------------- ------------ -------------
U.S. government securities $ 9,151 $ 6 $ 13 $ - $ 9,144
Corporate securities 27,376 3,323 - - 30,699
Asset-backed securities 7,122 595 - - 7,717
------------ ------------- ------------- ------------ -------------
Total fixed maturity securities 43,649 3,924 13 - 47,560
Equity securities - unaffiliated 4,789 906 3 - 5,692
------------ ------------- ------------- ------------ -------------
Total $ 48,438 $ 4,830 $ 16 $ - $ 53,252
============ ============= ============= ============ =============
37
(6) INVESTMENTS (CONTINUED)
FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
The amortized cost and fair value of fixed maturity securities at December 31,
2013, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
[Enlarge/Download Table]
AVAILABLE-FOR-SALE
AVAILABLE-FOR-SALE SECURITIES ON LOAN
---------------------------------- -----------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------- --------------- --------------- ---------------
Due in one year or less $ 498,669 $ 508,383 $ - $ -
Due after one year through five years 2,103,552 2,286,747 6,258 6,626
Due after five years through ten years 3,464,110 3,621,539 23,448 23,119
Due after ten years 1,239,963 1,190,401 7,929 7,908
--------------- --------------- --------------- ---------------
7,306,294 7,607,070 37,635 37,653
Asset-backed and mortgage-backed
securities 3,476,583 3,544,410 3,024 3,009
--------------- --------------- --------------- ---------------
Total $ 10,782,877 $ 11,151,480 $ 40,659 $ 40,662
=============== =============== =============== ===============
The Company had certain investments with a reported fair value lower than the
cost of the investments as follows:
[Enlarge/Download Table]
DECEMBER 31, 2013
-------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
----------------------------------------- ----------------------------------------
UNREALIZED UNREALIZED
FAIR AMORTIZED LOSSES AND FAIR AMORTIZED LOSSES AND
VALUE COST OTTI IN AOCL VALUE COST OTTI IN AOCL
---------- ----------- ------------- ---------- ---------- ------------
U.S. government securities $ 214,931 $ 220,885 $ 5,954 $ 2,931 $ 3,236 $ 305
Agencies not backed by the full
faith and credit of the U.S.
government 220,306 242,301 21,995 13,006 17,360 4,354
Corporate securities 1,317,137 1,394,311 77,174 98,017 113,586 15,569
Asset-backed securities 100,801 105,021 4,220 2,794 3,104 310
CMBS 440,581 466,902 26,321 38,646 43,302 4,656
RMBS 760,756 782,389 21,633 43,150 50,587 7,437
Equity securities - unaffiliated 65,183 70,860 5,677 2,097 2,157 60
DECEMBER 31, 2012
-------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
----------------------------------------- ----------------------------------------
UNREALIZED UNREALIZED
FAIR AMORTIZED LOSSES AND FAIR AMORTIZED LOSSES AND
VALUE COST OTTI IN AOCL VALUE COST OTTI IN AOCL
---------- ----------- ------------- ---------- ---------- ------------
U.S. government securities $ 160,563 $ 161,005 $ 442 $ - $ - $ -
Agencies not backed by the full
faith and credit of the U.S.
government 19,460 20,902 1,442 - - -
Corporate securities 271,896 277,076 5,180 4,157 4,760 603
Asset-backed securities 3,274 3,276 2 11,093 11,781 688
CMBS 78,921 79,345 424 34,998 37,526 2,528
RMBS 20,265 20,823 558 65,764 79,890 14,126
Equity securities - unaffiliated 59,607 61,951 2,344 4,417 5,700 1,283
38
(6) INVESTMENTS (CONTINUED)
FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
The Company had certain investments on loan with a reported fair value lower
than the cost of the investments as follows:
[Enlarge/Download Table]
DECEMBER 31, 2013
-------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
----------------------------------------- ----------------------------------------
UNREALIZED UNREALIZED
FAIR AMORTIZED LOSSES AND FAIR AMORTIZED LOSSES AND
VALUE COST OTTI IN AOCL VALUE COST OTTI IN AOCL
---------- ----------- ------------- ---------- ---------- ------------
U.S. government securities $ 13,627 $ 13,829 $ 202 $ - $ - $ -
Corporate securities 10,684 11,554 870 - - -
Asset-backed securities 3,009 3,024 15 - - -
DECEMBER 31, 2012
-------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
----------------------------------------- ----------------------------------------
UNREALIZED UNREALIZED
FAIR AMORTIZED LOSSES AND FAIR AMORTIZED LOSSES AND
VALUE COST OTTI IN AOCL VALUE COST OTTI IN AOCL
---------- ----------- ------------- ---------- ---------- ------------
U.S. government securities $ 3,854 $ 3,867 $ 13 $ - $ - $ -
Equity securities - unaffiliated 261 264 3 - - -
For fixed maturity securities in an unrealized loss position, the Company
expects to collect all principal and interest payments. In determining whether
an impairment is other than temporary, the Company evaluates its intent and
need to sell a security prior to its anticipated recovery in fair value. The
Company performs ongoing analysis of liquidity needs, which includes cash flow
testing. Cash flow testing includes duration matching of the investment
portfolio and policyholder liabilities. As of December 31, 2013, the Company
does not intend to sell and does not believe that it will be required to sell
investments with an unrealized loss prior to recovery.
The following paragraphs summarize the Company's evaluation of investment
categories with unrealized losses as of December 31, 2013.
U.S. government securities are temporarily impaired due to current interest
rates and not credit-related reasons. The Company expects to collect all
principal and interest on these securities.
Agencies not backed by the full faith and credit of the U.S. government
securities are temporarily impaired due to interest rates and not
credit-related reasons. Although not backed by the full faith and credit of
the U.S. government, these securities generally trade as if they are.
Corporate security valuations are impacted by both interest rates and credit
industry specific issues. The Company recognizes an OTTI due to credit issues
if the Company feels the security will not recover in a reasonable period of
time. Unrealized losses are primarily due to the interest rate environment and
credit spreads.
Asset-backed securities, CMBS and RMBS are impacted by both interest rates and
the value of the underlying collateral. The Company utilizes discounted cash
flow models using outside assumptions to determine if an OTTI is warranted.
The Company's RMBS portfolio primarily consists of residential mortgages to
prime borrowers. The depressed U.S. housing market continues to impact the
valuations across the entire asset class. As of December 31, 2013, 94.3% of
the RMBS portfolio was invested in agency pass-through securities. At December
31, 2013, the Company had RMBS securities that were in an unrealized loss
position for twelve months or longer. The fair values of these securities were
58.9% investment grade (BBB or better). Credit support for the RMBS holdings
remains high.
39
(6) INVESTMENTS (CONTINUED)
FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
The Company's CMBS portfolio had initial ratings of AA or higher and are
diversified by property type and geographic location. The Company's CMBS
portfolio is primarily super senior and senior securities as opposed to
mezzanine or below. Weaknesses in commercial real estate fundamentals have
impacted most of the asset class and the Company has recognized OTTI when
warranted. At December 31, 2013, the Company had CMBS securities that had been
in an unrealized loss position for twelve months or longer. The fair values of
these securities were 100% investment grade.
Equity securities with unrealized losses at December 31, 2013 primarily
represent highly diversified publicly traded equity securities that have
positive outlooks for near-term future recovery.
At December 31, 2013 and 2012, fixed maturity securities and cash equivalents
with a carrying value of $24,605 and $25,548, respectively, were on deposit
with various regulatory authorities as required by law.
MORTGAGE LOANS
The Company underwrites commercial mortgages on general purpose income
producing properties and the Company has defined its portfolio segment as the
commercial mortgage loan portfolio in total with the class segments defined as
office buildings, retail facilities, apartment, industrial and other
properties. Geographic and property type diversification is also considered in
analyzing investment opportunities, as well as property valuation and cash
flow. The mortgage loan portfolio totaled $1,760,316 and $1,538,502 at
December 31, 2013 and 2012, respectively.
All of the Company's commercial mortgage loan investments are owned by
Minnesota Life Insurance Company and are managed and serviced directly by an
affiliate, Advantus Capital Management, Inc. (Advantus). The Company currently
does not hold any condominium commercial mortgage loan, construction,
mezzanine or land loan investments.
The following table shows the composition of the Company's commercial mortgage
loan portfolio, net of valuation allowances, by class as of December 31:
2013 2012
--------------- ---------------
Industrial $ 702,020 $ 584,598
Office buildings 384,787 372,045
Retail facilities 368,865 323,974
Apartment 196,878 167,751
Other 107,766 90,134
--------------- ---------------
Total $ 1,760,316 $ 1,538,502
=============== ===============
If information is obtained on commercial mortgage loans that indicate a
potential problem (likelihood of the borrower not being able to comply with
the present loan repayment terms), the loan is placed on an internal
surveillance list, which is routinely monitored by the Company. Among the
criteria that would indicate a potential problem are: borrower bankruptcies,
major tenant bankruptcies, loan relief/restructuring requests, delinquent tax
payments, late payments, and vacancy rates.
A valuation allowance is established when it is probable that the Company will
not be able to collect all amounts due under the contractual terms of the
loan. The valuation allowance includes a specific allowance for loans that are
determined to be nonperforming and a general allowance for loans that are on
the surveillance list where a probable loss exists but cannot be specifically
identified to a specific loan.
40
(6) INVESTMENTS (CONTINUED)
MORTGAGE LOANS (CONTINUED)
The following table provides a summary of the valuation allowance for the
mortgage loan portfolio for the years ended December 31:
[Enlarge/Download Table]
2013 2012 2011
--------------- -------------- ---------------
Balance at beginning of year $ 3,800 $ 4,130 $ 3,700
Addition to (release of) allowance 877 (330) 1,830
Write-downs, net of recoveries - - (1,400)
--------------- -------------- ---------------
Balance at end of year $ 4,677 $ 3,800 $ 4,130
=============== ============== ===============
End of year valuation allowance basis:
Specific allowance $ 3,094 $ 1,221 $ 1,035
General allowance 1,583 2,579 3,095
--------------- -------------- ---------------
Total valuation allowance $ 4,677 $ 3,800 $ 4,130
=============== ============== ===============
As of December 31, 2013, the Company had 3 loans with a total carrying value
of $17,974 net of a $3,094 specific valuation allowance. As of December 31,
2013, The Company had 7 loans with a total carrying value of $18,574, net of a
$1,583 general valuation allowance. The 3 loans having a specific valuation
allowance were held in the office and retail facilities classes. For those 3
loans, the interest income recognized for the year ended December 31, 2013 was
$1,188. In addition, two of the loans that had a specific valuation allowance
were modified in a troubled debt restructuring and one was in the process of
foreclosure. A troubled debt restructuring is where the Company grants
concessions related to the borrower's financial difficulties. The types of
concessions may include: a permanent or temporary modification of the interest
rate, extension of the maturity date at a lower interest rate and/or a
reduction of accrued interest. There were no troubled debt restructurings that
subsequently defaulted during 2013. The Company did not have any outstanding
commitments to lend additional funds to borrowers with restructured loans as
of December 31, 2013.
As of December 31, 2012, the Company had three loans with a total carrying
value of $12,721, net of a $1,221 specific valuation allowance. As of December
31, 2012, The Company had 16 loans with a total carrying value of $39,245, net
of a $2,579 general valuation allowance. The three loans having a specific
valuation allowance were held in the industrial, office and retail facilities
classes. For those three loans, the interest income recognized for the year
ended December 31, 2012 was $882. In addition, these three loans that had a
specific valuation allowance were modified in a troubled debt restructuring.
There were no troubled debt restructurings that subsequently defaulted during
2012.
As of December 31, 2013, the Company had one delinquent mortgage loan.
The Company assesses the credit quality of its mortgage loan portfolio by
reviewing the performance of its portfolio which includes evaluating its
performing and nonperforming mortgage loans. Nonperforming mortgage loans
include loans that are not performing to the contractual terms of the loan
agreement. Nonperforming mortgage loans do not include restructured loans that
are current with payments and thus are considered performing.
The following table provides a summary of performing and nonperforming
mortgage loans as of December 31:
2013 2012
--------------- ---------------
Performing mortgage loans $ 1,753,116 $ 1,538,502
Nonperforming mortgage loans 7,200 -
--------------- ---------------
Total $ 1,760,316 $ 1,538,502
=============== ===============
The one loan classsified as a nonperforming mortgage loan at December 31, 2013
was held in the office buildings class.
Periodically the Company may acquire real estate in satisfaction of debt. The
acquired real estate is recognized at the lower of the loan's amortized cost
balance or the acquired property's fair value less expected selling costs.
41
(6) INVESTMENTS (CONTINUED)
MORTGAGE LOANS (CONTINUED)
The following table provides a summary of real estate acquired in satisfaction
of mortgage loan debt for the years ended December 31:
[Enlarge/Download Table]
2013 2012 2011
--------------- --------------- --------------
Number of properties acquired - 2 2
Carrying value of mortgage loans prior to real estate
acquisition $ - $ 8,420 $ 8,065
Loss recognized upon acquisition in satisfaction of debt - - (2,865)
ALTERNATIVE INVESTMENTS
Alternative investments primarily consist of venture capital funds, middle
market leveraged buyout funds, distressed debt funds, mezzanine debt funds,
hedge funds and other miscellaneous equity investments. Alternative
investments are diversified by type, general partner, vintage year, and
geographic location - both domestic and international.
The Company's composition of alternative investments by type were as follows:
[Enlarge/Download Table]
DECEMBER 31, 2013 DECEMBER 31, 2012
---------------------------------- ----------------------------------
CARRYING PERCENT CARRYING PERCENT
VALUE OF TOTAL VALUE OF TOTAL
--------------- --------------- --------------- ---------------
Alternative investments
Private equity funds $ 289,908 58.5% $ 289,248 58.5%
Mezzanine debt funds 203,391 41.1% 202,033 40.8%
Hedge funds 1,920 0.4% 3,609 0.7%
--------------- --------------- --------------- ---------------
Total alternative investments $ 495,219 100.0% $ 494,890 100.0%
=============== =============== =============== ===============
NET INVESTMENT INCOME
Net investment income for the years ended December 31 was as follows:
[Download Table]
2013 2012 2011
--------------- --------------- ---------------
Fixed maturity securities $ 514,123 $ 514,058 $ 504,157
Equity securities 12,418 9,493 8,131
Mortgage loans 93,430 88,753 84,450
Policy loans 24,121 24,513 24,600
Cash equivalents 38 11 86
Alternative investments 16,036 11,548 13,948
Derivative instruments (217) 23 627
Other invested assets 1,308 2,198 2,868
--------------- --------------- ---------------
Gross investment income 661,257 650,597 638,867
Investment expenses (22,249) (21,264) (20,743)
--------------- --------------- ---------------
Total $ 639,008 $ 629,333 $ 618,124
=============== =============== ===============
42
(6) INVESTMENTS (CONTINUED)
NET REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) for the years ended December 31 were as
follows:
[Download Table]
2013 2012 2011
--------------- --------------- ---------------
Fixed maturity securities $ (1,476) $ 37,112 $ 20,734
Equity securities 19,860 10,741 6,546
Mortgage loans (762) 215 (4,138)
Alternative investments 16,843 26,249 39,886
Derivative instruments (71,487) 9,015 (10,518)
Other invested assets (407) (723) (1,823)
Securities held as collateral 601 120 888
--------------- --------------- ---------------
Total $ (36,828) $ 82,729 $ 51,575
=============== =============== ===============
Gross realized gains (losses) on the sales of fixed maturity securities,
equity securities and alternative investments for the years ended December 31
were as follows:
[Enlarge/Download Table]
2013 2012 2011
--------------- --------------- ---------------
Fixed maturity securities, available-for-sale:
Gross realized gains $ 32,084 $ 44,456 $ 47,267
Gross realized losses (33,065) (7,057) (20,995)
Equity securities:
Gross realized gains 22,890 14,682 14,107
Gross realized losses (2,893) (3,228) (4,332)
Alternative investments:
Gross realized gains 24,320 34,479 50,771
Gross realized losses (457) (87) (3,905)
Other-than-temporary impairments by asset type recognized in net realized
investment gains (losses) for the years ended December 31 were as follows:
[Enlarge/Download Table]
2013 2012 2011
--------------- -------------- --------------
Fixed maturity securities
Corporate securities $ 495 $ - $ -
Asset-backed securities - - 2,154
RMBS - 287 3,384
Mortgage loans - 115 3,654
Equity securities 137 713 3,229
Alternative investments 7,020 8,143 6,980
Other invested assets 500 650 -
--------------- -------------- --------------
Total other-than-temporary impairments $ 8,152 $ 9,908 $ 19,401
=============== ============== ==============
43
(6) INVESTMENTS (CONTINUED)
NET REALIZED INVESTMENT GAINS (LOSSES) (CONTINUED)
The cumulative credit loss component of other-than-temporary impairments on
fixed maturity securities still held by the Company at December 31, for which
a portion of the other-than-temporary impairment loss was recognized in other
comprehensive income (loss), was as follows:
[Enlarge/Download Table]
2013 2012 2011
--------------- --------------- ---------------
Balance at beginning of year $ 26,670 $ 44,908 $ 66,577
Additions:
Initial impairments - credit loss OTTI recognized on
securities not previously impaired 495 - 3,087
Additional impairments - credit loss OTTI recognized
on securities previously impaired - 287 2,451
Reductions:
Due to sales (or maturities, pay downs, or prepayments)
during the period of securities previously credit
loss OTTI impaired (201) (18,525) (27,207)
--------------- --------------- ---------------
Balance at end of year $ 26,964 $ 26,670 $ 44,908
=============== =============== ===============
(7) DERIVATIVE INSTRUMENTS
Derivatives are financial instruments whose values are derived from interest
rates, foreign currency exchange rates, or other financial indices.
Derivatives may be exchange-traded or contracted in the OTC market. The
Company currently enters into derivative transactions that do not qualify for
hedge accounting, or in certain cases, elects not to utilize hedge accounting.
The Company does not enter into speculative positions. Although certain
transactions do not qualify for hedge accounting or the Company chooses not to
utilize hedge accounting, they provide the Company with an assumed economic
hedge, which is used as part of its strategy for certain identifiable and
anticipated transactions. The Company uses a variety of derivatives including
swaps, swaptions, futures, caps, floors, forwards and option contracts to
manage the risk associated with changes in estimated fair values related to
the Company's financial assets and liabilities, to generate income and manage
other risks due to the variable nature of the Company's cash flows. The
Company also issues certain insurance policies that have embedded derivatives.
Freestanding derivatives are carried on the Company's consolidated balance
sheets either as assets within derivative instruments or as liabilities within
other liabilities at estimated fair value as determined through the use of
quoted market prices for exchange-traded derivatives and interest rate
forwards or through the use of pricing models for OTC derivatives. Derivative
valuations can be affected by changes in interest rates, foreign currency
exchange rates, financial indices, credit spreads, default risk (including the
counterparties to the contract), volatility, liquidity and changes in
estimates and assumptions used in the pricing models.
44
(7) DERIVATIVE INSTRUMENTS (CONTINUED)
The Company is exposed to various risks relating to its ongoing business
operations, including interest rate risk, foreign currency risk and equity
market risk. The Company uses a variety of strategies to attempt to manage
these risks. The following table presents the notional amount, estimated fair
value, and primary underlying risk exposure of the Company's derivative
financial instruments, excluding embedded derivatives held:
[Enlarge/Download Table]
DECEMBER 31, 2013 DECEMBER 31, 2012
--------------------------------------- ---------------------------------------
FAIR VALUE FAIR VALUE
------------------------- -------------------------
PRELIMINARY
UNDERLYING RISK NOTIONAL LIABILITIES NOTIONAL LIABILITIES
EXPOSURE INSTRUMENT TYPE AMOUNT ASSETS (1) AMOUNT ASSETS (1)
------------------ ----------------- ---------- ----------- ----------- ---------- ----------- -----------
Interest rate Interest rate
swaps $ 456,500 $ 10,999 $ 41,162 $ 356,500 $ 30,888 $ -
Interest rate
swaptions 285,000 5,322 - 135,000 3,301 -
Interest rate
futures 406,950 7 7 574,900 10 -
Interest rate
caps 100,000 2,844 - 100,000 1,291 -
Interest rate
floors 160,000 789 - 160,000 4,024 -
TBAs 28,640 28,703 - 45,315 48,161 -
Foreign currency Foreign currency
swaps 17,000 3,136 - 17,000 598 -
Equity market Equity futures 220,417 2 2 218,169 2 -
Equity options 2,799,602 172,573 60,035 2,150,540 107,418 13,721
---------- ----------- ----------- ---------- ----------- ----------
Total derivatives $4,474,109 $ 224,375 $ 101,206 $3,757,424 $ 195,693 $ 13,721
========== =========== =========== ========== =========== ==========
(1) The estimated fair value of all derivatives in a liability position is
reported within other liabilities on the consolidated balance sheets.
The Company has steadily increased the volume of derivatives trading
throughout 2013 and 2012. This is evident through the increase in notional
amounts in 2013.
The majority of the freestanding derivatives utilized by the Company, other
than TBAs, are for specific economic hedging programs related to various
annuity and insurance product liabilities that have market risk. Management
considers the sales growth of products and the volatility in the interest and
equity markets in assessing the trading activity for these programs.
Interest rate swaps are used by the Company primarily to reduce market risks
from changes in interest rates and to alter interest rate exposure arising
from mismatches between assets and liabilities (duration mismatches). In an
interest rate swap, the Company agrees with another party to exchange, at
specified intervals, the difference between fixed rate and floating rate
interest amounts as calculated by reference to an agreed notional principal
amount. These transactions are entered into pursuant to master agreements that
provide for a single net payment to be made by the counterparty at each due
date.
Interest rate swaptions are purchased by the Company to manage the impact of
interest rate declines and sharply rising interest rates. An interest rate
swaption allows the Company the option, but not the obligation, to enter into
a interest rate swap at a future date with the terms established at the time
of the purchase. There are two types of interest rate swaptions, payer
swaptions and receiver swaptions. A payer swaption allows the holder to enter
into a swap to pay the fixed rate and receive the floating rate. A receiver
swaption allows the holder to enter into a swap to receive the fixed rate and
pay the floating rate. The Company is trading in both types of swaptions.
Swaptions require the payment of a premium when purchased. Swaptions are based
on a specific underlying swap and have an exercise rate and an expiration
date. A payer swaption would be exercised if the market swap rate is greater
than the exercise rate at the expiration date and the value would be the
present value of the difference between the market swap rate and exercise rate
valued as an annuity over the remaining life of the underlying swap multiplied
by the notional principal. A receiver swaption would be exercised if the
market swap rate is less than the exercise rate at the expiration date and the
value would be the present value of the difference between the exercise rate
and market swap rate valued as an annuity over the remaining life of the
underlying swap multiplied by the notional principal. In either case if market
swap rates were unfavorable the swaption would be allowed to expire.
45
(7) DERIVATIVE INSTRUMENTS (CONTINUED)
Interest rate futures are used by the Company to manage duration in certain
portfolios within the general account of the Company. In exchange traded
interest rate futures transactions, the Company agrees to purchase or sell a
specified number of contracts, the value of which is determined by the
different classes of interest rate securities, and to post variation margin on
a daily basis in an amount equal to the difference in the daily fair market
values of those contracts. The Company enters into exchange-traded futures
with regulated futures commission merchants that are members of the exchange.
Exchange-traded interest rate futures are used primarily to economically hedge
mismatches between the duration of the assets in a portfolio and the duration
of liabilities supported by those assets, to economically hedge against
changes in value of securities the Company owns or anticipates acquiring, and
to economically hedge against changes in interest rates on anticipated
liability issuances. The value of interest rate futures is substantially
impacted by changes in interest rates and they can be used to modify or
economically hedge existing interest rate risk.
Interest rate caps are purchased by the Company to manage the impact of
sharply rising interest rates on overall investment performance. An interest
rate cap is a series of call options on a specified interest rate. The Company
enters into contracts to purchase interest rate caps and receives cash
payments from the cap writer when the market rate is above the specified rate
on the maturity date. The difference between the market rate and specified
rate is then multiplied by the notional principal amount to determine the
payment. If the market rate is less than the specified rate on the maturity
date, the Company does not receive a payment.
Interest rate floors are purchased by the Company to manage the impact of
interest rate declines on overall investment performance. An interest rate
floor is a series of put options on a specified interest rate. The Company
enters into contracts to purchase interest rate floors and receives cash
payments from the floor writer when the market rate is below the specified
rate on the maturity date. The difference between the market rate and
specified rate is then multiplied by the notional principal amount to
determine the payment. If the market rate exceeds the specified rate on the
maturity date, the Company does not receive a payment.
Foreign currency swaps are used by the Company to offset foreign currency
exposure on interest and principal payments of fixed maturity securities
denominated in a foreign currency. In a foreign currency swap transaction, the
Company agrees with another party to exchange, at specified intervals, the
difference between one currency and another at a fixed exchange rate,
generally set at inception, calculated by reference to an agreed upon
principal amount. The principal amount of each currency is exchanged at the
inception and termination of the currency swap by each party.
Foreign currency forwards are used by the Company to reduce the risk from
fluctuations in foreign currency exchange rates associated with its assets and
liabilities denominated in foreign currencies. In a foreign currency forward
transaction, the Company agrees with another party to deliver a specified
amount of an identified currency at a specified future date. The price is
agreed upon at the time of the contract and payment for such a contract is
made in a different currency in the specified future date.
Equity futures include exchange-traded equity futures as well as VIX futures.
VIX futures are used by the Company to reduce the variance of its portfolio of
equity assets. The VIX is the index of the implied volatility of the S&P 500
Index options and represents the expected stock market volatility over the
next 30 day period. In exchange-traded equity futures transactions, the
Company agrees to purchase or sell a specified number of contracts, the value
of which is determined by the different classes of equity securities, and to
post variation margin on a daily basis in an amount equal to the difference in
the daily fair market values of those contracts. The Company enters into
exchange-traded futures with regulated futures commission merchants that are
members of the exchange. Exchange-traded equity futures are used primarily to
hedge liabilities embedded in certain variable annuity products and certain
equity indexed life products offered by the Company.
Equity index options are used by the Company primarily to economically hedge
minimum guarantees embedded in certain variable annuity products offered by
the Company. To economically hedge against adverse changes in equity indices,
the Company enters into contracts to sell the equity index within a limited
time at a contracted price. The contracts will be net settled in cash based on
differentials in the indices at the time of exercise and the strike price. In
certain instances, the Company may enter into a combination of transactions to
economically hedge adverse changes in equity indices within a pre-determined
range through the purchase and sale of options.
46
(7) DERIVATIVE INSTRUMENTS (CONTINUED)
The Company holds TBA forward contracts that require the Company to take
delivery of a mortgage-backed security at a settlement date in the future. A
majority of the TBAs are settled at the first available period allowed under
the contract. However, the deliveries of some of the Company's TBA securities
happen at a later date, thus extending the forward contract date.
The following tables present the amount and location of gains (losses)
recognized in income from derivatives:
[Enlarge/Download Table]
DECEMBER 31, 2013
----------------------------------------------------------------------------
NET REALIZED
INVESTMENT GAINS
(LOSSES) NET INVESTMENT INCOME POLICYHOLDER BENEFITS
---------------------- ---------------------- -----------------------
Interest rate swaps $ (50,040) $ (87) $ -
Interest rate swaptions (3,054) - -
Interest rate futures (18,085) - (29)
Interest rate caps 1,807 - -
Interest rate floors (270) (601) -
TBAs (68) - -
Foreign currency swaps 2,562 489 -
Foreign currency forwards (205) (18) -
Equity futures (25,137) - 15,915
Equity options (40,134) - 87,204
---------------------- ---------------------- -----------------------
Total gains (losses) recognized in
income from derivatives $ (132,624) $ (217) $ 103,090
====================== ====================== =======================
DECEMBER 31, 2012
----------------------------------------------------------------------------
NET REALIZED
INVESTMENT GAINS
(LOSSES) NET INVESTMENT INCOME POLICYHOLDER BENEFITS
---------------------- ---------------------- -----------------------
Interest rate swaps $ 8,576 $ (88) $ -
Interest rate swaptions (236) - -
Interest rate futures 4,701 - (56)
Interest rate caps (777) - -
Interest rate floors 2,267 (326) -
TBAs 686 - -
Foreign currency swaps 3,315 435 -
Foreign currency forwards (19) 2 -
Equity futures (19,305) - 11,680
Equity options (11,092) - 18,332
---------------------- ---------------------- -----------------------
Total gains (losses) recognized in
income from derivatives $ (11,884) $ 23 $ 29,956
====================== ====================== =======================
47
(7) DERIVATIVE INSTRUMENTS (CONTINUED)
The following tables present the amount and location of gains (losses)
recognized in income from derivatives (continued):
[Enlarge/Download Table]
DECEMBER 31, 2011
----------------------------------------------------------------------------
NET REALIZED
INVESTMENT GAINS
(LOSSES) NET INVESTMENT INCOME POLICYHOLDER BENEFITS
---------------------- ---------------------- -----------------------
Interest rate swaps $ 24,140 $ (82) $ -
Interest rate futures 26,686 - (33)
Interest rate floors 4,232 (227) -
TBAs 244 461 -
Foreign currency swaps (457) 442 -
Foreign currency forwards (80) 33 -
Equity futures (8,462) - (3,741)
Equity options 3,785 - (7,640)
---------------------- ---------------------- -----------------------
Total gains (losses) recognized in
income from derivatives $ 50,088 $ 627 $ (11,414)
====================== ====================== =======================
The Company may be exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments.
Generally, the current credit exposure of the Company's derivative contracts
is limited to the positive estimated fair value of derivative contracts at the
reporting date after taking into consideration the existence of netting
agreements and any collateral received pursuant to credit support annexes.
The Company manages its credit risk related to OTC derivatives by entering
into transactions with highly rated counterparties, maintaining collateral
arrangements and through the use of master agreements that provide for a
single net payment to be made by one counterparty to another at each due date
and upon termination. Because exchange traded futures are purchased through
regulated exchanges, and positions are settled on a daily basis, the Company
has minimal exposure to credit-related losses in the event of nonperformance
by counterparties to such derivative instruments.
The Company enters into various collateral arrangements, which require both
the pledging and accepting of collateral in connection with its derivative
instruments. The Company's collateral arrangements for its OTC derivatives
generally require the counterparty in a net liability position, after
considering the effect of netting arrangements, to pledge collateral when the
fair value of that counterparty's derivatives reaches a pre-determined
threshold. The Company received collateral from OTC counterparties in the
amount of $101,223 and $128,924 at December 31, 2013 and 2012, respectively,
and the Company delivered collateral in the amount of $25,290 and $19,382 at
December 31, 2013 and 2012, respectively. The Company maintained ownership of
any collateral delivered.
EMBEDDED DERIVATIVES
The Company has certain embedded derivatives that are required to be separated
from their host contracts and accounted for as derivatives. These embedded
derivatives take the form of guaranteed withdrawal benefits on variable
annuities, a guaranteed payout floor on a variable payout annuity, and equity
linked interest credits on both fixed annuity and fixed universal life
products.
The following table presents the fair value of the Company's embedded
derivatives at December 31:
[Enlarge/Download Table]
2013 2012
--------------- ---------------
Embedded derivatives within annuity products:
Minimum guaranteed withdrawal benefits $ 6,551 $ (47,903)
Guaranteed payout floors (5,698) (12,381)
Other (4,472) (4,107)
Embedded derivatives within life insurance products:
Equity-linked index credits $ (120,615) $ (54,835)
48
(7) DERIVATIVE INSTRUMENTS (CONTINUED)
EMBEDDED DERIVATIVES (CONTINUED)
The following table presents the changes in fair value related to embedded
derivatives for the years ended December 31:
[Enlarge/Download Table]
2013 2012 2011
--------------- --------------- ---------------
Embedded derivatives within annuity products:
Net realized investment gains (losses) $ 61,137 $ 20,899 $ (60,606)
Policyholder benefits (365) 436 (712)
Embedded derivatives within life insurance products:
Policyholder benefits $ (65,780) $ (23,909) $ 544
At December 31, 2013 and 2012, fixed maturity and equity securities with a
carrying value of $25,290 and $19,382, respectively, were pledged as
collateral to a regulatory authority as part of the Company's derivative
program.
(8) VARIABLE INTEREST ENTITIES
The Company is involved with various special purpose entities and other
entities that are deemed to be variable interest entities (VIE). A VIE is an
entity that either has investors that lack certain characteristics of a
controlling financial interest or lacks sufficient equity to finance its own
activities without financial support provided by other entities.
The Company performs ongoing qualitative assessments of its VIEs to determine
whether the Company has a controlling financial interest in the VIE and is
therefore the primary beneficiary. The Company is deemed to have controlling
financial interest when it has both the ability to direct the activities that
most significantly impact the economic performance of the VIE and the
obligation to absorb losses or right to receive benefits from the VIE that
could potentially be significant to the VIE.
CONSOLIDATED VIEs
As of December 31, 2013 and 2012, the Company was the primary beneficiary for
relationships with certain entities and development stage companies related to
our business that were considered VIEs and consolidated.
The following table summarizes the impact of consolidation to the consolidated
balance sheets as of December 31:
2013
---------------
Other invested assets $ (300)
Cash and cash equivalents 394
Other assets 65
Income tax liability - current 3
Accrued commissions and expenses 69
Other liabilities 87
The following table summarizes the impact of consolidation to the consolidated
statements of operations and comprehensive income (loss) for the year ended
December 31:
2013
---------------
Commission income $ 114
General operating expenses 110
Current income tax expense 4
49
(8) VARIABLE INTEREST ENTITIES (CONTINUED)
NON-CONSOLIDATED VIES
The Company, through normal investment activities, makes passive investments
in structured securities issued by VIEs. These structured securities typically
invest in fixed income investments and include asset-backed securities, CMBS
and RMBS. The Company has not provided financial or other support with respect
to these investments other than its original investment. The Company has
determined it is not the primary beneficiary of these investments due to the
relative size of the Company's investment in comparison to the principal
amount of the structured securities issued by the VIEs, the level of credit
subordination, which reduces the Company's obligation to absorb losses or
right to receive benefits, and the Company's inability to direct the
activities that most significantly impact the economic performance of the
VIEs. The Company's maximum exposure to loss on these structured investments
is limited to the amount of the investment. See Note 6 for details regarding
the carrying amount and classification of these assets.
In addition, the Company invests in alternative investments that may or may
not be VIEs. The Company has determined that it is not required to consolidate
these entities because it does not have the ability to direct the activities
of the entities and it does not have the obligation to absorb losses or the
right to receive benefits from the entities that could be potentially
significant. The maximum exposure to loss associated with the entities is
equal to the carrying amounts of the investment in the VIE plus any unfunded
commitments. The carrying amount was $495,219 and $494,890 and the maximum
exposure was $801,943 and $773,039 at December 31, 2013 and 2012,
respectively.
(9) NET FINANCE RECEIVABLES
The Company has defined a portfolio segment as the portfolio in total with the
class segments as direct installment loans and retail installment notes.
Finance receivables as of December 31 were as follows:
2013 2012
--------------- ---------------
Direct installment loans $ 323,700 $ 295,222
Retail installment notes 49,512 39,060
--------------- ---------------
Gross finance receivables 373,212 334,282
Accrued interest and charges 6,264 5,636
Unearned finance charges (103,176) (89,760)
Allowance for losses (14,781) (13,396)
--------------- ---------------
Finance receivables, net $ 261,519 $ 236,762
=============== ===============
Direct installment loans at December 31, 2013 and 2012 consisted of $222,715
and $205,984, respectively, of discount basis loans, net of unearned finance
charges and unearned charges, and $10,108 and $8,833, respectively, of
interest-bearing loans and generally have a maximum term of 84 months. The
retail installment notes are principally discount basis loans with borrowers
purchasing household appliances, furniture, and sundry services, and generally
have a maximum term of 48 months.
Total finance receivables, net of unearned finance charges, by date of final
maturity at December 31, 2013 were as follows:
[Download Table]
2014 $ 1,810
2015 23,953
2016 93,347
2017 142,590
2018 13,989
2019 and thereafter 611
---------------
Total finance receivables, net of unearned finance charges 276,300
Allowance for losses (14,781)
---------------
Finance receivables, net $ 261,519
===============
50
(9) NET FINANCE RECEIVABLES (CONTINUED)
During the years ended December 31, 2013, 2012 and 2011, principal cash
collections of direct installment loans were $110,650, $100,486 and $89,667,
respectively, and the percentages of these cash collections to average net
balances were 52%, 51% and 50%, respectively. Retail installment notes
principal cash collections were $44,410, $40,276 and $39,342, respectively,
and the percentages of these cash collections to average net balances were
140%, 146% and 151% for the years ended December 31, 2013, 2012 and 2011,
respectively.
Direct installment loans and retail installment notes are reported on a
contractual past-due aging. Past-due accounts (gross finance receivables) as
of December 31, 2013 were as follows:
Direct installment loans:
30-60 days past due $ 12,107
61-90 days past due 7,059
91 days or more past due 18,405
---------------
Total direct installment loans 37,571
Retail installment notes:
30-60 days past due 945
61-90 days past due 545
91 days or more past due 1,173
---------------
Total retail installment notes 2,663
---------------
Total gross finance receivables past due $ 40,234
===============
Percentage of gross finance receivables 10.8%
The ratio of the allowance for losses to total finance receivables, net of
unearned finance charges was 5.3% and 5.4%, at December 31, 2013 and 2012,
respectively.
Changes in the allowance for losses for the years ended December 31 were as
follows:
[Download Table]
2013 2012 2011
--------------- --------------- ---------------
Balance at beginning of year $ 13,396 $ 12,406 $ 11,335
Provision for credit losses 11,635 9,090 8,933
Charge-offs (15,030) (12,780) (12,303)
Recoveries 4,780 4,680 4,441
--------------- --------------- ---------------
Balance at end of year $ 14,781 $ 13,396 $ 12,406
=============== =============== ===============
The following table provides additional information about the allowance for
losses as of December 31:
[Enlarge/Download Table]
2013 2012
--------------- ---------------
Non-impaired gross finance receivables:
Gross receivables balance $ 365,342 $ 327,273
General reserves 14,469 13,115
Impaired gross finance receivables (including TDRs):
Gross receivables balance $ 7,870 $ 7,009
General reserves 312 281
51
(9) NET FINANCE RECEIVABLES (CONTINUED)
All loans, excluding TDRs, deemed to be impaired are placed on non-accrual
status. The average balance of impaired loans, excluding TDRs, during the
years ended December 31, 2013 and 2012 was $9 and $22, respectively. There
were no commitments to lend additional funds to customers whose loans were
classified as impaired at December 31, 2013 or 2012.
The net investment in receivables on which the accrual of finance charges and
interest was suspended and which are being accounted for on a cash basis at
December 31, 2013 and 2012 was $26,201 and $23,305, respectively. There was no
investment in receivables past due more than 60 days that were accounted for
on an accrual basis at December 31, 2013 and 2012.
Loans classified as TDRs were $7,865 and $6,991 at December 31, 2013 and 2012,
respectively. For the years ended December 31, 2013 and 2012, the Company
modified $9,457 and $8,992, respectively, of loans for borrowers experiencing
financial difficulties, which are classified as TDRs. For loans modified as
TDRs during 2013, $4,821 subsequently experienced a payment default, during
2013. For loans modified as TDRs during 2012, $4,422 subsequently experienced
a payment default during 2012. The Company recognized interest income of
$1,383 and $1,213 from loans classified as TDRs for the years ended December
31, 2013 and 2012, respectively.
The Company monitors the credit quality of its financing receivables by
borrower type including retail loan borrowers and new, existing, former, and
refinance for direct installment loan borrowers. Existing and former borrowers
generally have the lowest credit risk profile as the Company already has an
established lending and repayment history with these customers. New borrowers
include first-time customers where the Company has limited lending and
repayment history and would generally have a slightly higher risk profile than
existing and former borrowers. Refinance borrowers include customers who have
had terms of their original loan(s) restructured. These customers would have a
higher credit risk as the borrower has previously demonstrated a risk of not
repaying the loan or may have been through personal bankruptcy. Retail
borrowers include customers that are typically first-time customers. The risk
profile is lower with this type of first-time customer as a result of the
security associated with the account. The Company also monitors credit risk by
continually tracking customer payment performance.
52
(9) NET FINANCE RECEIVABLES (CONTINUED)
The following summary is an assessment of the gross finance receivables by
class, segment, and credit quality indicator reviewed as of December 31, 2013
and 2012. The Company's credit risk profiles are based on customer type,
customer creditworthiness, and customer performance.
[Enlarge/Download Table]
2013 2012
--------------- ---------------
Customer type:
New borrower $ 49,833 $ 33,907
Former borrower 31,415 28,074
Existing borrower 220,555 206,398
Refinance borrower 21,897 26,843
Retail borrower 49,512 39,060
--------------- ---------------
Total gross finance receivables $ 373,212 $ 334,282
=============== ===============
Customer creditworthiness:
Non-bankrupt gross finance receivables:
Direct installment loans $ 322,333 $ 293,835
Retail installment notes 49,401 38,949
--------------- ---------------
Total non-bankrupt gross finance receivables 371,734 332,784
Bankrupt gross finance receivables:
Direct installment loans 1,367 1,387
Retail installment notes 111 111
--------------- ---------------
Total bankrupt gross finance receivables 1,478 1,498
--------------- ---------------
Total gross finance receivables $ 373,212 $ 334,282
=============== ===============
Customer payment performance:
Direct installment loans:
Contractually performing, current to 30 days past due $ 286,129 $ 261,711
Contractually performing, 31 to 60 days past due 12,107 11,456
Contractually nonperforming, 61 or more days past due 25,464 22,055
--------------- ---------------
Total direct installment loans 323,700 295,222
Retail installment notes:
Contractually performing, current to 30 days past due 46,849 36,786
Contractually performing, 31 to 60 days past due 945 782
Contractually nonperforming, 61 or more days past due 1,718 1,492
--------------- ---------------
Total retail installment notes 49,512 39,060
--------------- ---------------
Total gross finance receivables $ 373,212 $ 334,282
=============== ===============
53
(10) Income Taxes
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
[Enlarge/Download Table]
2013 2012 2011
--------------- ---------------- --------------
Computed income tax expense $ 80,233 $ 119,769 $ 101,014
Difference between computed and actual tax expense:
Dividends received deduction (19,975) (14,548) (13,570)
Tax credits (2,079) (2,031) (2,133)
Change in valuation allowance (8) 1 (2)
Expense adjustments and other (150) 916 (384)
--------------- ---------------- --------------
Total income tax expense $ 58,021 $ 104,107 $ 84,925
=============== ================ ==============
The tax effects of temporary differences that give rise to the Company's net
deferred tax liability at December 31 were as follows:
[Enlarge/Download Table]
2013 2012
--------------- ---------------
Deferred tax assets:
Policyholder liabilities $ 65,330 $ 53,305
Pension, postretirement and other benefits 15,867 18,435
Tax deferred policy acquisition costs 186,338 165,244
Deferred gain on individual disability coinsurance 4,694 5,680
Net realized capital losses 107,028 64,761
Other 16,907 12,746
--------------- ---------------
Gross deferred tax assets 396,164 320,171
Less valuation allowance - (8)
--------------- ---------------
Deferred tax assets, net of valuation allowance 396,164 320,163
Deferred tax liabilities:
Deferred policy acquisition costs 280,972 197,920
Premiums 18,909 17,076
Real estate and property and equipment depreciation 10,974 9,983
Basis difference on investments 52,261 22,885
Net unrealized capital gains 191,441 408,460
Ceding commissions and goodwill 3,052 1,685
Other 24,270 16,684
--------------- ---------------
Gross deferred tax liabilities 581,879 674,693
--------------- ---------------
Net deferred tax liability $ 185,715 $ 354,530
=============== ===============
As of December 31, 2013, management determined that no valuation allowance was
needed related to tax benefits of certain state operating loss carryforwards
or for other deferred tax items based on management's assessment that it is
more likely than not that these deferred tax assets will be realized.
As of December 31, 2012, the Company recorded a valuation allowance of $8
related to tax benefits of certain state operating loss carryforwards. The
valuation allowance reflected management's assessment based, on available
information, that it was more likely than not that the deferred income tax
asset for certain state operating loss carryforwards would not be realized.
Management had determined that a valuation allowance was not required for
other deferred tax items based on management's assessment that it was more
likely than not that these deferred tax assets would be realized through
future reversals of existing taxable temporary differences and future taxable
income.
The increase (decrease) in deferred tax asset valuation allowance for the
years ended December 31, 2013, 2012, and 2011, was $(8), $1 and $(2),
respectively.
54
(10) INCOME TAXES (CONTINUED)
At December 31, 2013, state net operating loss carryforwards were $742 with
the majority expiring in 2017 and 2019.
Income taxes paid for the years ended December 31, 2013, 2012 and 2011, were
$110,567, $113,692 and $63,508, respectively.
A reconciliation of the beginning and ending balance amount of unrecognized
tax benefits is as follows:
[Enlarge/Download Table]
2013 2012
--------------- ---------------
Balance at beginning of year $ 11,135 $ 17,172
Additions based on tax positions related to current year 892 752
Reductions for tax positions of prior years (2,172) (6,789)
--------------- ---------------
Balance at end of year $ 9,855 $ 11,135
=============== ===============
Included in the balance of unrecognized tax benefits at December 31, 2013 are
potential benefits of $3,680 that, if recognized, would affect the effective
tax rate on income from operations.
As of December 31, 2013, accrued interest and penalties of $1,320 are recorded
as current income tax liabilities on the consolidated balance sheets and $207
is recognized as a current income tax expense on the consolidated statements
of operations and comprehensive income (loss).
At December 31, 2013, the Company believes it is reasonably possible that the
liability related to any federal or foreign tax loss contingencies may
significantly increase within the next 12 months. However, an estimate of the
reasonably possible increase cannot be made at this time.
The consolidated federal income tax return for MMC and subsidiaries for 2012
is expected to be under examination by the IRS beginning in late 2014. In
August 2013, the IRS completed their audit of the consolidated federal income
tax returns for the years 2010 and 2011 on a fully agreed basis and the
Company paid the taxes assessed as a result. With regard to years 2008 and
2009, the consolidated federal income tax returns were sent back to the IRS
examining agent by the IRS Office of Appeals to resolve the one remaining
issue in accordance with an Industry Director Directive put out by the IRS in
2012 on the matter; however, the audit has not yet concluded. The Company
believes that any additional taxes assessed or refunded as a result of these
examinations will not have a material impact on its financial position. In
addition, the Company received additional interest with respect to some
earlier tax years as the result of a claim for refund.
(11) EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
The Company has a non-qualified non-contributory defined benefit retirement
plan covering certain agents. Benefits are based upon years of participation
and the agent's adjusted annual compensation. Additionally, a subsidiary of
the Company has a non-contributory defined benefit plan covering all the
employees of the subsidiary who are 21 years of age or older and have
completed one year of service. Benefits are based upon years of participation
and the employee's average monthly compensation. During 2012, the Company
adopted an amendment, effective January 1, 2013, to reduce the benefit
formula.
The Company also has a postretirement plan that provides certain health care
and life insurance benefits to retired agents. Eligibility is determined by
age at retirement and years of service. Health care premiums are shared with
retirees, and other cost-sharing features include deductibles and co-payments.
During 2013, the Company amended the agents plan eliminating certain future
benefits.
55
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND OTHER POSTRETIREMENT PLANS (CONTINUED)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
[Enlarge/Download Table]
PENSION BENEFITS OTHER BENEFITS
-------------------------------- ---------------------------------
2013 2012 2013 2012
-------------- -------------- -------------- --------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 70,909 $ 65,672 $ 8,099 $ 8,296
Service cost 1,990 1,995 181 142
Interest cost 2,921 2,969 308 307
Amendment - (830) (1,747) -
Actuarial loss (gain) (6,337) 3,510 (587) (263)
Benefits paid (2,622) (2,407) (504) (383)
-------------- -------------- -------------- --------------
Benefit obligation at end of year $ 66,861 $ 70,909 $ 5,750 $ 8,099
============== ============== ============== ==============
Change in plan assets:
Fair value of plan assets at beginning
of year $ 58,985 $ 54,279 $ - $ -
Actual return on plan assets 3,973 3,721 - -
Employer contribution 3,546 3,392 504 383
Benefits paid (2,622) (2,407) (504) (383)
-------------- -------------- -------------- --------------
Fair value of plan assets at end of year $ 63,882 $ 58,985 $ - $ -
============== ============== ============== ==============
Net amount recognized:
Funded status $ (2,979) $ (11,924) $ (5,750) $ (8,099)
Amounts recognized on the consolidated
balance sheets:
Prepaid benefit cost $ 1,164 $ - $ - $ -
Accrued benefit cost (4,143) (11,924) (5,750) (8,099)
-------------- -------------- -------------- --------------
Net amount recognized $ (2,979) $ (11,924) $ (5,750) $ (8,099)
============== ============== ============== ==============
Weighted average assumptions used to
determine benefit obligations:
Discount rate 4.64% 3.75% 4.49% 3.53%
Rate of compensation increase 4.50% 4.50% - -
Weighted average assumptions used to
determine net periodic benefit costs:
Expected long-term return on plan assets 5.22% 5.16% - -
Discount rate 3.75% 4.21% 3.53% 4.09%
Rate of compensation increase 4.50% 5.00% - -
56
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND OTHER POSTRETIREMENT PLANS (CONTINUED)
[Enlarge/Download Table]
PENSION BENEFITS OTHER BENEFITS
-------------------------------- --------------------------------
2013 2012 2013 2012
-------------- -------------- -------------- --------------
Components of net periodic benefit cost:
Service cost $ 1,990 $ 1,995 $ 181 $ 142
Interest cost 2,921 2,969 308 307
Expected return on plan assets (2,913) (2,826) - -
Prior service benefit amortization (80) (4) (676) (675)
Recognized net actuarial loss (gain) 1,241 980 (66) (217)
-------------- -------------- -------------- --------------
Net periodic benefit cost $ 3,159 $ 3,114 $ (253) $ (443)
============== ============== ============== ==============
Other changes in plan assets and benefit
obligations recognized in other
comprehensive income (loss):
Net gain (loss) $ 7,397 $ (2,615) $ 586 $ 263
Amortization of net loss (gain) 1,241 980 (66) (217)
Amortization of prior service benefit (80) (4) (676) (675)
Amendment - 830 1,747 -
-------------- -------------- -------------- --------------
Total recognized in other comprehensive
income (loss) $ 8,558 $ (809) $ 1,591 $ (629)
============== ============== ============== ==============
Amounts recognized in accumulated
other comprehensive income (loss):
Net actuarial gain (loss) $ (10,605) $ (19,243) $ 2,940 $ 2,420
Prior service benefit 775 855 3,042 1,971
-------------- -------------- -------------- --------------
Accumulated other comprehensive income
(loss) at end of year $ (9,830) $ (18,388) $ 5,982 $ 4,391
============== ============== ============== ==============
Accumulated benefit obligation $ 63,097 $ 66,460 $ 5,750 $ 8,099
Plans with accumulated benefit obligation
in excess of plan assets:
Projected benefit obligation $ 43,427 $ 45,590
Accumulated benefit obligation 43,427 45,590
Fair value of plan assets 39,285 37,875
Prepaid benefit costs are included in other assets and accrued benefit costs
are included in pension and other postretirement benefits on the consolidated
balance sheets.
The estimated prior service credit and net actuarial loss for the pension
plans that will be amortized from accumulated other comprehensive income
(loss) into net periodic benefit cost in 2014 are $80 and $539, respectively.
The estimated prior service credit and net actuarial gain for the other
postretirement benefit plan that will be amortized from accumulated other
comprehensive income (loss) into net periodic benefit cost in 2014 are $1,258
and $237, respectively. In 2014, the Company expects to contribute any amounts
necessary to meet the minimum funding requirements to its non-contributory
defined benefit plans. In addition, it may contribute additional tax
deductible amounts.
57
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND OTHER POSTRETIREMENT PLANS (CONTINUED)
Estimated future benefit payments for pension and other postretirement plans:
PENSION MEDICARE
BENEFITS OTHER BENEFITS SUBSIDY
--------------- --------------- --------------
2014 $ 3,183 $ 459 $ -
2015 3,202 400 -
2016 3,273 401 -
2017 3,331 362 -
2018 3,416 338 -
2019 - 2023 18,095 1,763 -
For measurement purposes, the assumed health care cost trend rates start at
8.0% in 2013 and decrease gradually to 5.0% for 2019 and remain at that level
thereafter. For 2012, the assumed health care cost trend rates start at 9.0%
in 2012 and decrease gradually to 5.5% for 2019 and remain at that level
thereafter.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 2013 and 2012. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point would increase the
postretirement benefit obligation as of December 31, 2013 by $40 and the
service cost and interest cost components of net periodic benefit costs for
2013 by $9. Decreasing the assumed health care cost trend rates by one
percentage point would decrease the postretirement benefit obligation as of
December 31, 2013 by $36 and the service cost and interest cost components of
net periodic postretirement benefit costs for 2013 by $8.
To determine the discount rate for each plan, the present value of expected
future benefit payments is calculated using returns on a theoretical yield
curve consisting of AA rated corporate fixed maturity securities and Treasury
spot curve data. The discount rate for each plan is the single rate which
results in the same present value of benefits as that obtained using the yield
curve.
Historical rates of return for individual asset classes and future estimated
returns are used to develop expected rates of return. These rates of return
are applied to the plan's investment policy to determine a range of expected
returns. The expected long-term rate of return on plan assets is selected from
this range.
Generally, the investment objective of the non-contributory defined benefit
plans is to pursue high returns but to limit the volatility of returns to
levels deemed tolerable, which will mitigate (1) the liquidation of depressed
assets for benefit payments, (2) the increase in contributions and pension
expense due to investment losses, and (3) the decline in the funded ratios due
to investment losses. This objective is achieved by strategically allocating
assets among equity securities, fixed maturity securities and other
investments.
The target asset allocation as of December 31, 2013, for each of the broad
investment categories, weighted for all plans combined is as follows:
Equity securities 13% to 25%
Fixed maturity securities 13% to 25%
Insurance company general account 61% to 63%
Other 0% to 2%
The Company's non-contributory defined benefit plans weighted average asset
allocations by asset category at December 31 are as follows:
2013 2012
--------------- ---------------
Equity securities 18% 17%
Fixed maturity securities 20% 19%
Insurance company general account 62% 64%
58
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND OTHER POSTRETIREMENT PLANS (CONTINUED)
Equity securities and fixed maturity securities, as classified in the above
table, include investments in pooled separate accounts. Pooled separate
accounts are under a group annuity contract with Minnesota Life Insurance
Company and represent segregated funds administered by an unaffiliated asset
management firm and consist principally of marketable fixed maturity and
equity securities.
The insurance company general account, as classified in the above table,
represents assets held within the general account of Minnesota Life Insurance
Company. These assets principally consist of fixed maturity securities,
commercial mortgage loans and equity securities.
At times, investments may be made in nontraditional asset classes with the
approval of the Company's non-contributory defined benefit plan trustees.
The Company's investment policy includes various guidelines and procedures
designed to ensure that the plans' assets can reasonably be expected to
achieve the objective of the policy. The investment policy is periodically
reviewed by the plans' respective trustees.
The fair value of the Company's pension plan financial assets and financial
liabilities has been determined using available market information as of
December 31, 2013 and 2012. Although the Company is not aware of any factors
that would significantly affect the fair value of the pension plan financial
assets and financial liabilities, such amounts have not been comprehensively
revalued since those dates. Therefore, estimates of fair value subsequent to
the valuation dates may differ significantly from the amounts presented
herein. Considerable judgment is required to interpret market data to develop
the estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability (exit price) in an orderly transaction between
market participants at the measurement date. The Company maximizes the use of
observable inputs and minimizes the use of unobservable inputs. Observable
inputs reflect the assumptions market participants would use in valuing a
financial instrument based on market data obtained from sources independent of
the Company. Unobservable inputs reflect the Company's estimates about the
assumptions market participants would use in valuing financial assets and
financial liabilities based on the best information available in the
circumstances.
The Company is required to categorize its financial assets and financial
liabilities recorded on the consolidated balance sheets according to a
three-level hierarchy. A level is assigned to each financial asset and
financial liability based on the lowest level input that is significant to the
fair value measurement in its entirety. The levels of fair value hierarchy are
as follows:
Level 1 - Fair value is based on unadjusted quoted prices for identical
assets or liabilities in an active market. The types of assets and
liabilities utilizing Level 1 valuations generally include cash,
money-market funds and actively-traded equity securities.
Level 2 - Fair value is based on significant inputs, other than quoted
prices included in Level 1, that are observable in active markets for
identical or similar assets and liabilities. The types of assets and
liabilities utilizing Level 2 valuations generally include certain
investments in pooled separate accounts.
Level 3 - Fair value is based on at least one or more significant
unobservable inputs. These inputs reflect the Company's assumptions about
the inputs market participants would use in pricing the assets or
liabilities. The types of assets and liabilities utilizing Level 3
valuations generally include private equity investments, certain
investments in pooled separate accounts which invest in privately placed
fixed maturities and investments in an insurance company general account.
The Company uses prices and inputs that are current as of the measurement
date. In periods of market disruption, the ability to observe prices and
inputs may be reduced, which could cause an asset or liability to be
reclassified to a lower level.
59
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND OTHER POSTRETIREMENT PLANS (CONTINUED)
Inputs used to measure fair value of an asset or liability may fall into
different levels of the fair value hierarchy. In these situations, the Company
will determine the level in which the fair value falls based upon the lowest
level input that is significant to the determination of the fair value.
The following tables summarize the Company's pension benefit plans' financial
assets measured at fair value on a recurring basis:
[Enlarge/Download Table]
DECEMBER 31, 2013 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------- --------------- -------------- --------------- --------------
Investments in pooled separate accounts $ - $ 24,597 $ - $ 24,597
Insurance company general account - - 39,285 39,285
--------------- -------------- --------------- --------------
Total financial assets $ - $ 24,597 $ 39,285 $ 63,882
=============== ============== =============== ==============
DECEMBER 31, 2012 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------- --------------- -------------- --------------- --------------
Investments in pooled separate accounts (1) $ - $ 21,110 $ - $ 21,110
Insurance company general account - - 37,875 37,875
--------------- -------------- --------------- --------------
Total financial assets $ - $ 21,110 $ 37,875 $ 58,985
=============== ============== =============== ==============
(1) Investments in pooled separate accounts previously included in Level 1
at December 31, 2012 have been reclassified to Level 2 to conform to the
December 31, 2013 presentation.
INVESTMENTS IN POOLED SEPARATE ACCOUNTS
Investments in pooled separate accounts are stated at the corresponding unit
value of the pooled separate account, which represents fair value. Investments
in pooled separate accounts are classified as Level 2 as the values are based
upon quoted prices or reported net asset values provided by asset management
firms with little readily determinable public pricing information.
INSURANCE COMPANY GENERAL ACCOUNT
Deposits in the insurance company general account are stated at cost plus
accrued interest, which represents fair value. These assets principally
consist of fixed maturity securities, commercial mortgage loans and equity
securities and are classified as Level 3.
The following table provides a summary of changes in fair value of the
Company's pension benefit plans' Level 3 financial assets held at fair value
on a recurring basis during the year ended December 31, 2013:
[Enlarge/Download Table]
PURCHASES,
BALANCE AT TOTAL APPRECIATION SALES AND BALANCE AT
BEGINNING (DEPRECIATION) IN SETTLEMENTS, END OF
OF YEAR FAIR VALUE NET YEAR
------------ --------------------- -------------- -----------
Insurance company general account $ 37,875 $ 1,410 $ - $ 39,285
The following table provides a summary of changes in fair value of the
Company's pension benefit plans' Level 3 financial assets held at fair value
on a recurring basis during the year ended December 31, 2012:
[Enlarge/Download Table]
PURCHASES,
BALANCE AT TOTAL APPRECIATION SALES AND BALANCE AT
BEGINNING (DEPRECIATION) IN SETTLEMENTS, END OF
OF YEAR FAIR VALUE NET YEAR
------------ --------------------- -------------- -----------
Insurance company general account $ 36,274 $ 1,601 $ - $ 37,875
60
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND OTHER POSTRETIREMENT PLANS (CONTINUED)
Transfers of securities among the levels occur at the beginning of the
reporting period. There were no transfers between Level 1 and Level 2 for the
years ending December 31, 2013 and 2012. There were no transfers in to or out
of level 3 for the years ending December 31, 2013 and 2012.
The Plans did not have any assets or liabilities reported at fair value on a
nonrecurring basis.
PROFIT SHARING PLANS
The Company also has a profit sharing plan covering substantially all agents.
The Company's contribution is made as a certain percentage based on voluntary
contribution rates and applied to each eligible agent's annual contribution.
The Company recognized contributions to the plan during 2013, 2012, and 2011
of $1,392, $1,440, and $1,038, respectively.
(12) LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS, AND CLAIM AND LOSS
ADJUSTMENT EXPENSES
Activity in the liability for unpaid accident and health claims, and claim and
loss adjustment expenses is summarized as follows:
[Enlarge/Download Table]
2013 2012 2011
--------------- -------------- ---------------
Balance at January 1 $ 586,416 $ 581,040 $ 585,325
Less: reinsurance recoverable 521,021 518,521 520,524
--------------- -------------- ---------------
Net balance at January 1 65,395 62,519 64,801
--------------- -------------- ---------------
Incurred related to:
Current year 102,869 80,523 81,813
Prior years 619 7,248 (1,853)
--------------- -------------- ---------------
Total incurred 103,488 87,871 80,060
--------------- -------------- ---------------
Paid related to:
Current year 63,525 60,759 56,713
Prior years 29,743 30,942 26,575
--------------- -------------- ---------------
Total paid 93,268 91,701 83,288
Purchase of subsidiaries (1) - 6,706 946
--------------- -------------- ---------------
Net balance at December 31 75,615 65,395 62,519
Plus: reinsurance recoverable 489,861 521,021 518,521
--------------- -------------- ---------------
Balance at December 31 $ 565,476 $ 586,416 $ 581,040
=============== ============== ===============
(1) See note 17.
In addition to pending policy and contract claims, this table reflects
disabled life reserves that are included in future policy and contract
benefits on the consolidated balance sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, and claim and loss adjustment expenses incurred
increased (decreased) by $619, $7,248 and $(1,853) in 2013, 2012 and 2011,
respectively. The remaining changes in amounts are the result of normal
reserve development inherent in the uncertainty of establishing the liability
for unpaid accident and health claims, and claim and loss adjustment expenses.
61
(13) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies. Allowances are established
for amounts deemed to be uncollectible.
The Company's consolidated financial statements reflect the effects of assumed
and ceded reinsurance transactions. Assumed reinsurance refers to the
acceptance of certain insurance risks that other insurance companies have
underwritten. Ceded reinsurance involves transferring certain insurance risks,
along with the related written and earned premiums, the Company has
underwritten to other insurance companies who agree to share these risks. The
primary purpose of ceded reinsurance is to protect the Company from potential
losses in excess of the amount it is prepared to accept.
Reinsurance is accounted for over the lives of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
[Download Table]
2013 2012 2011
--------------- --------------- ---------------
Direct premiums $ 2,311,385 $ 2,084,325 $ 1,877,483
Reinsurance assumed 31,925 25,732 28,201
Reinsurance ceded (557,204) (446,229) (363,685)
--------------- --------------- ---------------
Net premiums $ 1,786,106 $ 1,663,828 $ 1,541,999
=============== =============== ===============
Reinsurance recoveries on ceded reinsurance contracts included in
policyholder benefits on the consolidated statements of operations and
comprehensive income (loss) were $512,414, $401,913 and $326,692 during 2013,
2012, and 2011, respectively.
(14) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
The Company issues certain nontraditional long-duration contracts including
universal life, variable life and deferred annuities that contain either
certain guarantees or sales inducements.
The Company issues variable contracts through its separate accounts for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholder. The Company also issues
variable annuity contracts through separate accounts where the Company
contractually guarantees to the contractholder either (a) return of no less
than total deposits made to the contract adjusted for partial withdrawals, (b)
total deposits made to the contract adjusted for partial withdrawals plus a
minimum return, (c) the highest contract value on a specified anniversary date
adjusted for withdrawals following the contract anniversary, or (d) a minimum
payment on a variable immediate annuity. These guarantees include benefits
that are payable in the event of death, withdrawal or annuitization based upon
the specific contract selected. The Company also issues universal life and
variable life contracts where the Company provides to the contractholder a
no-lapse guarantee.
The assets supporting the variable portion of the traditional variable
annuities, variable contracts with guarantees, universal life and variable
life contracts are carried at fair value and reported as summary total
separate account assets with an equivalent summary total reported for
liabilities. For variable annuity contracts, amounts assessed against the
contractholders for mortality, administrative, and other services are included
in policy and contract fees, changes in liabilities for minimum guarantees on
deferred annuities are included in policyholder benefits, and changes in
liabilities for the minimum guaranteed payments on variable immediate
annuities and the minimum withdrawal benefits on variable deferrable annuities
are included in net realized investment gains (losses) on the consolidated
statements of operations and comprehensive income (loss). For universal life
and variable life contracts, the amounts assessed against the contractholders
for mortality, administrative, and other services are included in policy and
contract fees and changes in liabilities for guaranteed benefits are included
in policyholder benefits on the consolidated statements of operations and
comprehensive income (loss). For variable annuity, universal life and variable
life contracts, separate account net investment income, net investment gains
and losses and the related liability changes are offset within the same line
item on the consolidated statements of operations and comprehensive income
(loss). There were no investment gains or losses on transfers of assets from
the general account to the separate account during 2013, 2012 or 2011.
62
(14) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
(CONTINUED)
The Company's variable annuity contracts with guarantees may offer more than
one type of guarantee in each contract; therefore, the amounts listed are not
mutually exclusive. For guarantees of amounts in the event of death, the net
amount at risk is defined as the current guaranteed minimum death benefit in
excess of the current account balance at the balance sheet date. For
guaranteed withdrawal amounts, the net amount at risk is defined as the
guaranteed minimum withdrawal benefit base in excess of the current account
balance at the balance sheet date. For guarantees of amounts at annuitization,
the net amount at risk is defined as the present value of the minimum
guaranteed annuity payments available to the contractholder, determined in
accordance with the terms of the contract, in excess of the current account
balance. For the guaranteed payout annuity floor, the net amount at risk is
defined as the guaranteed benefit in excess of the current benefit payable
measured as a monthly amount. For universal life and variable life contracts
the net amount at risk is defined as the current death benefit in excess of
the current balance, excluding reinsurance.
At December 31, the Company had the following variable annuity contracts with
guarantees:
[Enlarge/Download Table]
2013 2012
------------------ ------------------
Return of net deposits:
In the event of death
Account value $ 3,512,025 $ 2,510,626
Net amount at risk $ 4,711 $ 8,238
Average attained age of contractholders 60.7 59.8
As withdrawals are taken
Account value $ 269,630 $ 254,827
Net amount at risk $ 131 $ 2,202
Average attained age of contractholders 68.7 67.6
Return of net deposits plus a minimum return:
In the event of death
Account value $ 201,998 $ 176,664
Net amount at risk $ 15,460 $ 20,652
Average attained age of contractholders 66.7 65.6
At annuitization
Account value $ 606,217 $ 516,504
Net amount at risk $ - $ -
Weighted average period remaining until expected
annuitization (in years) 5.0 5.4
As withdrawals are taken
Account value $ 1,878,052 $ 1,019,906
Net amount at risk $ 7,995 $ 29,739
Average attained age of contractholders 62.8 62.8
Highest specified anniversary account value:
In the event of death
Account value $ 769,018 $ 614,364
Net amount at risk $ 5,084 $ 10,168
Average attained age of contractholders 61.2 60.2
Guaranteed payout annuity floor:
Account value $ 52,817 $ 45,861
Net amount at risk $ 6 $ 23
Average attained age of contractholders 72.9 71.6
63
(14) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
(CONTINUED)
At December 31, the Company had the following universal life and variable life
contracts with guarantees:
[Enlarge/Download Table]
2013 2012
------------------ ------------------
Account value (general and separate accounts) $ 4,730,037 $ 3,694,328
Net amount at risk $ 47,279,305 $ 45,181,638
Average attained age of policyholders 49.0 49.0
Liabilities for guarantees on universal life and variable contracts reflected
in the general account as of December 31, 2013 were as follows:
[Enlarge/Download Table]
MINIMUM GUARANTEED
DEATH AND INCOME GUARANTEED PAYOUT MINIMUM GUARANTEED UNIVERSAL LIFE AND
BENEFITS ANNUITY FLOOR WITHDRAWAL BENEFIT VARIABLE LIFE
------------------- ------------------- ------------------- -------------------
Balance at beginning of year $ 2,370 $ 12,381 $ 47,903 $ 49,120
Incurred guarantee benefits 749 (6,527) (54,454) 24,310
Paid guaranteed benefits (396) (156) - (11,262)
------------------- ------------------- ------------------- -------------------
Balance at end of year $ 2,723 $ 5,698 $ (6,551) $ 62,168
=================== =================== =================== ===================
Liabilities for guarantees on universal life and variable contracts reflected
in the general account as of December 31, 2012 were as follows:
[Enlarge/Download Table]
MINIMUM GUARANTEED
DEATH AND INCOME GUARANTEED PAYOUT MINIMUM GUARANTEED UNIVERSAL LIFE AND
BENEFITS ANNUITY FLOOR WITHDRAWAL BENEFIT VARIABLE LIFE
------------------- ------------------- ------------------- -------------------
Balance at beginning of year $ 2,067 $ 15,272 $ 65,911 $ 39,874
Incurred guarantee benefits 1,675 (2,588) (18,008) 19,688
Paid guaranteed benefits (1,372) (303) - (10,442)
------------------- ------------------- ------------------- -------------------
Balance at end of year $ 2,370 $ 12,381 $ 47,903 $ 49,120
=================== =================== =================== ===================
The minimum guaranteed death benefit liability and the guaranteed minimum
income liability is determined each period end by estimating the expected
value of death benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period based on total
expected assessments. The guaranteed payout annuity floor and minimum
guaranteed withdrawal benefits are considered to be derivatives and are
recognized at fair value through earnings. The universal life and variable
life liabilities are determined by estimating the expected value of death
benefits in excess of projected account balances and recognizing the excess
ratably over the accumulation period based on total expected assessments. For
variable annuity, universal life and variable life contracts with guarantees,
the Company regularly evaluates estimates used and adjusts the additional
liability balance, with a related charge or credit to benefit expense, if
actual experience or other evidence suggests that earlier assumptions should
be revised.
64
(14) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
(CONTINUED)
The following assumptions and methodology were used to determine the minimum
guaranteed death and income benefit liability on variable annuities at
December 31, 2013 and 2012 (except where noted otherwise):
- Data was compiled from 1,000 stochastically generated investment performance
scenarios. These were ranked by wealth factors and put into 100 groups of 10
sequentially. The mid-point of each group was chosen to run the projections
used.
- Mean investment performance was 5.45% and 6.48% for 2013 and 2012,
respectively, and is consistent with DAC projections over a 10 year period.
- Annualized monthly standard deviation was 15.28%.
- Assumed mortality was 100% of the A2000 table.
- Lapse rates varied by contract type and policy duration, ranging from 1.00%
to 15.00% and 1.00% to 17.25% for 2013 and 2012, respectively, with an
average of 8.00% for 2013 and 2012.
- Discount rates varied by contract type and policy duration and were
consistent with discount rates used in DAC models.
The following assumptions and methodology, which are consistent with those
used for DAC models, were used to determine the universal life and variable
life liability at December 31, 2013 and 2012 (except where noted otherwise):
- Separate account investment performance assumption was 8.00%.
- Assumed mortality was 100% of pricing levels.
- Lapse rates varied by policy duration, ranging from 2.00% to 9.00%.
- Long-term general account discount rate grades up to 7.00% over five years
for 2013 and 2012.
- Separate account discount rate was 7.73%.
Account balances for contracts with guarantees were invested in variable
separate accounts by mutual fund grouping as follows at December 31:
[Enlarge/Download Table]
VARIABLE ANNUITY CONTRACTS VARIABLE LIFE CONTRACTS
------------------------------------ ------------------------------------
2013 2012 2013 2012
---------------- ---------------- ---------------- ----------------
Equity $ 2,355,948 $ 1,742,620 $ 1,669,163 $ 1,559,638
Bond 867,350 676,026 211,647 146,037
Balanced 1,074,541 704,544 347,928 141,131
Money market 51,619 54,670 27,093 29,316
Mortgage 57,621 54,377 36,281 40,617
Real estate 75,962 69,417 47,529 48,615
---------------- ---------------- ---------------- ----------------
Total $ 4,483,041 $ 3,301,654 $ 2,339,641 $ 1,965,354
================ ================ ================ ================
(15) UNREMITTED PREMIUMS AND CLAIMS PAYABLE
The Company acts as an agent of certain insurance underwriters and has a
fiduciary responsibility to remit the appropriate percentage of monies
collected from each financial institution customer to the corresponding
insurance underwriters. The remittance is equal to the premiums collected from
the financial institution customer, less any commissions earned by the
Company. The Company recognizes a liability equal to the amount of the
premiums that have not yet been remitted to the insurance underwriters. At
December 31, 2013 and 2012, the liability associated with unremitted premiums
and claims payable was $21,530 and $21,615, respectively and is reported as
part of other liabilities on the consolidated balance sheets. As described in
note 2, as of December 31, 2013 and 2012, the Company had restricted the use
of $21,530 and $21,615, respectively, of its cash and cash equivalents to
satisfy these premium and claims remittance payables.
65
(16) SHORT-TERM AND LONG-TERM DEBT
Liabilities for short-term and long-term debt are primarily carried at an
amount equal to unpaid principle balance. Short-term debt is debt coming due
in the next 12 months.
SHORT-TERM DEBT
The following table provides a summary of short-term debt and related
collateral for that debt as of December 31:
[Enlarge/Download Table]
Liability Collateral
------------------------------------ ------------------------------------
2013 2012 2013 2012
---------------- ---------------- ---------------- ----------------
Reverse repurchase agreement $ 50,000 $ 50,000 $ 52,733 $ 54,838
Periodically, the Company may enter into short-term reverse repurchase
agreements in order to borrow funds for short-term operating needs or
facilitate trading activity. In a reverse repurchase agreement, the Company
transfers specified securities to a counterparty in exchange for cash and
simultaneously agrees to reacquire the same, or substantially the same,
securities at a future date for an amount equal to the cash exchanged plus an
interest factor. The Company maintains effective control over the securities
and accounts for these agreements as collateralized borrowings. The short-term
debt is collateralized by fixed maturity RMBS securities which are included in
fixed maturity securities available-for-sale on the consolidated balance
sheets. The difference between the proceeds and the amount at which the
securities will be subsequently reacquired is recorded as a general operating
expense on the consolidated statements of operations and comprehensive income
(loss).
LONG-TERM DEBT
The following table provides a summary of long-term debt as of December 31:
LIABILITY
------------------------------------
2013 2012
---------------- ----------------
Surplus notes $ 118,000 $ 118,000
Federal Home Loan Bank borrowings 200,000 150,000
---------------- ----------------
Total long-term debt $ 318,000 $ 268,000
================ ================
In September 1995, the Company issued surplus notes with a face value of
$125,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future policyholders interests, including claims, and indebtedness
of the Company. At December 31, 2013 and 2012, the balance of the surplus
notes was $118,000. During 2012, the Company repurchased $2,000 of its
outstanding surplus notes. The Company paid a market premium for the
repurchase and as a result recorded a $622 loss on the transaction, which is
included within general operating expenses on the consolidated statements of
operations and comprehensive income (loss).
All payments of interest and principal on the notes are subject to the
approval of the Minnesota Department of Commerce (Department of Commerce). As
of December 31, 2013 and 2012, the accrued interest was $2,832. Interest paid
on the surplus notes for the years ended December 31, 2013, 2012 and 2011 was
$9,735, $9,782 and $9,900, respectively.
The issuance costs of $1,421 are deferred and amortized over 30 years on a
straight-line basis. At December 31, 2013 and 2012, accumulated amortization
was $870 and $822, respectively.
66
(16) SHORT-TERM AND LONG-TERM DEBT (CONTINUED)
LONG-TERM DEBT (CONTINUED)
The Company has entered into a membership agreement with the Federal Home Loan
Bank of Des Moines (FHLB), providing an efficient way to set up a borrowing
facility with access to low cost funding. The total borrowing capacity is
dependent on the amount and type of Company assets. The outstanding borrowings
at December 31, 2013 have a maturity of 7 years with principal due at that
time. The Company pledged $570,358 of fixed maturity CMBS and RMBS securities
and mortgage loans as collateral as of December 31, 2013. At that time, the
Company had the capacity for either long-term or short-term borrowings of
approximately $300,414 without pledging additional collateral. If the fair
value of the pledged collateral falls below the required collateral for the
outstanding borrowed amount, the Company is required to pledge additional
collateral. The Company also currently holds FHLB common stock of $18,000, as
required. The FHLB common stock is not classified as available-for-sale and is
carried at cost, which approximates fair value, and is recorded in other
invested assets in the consolidated balance sheets.
At December 31, 2013, the aggregate minimum annual long-term debt maturities
for the next five years and thereafter are as follows: 2014, $0; 2015, $0;
2016, $0; 2017, $0; 2018, $0; thereafter, $318,000.
Total interest paid by the Company for the years ended December 31, 2013, 2012
and 2011 was $10,115, $9,874 and $9,900, respectively.
(17) BUSINESS COMBINATIONS
During 2013, the Company acquired the account rights of certain insurance
agencies. The aggregate purchase price of $10,696 was allocated to various
assets and liabilities including $5,653 to finite-lived intangible assets and
$4,481 to goodwill.
During 2012, the Company acquired an insurance company. The purchase price
paid in cash during 2012 was $34,444. The aggregate purchase price was
allocated to assets, value of business acquired (VOBA) and liabilities. VOBA,
which is included in DAC on the consolidated balance sheets, of $7,675
represents the underlying insurance contracts acquired and will be amortized
based on the expected in force premium runoff of the underlying contracts,
which is expected to be approximately five years. Amortization expense of VOBA
on the consolidated statements of operations and comprehensive income (loss)
was $2,157 and $3,871 for the years ended December 31, 2013 and 2012,
respectively. No goodwill was recorded as part of the allocation of purchase
price.
During 2011, the Company acquired an insurance company. The aggregate purchase
price of $45,780 consisted of $885 and $44,895 cash paid in 2012 and 2011,
respectively. The aggregate purchase price was allocated to assets, VOBA and
liabilities. VOBA of $1,852 represents the underlying insurance contracts
acquired and will be amortized based on the expected in force premium runoff
of the underlying contracts, which is expected to be approximately five years.
Amortization expense of VOBA on the consolidated statements of operations and
comprehensive income (loss) was $400, $340 and $153 for the years ended
December 31, 2013, 2012 and 2011, respectively. No goodwill was recorded as
part of the allocation of purchase price.
The amount of acquisition-related additional cash consideration the Company
may have to pay in 2014 and future years if certain thresholds are attained is
$8,050 of which $6,125 was accrued at December 31, 2013.
(18) GOODWILL AND INTANGIBLE ASSETS
The amount of goodwill included on the consolidated balance sheets in goodwill
and intangible assets, net, as of December 31, was as follows:
2013 2012
---------------- ----------------
Balance at beginning of year $ 40,675 $ 39,711
Additions 4,481 964
---------------- ----------------
Balance at end of year $ 45,156 $ 40,675
================ ================
67
(18) GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
A qualitative assessment of goodwill was performed during 2013. The Company
assessed economic conditions, industry and market consideration in addition to
overall financial performance of the reporting unit. It was determined that
the fair value of the reporting unit is, more likely than not, greater than
the carrying value and no further goodwill testing was completed and no
impairment was recognized. The amount of intangible assets, excluding the
VOBA, included on the consolidated balance sheets in goodwill and intangible
assets, net, as of December 31, was as follows:
2013 2012
---------------- ----------------
Balance at beginning of year $ 5,150 $ 4,012
Acquisitions 5,653 3,079
Amortization (2,187) (1,941)
---------------- ----------------
Balance at end of year $ 8,616 $ 5,150
================ ================
The Company has intangible assets resulting from business and asset
acquisitions. Intangible assets acquired during 2013 include non-compete
agreements amortizable on a straight-line basis over three years and customer
lists amortized over their assigned economic useful lives. Intangible assets
acquired during 2012 include non-compete agreements amortizable on a
straight-line basis over three years and customer lists amortized over their
assigned economic useful lives. The remaining intangible assets consist of
customer/client contracts, lists or relationships. These intangible assets are
amortized on a straight-line basis over their estimated useful lives based on
the related life of the underlying customer/client contract, list or
relationship purchased, which vary in length between three to ten years. The
appropriate estimated useful life for each intangible asset class is reviewed
annually. A change in expected useful life could potentially indicate
impairment of these assets. The Company completes annual impairment testing of
all intangible assets. The annual review did not result in any changes to the
expected useful lives and no intangible impairments were recorded in 2013,
2012 or 2011.
Intangible asset amortization expense for 2013, 2012 and 2011 in the amount of
$2,187, $1,941 and $1,882, respectively, is included in general operating
expenses. Projected amortization expense for the next five years is as
follows: 2014, $3,243 2015, $2,346; 2016, $1,465; 2017, $782; 2018, $408.
(19) RELATED PARTY TRANSACTIONS
The Company has investment advisory agreements with an affiliate, Advantus.
Under these agreements, the Company pays quarterly investment management fees
based on total assets managed. Investment management fees paid by the Company
were $19,538, $18,101 and $16,089 during 2013, 2012 and 2011, respectively. As
of December 31, 2013 and 2012, the amount due to Advantus under these
agreements was $7,656 and $7,038, respectively.
The Company also has an agreement with an affiliate, Securian Financial
Services, Inc. (SFS). Under this agreement, SFS is the distributor of the
Company's variable annuity and variable life products. Fees paid by the
Company for the performance of compliance functions for these variable
products totaled $1,046, $975 and $971 for the years ended December 31, 2013,
2012 and 2011, respectively.
Under an assignment agreement with SFS, 12(b)-1 fees from the Advantus Series
Fund Portfolios and the Waddell & Reed Target Portfolios are transferred to
the Company. For the years ended December 31, 2013, 2012 and 2011, the amounts
transferred were $11,556, $10,272, and $10,501, respectively.
The Company has agreements with its affiliates for expenses including
allocations for occupancy costs, data processing, compensation, advertising
and promotion, and other administrative expenses, which the Company incurs on
behalf of its affiliates and is reimbursed. At December 31, 2013 and 2012, the
amount payable to the Company was $19,011 and $19,475, respectively. The
amount of expenses incurred by and reimbursed to the Company for the years
ended December 31, 2013, 2012, and 2011 were $66,366, $64,251 and $60,215,
respectively. The Company also has an agreement with SFG for employee
compensation related expenses which SFG incurs on behalf of the Company. The
amount of expenses incurred by and reimbursed to SFG by the Company for the
years ended December 31, 2013, 2012 and 2011 was $24,264, $28,229 and $21,584,
respectively. The amount payable to SFG at December 31, 2013 and 2012 was
$2,908 and $3,963, respectively. As of December 31, 2013, the Company also had
a receivable from SFG, in the amount of $1,262, related to the advance of
future years' defined benefit plan expenses.
68
(19) RELATED PARTY TRANSACTIONS (CONTINUED)
In 2002, the Company sold a group variable universal life policy to SFG. The
Company received premiums of $2,000, $2,000 and $2,000 in 2013, 2012 and 2011,
respectively, for this policy. No claims were paid during 2013, 2012 and 2011.
As of December 31, 2013 and 2012, reserves held under this policy were $31,885
and $25,662, respectively.
The Company is a distributor of its affiliates' insurance and other products.
Product offerings include credit life and disability, accidental death,
collateral protection insurance, guarantee auto protection and debt
cancellation. The Company earned $30,030, $23,614 and $18,309 in commission
revenues related to the sales and servicing of these products for the years
ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013
and 2012, commission revenue due to the Company from its affiliates was $2,263
and $2,232, respectively.
Certain of the Company's affiliates distribute its insurance products. Product
offerings include individual life and annuity and group life insurance. The
Company paid $9,816, $7,623 and $4,319 in commission expenses related to the
sales of these products for the years ended December 31, 2013, 2012 and 2011,
respectively.
(20) OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as any change in stockholder's equity
originating from non-owner transactions. The Company has identified those
changes as being comprised of net income, adjustments to pension and other
postretirement plans, unrealized gains (losses) on securities and related
adjustments.
The components of other comprehensive income (loss) and related tax effects,
other than net income are illustrated below:
[Enlarge/Download Table]
DECEMBER 31, 2013
---------------------------------------------------
BEFORE TAX BENEFIT NET OF
TAX (EXPENSE) TAX
-------------- -------------- --------------
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities arising
during the period $ (571,770) $ 202,325 $ (369,445)
Less: Reclassification adjustment for gains (losses)
included in net income (33,626) 11,770 (21,856)
Unrealized gains (losses) on securities - OTTI (8,352) 2,923 (5,429)
Adjustment to deferred policy acquisition costs 246,061 (86,122) 159,939
Adjustment to reserves 110,274 (38,596) 71,678
Adjustment to unearned policy and contract fees (99,756) 34,915 (64,841)
Adjustment to pension and other postretirement plans 9,730 (3,406) 6,324
Less: Reclassification adjustment for expenses
included in net income 419 (147) 272
-------------- -------------- --------------
Other comprehensive income (loss) $ (347,020) $ 123,662 $ (223,358)
============== ============== ==============
69
(20) OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED)
The components of other comprehensive income (loss) and related tax effects,
other than net income are illustrated below (Continued):
[Enlarge/Download Table]
DECEMBER 31, 2012
---------------------------------------------------
BEFORE TAX BENEFIT NET OF
TAX (EXPENSE) TAX
-------------- -------------- --------------
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities arising
during the period $ 351,867 $ (124,306) $ 227,561
Less: Reclassification adjustment for gains (losses)
included in net income (72,034) 25,212 (46,822)
Unrealized gains (losses) on securities - OTTI 17,222 (6,028) 11,194
Adjustment to deferred policy acquisition costs (89,533) 31,337 (58,196)
Adjustment to reserves (44,051) 15,418 (28,633)
Adjustment to unearned policy and contract fees 9,761 (3,416) 6,345
Adjustment to pension and other postretirement plans (1,438) 504 (934)
-------------- -------------- --------------
Other comprehensive income (loss) $ 171,794 $ (61,279) $ 110,515
============== ============== ==============
DECEMBER 31, 2011
---------------------------------------------------
BEFORE TAX BENEFIT NET OF
TAX (EXPENSE) TAX
-------------- -------------- --------------
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities arising
during
the period $ 319,525 $ (111,423) $ 208,102
Less: Reclassification adjustment for gains (losses)
included in net income (67,167) 23,508 (43,659)
Unrealized gains (losses) on securities - OTTI 30,660 (10,731) 19,929
Adjustment to deferred policy acquisition costs (99,889) 34,961 (64,928)
Adjustment to reserves (72,822) 25,488 (47,334)
Adjustment to unearned policy and contract fees 57,267 (20,044) 37,223
Adjustment to pension and other postretirement plans (9,688) 3,391 (6,297)
-------------- -------------- --------------
Other comprehensive income (loss) $ 157,886 $ (54,850) $ 103,036
============== ============== ==============
70
(20) OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED)
Information regarding amounts reclassified out of each component of
accumulated other comprehensive income (loss) and related tax effects at
December 31, 2013 were as follows:
[Enlarge/Download Table]
AMOUNT
RECLASSIFIED
FROM
ACCUMULATED
OTHER CONSOLIDATED STATEMENT OF
COMPREHENSIVE OPERATIONS AND COMPREHENSIVE INCOME
INCOME (LOSS) (LOSS) LOCATION
---------------- ------------------------------------
Net unrealized investment gains (losses):
Unrealized gains (losses) $ 41,778 Other net realized investment gains
Unrealized OTTI losses - OTTI on fixed maturity
securities (495) OTTI on fixed maturity securities
Unrealized OTTI losses - OTTI on other securities (7,657) Other net realized investment gains
----------------
Unrealized investment gains (losses), before
income tax 33,626
Deferred income tax benefit (expense) (11,770)
----------------
Unrealized investment gains (losses), net of
income tax $ 21,856
================
Pension and other postretirement plans (1):
Amortization of prior service benefit $ 756 General operating expenses
Amortization of net actuarial losses (1,175) General operating expenses
----------------
Amortization of pension and other postretirement plan
items, before income tax (419)
Deferred income tax benefit (expense) 147
----------------
Amortization of pension and other postretirement
plan items, net of income tax $ (272)
================
(1) These accumulated other comprehensive income (loss) items are included
in the computation of net periodic benefit costs. See Note 11 for
further details.
The components of accumulated other comprehensive income (loss) and related
tax effects at December 31 were as follows:
[Enlarge/Download Table]
2013 2012
--------------- --------------
Gross unrealized gains $ 735,374 $ 1,173,099
Gross unrealized losses (197,460) (29,789)
Gross unrealized losses - OTTI 9,990 18,342
Adjustment to deferred policy acquisition costs (51,153) (297,214)
Adjustment to reserves (80,705) (190,979)
Adjustment to unearned policy and contract fees (7,048) 92,708
Adjustment to pension and other postretirement plans (3,848) (13,997)
--------------- --------------
405,150 752,170
Deferred federal income tax expenses (136,042) (259,704)
--------------- --------------
Net accumulated other comprehensive income (loss) $ 269,108 $ 492,466
=============== ==============
71
(21) STOCK DIVIDENDS AND CAPITAL CONTRIBUTIONS
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus or the statutory
net gain from operations as of the preceding year-end, as well as the timing
and amount of dividends paid in the preceding 12 months, without prior
approval from the Department of Commerce. Based on these limitations and 2013
statutory results, the maximum amount available for the payment of dividends
during 2014 by Minnesota Life Insurance Company without prior regulatory
approval is $232,968.
During the years ended December 31, 2013, 2012, and 2011 there were no
dividends declared or paid to SFG.
For the years ended December 31, 2013, 2012 and 2011 there were no capital
contributions from SFG to the Company.
(22) COMMITMENTS AND CONTINGENCIES
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management,
the ultimate resolution of such litigation will likely not have a material
adverse effect on consolidated operations or the financial position of the
Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies (reinsurers). To the extent that a
reinsurer is unable to meet its obligations under the reinsurance agreement,
the Company remains liable. The Company evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk to minimize its
exposure to significant losses from reinsurer insolvencies. Allowances are
established for amounts deemed uncollectible.
The Company holds TBA securities with extended forward contract dates which
represent a future commitment. As of December 31, 2013 and 2012, these
securities were reported at fair value of $28,703 and $48,161, respectively.
The Company has long-term commitments to fund alternative investments and real
estate investments totaling $307,724 as of December 31, 2013. The Company
estimates that $123,000 of these commitments will be invested in 2014, with
the remaining $184,724 invested over the next four years.
As of December 31, 2013, the Company had committed to originate mortgage loans
totaling $137,833 but had not completed the originations.
As of December 31, 2013, the Company had committed to purchase corporate fixed
maturity securities totaling $5,500 but had not completed the purchase
transactions.
As of December 31, 2013, the Company had committed to purchase loan-backed
securities totaling $11,914 but had not completed the purchase transactions.
The Company has a long-term lease agreement with an affiliated company,
Capitol City Property Management, Inc, for rental space in downtown St. Paul.
Minimum gross rental commitments under the lease are as follows: 2014,
$11,267; 2015, $11,267; 2016, $11,267; 2017, $11,267; 2018, $11,267. The
Company sub-leases space in downtown St. Paul. Commitments to the Company from
these agreements are as follows: 2014, $617; 2015, $606; 2016, $434; 2017,
$304; 2018, $276. Lease expense, net of sub-lease income, for the years ended
December 31, 2013, 2012 and 2011 was $8,672, $8,731, and $8,649, respectively.
The Company also has long-term lease agreements with unaffiliated companies
for office facilities and equipment. Minimum gross rental commitments under
these leases are as follows: 2014, $3,593; 2015, $2,940; 2016, $2,240; 2017,
$1,593; 2018, $379.
At December 31, 2013, the Company had guaranteed the payment of $50,400 of
policyholder dividends and discretionary amounts payable in 2014. The Company
has pledged fixed maturity securities, valued at $55,590 to secure this
guarantee. Pursuant to the Escrow Trust Account Agreement dated December 13,
1991 between Minnesota Life Insurance Company and Wells Fargo Bank, N.A., the
Company pays irrevocable dividends to certain policyholders of the Company.
Policyholders may choose the form in which the irrevocable dividend is
applied, which include the cash payment of the dividend to the policyholder,
using the dividend to purchase additional coverage or to increase the cash
value of the policy. The policyholders covered by the Escrow Trust Account
Agreement primarily includes owners of certain individual life insurance
policies issued by the Company, but does not include all of the
dividend-paying insurance policies issued by the Company.
72
(22) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has a 100% coinsurance agreement for its individual disability
line within its Corporate business unit. Under the terms of this agreement,
assets supporting the reserves transferred to the reinsurer are held under a
trust agreement for the benefit of the Company in the event that the reinsurer
is unable to perform its obligations. At December 31, 2013 and 2012, the
assets held in trust were $561,177 and $582,178, respectively. These assets
are not reflected on the accompanying consolidated balance sheets.
Occasionally, the Company will occasionally enter into loan guarantees for
general agents. Management does not consider an accrual necessary relating to
these guarantees.
In connection with the dissolution of MIMLIC Life Insurance Company, the
Company has agreed to guarantee all obligations and liabilities of MIMLIC Life
Insurance Company that arise in the normal course of business. Management does
not consider an accrual necessary relating to this guarantee.
In connection with the sale of a subsidiary company in 1997, the Company has
guaranteed the adequacy of claim reserves transferred under the agreement for
a period of 10 years subsequent to the date of transfer. To the extent that
these reserves were over or under provided for, an exchange of the difference
is required by the agreement. In 2008, the Company amended the agreement to
extend the reserve guarantee by an additional 10 years to December 31, 2017,
at which point a settlement payment/receipt will be determined. The Company
expects the settlement of this agreement to be immaterial to its consolidated
financial position.
The Company has minimum compensation agreements with certain sales and
employee groups, the terms of which expire at various times through 2016. Such
agreements, which have been revised from time to time, provide for minimum
compensation for these groups. The aggregate future minimum commitment under
these agreements at December 31, 2013 and 2012 was approximately $4,735 and
$2,516, respectively.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. At December 31, 2013 and 2012, the amount was immaterial to the
consolidated financial statements. An asset is recorded for the amount of
guaranty fund assessments paid, which can be recovered through future premium
tax credits. This asset was $2,864 and $2,267 as of December 31, 2013 and
2012, respectively. These assets are being amortized over a five-year period.
73
(23) STATUTORY ACCOUNTING PRACTICES
The Company's insurance operations, domiciled in various states, prepare
statutory financial statements in accordance with the accounting practices
prescribed or permitted by the regulatory authority of the state of domicile.
Prescribed statutory accounting practices are those practices that are
incorporated directly or by reference in state laws, regulations and general
administrative rules applicable to all insurance enterprises domiciled in a
particular state. Permitted statutory accounting practices include practices
not prescribed by the domiciliary state, but allowed by the domiciliary state
regulatory authority. The Company's insurance operations have no material
statutory accounting practices that differ from those of the state of domicile
or the NAIC accounting practices. See note 21 for discussion of statutory
dividend limitations.
The Company and its insurance company subsidiary are required to meet certain
minimum risk-based capital (RBC) requirements, which are imposed by the
respective state of domicile. The formulas within the RBC calculation were
developed by the NAIC. The RBC requirements were designed to monitor capital
adequacy and to raise the level of protection for policyholders. Companies
that have an RBC ratio below certain trigger points are required to take
specified corrective action. The Company and its insurance company
subsidiaries exceeded the minimum RBC requirements for the years ended
December 31, 2013, 2012 and 2011.
The Company's insurance operations are required to file financial statements
with state and foreign regulatory authorities. The accounting principles used
to prepare these statutory financial statements follow prescribed and
permitted accounting principles, which differ from GAAP. On a statutory
accounting basis, the Company's insurance operations reported net income of
$123,126, $137,877 and $128,147 in 2013, 2012 and 2011, respectively.
Statutory surplus of these operations was $2,329,680 and $2,181,829 as of
December 31, 2013 and 2012, respectively.
(24) SUBSEQUENT EVENTS
The Company evaluated subsequent events through March 4, 2014, the date these
financial statements were issued. There were no material subsequent events
that required recognition or further disclosure in the Company's financial
statements.
74
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2013
(IN THOUSANDS)
[Enlarge/Download Table]
AS SHOWN
ON THE
CONSOLIDATED
TYPE OF INVESTMENT COST (3) VALUE BALANCE SHEET (1)
----------- ----------- -----------------
Fixed maturity securities
U.S. government $ 334,064 $ 349,284 $ 349,284
Agencies not backed by the full faith and
credit of the U.S. government 381,881 359,864 359,864
Foreign governments 44,558 48,422 48,422
Public utilities 760,486 800,295 800,295
Asset-backed securities 432,732 450,106 450,106
Mortgage-backed securities 3,043,851 3,094,304 3,094,304
All other corporate fixed maturity securities 5,785,305 6,049,205 6,049,205
----------- ----------- -----------------
Total fixed maturity securities 10,782,877 11,151,480 11,151,480
----------- ----------- -----------------
Equity securities:
Common stocks:
Public utilities 28,333 29,205 29,205
Banks, trusts and insurance companies 174,516 193,694 193,694
Industrial, miscellaneous and all other 118,537 167,498 167,498
Nonredeemable preferred stocks 14,722 13,012 13,012
----------- ----------- -----------------
Total equity securities 336,108 403,409 403,409
----------- ----------- -----------------
Mortgage loans on real estate 1,760,316 xxxxxx 1,760,316
Real estate (2) 4,560 xxxxxx 4,560
Policy loans 356,696 xxxxxx 356,696
Other investments 302,577 xxxxxx 302,577
Alternative investments 407,663 xxxxxx 495,219
Derivative investments 224,375 xxxxxx 224,375
Fixed maturity securities on loan 40,659 xxxxxx 40,662
Equity securities on loan 1,403 xxxxxx 1,656
----------- ----------- -----------------
Total 3,098,249 xxxxxx 3,186,061
----------- ----------- -----------------
Total investments $14,217,234 xxxxxx $14,740,950
=========== =========== =================
(1) Fair value for common stocks and fixed maturity securities classified as
available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $4,560.
(3) Original cost reduced by impairment write-downs for equity securities and
original cost reduced by repayments and impairment write-downs and adjusted
for amortization of premiums and accrual of discounts for fixed maturity
securities and other investments.
See accompanying report of independent registered public accounting firm.
75
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
[Enlarge/Download Table]
AS OF DECEMBER 31,
--------------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS EXPENSES (1) PREMIUMS (2) PAYABLE
--------------------- ------------ -------------- ------------- ------------
2013:
Life insurance $ 826,529 $ 5,389,801 $ 276,458 $ 410,247
Accident and
health insurance 16,276 659,416 42,588 54,764
Annuity 195,581 5,175,368 33 106
------------ -------------- ------------- ------------
$1,038,386 $ 11,224,585 $ 319,079 $ 465,117
============ ============== ============= ============
2012:
Life insurance $ 534,160 $ 4,575,182 $ 166,531 $ 372,889
Accident and
health insurance 18,449 700,621 41,602 48,857
Annuity 132,608 5,430,037 50 129
------------ -------------- ------------- ------------
$ 685,217 $ 10,705,840 $ 208,183 $ 421,875
============ ============== ============= ============
2011:
Life insurance $ 547,299 $ 4,032,968 $ 138,391 $ 311,251
Accident and
health insurance 22,400 706,414 33,280 38,164
Annuity 125,048 5,319,429 20 60
------------ -------------- ------------- ------------
$ 694,747 $ 10,058,811 $ 171,691 $ 349,475
============ ============== ============= ============
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
BENEFITS, AMORTIZATION
CLAIMS, OF DEFERRED
NET LOSSES AND POLICY OTHER
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT REVENUE (3) INCOME EXPENSES (5) COSTS EXPENSES WRITTEN (4)
--------------------- ------------ ------------ ------------ ------------- ------------- ------------
2013:
Life insurance $1,942,327 $ 384,771 $1,783,404 $ 144,101 $ 678,755
Accident and
health insurance 255,050 9,404 94,898 9,837 136,553
Annuity 192,109 244,833 238,852 31,852 178,682
------------ ------------ ------------ ------------- ------------- ------------
$2,389,486 $ 639,008 $2,117,154 $ 185,790 $ 993,990 $ -
============ ============ ============ ============= ============= ============
2012:
Life insurance $1,837,046 $ 363,692 $1,649,410 $ 138,796 $ 622,318
Accident and
health insurance 215,540 10,117 86,697 10,481 119,309
Annuity 165,249 255,524 251,870 31,190 152,461
------------ ------------ ------------ ------------- ------------- ------------
$2,217,835 $ 629,333 $1,987,977 $ 180,467 $ 894,088 $ -
============ ============ ============ ============= ============= ============
2011:
Life insurance $1,678,480 $ 343,629 $1,508,414 $ 121,768 $ 581,951
Accident and
health insurance 194,097 10,597 77,830 9,940 113,393
Annuity 204,774 263,898 300,639 37,473 142,049
------------ ------------ ------------ ------------- ------------- ------------
$2,077,351 $ 618,124 $1,886,883 $ 169,181 $ 837,393 $ -
============ ============ ============ ============= ============= ============
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
(5) Includes interest credited to policies and contracts and policyholder
dividends
See accompanying report of independent registered public accounting firm.
76
SCHEDULE IV - REINSURANCE
YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
(IN THOUSANDS)
[Enlarge/Download Table]
PERCENTAGE
CEDED TO ASSUMED FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------------- ----------------- ----------------- ------------------ ----------
2013: Life insurance in force $ 970,957,949 $ 279,636,709 $ 755,793 $ 692,077,033 0.1%
================= ================= ================= ==================
Premiums:
Life insurance $ 1,950,364 $ 482,370 $ 28,737 $ 1,496,731 1.9%
Accident and health insurance 326,696 74,834 3,188 255,050 1.2%
Annuity 34,325 - - 34,325 0.0%
----------------- ----------------- ----------------- ------------------
Total premiums $ 2,311,385 $ 557,204 $ 31,925 $ 1,786,106 1.8%
================= ================= ================= ==================
2012: Life insurance in force $ 851,766,646 $ 223,184,654 $ 868,248 $ 629,450,240 0.1%
================= ================= ================= ==================
Premiums:
Life insurance $ 1,740,495 $ 347,617 $ 22,871 $ 1,415,749 1.6%
Accident and health insurance 311,291 98,612 2,861 215,540 1.3%
Annuity 32,539 - - 32,539 0.0%
----------------- ----------------- ----------------- ------------------
Total premiums $ 2,084,325 $ 446,229 $ 25,732 $ 1,663,828 1.5%
================= ================= ================= ==================
2011: Life insurance in force $ 771,937,513 $ 189,269,664 $ 897,972 $ 583,565,821 0.2%
================= ================= ================= ==================
Premiums:
Life insurance $ 1,516,771 $ 275,426 $ 24,382 $ 1,265,727 1.9%
Accident and health insurance 278,537 88,259 3,819 194,097 2.0%
Annuity 82,175 - - 82,175 0.0%
----------------- ----------------- ----------------- ------------------
Total premiums $ 1,877,483 $ 363,685 $ 28,201 $ 1,541,999 1.8%
================= ================= ================= ==================
77
See accompanying report of independent registered public accounting firm.
PART C: OTHER INFORMATION
Item
Number Caption in Part C
26. Exhibits
27. Directors and Officers of the Minnesota Life Insurance Company
28. Persons Controlled by or Under Common Control with Minnesota Life
Insurance Company or Minnesota Life Variable Life Account
29. Indemnification
30. Principal Underwriters
31. Location of Accounts and Records
32. Management Services
33. Fee Representation
PART C: OTHER INFORMATION
Item 26. Exhibits
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 27. Directors and Officers of the Minnesota Life Insurance Company
Name and Principal Position and Offices
Business Address with Minnesota Life
-------------------------------- -------------------------------------
Brian C. Anderson Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Eric J. Bentley Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Michael P. Boyle Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Mary K. Brainerd Director
HealthPartners
8170 33rd Avenue South
Bloomington, MN 55425
John W. Castro Director
898 Glouchester Street
Boca Raton, FL 33487
Gary R. Christensen Director, Senior Vice President and
Minnesota Life Insurance Company General Counsel
400 Robert Street North
St. Paul, MN 55101
Susan L. Ebertz Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Robert J. Ehren Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Julio A. Fesser Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Craig J. Frisvold Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Sara H. Gavin Director
Weber Shandwick Minneapolis
8000 Norman Center Drive
Suite 400
Bloomington, MN 55437
Eric B. Goodman Director
101 North 7th St
Suite 202
Louisville, KY 40202
John F. Grundhofer Director
U.S. Bancorp
800 Nicollet Mall
Suite 2870
Minneapolis, MN 55402
Christopher M Hilger Director and Executive Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
John H. Hooley Director
4623 McDonald Drive Overlook
Stillwater, MN 55082
Daniel H. Kruse Second Vice President and Actuary
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
David J. LePlavy Senior Vice President, Treasurer
Minnesota Life Insurance Company and Controller
400 Robert Street North
St. Paul, MN 55101
Jean Delaney Nelson Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Maria H. O'Phelan Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Kathleen L. Pinkett Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Trudy A. Rautio Director
Carlson
701 Carlson Parkway
Minnetonka, MN 55305-8215
Robert L. Senkler Chairman, President and Chief
Minnesota Life Insurance Company Executive Officer
400 Robert Street North
St. Paul, MN 55101
Bruce P. Shay Executive Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Nancy R. Swanson Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Loyall E. Wilson Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Warren J. Zaccaro Director, Executive Vice President
Minnesota Life Insurance Company and Chief Financial Officer
400 Robert Street North
St. Paul, MN 55101
Item 28. Persons Controlled by or Under Common Control with Minnesota Life
Insurance Company or Minnesota Life Individual Variable Universal Life
Account
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiaries of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Capitol City Property Management, Inc.
Robert Street Property Management, Inc.
Wholly-owned subsidiaries of Securian Financial Group, Inc.:
Minnesota Life Insurance Company
Securian Financial Network, Inc.
Securian Ventures, Inc.
Advantus Capital Management, Inc.
Securian Financial Services, Inc.
Securian Casualty Company
CNL Financial Corporation (Georgia)
Capital Financial Group, Inc. (Maryland)
H. Beck, Inc. (Maryland)
CFG Insurance Services, Inc. (Maryland)
Ochs, Inc.
Securian Casualty Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Personal Finance Company LLC (Delaware)
Enterprise Holding Corporation
Allied Solutions, LLC (Indiana)
Securian Life Insurance Company
American Modern Life Insurance Company
Balboa Life Insurance Company
Balboa Life Insurance Company of New York
Marketview Properties, LLC
Marketview Properties II, LLC
Marketview Properties III, LLC
Marketview Properties IV, LLC
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Oakleaf Service Corporation
Vivid Print Solutions, Inc.
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
Wholly-owned subsidiaries of CNL Financial Corporation:
Cherokee National Life Insurance Company (Georgia)
Wholly-owned subsidiary of American Modern Life Insurance Company:
Southern Pioneer Life Insurance Company
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company and Securian Life Insurance
Company:
Securian Funds Trust
Majority-owned subsidiary of Securian Financial Group, Inc.:
Securian Trust Company, N.A.
Fifty percent-owned subsidiary of Enterprise Holding Corporation:
CRI Securities, LLC
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
Item 29. Indemnification
The State of Minnesota has an indemnification statute (Minnesota Statutes
300.083), as amended, effective January 1, 1984, which requires indemnification
of individuals only under the circumstances described by the statute. Expenses
incurred in the defense of any action, including attorneys' fees, may be
advanced to the individual after written request by the board of directors upon
receiving an undertaking from the individual to repay any amount advanced unless
it is ultimately determined that he or she is entitled to be indemnified by the
corporation as authorized by the statute and after a determination that the
facts then known to those making the determination would not preclude
indemnification.
Indemnification is required for persons made a part to a proceeding by reason of
their official capacity so long as they acted in good faith, received no
improper personal benefit and have not been indemnified by another organization.
In the case of a criminal proceeding, they must also have had no reasonable
cause to believe the conduct was unlawful. In respect to other acts arising out
of official capacity: (1) where the person is acting directly for the
corporation there must be a reasonable belief by the person that his or her
conduct was in the best interests of the corporation or, (2) where the person is
serving another organization or plan at the request of the corporation, the
person must have reasonably believed that his or her conduct was not opposed to
the best interests of the corporation. In the case of persons not directors,
officers or policy-making employees, determination of eligibility for
indemnification may be made by a board-appointed committee of which a director
is a member. For other employees, directors and officers, the determination of
eligibility is made by the Board or a committee of the Board, special legal
counsel, the shareholder of the corporation or pursuant to a judicial
proceeding.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Minnesota Life Insurance Company and the Minnesota Life Individual Variable
Universal Life Account pursuant to the foregoing provisions, or otherwise,
Minnesota Life Insurance Company and the Minnesota Life Individual Variable
Universal Life Account have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
Minnesota Life Insurance Company and the Minnesota Life Individual Variable
Universal Life Account of expenses incurred or paid by a director, officer or
controlling person of Minnesota Life Insurance Company and the Minnesota Life
Individual Variable Universal Life Account in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Minnesota Life
Insurance Company and the Minnesota Life Individual Variable Universal Life
Account will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 30. Principal Underwriters
(a) Securian Financial Services, Inc. currently acts as a principal
underwriter for the following investment companies:
Variable Fund D
Variable Annuity Account
Minnesota Life Variable Life Account
Minnesota Life Individual Variable Universal Life Account
Minnesota Life Variable Universal Life Account
Securian Life Variable Universal Life Account
(b) The name and principal business address, positions and offices with
Securian Financial Services, Inc., of each director and officer of Securian
Financial Services, Inc. is as follows:
Name and Principal Positions and Offices
Business Address with Underwriter
-------------------------------- -------------------------------------
George I. Connolly President, Chief Executive
Securian Financial Services, Inc. Officer and Director
400 Robert Street North
St. Paul, MN 55101
Suzanne M. Chochrek Vice President - Business and
Securian Financial Services, Inc. Market Development
400 Robert Street North
St. Paul, MN 55101
Gary R. Christensen Director
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Peter G. Berlute Vice President - Business
Securian Financial Services, Inc. Operations and Treasurer
400 Robert Street North
St. Paul, MN 55101
Loyall E. Wilson Senior Vice President, Chief
Securian Financial Services, Inc. Compliance Officer and Secretary
400 Robert Street North
St. Paul, MN 55101
Warren J. Zaccaro Director
Minnesota Life Insurance Company
400 Robert Street North
(c) All commissions and other compensation received by each principal
underwriter, directly or indirectly, from the Registrant during the Registrant's
last fiscal year:
[Download Table]
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
------------------ ----------------- --------------- ----------- ------------
Securian Financial
Services, Inc. $ 8,347,795 -- -- --
Item 31. Location of Accounts and Records
The accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder are in the physical
possession of Minnesota Life Insurance Company, St. Paul, Minnesota 55101.
Item 32. Management Services
None.
Item 33. Fee Representation
Minnesota Life Insurance Company hereby represents that, as to the variable
universal life insurance policies which are the subject of this Registration
Statement, the fees and charges deducted under the policies, in the aggregate,
are reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by Minnesota Life Insurance Company.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Minnesota Life Individual Variable
Universal Life Account has duly caused this Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City of Saint Paul and
the State of Minnesota on the 17th day of December, 2014.
MINNESOTA LIFE INDIVIDUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
(Registrant)
By: MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By /s/ Robert L. Senkler
-------------------------------------
Robert L. Senkler
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933 (and the Investment
Company Act of 1940), the Depositor, Minnesota Life Insurance Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of St. Paul and State of Minnesota on
the 17th day of December, 2014.
MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By /s/ Robert L. Senkler
-------------------------------------
Robert L. Senkler
Chairman of the Board,
President and Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities with the Depositor and
on the dates indicated.
[Download Table]
Signature Title Date
----------------------- -------------------------------- ----------------
/s/ Robert L. Senkler Chairman, President and December 17, 2014
-----------------------
Robert L. Senkler Chief Executive Officer
* Director
-----------------------
Mary K. Brainerd
* Director
-----------------------
John W. Castro
[Download Table]
* Director
-----------------------
Gary R. Christensen
* Director
-----------------------
Sara H. Gavin
* Director
-----------------------
Eric B. Goodman
* Director
-----------------------
John F. Grundhofer
* Director
-----------------------
Christopher M. Hilger
* Director
-----------------------
John H. Hooley
* Director
-----------------------
Trudy A. Rautio
* Director
-----------------------
Bruce P. Shay
* Director
-----------------------
Warren J. Zaccaro
/s/ Warren J. Zaccaro Executive Vice President December 17, 2014
----------------------- and Chief Financial Officer
Warren J. Zaccaro (chief financial officer)
/s/ Warren J. Zaccaro Executive Vice President December 17, 2014
----------------------- and Chief Financial Officer
Warren J. Zaccaro (chief accounting officer)
/s/ David J. LePlavy Senior Vice President, Treasurer December 17, 2014
----------------------- and Controller
David J. LePlavy (treasurer)
/s/ Gary R. Christensen Director, Attorney-in-Fact, December 17, 2014
----------------------- Senior Vice President,
Gary R. Christensen General Counsel and Secretary
* Pursuant to power of attorney dated October 20, 2014, a copy of which is
filed herewith.
EXHIBIT INDEX
[Enlarge/Download Table]
Exhibit Number Description of Exhibit
-------------- -----------------------------------------------------------------------------------------------------------------
26(a) Resolution of the Board of Directors of Minnesota Life Insurance Company establishing the Minnesota Life Individual
Variable Universal Life Account, previously filed on July 16, 2007 as exhibit 26(a) to Minnesota Life Individual
Variable Universal Life Account's Form N-6, File Number 333-144604, Initial Registration Statement, is hereby
incorporated by reference.
26(b) Not Applicable.
26(c)(1) Agent's Contract issued by Minnesota Life Insurance Company, previously filed on December 7, 2007 as
exhibit 26(c)(1) to Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-144604,
Pre-Effective Amendment Number 1, is hereby incorporated by reference.
26(c)(2) General Agent's Contract issued by Minnesota Life Insurance Company, previously filed on December 7, 2007 as
exhibit 26(c)(2) to Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-144604,
Pre-Effective Amendment Number 1, is hereby incorporated by reference.
26(c)(3) The Amended and Restated Distribution Agreement between Minnesota Life Insurance Company and Securian Financial
Services, Inc., previously filed on April 27, 2009, as exhibit 24(c)(3) to Registrant's Form N-4,
File Number 2-97564, Post-Effective Amendment Number 28, is hereby incorporated by reference.
26(d)(1) Variable Universal Life Defender Policy, form ICC 14-20001, previously filed on August 21, 2014 as exhibit 26(d)(1)
to Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-198279, Initial
Registration Statement is hereby incorporated by reference.
26(d)(2) Children's Term Agreement, form ICC 09-904U, previously filed on August 28, 2012 as exhibit 26(d)(2) to Minnesota
Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration Statement
is hereby incorporated by reference.
26(d)(3) Waiver of Charges Agreement, form ICC 12-919, previously filed on August 28, 2012 as exhibit 26(d)(3) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration
Statement is hereby incorporated by reference.
26(d)(4) Allocation Options for Variable Indexed Universal Life, previously filed on August 28, 2012 as exhibit 26(d)(4)
to Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial
Registration Statement is hereby incorporated by reference.
[Enlarge/Download Table]
26(d)(5) Level Term Insurance Agreement, form ICC15-20012.
26(d)(6) Accelerated Death Benefit Agreement, form ICC 12-931U, previously filed on August 28, 2012 as exhibit 26(d)(6) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration
Statement is hereby incorporated by reference.
26(d)(7) Waiver of Premium Agreement, form 06-917, previously filed on August 28, 2012 as exhibit 26(d)(7) to Minnesota
Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration Statement
is hereby incorporated by reference.
26(d)(8) Long Term Care Agreement, form ICC 12-932, previously filed on August 28, 2012 as exhibit 26(d)(9) to Minnesota
Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration Statement
is hereby incorporated by reference.
26(d)(9) Guaranteed Insurability Option, form ICC 09-915, previously filed on August 28, 2012 as exhibit 26(d)(10) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration
Statement is hereby incorporated by reference.
26(d)(10) Overloan Protection Agreement, form ICC15-20003.
26(d)(11) Inflation Agreement, form ICC 11-916, previously filed on August 28, 2012 as exhibit 26(d)(12) to Minnesota Life
Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial Registration Statement is
hereby incorporated by reference.
26(d)(12) Accidental Death Benefit Agreement, form ICC09-918U, previously filed on August 21, 2014 as exhibit 26(d)(12) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-198279, Initial Registration
Statement is hereby incorporated by reference.
26(d)(13) Premium Deposit Account Agreement, form 14-20005.
26(e)(1) Application Part 1 - New Issue, form F59410 Rev 8-2012, previously filed on August 28, 2012 as exhibit 26(e)(1)
to Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Initial
Registration Statement is hereby incorporated by reference.
26(e)(2) Application Part 3 - New Issue, form ICC 12-59536 1-2012, previously filed on February 27, 2013 as
exhibit 26(e)(2) to Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590,
Post-Effective Amendment Number 1, is hereby incorporated by reference.
[Enlarge/Download Table]
26(e)(3) Policy Change Application Part 3 (Underwriting) - Agreements and Authorizations, form ICC 12-59534 1-2012,
previously filed on February 27, 2013 as exhibit 26(e)(3) to Minnesota Life Individual Variable Universal Life
Account's Form N-6, File Number 333-183590, Post-Effective Amendment Number 1, is hereby incorporated by
reference.
26(e)(4) Policy Change Application - No Underwriting Required, form F59537 Rev 1-2012, previously filed on February 27,
2013 as exhibit 26(e)(4) to Minnesota Life Individual Variable Universal Life Account's Form N-6,
File Number 333-183590, Post-Effective Amendment Number 1, is hereby incorporated by reference.
26(e)(5) Policy Change Application Part 1 - (Underwriting Required), form F59538 Rev 8-2012, previously filed on August
28, 2012 as exhibit 26(e)(5) to Minnesota Life Individual Variable Universal Life Account's Form N-6,
File Number 333-183590, Initial Registration Statement is hereby incorporated by reference.
26(e)(6) Application Part 2, form ICC 12-59572 1-2012, previously filed on February 27, 2013 as exhibit 26(e)(6) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Post-Effective
Amendment Number 1, is hereby incorporated by reference.
26(e)(7) Application Part 2, form ICC 12-59573 1-2012, previously filed on February 27, 2013 as exhibit 26(e)(7) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Post-Effective
Amendment Number 1, is hereby incorporated by reference.
26(e)(8) Application Part 2, form ICC 12-59573-T 1-2012, previously filed on February 27, 2013 as exhibit 26(e)(8) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-183590, Post-Effective
Amendment Number 1, is hereby incorporated by reference.
26(f)(1) Restated Certificate of Incorporation of the Depositor, previously filed as exhibit 27(f)(1) to Minnesota Life's
Variable Life Account's Form N-6, File Number 333-109853, Initial Registration Statement, on October 21, 2003, is
hereby incorporated by reference.
26(f)(2) Bylaws of the Depositor, previously filed as exhibit 26(f)(2) to Minnesota Life Variable Life Account's Form N-6,
File Number 333-120704, Initial Registration Statement, on November 23, 2004, is hereby incorporated by reference.
[Enlarge/Download Table]
26(g) YRT Reinsurance Template; Reinsurance Agreement between Minnesota Life Insurance Company and Reinsurer,
previously filed on December 14, 2007 as exhibit 26(g) to Minnesota Life Individual Variable Universal Life
Account's Form N-6, File Number 333-144604, Pre-Effective Amendment Number 1, is hereby incorporated by reference.
26(h)(1)(i) Participation Agreement among Securian Funds Trust, Advantus Capital Management, Inc. and Minnesota Life
Insurance Company, previously filed as Exhibit 26(h)(1)(i) to Minnesota Life Variable Life Account's Form N-6,
File Number 33-3233, Post Effective Amendment Number 32, on April 27, 2012, is hereby incorporated by reference.
26(h)(1)(ii) Shareholder Information Agreement among Securian Funds Trust and Minnesota Life Insurance Company, previously
filed as Exhibit 26(h)(1)(ii) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post
Effective Amendment Number 32, on April 27, 2012, is hereby incorporated by reference.
26(h)(2)(i) Participation Agreement by and among AIM Variable Insurance Funds, AIM Distributors, Inc. and Minnesota Life
Insurance Company, previously filed as Exhibit 27(h)(10)(i) to Registrant's Form N-6, File Number 333-96383,
Post-Effective Amendment Number 4, on April 30, 2003, is hereby incorporated by reference.
26(h)(2)(ii) Schedule A as amended May 1, 2003 to the Participation Agreement among AIM Variable Insurance Funds, AIM
Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 27(h)(10)(ii) to Registrant's
Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, on April 30, 2003, is hereby incorporated by
reference.
26(h)(2)(iii) Amendment No. 1 to the Participation Agreement dated March 4, 2002, by and among AIM Variable Insurance Funds,
AIM Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 26(h)(10)(iii) to
Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post-Effective Amendment Number 23, on
April 26, 2005, is hereby incorporated by reference.
26(h)(2)(iv) Amendment No. 2 to the Participation Agreement dated March 2, 2002, by and among AIM Variable Insurance Funds,
AIM Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 26(h)(10)(iv) to
Minnesota Life Variable Life Account's Form N-6, File Number 33-64395, Post-Effective Amendment Number 13, on
April 21, 2006, is hereby incorporated by reference.
26(h)(2)(v) Amendment No. 3 to Participation Agreement by and among AIM Variable Insurance Funds, AIM Distributors, Inc. and
Minnesota Life Insurance Company filed on December 20, 2006 as exhibit 24(c)(n)(iv) to Variable Annuity Account's
Form N-4, File Number 333-136242, Pre-Effective Amendment Number 2, is hereby incorporated by reference.
[Enlarge/Download Table]
26(h)(2)(vi) Intermediary Agreement Regarding Compliance with SEC Rule 22c-2 between AIM Investment Services, Inc. and
Minnesota Life Insurance Company previously filed on September 6, 2007 as exhibit 24(c)(8)(s) to Variable Annuity
Account's Form N-4, File Number 333-140230, Pre-Effective Amendment Number 1, is hereby incorporated by reference.
26(h)(2)(vii) Amendment No. 4 to Participation Agreement by and among AIM Variable Insurance Funds, A I M Distributors, Inc.,
Minnesota Life Insurance Company and Securian Financial Services, Inc. effective April 30, 2010 previously filed
on April 25, 2011 as exhibit 24(c)(8)(j)(v) to Variable Annuity Account's Form N-4, File Number 333-91784,
Post-Effective Amendment Numbers 26 and 171, is hereby incorporated by reference.
26(h)(3)(i) Participation Agreement among Minnesota Life Insurance Company, Securian Financial Services, Inc., and
AllianceBernstein Investments, Inc., previously filed on October 4, 2007 as Exhibit 24(c)(8)(z) to Variable Annuity
Account's Form N-4, File Number 333-136242, Post-Effective Amendment Number 3, is hereby incorporated by reference.
26(h)(3)(ii) Amendment Number One to Participation Agreement among Minnesota Life Insurance Company, Securian Financial Services,
Inc., AllianceBernstein L.P. and AllianceBernstein Investments, Inc., previously filed on April 27, 2010 as exhibit
26(h)(21)(ii) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post-Effective Amendment
Numbers 30 and 78, is hereby incorporated by reference.
26(h)(3)(iii) Amendment Number Two to Participation Agreement among Minnesota Life Insurance Company, Securian Financial Services,
Inc., AllianceBernstein L.P., and AllianceBernstein Investments, Inc., previously filed as Exhibit 26(h)(21)(iii) to
Minnesota Life Variable Life Account's Form N-6, File Number 33-3233, Post-Effective Amendment Number 34 on
April 24, 2013, is hereby incorporated by reference.
26(h)(4)(i) Fund Participation and Service Agreement among Minnesota Life Insurance Company, American Funds Distributors,
Inc., American Funds Service Company, Capital Research and Management Company, and American Funds Insurance Series
previously filed on April 25, 2011 as exhibit 24(c)(8)(jj) to Variable Annuity Account's Form N-4,
File Number 333-91784, Post-Effective Amendment Numbers 26 and 171, is hereby incorporated by reference.
26(h)(4)(ii) Business Agreement among Minnesota Life Insurance Company, Securian Financial Services, Inc., American Funds
Distributors, Inc. and Capital Research and Management Company previously filed on April 25, 2011 as
exhibit 24(c)(8)(kk) to Variable Annuity Account's Form N-4, File Number 333-91784, Post-Effective Amendment
Numbers 26 and 171, is hereby incorporated by reference.
26(h)(4)(iii) American Funds Rule 22c-2 Agreement among American Funds Service Company and Minnesota Life Insurance Company
previously filed on April 25, 2011 as exhibit 24(c)(8)(ll) to Variable Annuity Account's Form N-4,
File Number 333-91784, Post-Effective Amendment Numbers 26 and 171, is hereby incorporated by reference.
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26(h)(4)(iv) Amendment No. 1 to Fund Participation and Service Agreement among Minnesota Life Insurance Company, American
Funds Distributors, Inc., American Funds Service Company, Capital Research and Management Company, and American
Funds Insurance Series, previously filed as exhibit 26(h)(24)(iv) to Minnesota Life Variable Life Account's
Form N-6, File Number 33-3233, Post-Effective Amendment Number 35 on April 25, 2014, is hereby incorporated by
reference.
26(h)(5)(i) Participation Agreement as of May 1, 2000 between Franklin Templeton Variable Insurance Products Trust, Franklin
Templeton Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 27(h)(14)(i) to
Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, on
April 30, 2003, is hereby incorporated by reference.
26(h)(5)(ii) Amendment to Participation Agreement as of May 1, 2000 between Franklin Templeton Variable Insurance Products
Trust, Franklin Templeton Distributors, Inc. and Minnesota Life Insurance Company, previously filed as
Exhibit 27(h)(14)(ii) to Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective
Amendment Number 4, on April 30, 2003, is hereby incorporated by reference.
26(h)(5)(iii) Amendment No. 2 to Participation Agreement between Franklin Templeton Variable Insurance Products Trust, Franklin
Templeton Distributors, Inc. and Minnesota Life Insurance Company, previously filed as Exhibit 27(h)(14)(iii) to
Minnesota Life Variable Life Account's Form N-6, File Number 333-96383, Post-Effective Amendment Number 4, on
April 30, 2003, is hereby incorporated by reference.
26(h)(5)(iv) Amendment No. 3 to Participation Agreement by and among Franklin Templeton Variable Insurance Products Trust,
Franklin Templeton Distributors, Inc., Minnesota Life Insurance Company and Securian Financial Services, Inc,
previously filed as Exhibit 26(h)(14)(iv) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233,
Post-Effective Amendment Number 23, on April 26, 2005, is hereby incorporated by reference.
26(h)(5)(v) Amendment No. 4 to Participation Agreement among Franklin Templeton Variable Insurance Products Trust,
Franklin/Templeton Distributors, Inc., Minnesota Life Insurance Company and Securian Financial Services, Inc.,
previously filed as Exhibit 26(h)(14)(v) to Minnesota Life Variable Life Account's Form N-6, File Number 33-64395,
Post-Effective Amendment Number 13, on April 21, 2006, is hereby incorporated by reference.
26(h)(5)(vi) Amendment No. 5 to Participation Agreement among Franklin Templeton Variable Insurance Products Trust,
Franklin/Templeton Distributors, Inc., and Minnesota Life Insurance Company filed on December 20, 2006 as
exhibit 24(c)(q)(v) to Variable Annuity Account's Form N-4, File Number 333-136242, Pre-Effective Amendment
Number 2, is hereby incorporated by reference.
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26(h)(5)(vii) Rule 22c-2 Agreement between Franklin Templeton Distributors, Inc. and Minnesota Life Insurance Company
previously filed on September 6, 2007, as exhibit 24(c)(i)(u) to Variable Annuity Account's Form N-4,
File Number 333-140230, Pre-Effective Amendment Number 1, is hereby incorporated by reference.
26(h)(5)(viii) Amendment No. 6 to Participation Agreement by and among Franklin Templeton Variable Insurance Products Trust,
Franklin/Templeton Distributors, Inc., Minnesota Life Insurance Company, and Securian Financial Services, Inc.,
previously filed on December 14, 2007 as exhibit 26(h)(5)(viii) to Minnesota Life Individual Variable Universal
Life Account's Form N-6, File Number 333-144604, Pre-Effective Amendment Number 1, is hereby incorporated by
reference.
26(h)(5)(ix) Amendment to Participation Agreement by and among Franklin Templeton Variable Insurance Products Trust,
Franklin/Templeton Distributors, Inc. Minnesota Life Insurance Company and Securian Financial Services, Inc.
effective August 16, 2010 previously filed on April 25, 2011 as exhibit 24(c)(8)(m)(vii) to Variable Annuity
Account's Form N-4, File Number 333-91784, Post-Effective Amendment Numbers 26 and 171, is hereby incorporated by
reference.
26(h)(5)(x) Amendment No. 7 to Participation Agreement dated May 1, 2000 among Franklin Templeton Variable Insurance Products
Trust, Franklin/Templeton Distributors, Inc., Minnesota Life Insurance Company, and Securian Financial Services,
Inc., previously filed as Exhibit 26(h)(12)(x) to Minnesota Life Variable Life Account's Form N-6,
File Number 33-3233, Post Effective Amendment Number 32, on April 27, 2012, is hereby incorporated by reference.
26(h)(5)(xi) Participation Agreement Addendum dated May 1, 2012 among Franklin Templeton Variable Insurance Products Trust,
Franklin/Templeton Distributors, Inc., Minnesota Life Insurance Company, and Securian Financial Services, Inc.,
previously filed as Exhibit 26(h)(12)(xi) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233,
Post Effective Amendment Number 32, on April 27, 2012, is hereby incorporated by reference.
26(h)(5)(xii) Amendment No. 8 to Participation Agreement dated May 1, 2000 among Franklin Templeton Variable Insurance Products
Trust, Franklin/Templeton Distributors, Inc., Minnesota Life Insurance Company, and Securian Financial Services,
Inc., previously filed as Exhibit 26(h)(12)(xii) to Minnesota Life Variable Life Account's Form N-6,
File Number 33-3233, Post Effective Amendment Number 34, on April 24, 2013, is hereby incorporated by reference.
[Enlarge/Download Table]
26(h)(5)(xiii) Amendment No. 10 to Participation Agreement dated May 1, 2000 among Franklin Templeton Variable Insurance
Products Trust, Franklin/Templeton Distributors, Inc., Minnesota Life Insurance Company, and Securian Financial
Services, Inc., previously filed as Exhibit 26(h)(12)(xiii) to Minnesota Life Variable Life Account's Form N-6,
File Number 33-3233, Post Effective Amendment Number 34, on April 24, 2013, is hereby incorporated by reference.
26(h)(6)(i) Participation Agreement as of September 19, 2003 between Minnesota Life Insurance Company and Waddell & Reed,
Inc. previously filed as Exhibit 27(h)(15) to Registrant's Form N-6, File Number 333-96383, Pre-Effective
Amendment #1, on February 19, 2004, is hereby incorporated by reference.
26(h)(6)(ii) Amendment Number One to the Target Funds Participation Agreement among Minnesota Life Insurance Company, Waddell
& Reed, Inc. and W&R Target Funds, Inc., previously filed as Exhibit 26(h)(15)(ii) to Minnesota Life Variable Life
Account's Form N-6, File Number 33-64395, Post-Effective Amendment Number 13, on April 21, 2006, is hereby
incorporated by reference.
26(h)(6)(iii) Shareholder Information Agreement among Ivy Funds Distributor, Inc., Waddell & Reed, Inc. and Minnesota Life
Insurance Company, filed on April 20, 2007 as Exhibit 26(h)(5)(iii) to Registrant's Form N-6,
File Number 33-85496, Post-Effective Amendment Number 17, is hereby incorporated by reference.
26(h)(6)(iv) Second Amendment to Target Funds Participation Agreement by and among Minnesota Life Insurance Company, Waddell &
Reed, Inc. and W&R Target Funds, Inc., previously filed on December 14, 2007 as exhibit 26(h)(8)(iv) to Minnesota
Life Individual Variable Universal Life Account's Form N-6, File Number 333-144604, Pre-Effective Amendment
Number 1, is hereby incorporated by reference.
26(h)(6)(v) Second Amendment to the Target Funds Participation Agreement among Minnesota Life Insurance Company, Waddell &
Reed, Inc. and W&R Target Funds, Inc. previously filed as Exhibit 24(c)(8)(ii) to Variable Annuity Account's
Form N-4, File Number 333-136242, Post-Effective Amendment Number 6 on February 27, 2009, is hereby incorporated by
reference.
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26(h)(6)(vi) Third Amendment to Target Funds Participation Agreement among Waddell & Reed, Inc., Ivy Funds Variable Insurance
Portfolios, and Minnesota Life Insurance Company previously filed on April 25, 2011 as exhibit 24(c)(8)(n)(iii) to
Variable Annuity Account's Form N-4, File Number 333-91784, Post-Effective Amendment Numbers 26 and 171, is hereby
incorporated by reference.
26(h)(6)(vii) Fourth Amendment to Ivy Funds Variable Insurance Portfolios Participation Agreement (Excludes Products Sold
Through W&R Distribution System) among Minnesota Life Insurance Company, Waddell & Reed, Inc., and Ivy Funds
Variable Insurance Portfolios, previously filed as Exhibit 26(h)(13)(vi) to Minnesota Life Variable Life Account's
Form N-6, File Number 33-3233, Post- Effective Amendment Number 35 on April 25, 2014, is hereby incorporated by
reference.
26(h)(7)(i) Distribution and Shareholder Services Agreement dated March 9, 2012 between Northern Lights Variable Trust and
Minnesota Life Insurance Company, previously filed on April 27, 2012 as Exhibit 24(c)(8)(mm) to Variable Annuity
Account's Form N-4, File Number 333-136242, Post-Effective Amendment Numbers 15 and 192, is hereby reference.
26(h)(7)(ii) Fund Participation Agreement dated March 12, 2012 among Northern Lights Variable Trust, Minnesota Life Insurance
Company, Northern Lights Distributors, LLC and ValMark Advisers, Inc., previously filed on April 27, 2012 as
Exhibit 24(c)(8)(nn) to Variable Annuity Account's Form N-4, File Number 333-136242, Post-Effective Amendment
Numbers 15 and 192, is hereby incorporated by reference.
26(h)(7)(iii) First Amendment to the Participation Agreement among Northern Lights Variable Trust, Northern Lights
Distributors, LLC, Valmark Advisers, Inc., and Minnesota Life Insurance Company dated October 8, 2012, previously
filed on April 25, 2014 as exhibit 24(c)(8) (kk)(i) to Variable Annuity Account's Form N-4,
File Number 333-182763, Post-Effective Amendment Numbers 5 and 226,is hereby incorporated by reference.
26(h)(7)(iv) Second Amendment to the Participation Agreement among Northern Lights Variable Trust, Northern Lights
Distributors, LLC, ValMark Advisers, Inc., and Minnesota Life Insurance Company dated March 12, 2012 as authorized
November 5, 2013, previously filed on April 25, 2014 as exhibit 24(c)(8)(kk)(ii) to Variable Annuity Account's
Form N-4, File Number 333-182763, Post-Effective Amendment Numbers 5 and 226, is hereby incorporated by reference.
26(h)(8)(i) Participation Agreement among Minnesota Life Insurance Company, PIMCO Variable Insurance Trust and Allianz Global
Investors Distributors LLC previously filed on April 25, 2011 as exhibit 24(c)(8)(ff) to Variable Annuity
Account's Form N-4, File Number 333-91784, Post-Effective Amendment Numbers 26 and 171, is hereby incorporated by
reference.
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26(h)(8)(ii) Selling Agreement for Advisor Class Shares of PIMCO Variable Insurance Trust between Allianz Global Investors
Distributors LLC and Minnesota Life Insurance Company previously filed on April 25, 2011 as exhibit 24(c)(8)(dd)
to Variable Annuity Account's Form N-4, File Number 333-91784, Post-Effective Amendment Numbers 26 and 171, is
hereby incorporated by reference.
26(h)(8)(iii) PIMCO Services Agreement for Advisor Class Shares of PIMCO Variable Insurance Trust between Pacific Investment
Management Company LLC and Minnesota Life Insurance Company previously filed on April 25, 2011 as
exhibit 24(c)(8)(ee) to Variable Annuity Account's Form N-4, File Number 333-91784, Post-Effective Amendment
Numbers 26 and 171, is hereby incorporated by reference.
26(h)(8)(iv) Termination, New Agreements and Amendments Relating to Intermediary Agreements for PIMCO Variable Insurance Trust
among Allianz Global Investors Distributors LLC, PIMCO Investments LLC and Minnesota Life Insurance Company
previously filed as Exhibit 26(h)(22)(iv) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233,
Post-Effective Amendment Number 32, on April 27, 2012, is hereby incorporated by reference.
26(h)(8)(v) Amendment to Participation Agreement among Minnesota Life Insurance Company, PIMCO Variable Insurance Trust, and
PIMCO Investments LLC, previously filed as Exhibit 26(h)(22)(v) to Minnesota Life Variable Life Account's
Form N-6, File Number 33-3233, Post-Effective Amendment Number 34 on April 24, 2013, is hereby incorporated by
reference.
26(h)(8)(vi) Amendment to Selling Agreement between Minnesota Life Insurance Company, and PIMCO Investments LLC, previously
filed as Exhibit 26(h)(22)(vi) to Minnesota Life Variable Life Account's Form N-6, File Number 33-3233,
Post-Effective Amendment Number 34 on April 24, 2013, is hereby incorporated by reference.
26(h)(8)(vii) Amendment No. 1 to PIMCO Services Agreement for Advisor Class Shares of PIMCO Variable Insurance Trust Effective
May 1, 2013, previously filed as Exhibit 26(h)(22)(vii) to Minnesota Life Variable Life Account's Form N-6,
File Number 33-3233, Post-Effective Amendment Number 34 on April 24, 2013, is hereby incorporated by reference.
26(h)(9)(i) Agreement among The Universal Institutional Funds, Inc., Morgan Stanley Distribution, Inc., Morgan Stanley
Investment Management Inc., and Minnesota Life Insurance Company , previously filed on October 4, 2007 as
Exhibit 24(c)(8)(z) to Variable Annuity Account's Form N-4, File Number 333-136242, Post-Effective Amendment
Number 3, is hereby incorporated by reference.
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26(h)(9)(ii) Amendment Number One to Participation Agreement among Minnesota Life Insurance Company, The Universal
Institutional Funds, Inc., Morgan Stanley Distribution, Inc. and Morgan Stanley Investment Management Inc.,
previously filed on April 27, 2010 as exhibit 26(h)(17)(ii) to Minnesota Life Variable Life Account's Form N-6,
File Number 33-3233, Post-Effective Amendment Numbers 30 and 78, is hereby incorporated by reference.
26(h)(10)(i) Participation Agreement among Vanguard Variable Insurance Fund, The Vanguard Group, Inc., Vanguard Marketing
Corporation and Minnesota Life Insurance Company, previously filed on December 14, 2007 as exhibit 26(h)(7)(i) to
Minnesota Life Individual Variable Universal Life Account's Form N-6, File Number 333-144604, Pre-Effective
Amendment Number 1, is hereby incorporated by reference.
26(h)(10)(ii) Schedule A to the Participation Agreement among Vanguard Variable Insurance Fund, The Vanguard Group, Inc.,
Vanguard Marketing Corporation and Minnesota Life Insurance Company as Amended as of September 1, 2012, previously
filed as Exhibit 26(h)(7)(ii) to Minnesota Life Individual Variable Universal Life Account's Form N-6,
File Number 333-144604, Post-Effective Amendment Number 17 on April 25, 2014, is hereby incorporated by reference.
26(h)(10)(iii) Schedule A to the Participation Agreement among Vanguard Variable Insurance Fund, The Vanguard Group, Inc.,
Vanguard Marketing Corporation and Minnesota Life Insurance Company as Amended as of May 1, 2014, previously filed
as Exhibit 26(h)(7)(iii) to Minnesota Life Individual Variable Universal Life Account's Form N-6,
File Number 333-144604, Post-Effective Amendment Number 17 on April 25, 2014, is hereby incorporated by reference.
26(i)(1)(i) Investment Accounting Agreement between Securian Financial Group, Inc. and State Street Bank and Trust Company,
previously filed as Exhibit 24(c)8(q) to Variable Annuity Account's Form N-4, File Number 333-91784,
Post-Effective Amendment Number 1, on February 25, 2003, is hereby incorporated by reference.
26(i)(1)(ii) First Amendment to Investment Accounting Agreement between Securian Financial Group, Inc. and State Street Bank
and Trust Company, previously filed on August 15, 2006 as Exhibit 26(i)(l)(b) to the Securian Life Variable
Universal Life Account's Form N-6, File Number 333-132009, Pre-Effective Amendment Number 1, is hereby
incorporated by reference.
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26(i)(2)(i) Administration Agreement between Securian Financial Group, Inc. and State Street Bank and Trust Company,
previously filed as Exhibit 24(c)8(r) to Variable Annuity Account's Form N-4, File Number 333-91784,
Post-Effective Amendment Number 1, on February 25, 2003, is hereby incorporated by reference.
26(i)(2)(ii) First Amendment to Administration Agreement between Securian Financial Group, Inc. and State Street Bank and
Trust Company, previously filed on August 15, 2006 as Exhibit 26(i)(2)(b) to the Securian Life Variable Universal
Life Account's Form N-6, File Number 333-132009, Pre-Effective Amendment Number 1, is hereby incorporated by
reference.
26(i)(3) Fund Shareholder Services Agreement between Minnesota Life Insurance Company and Securian Financial Services,
Inc., previously filed as Exhibit 8(d) to Variable Annuity Account's Form N-4, File Number 811-4294,
Post-Effective Amendment Number 193, on July 20, 2012, is hereby incorporated by reference. 26(j) Not Applicable.
26(k) Opinion and Consent of Timothy E. Wuestenhagen.
26(l) Actuarial Opinion of Robert J. Ehren, FSA, CLU.
26(m) Calculation.
26(n) Consent of KPMG.
26(o) Not Applicable.
26(p) Not Applicable.
26(q) Redeemability exemption, previously filed on December 14, 2007 as exhibit 26(q) to Minnesota Life Individual
Variable Universal Life Account's Form N-6, File Number 333-144604, Pre-Effective Amendment Number 1, is hereby
incorporated by reference.
26(r) Minnesota Life Insurance Company - Power of Attorney to Sign Registration Statements.
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘N-6/A’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 12/31/17 | | 221 | | | | | 24F-2NT, NSAR-U |
| Filed on: | | 12/17/14 | | 235 | | 236 | | | CORRESP |
| | 10/20/14 | | 236 | | | | | UPLOAD |
| | 8/21/14 | | 237 | | 238 | | | N-6 |
| | 5/1/14 | | 247 | | | | | 485BPOS |
| | 4/25/14 | | 242 | | 247 | | | 485BPOS |
| | 3/31/14 | | 94 | | 147 |
| | 3/4/14 | | 150 | | 222 |
| | 1/1/14 | | 168 |
| | 12/31/13 | | 17 | | 225 | | | 24F-2NT, NSAR-U |
| | 11/5/13 | | 245 |
| | 5/1/13 | | 246 | | | | | 485BPOS, 497 |
| | 4/24/13 | | 241 | | 246 |
| | 2/27/13 | | 238 | | 239 | | | 485APOS |
| | 1/2/13 | | 73 | | | | | CORRESP, EFFECT |
| | 1/1/13 | | 168 | | 203 |
| | 12/31/12 | | 73 | | 225 | | | 24F-2NT, EFFECT, NSAR-U |
| | 12/15/12 | | 168 |
| | 10/8/12 | | 245 |
| | 9/1/12 | | 247 |
| | 8/28/12 | | 237 | | 239 | | | N-6 |
| | 7/20/12 | | 248 |
| | 5/1/12 | | 243 | | | | | 485BPOS |
| | 4/27/12 | | 240 | | 246 | | | 485BPOS |
| | 3/12/12 | | 245 |
| | 3/9/12 | | 245 |
| | 12/31/11 | | 135 | | 225 | | | 24F-2NT, NSAR-U |
| | 4/25/11 | | 241 | | 246 | | | 485BPOS |
| | 12/31/10 | | 138 | | | | | 24F-2NT, NSAR-U |
| | 8/16/10 | | 243 |
| | 4/30/10 | | 241 | | | | | 485BPOS |
| | 4/27/10 | | 241 | | 247 | | | 485BPOS |
| | 12/31/09 | | 138 | | | | | 24F-2NT, NSAR-U |
| | 4/27/09 | | 237 | | | | | 485BPOS |
| | 2/27/09 | | 244 | | | | | NSAR-U |
| | 2/11/08 | | 125 |
| | 12/14/07 | | 240 | | 248 | | | EFFECT |
| | 12/7/07 | | 237 | | | | | CORRESP, N-6/A |
| | 10/4/07 | | 241 | | 246 |
| | 9/6/07 | | 241 | | 243 |
| | 7/16/07 | | 237 | | | | | N-6 |
| | 6/12/07 | | 125 |
| | 6/11/07 | | 18 | | 82 |
| | 4/20/07 | | 244 |
| | 12/20/06 | | 240 | | 242 |
| | 8/15/06 | | 247 | | 248 |
| | 4/21/06 | | 240 | | 244 |
| | 4/26/05 | | 240 | | 242 |
| | 11/23/04 | | 239 |
| | 2/19/04 | | 244 |
| | 10/21/03 | | 239 |
| | 9/19/03 | | 244 |
| | 5/1/03 | | 240 |
| | 4/30/03 | | 240 | | 242 |
| | 2/25/03 | | 247 | | 248 |
| | 3/4/02 | | 240 |
| | 3/2/02 | | 240 |
| | 5/1/00 | | 242 | | 244 |
| | 10/1/98 | | 82 |
| List all Filings |
7 Subsequent Filings that Reference this Filing
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