2014 ANNUAL REPORT Standing strong for you
Standing strong for you Each year we develop a theme for this annual report to summarize Modern Woodmen of America s fraternal and financial achievements of the past year and look forward to the future. A message of strength is certainly accurate regarding 2014. Modern Woodmen s results for the year show continued strength and security. We ve stayed strong and true to our conservative investment principles to protect members money. With strength comes flexibility. Flexibility allows us to thoroughly research opportunities and enables us to take steps for the future. But the most important word in this year s title is you. As a member-owned fraternal financial services organization, we are accountable to our members first. You are why we re in business. We are bound by laws and regulations, but more importantly, we are bound by the values and principles of our 132-year-old society. Modern Woodmen will continue to stand strong for you in 2015 and beyond. W. Kenny Massey President and CEO 2 2014 Annual Report
Board of s Our Mission To improve the quality of life for our members. W. Kenny Massey, President LeClaire, Iowa Denis P. Prior, National Secretary Davenport, Iowa Albert T. Hurst Jr. Little Rock, Arkansas Our Vision Modern Woodmen of America will grow nationwide through members helping members create a better tomorrow for themselves, their families and others. Robert C. Pollex Perrysburg, Ohio Darcy G. Callas Moline, Illinois William D. Keltner Jackson, Tennessee Our Creed There is a destiny that makes us brothers; None goes his way alone; All that we send into the lives of others. Comes back into our own. Edwin Markham circa 1939 David B. Emrick Davenport, Iowa Gary L. Medd Davenport, Iowa Jerald J. Lyphout East Moline, Illinois Modern Woodmen of America Standing strong for you 3
Member activities build strong communities Members improve communities through fraternal volunteer programs $11,000,000 $10,500,000 $10,000,000 10,809,721 $9,500,000 $9,000,000 $8,500,000 $8,000,000 7,541,302 8,043,721 9,729,452 9,851,484 $7,500,000 2010 2011 2012 2013 2014 Total contributions to members community causes surpasses $10.8 million Matching Fund Program Modern Woodmen members helped raise more than $10.8 million in total contributions through the Matching Fund Program in 2014. The proceeds benefit families and organizations in need in members communities. Members of Modern Woodmen Summit chapters, chapters and youth service clubs identify local needs and organize community fundraising projects such as bake sales, barbecues, silent auctions and spaghetti dinners. Through the Matching Fund Program, Modern Woodmen adds to members impact by matching up to $2,500 for each chapter s fundraising projects. 4 2014 Annual Report
Chapters - 2,717 Modern Woodmen chapters were active nationwide. - 1.5 million members attended the chapters family-oriented social, educational and volunteer events. - 257,282 hours of volunteer service were performed by members through chapters. Summit Chapters - 263 Summit chapters were active in 2014. - 48,560 members age 55 and older participated in Summit chapter events. - 6,266 hours of volunteer service were provided to communities through Summit chapters. Youth Service Clubs - 790 youth service clubs were active across the nation. - 173,205 hours of volunteer service were performed by youth club members. Care and Share/Help A Child Program - $236,375 was contributed by chapters and youth clubs to help adults, children and families in need. Good Neighbors/Community Beautification - $468,964 was reimbursed for materials chapter and youth club members used to complete hands-on community-improvement projects. Join Hands Day - 1,287 chapters and youth service clubs partnered with community groups to improve their communities on this national day of service. - 42,468 hours of volunteer service were performed by 12,478 participants. - $63,948 was reimbursed for materials. Make A Difference Day - 1,430 volunteer projects were completed on this national day of community service. - $69,639 was reimbursed for materials. Matching Fund Program - 2,370 fundraising events were held. - $10.8 million was contributed to community projects, local organizations and individuals in need. Plant A Tree Program - 4,844 trees were planted by chapter and youth club members and Ecology Awareness Program participants. Youth Educational Programs - 2.3 million children participated in 26,439 programs on exercise and nutrition, financial literacy, and more. Regional Casey Chambers, Greenville, S.C., and his daughter joined members participating in Modern Woodmen s 5K fundraiser during the 2014 National Convention. Running for a reason Fit for Life 5K Charity Walk/Run More than 600 Modern Woodmen members attending the 2014 National Convention in Indianapolis hit the pavement in White River State Park to support efforts to fight childhood obesity. Proceeds from the 5K race entry fee and spirit item sales were matched by Modern Woodmen, resulting in a $21,731 donation to the Jared Foundation. Started by SUBWAY spokesman Jared Fogle, the foundation provides education and resources to address childhood obesity. Jared served as grand marshal for the event and joined participants on the one-mile course. Hometown Heroes Honoring positive role models From an outstanding teacher to a hospital volunteer, Modern Woodmen honors Hometown Heroes role models who often go unrecognized for the difference they make in the communities where members live. Chapter members select an individual or volunteer group from the community at large based on outstanding service to the community or act of bravery. The Hometown Hero is presented a certificate of appreciation and a $100 voucher to present to a charity of the honoree s choice. Modern Woodmen of America Standing strong for you 5
Member benefits strengthen families Modern Woodmen offers fraternal benefits to support members in good times and times of need 2,500,000 2,250,000 2,000,000 1,750,000 1,500,000 1,250,000 1,678,800 2,131,754 2,219,438 1,755,356 2,250,236 1,000,000 2010 2011 2012 2013 2014 Strength in numbers Children participating in Modern Woodmen youth educational programs Modern Woodmen donates free educational programs for schools, homeschoolers and youth groups. The fun, curriculum-enhancing programs meet national teaching standards and provide leader guides and supplies to reinforce lessons learned. Programs are used by thousands of teachers and homeschoolers Youth Educational Programs Through its fraternal youth educational programs, Modern Woodmen helps educate children nationwide about: - Civics and American history. - Financial literacy. - Ecology awareness. - Public speaking. - Exercise and nutrition. - Safety and life skills. The high-quality programs are free to educators and complement classroom curriculum. Online guides help teachers with detailed lessons and easy implementation. The programs are used by thousands of teachers and homeschoolers, and they are available for students from prekindergarten to middle school grade levels. 6 2014 Annual Report
100 Percent Modern Woodmen Family Benefit - 10,851 qualifying children age 1 to 16 received a free age-appropriate book for their birthdays. Accelerated Benefits - $98,829 in premiums and interest were paid for terminally ill members. Beltone Hearing Care - Two members took advantage of the discounts and services provided by Beltone. Carbon Monoxide Detection Kit - 5,766 kits were distributed to help members detect this potentially deadly gas in their homes. College Scholarship Program - $444,375 was awarded to 262 member students. - $9.7 million in scholarship funds have been awarded since the program began with the class of 1970. Final Wishes Interactive Resource - 3,697 members received the Final Wishes USB device containing resources to help them plan for and communicate their final wishes to loved ones. Fraternal Aid Fund - $184,135 in premiums were paid on 1,598 certificates for members who were victims of hardships due to medical, fire or natural disasters. Life Line Screening Program - 2,425 members, age 50 to 80, participated in a Life Line Screening in their local communities. MedicAlert Membership - $7,353 in initial membership fees were paid for participants in this lifesaving identification program. - $380,130 has been paid since the program began. National Parks Pass - 31 senior members received partial reimbursement of fees associated with the America the Beautiful National Parks and Federal Recreation Lands Senior Pass. Newborn Benefit - $50,000 of life insurance was issued to parents of infants in poor health. Orphan Benefit - $84,350 in financial support benefited 30 orphaned members for their care and education. - Nearly $3.9 million has been provided to orphaned members since the program began. Prescription Savings Card - 15,316 prescriptions were filled for members without access to preferred prescription drug pricing. - $26.42 was the average savings per prescription. - $238,257 was the total savings for members in 2014. Newborn Benefit enhancements Modern Woodmen offers the Newborn Benefit* to help parents cover the life insurance needs of a child born with health issues. New parents can apply for $5,000 in permanent life insurance to become effective on the newborn s 181st day of life. The coverage is issued at standard rates regardless of the child s health. An additional $5,000 in coverage is offered at age 16, and $10,000 is available at age 21. In case of tragedy, the Newborn Benefit* provides $5,000 toward burial expenses when an infant lives at least five days but less than 180 days. In 2014, Modern Woodmen increased the amount of the death benefit and extended the period of time to qualify. *To qualify, at least one legal parent must have been a member of Modern Woodmen with a life insurance contract in force six months immediately preceding the birth of the child. Dollars and Sense Financial Literacy Program Modern Woodmen introduced a new member benefit in 2014 through Modern Woodmen Bank. The Dollars and Sense Financial Literacy Program helps students from kindergarten through high school learn how banking and other financial services work. The web-based portal through ModernWoodmenBank.com provides interactive content and quizzes to help students establish good saving and spending habits at an early age. Students earn a cash reward into a new or existing Young Banker s Savings Account for completing a grade-appropriate quiz. Modern Woodmen of America Standing strong for you 7
Life Insurance Products Whole Life Insurance Universal Life Insurance Term Life Insurance Annuity Products Fixed Annuities Immediate Annuities Variable Annuities 1 Investment Products 1 Mutual Funds Retirement Plans Traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA, 401(k) and 403(b) TSA College Savings Plans 529 College Savings Plans, Coverdell Education Savings Accounts, UGMA/UTMA Accounts Brokerage Services Insurance Products 2 Dental and Vision Insurance Disability Income Insurance Group Employee Benefits Group Voluntary Benefits Impaired Risk Life Insurance International Life and Health Insurance Long-term Care Insurance Health Insurance Medicare Supplement Insurance Medicare Advantage and Prescription Drug Plans Life insurance: a financial boost for kids and young adults Modern Woodmen continues to provide affordable options for member families. One example is the Step One Term Life Insurance plan. This starter plan offers $10,000 or $25,000 of coverage until age 30 for as little as $2.50 per month. Parents can secure protection throughout their child s young adult years. The plan also provides a low-cost way for young adults to obtain coverage for themselves. It s a plan young families can build on while protecting future insurability. What s the value of insurability? Buying life insurance now helps assure life insurance protection even if health issues arise later on. Members can convert their $25,000 Step One plans to up to $50,000 of permanent coverage at any time. No additional medical questions or exams required. Once converted, guaranteed options are available to purchase up to $400,000 of coverage regardless of health. That could mean a lot for the future! Banking Products 3 Checking Accounts Savings Accounts Certificates of Deposit First Mortgage Home Loans (New Purchases and Refinancing Included) Home Equity Loans Visa Credit Cards and Gift Cards 1 Securities offered through MWA Financial Services Inc., a wholly owned subsidiary of Modern Woodmen of America. Member: FINRA, SIPC. Individual agents may not be licensed to sell all products. 2 Not issued by Modern Woodmen of America. Brokered insurance products available through MWAGIA Inc., a Modern Woodmen subsidiary. Product availability varies by state. 3 Modern Woodmen Bank is a marketing name for MWABank, a wholly owned subsidiary of Modern Woodmen of America. Annuities, insurance, retirement plans, mutual funds and other securities are not insured by the FDIC or any other federal government agency, are not obligations or deposits for MWABank, and are not guaranteed by MWABank. These products involve risk, including the possible loss of principal invested. MWABank is an Equal Housing Lender. 8 2014 Annual Report
Modern Woodmen reports continued strength in 2014 2014 was another strong year financially and fraternally for Modern Woodmen of America. Life insurance in force grew by nearly $1 billion for the fourth straight year, and assets surpassed the $14 billion mark. Modern Woodmen continues to demonstrate notable financial strength and stability, and our fraternal contributions remain an important part of our organization, said W. Kenny Massey, president and CEO of Modern Woodmen. Our fraternal member benefits and programs have truly enriched the lives of our members, their families and their local communities, and I am proud to report that we contributed over $19 million in fraternal expenditures in 2014. Continued growth in life insurance in force Life insurance in force, the total amount of life insurance owned by members to protect their families in case of premature death, increased to over $37 billion. Protection is key for the American family, said Massey. Through the personalized, knowledgeable support of our financial representatives, members can gain the life insurance coverage they need to protect their loved ones. Assets exceed $14 billion Modern Woodmen s assets increased 5.5 percent over 2013, reaching over $14.1 billion. Assets are primarily invested in high-quality, low-risk corporate and government bonds. Fiscal responsibility is essential to our continued success, said Massey. It allows us to protect the promises made to our members nationwide. For that reason, it is our first obligation. Annuity assets under management equaled $8.1 billion. Total life insurance, annuity and other certificate reserves, which are funds held to guarantee future benefits to members, increased 5.6 percent to slightly over $11 billion. Strong operational results Total premium income was $1.07 billion in 2014. Compared to 2013, variable annuity certificate sales increased 17 percent, and variable annuity premiums increased by 28 percent. Payments and benefits to members in 2014 increased 6.1 percent to $803.4 million. This includes death benefits, annuity payments and surrender benefits. An additional $14.8 million in dividend payments was refunded to life insurance and annuity certificates. Net gain from operations after dividends was nearly $16.2 million with total net income of $85.4 million. Total surplus and special reserves were $1.48 billion in 2014. Surplus and special reserves provide additional safety for members and ensure Modern Woodmen s ability to meet unforeseen events, continue the organization s fraternal programs and provide funds for future growth. To protect and enhance the impact of these funds and strengthen the commitment to members, Modern Woodmen set aside additional reserves in 2014. Modern Woodmen s solvency ratio of 111.69 percent means that for every $100 of liabilities (promises made to members), Modern Woodmen has $111.69 of assets to back up those promises. Fraternal programs support communities nationwide I am proud to report that we contributed over $19 million in fraternal expenditures in 2014 W. Kenny Massey, President and CEO Modern Woodmen has a nationwide membership of nearly 770,000. Fraternal expenditures supporting Modern Woodmen s familyoriented member benefits and programs totaled over $19 million. These benefits and programs include disaster relief assistance, college scholarships, social and volunteer service programs by adult chapters and youth service clubs nationwide, and educational programs for schools and youth groups. Key fraternal results included: - More than 1.5 million people attended social, educational and volunteer events sponsored by Modern Woodmen chapters. - 173,205 hours of volunteer service were recorded by youth service club members and 263,548 hours of volunteer service were reported by adult chapter members. - 2.3 million children were educated through free Modern Woodmen youth educational programs. - $10.8 million was contributed through Modern Woodmen s Matching Fund Program. The Matching Fund Program meets needs in member communities across the country. The fundraising projects, matched by Modern Woodmen, were conducted by the organization s 2,717 adult chapters, 263 Summit chapters (for members age 55 and older) and 790 youth service clubs. Modern Woodmen of America Standing strong for you 9
Financial Statements Modern Woodmen of America Year ended Dec. 31, 2014 (dollars in thousands) unaudited Balance Sheets Assets Investments: Bonds Common stocks Mortgage loans Real estate and home office property Cash and short-term investments Certificateholders loans Securities lending reinvested collateral Other invested assets Total investments 2014 $11,303,244 829,983 494,246 27,930 100,018 176,383 471,720 288,912 13,692,436 2013 $10,733,272 697,344 561,217 29,874 61,913 183,139 498,804 269,232 13,034,795 Liabilities and Surplus Liabilities: Aggregate reserves for certificates and contracts: Life and annuity Accident and health Certificate and contract claims Other certificateholders funds Dividends payable to certificateholders Accrued commissions, general expenses and taxes Payable for securities lending collateral Other liabilities Liability for employees and fieldworkers benefits Interest maintenance reserve Asset valuation reserve Separate account liabilities 2014 $11,292,932 2,649 20,409 5,518 14,600 7,599 471,720 152,461 50,329 32,488 295,486 305,868 2013 $10,690,884 2,863 20,836 7,617 14,400 8,533 498,804 71,574 49,583 27,188 254,658 236,062 Investment income due and accrued Electronic data processing equipment Other assets Separate account assets 124,374 3,805 4,622 305,868 121,637 2,248 3,704 236,062 Total liabilities Surplus: Appropriated Unassigned Total surplus 12,652,059 277,015 1,202,031 1,479,046 11,883,002 274,300 1,241,144 1,515,444 Total assets $14,131,105 $13,398,446 Total liabilities and surplus $ 14,131,105 $ 13,398,446 10 2014 Annual Report
Modern Woodmen of America Year ended Dec. 31, 2014 (dollars in thousands) unaudited Statements of Operations Statements of Cash Flows Income: Premiums and other considerations: Life and annuities Other Investment income Amortization of interest maintenance reserve Other income Total income Benefits and expenses: Benefits: Life and annuities Other Increase in certificate reserves Employees and fieldworkers benefit plans Commissions General insurance expenses Insurance, taxes, licenses and fees Fraternal expenses Net transfers to or (from) Separate Accounts Total benefits and expenses Net gain from operations before dividends to certificateholders and net realized capital gains Dividends to certificateholders Net gain from operations before net realized capital gains Net realized capital gains Net income Statements of Surplus 2014 $1,066,911 4,113 564,832 20,481 4,546 1,660,883 792,422 10,990 582,149 3,134 64,010 101,759 6,885 19,032 49,547 1,629,928 30,955 14,758 16,197 69,183 $85,380 2013 $1,048,849 5,290 558,905 6,714 4,911 1,624,669 746,936 9,927 566,775 10,620 63,698 118,693 6,757 20,039 36,169 1,579,614 45,055 14,065 30,990 73,118 $104,108 Cash from operations: Premium and annuity considerations Investment income, net Other income Total cash received from operations Benefit and loss related payments Commissions and other expenses paid Net transfers to or (from) Separate Accounts Dividends paid to certificateholders Total cash paid from operations Net cash from operations Cash used in investments: Proceeds from investments sold or matured: Bonds Stocks Mortgage loans Real estate Other invested assets Miscellaneous proceeds Total investment proceeds Cash applied, cost of investments acquired: Bonds Stocks Mortgage loans Real estate Other invested assets Miscellaneous applications 2014 $1,068,888 562,289 4,545 1,635,722 796,859 212,916 52,882 14,557 1,077,214 558,508 1,097,061 96,064 70,903 0 45,305 27,083 1,336,416 1,638,616 167,341 3,936 0 51,786 1 2013 $1,054,015 555,528 4,911 1,614,454 745,378 253,213 39,540 15,365 1,053,496 560,958 1,245,933 133,423 63,302 5,946 16,782 20 1,465,406 1,821,428 135,878 109,675 439 36,756 110,935 Appropriated: 2014 2013 Total investment applications Net increase in certificate loans and liens 1,861,680 (7,100) 2,215,111 (4,257) Balance at beginning of year $274,300 $272,477 Net cash used in investments (518,164) (745,448) Transfer from unassigned surplus Balance at end of year Unassigned: Balance at beginning of year 2,715 277,015 1,241,144 1,823 274,300 1,060,053 Other cash provided by (used in) financing activities and other miscellaneous sources Increase (decrease) in cash and short-term investments (2,239) 38,105 194,769 10,279 Net income from operations Net unrealized capital gains 85,380 5,897 104,108 102,454 Cash and short-term investments, beginning of year 61,913 51,634 Change in asset valuation reserve (40,828) (54,325) Cash and short-term investments, end of year $100,018 $61,913 Change in nonadmitted assets 12,408 64,400 Transfer to appropriated surplus (2,715) (1,823) Other changes, net (99,255) (33,723) Balance at end of year 1,202,031 1,241,144 Total surplus $1,479,046 $1,515,444 Modern Woodmen of America Standing strong for you 11
2014 Financial Highlights Fraternal Expenditures Dollars in millions $20.5 $20.0 $19.5 $19.0 $18.5 $18.0 $17.5 $17.0 $16.5 $16.0 $15.5 $15.0 $14.5 $14.0 $13.5 $13.0 $12.5 $17.70 $19.72 $19.83 $20.04 $19.03 2010 2011 2012 2013 2014 Fraternal expenditures for the year reflect strong usage of benefits and programs by members. $14.0 $13.5 $13.0 $12.5 $12.0 $11.5 $11.0 $10.5 $10.0 $9.5 $9.0 $8.5 $8.0 $7.5 Growth in Assets Dollars in billions $10.14 $11.51 $12.39 $13.40 $14.13 2010 2011 2012 2013 2014 Modern Woodmen s increasing asset base is a strength. $37 $36 $35 $34 $33 $32 $31 $30 Life Insurance in Force Dollars in billions $34.26 $33.94 $35.53 $36.32 $37.27 2010 2011 2012 2013 2014 Life insurance in force shows consistent growth and increased protection for members. 8 % 4 % 82 % 6 % Quality Investments Assets are invested primarily in high-quality, low-risk investments. As of Dec. 31, 2014, approximately 99.9 percent of bonds were of high or medium quality. Bonds Common Stocks Mortgage Loans and Real Estate