Why A Merger, Changing State Of Domicile To Iowa Are Needed By CUNA Mutual

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CUNA Mutual Group is comprised of multiple companies, including both insurance and noninsurance companies, diverse product lines that serve both credit unions and their members, domestic and international operations, and a number of strategic partnerships we are engaged in with credit unions, corporate credit unions, and credit union service organizations (CUSOs).

CUNA Mutual Group's three principal insurance companies are CUNA Mutual Insurance Society (CMIS), and its wholly owned subsidiary CUMIS, of Madison, Wis., and the CUNA Mutual Life Insurance Company (CMLIC) located in Waverly, Iowa.


CMIS and CMLIC have operated on an affiliated basis since 1990 when the two companies signed an affiliation agreement. Over time, the affiliation agreement has helped the companies expand market share and gain efficiencies through shared operations. Today, the two companies have identical boards of directors and senior management and our operations and financial results are largely pooled.

Though we operate these two companies as one in many ways, they remain separate, each with its own assets, surplus, and financial reporting requirements. In addition, both companies are independently rated by our rating agencies Fitch and A.M. Best.

Since the companies entered into the affiliation agreement in 1990, the board has considered merging CMLIC and CMIS. Many of the benefits of a merger have already been achieved through the affiliation. A merger, though, delivers additional benefits to policyholders in the form of improved corporate governance, reduced expenses, a one-time tax benefit, and a more effective organization to leverage our assets and surplus.

Until recently, the merger was not pursued because of a significant, adverse tax provision that imposed a tax on the surplus of mutual life insurance companies. This onerous tax provision was recently repealed, effectively removing this merger barrier. The merger permits the recognition of a one-time financial statement tax benefit of $15 to $20 million. There are no longer any good business reasons to delay the merger of the two companies or forestall the delivery of the associated benefits to the policyholders.

CUNA Mutual's board of directors is asking policyholders to approve a merger of CMIS and CMLIC.


The first step in the merger process is establishing a single state of domicile for the two insurance companies-an action called redomestication. The board is asking policyholders to change the state of domicile of CMIS from Wisconsin to Iowa.

Domiciling in a single state-Iowa- will facilitate the merger process. By having one insurance regulator, we gain efficiencies and flexibility while reducing unnecessary financial reporting and associated costs. Having two domiciled states would be equivalent to a credit union being both federally and state chartered and being subject to dual regulation. Both Iowa and Wisconsin have strong insurance regulators. In choosing Iowa, we selected the state where insurance laws are more modern and flexible than those in Wisconsin.

The states of Iowa and Wisconsin have both approved CUNA Mutual's request to domicile in Iowa.


As a merged entity, credit unions will continue to have a significant influence on the future of CUNA Mutual. It was through credit union input that we started our three-year transformation-a transformation designed to improve the value we deliver to credit unions and their members.

As we grow and strengthen CUNA Mutual, we will do so with credit unions and their members remaining at the core of our strategy-delivering products and services to protect you, to help you attract and retain quality employees, and expand your offerings to credit union members.


If the merger of CMIS and CMLIC is approved, the merged entity would continue to be a mutual insurance company. We believe that the mutual structure is beneficial to our policyholders and have no plans to demutualize.

Being owned by our policyholders contributes to a competitive advantage for us in the credit union marketplace. We share a common purpose with credit unions. As a company, our goal is to deliver value with an uncommon commitment to your success. We are member owned, just like you, and believe staying that way is in everyone's best interests.

A primary driver for changing our ownership structure in the future would first and foremost be because you would ask us to. The only other reason would be a need for capital to significantly grow the company or to acquire new business. However, CUNA Mutual's current capitalization is strong. This merger would further improve our financial strength as the surplus of two separate entities would be combined into one. In addition, a single entity provides us improved ability to acquire additional capital through debt markets.


After one year of a three-year transformation, CUNA Mutual is more effective, investing more to build a foundation for its future and for yours, and delivering more in benefits to you, our policyholders. We are making better use of our resources-to the benefit of our stakeholders.

And we're just getting started.

In 2007, we're committed to ramping up our improvement agenda and driving more value to you. We're building a future in which our people, products, sales and service, and commitment to customers distinguishes CUNA Mutual from all competitors.

As we continue to improve CUNA Mutual, look for even greater benefits being passed on to credit unions and their members. That is what we are in business to achieve, and achieve it we will. The more effective and efficient we become, the greater those benefits will be.

Merging CUNA Mutual Insurance Society and CUNA Mutual Life Insurance Company is an important element of our improvement agenda. I invite policyholders to ask any further questions you have. More information is available on our website-www.cunamutual.com- including an e-mail link to submit questions or comments.

I encourage policyholders to participate in the voting process and to cast a vote to approve the merger and domicile changes your board is recommending.

Note: More information about merging our companies is available on at www.cunamutual.com.

Jeff Post is CEO of CUNA Mutual Group. He can be reached at jeff.post cunamutual.com.

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