nwl10q.htm
UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
|
FORM
10-Q
|
|
þ QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the Quarterly Period Ended March 31, 2009
|
|
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the transition period from __________ to __________
|
|
Commission
File Number: 2-17039
|
|
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY
|
(Exact
name of Registrant as specified in its charter)
|
|
|
|
|
COLORADO
|
84-0467208
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification Number)
|
|
|
850
EAST ANDERSON LANE
|
|
AUSTIN,
TEXAS 78752-1602
|
(512)
836-1010
|
(Address
of Principal Executive Offices)
|
(Telephone
Number)
|
|
|
|
|
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes þ No o
|
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated file" in Rule 12b-2 of the
Exchange Act.
|
|
Large
accelerated filer o Accelerated
filer þ Non-accelerated
filer o
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
|
|
As
of May 7, 2009, the number of shares of Registrant's common stock
outstanding was: Class A – 3,425,966 and Class B -
200,000.
|
|
|
|
|
Page
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
March
31, 2009 (Unaudited) and December 31, 2008
|
3
|
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
|
5
|
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
|
6
|
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
|
7
|
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
|
8
|
|
|
|
10
|
|
|
|
|
Financial
Condition and Results of Operations
|
33
|
|
|
|
59
|
|
|
|
59
|
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
60
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
ASSETS
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Securities
held to maturity, at amortized cost
|
|
|
|
|
|
|
(fair
value: $3,860,173 and $3,727,353)
|
|
$ |
3,920,491 |
|
|
|
3,831,417 |
|
Securities
available for sale, at fair value
|
|
|
|
|
|
|
|
|
(cost:
$1,899,594 and $1,904,053)
|
|
|
1,762,988 |
|
|
|
1,745,266 |
|
Mortgage
loans, net of allowance for possible losses
|
|
|
|
|
|
|
|
|
($4,593
and $4,587)
|
|
|
91,430 |
|
|
|
90,733 |
|
Policy
loans
|
|
|
77,299 |
|
|
|
79,277 |
|
Derivatives,
index options
|
|
|
9,116 |
|
|
|
11,920 |
|
Other
long-term investments
|
|
|
13,648 |
|
|
|
14,168 |
|
|
|
|
|
|
|
|
|
|
Total
Investments
|
|
|
5,874,972 |
|
|
|
5,772,781 |
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
28,089 |
|
|
|
67,796 |
|
Deferred
policy acquisition costs
|
|
|
696,564 |
|
|
|
701,984 |
|
Deferred
sales inducements
|
|
|
124,579 |
|
|
|
120,955 |
|
Accrued
investment income
|
|
|
66,572 |
|
|
|
64,872 |
|
Federal
income tax receivable
|
|
|
- |
|
|
|
1,820 |
|
Other
assets
|
|
|
62,208 |
|
|
|
56,272 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,852,984 |
|
|
|
6,786,480 |
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
policy benefits:
|
|
|
|
|
|
|
Traditional
life and annuity contracts
|
|
$ |
137,362 |
|
|
|
137,530 |
|
Universal
life and annuity contracts
|
|
|
5,470,463 |
|
|
|
5,424,968 |
|
Other
policyholder liabilities
|
|
|
134,679 |
|
|
|
131,963 |
|
Federal
income tax liability:
|
|
|
|
|
|
|
|
|
Current
|
|
|
3,462 |
|
|
|
- |
|
Deferred
|
|
|
33,988 |
|
|
|
26,506 |
|
Other
liabilities
|
|
|
61,068 |
|
|
|
79,300 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
5,841,022 |
|
|
|
5,800,267 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock:
|
|
|
|
|
|
|
|
|
Class
A - $1 par value; 7,500,000 shares authorized; 3,425,966
and
|
|
|
|
|
|
|
|
|
3,425,454
issued and outstanding in 2009 and 2008
|
|
|
3,426 |
|
|
|
3,426 |
|
Class
B - $1 par value; 200,000 shares authorized, issued,
|
|
|
|
|
|
|
|
|
and
outstanding in 2009 and 2008
|
|
|
200 |
|
|
|
200 |
|
Additional
paid-in capital
|
|
|
36,680 |
|
|
|
36,680 |
|
Accumulated
other comprehensive loss
|
|
|
(54,637 |
) |
|
|
(65,358 |
) |
Retained
earnings
|
|
|
1,026,293 |
|
|
|
1,011,265 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
1,011,962 |
|
|
|
986,213 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,852,984 |
|
|
|
6,786,480 |
|
Note: The
condensed consolidated balance sheet at December 31, 2008, has been derived from
the audited consolidated financial statements as of that date.
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008
|
|
(Unaudited)
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Life
and annuity premiums
|
|
$ |
4,131 |
|
|
|
3,894 |
|
Universal
life and annuity contract revenues
|
|
|
38,571 |
|
|
|
32,218 |
|
Net
investment income
|
|
|
70,606 |
|
|
|
59,430 |
|
Other
income
|
|
|
3,594 |
|
|
|
3,139 |
|
Realized
losses on investments
|
|
|
(5,345 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
111,557 |
|
|
|
98,637 |
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
13,028 |
|
|
|
10,455 |
|
Amortization
of deferred policy acquisition costs
|
|
|
27,948 |
|
|
|
26,249 |
|
Universal
life and annuity contract interest
|
|
|
35,266 |
|
|
|
26,617 |
|
Other
operating expenses
|
|
|
12,713 |
|
|
|
13,430 |
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
88,955 |
|
|
|
76,751 |
|
|
|
|
|
|
|
|
|
|
Earnings
before Federal income taxes
|
|
|
22,602 |
|
|
|
21,886 |
|
|
|
|
|
|
|
|
|
|
Provision
for Federal income taxes:
|
|
|
|
|
|
|
|
|
Current
|
|
|
5,864 |
|
|
|
3,890 |
|
Deferred
|
|
|
1,710 |
|
|
|
3,550 |
|
|
|
|
|
|
|
|
|
|
Total
Federal income taxes
|
|
|
7,574 |
|
|
|
7,440 |
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
15,028 |
|
|
|
14,446 |
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share:
|
|
|
|
|
|
|
|
|
Class
A
|
|
$ |
4.26 |
|
|
|
4.10 |
|
Class
B
|
|
$ |
2.13 |
|
|
|
2.05 |
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
Class
A
|
|
$ |
4.26 |
|
|
|
4.07 |
|
Class
B
|
|
$ |
2.13 |
|
|
|
2.05 |
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
15,028 |
|
|
|
14,446 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of effects of
|
|
|
|
|
|
|
|
|
deferred
costs and taxes:
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities:
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains arising during period
|
|
|
7,645 |
|
|
|
408 |
|
Reclassification
adjustment for net losses (gains)
|
|
|
|
|
|
|
|
|
included
in net earnings
|
|
|
2,701 |
|
|
|
(36 |
) |
Amortization
of net unrealized losses (gains) related
|
|
|
|
|
|
|
|
|
to
transferred securities
|
|
|
(32 |
) |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains on securities
|
|
|
10,314 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(5 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
Benefit
plans:
|
|
|
|
|
|
|
|
|
Amortization
of net prior service cost and net gain
|
|
|
412 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive gain
|
|
|
10,721 |
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
25,749 |
|
|
|
14,962 |
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
|
|
For
the Three Months Ended March 31, 2009 and 2008
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Common
stock:
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
3,626 |
|
|
|
3,622 |
|
Shares
exercised under stock option plan
|
|
|
- |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
3,626 |
|
|
|
3,625 |
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
36,680 |
|
|
|
36,236 |
|
Shares
exercised under the stock option plan
|
|
|
- |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
36,680 |
|
|
|
36,563 |
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive (loss):
|
|
|
|
|
|
|
|
|
Unrealized
(losses) gains on securities:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
(53,770 |
) |
|
|
1,184 |
|
Change
in unrealized gains during period
|
|
|
10,314 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
(43,456 |
) |
|
|
1,572 |
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
2,966 |
|
|
|
3,078 |
|
Change
in translation adjustments during period
|
|
|
(5 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
2,961 |
|
|
|
2,897 |
|
|
|
|
|
|
|
|
|
|
Benefit
plan liability adjustment:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
(14,554 |
) |
|
|
(11,327 |
) |
Amortization
of net prior service cost and net gain
|
|
|
412 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
(14,142 |
) |
|
|
(11,018 |
) |
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss at end of period
|
|
|
(54,637 |
) |
|
|
(6,549 |
) |
|
|
|
|
|
|
|
|
|
Retained
earnings:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
1,011,265 |
|
|
|
978,892 |
|
Net
earnings
|
|
|
15,028 |
|
|
|
14,446 |
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
1,026,293 |
|
|
|
993,338 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
$ |
1,011,962 |
|
|
|
1,026,977 |
|
See
accompanying notes to condensed consolidated financial statements.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For
the Three Months Ended March 31, 2009 and 2008
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
15,028 |
|
|
|
14,446 |
|
Adjustments
to reconcile net earnings to net cash
|
|
|
|
|
|
|
|
|
from
operating activities:
|
|
|
|
|
|
|
|
|
Universal
life and annuity contract interest
|
|
|
40,230 |
|
|
|
26,617 |
|
Surrender
charges and other policy revenues
|
|
|
(15,598 |
) |
|
|
(9,568 |
) |
Realized
losses on investments
|
|
|
5,345 |
|
|
|
44 |
|
Accrual
and amortization of investment income
|
|
|
(1,427 |
) |
|
|
(1,300 |
) |
Depreciation
and amortization
|
|
|
(2,062 |
) |
|
|
272 |
|
Decrease
in value of derivatives
|
|
|
1,365 |
|
|
|
20,480 |
|
Increase
in deferred policy acquisition and sales inducement costs
|
|
|
(4,516 |
) |
|
|
(1,535 |
) |
Decrease
(increase) in accrued investment income
|
|
|
(1,700 |
) |
|
|
812 |
|
Increase
in other assets
|
|
|
(6,930 |
) |
|
|
(2,773 |
) |
Increase
(decrease) in liabilities for future policy benefits
|
|
|
(170 |
) |
|
|
52 |
|
Increase
in other policyholder liabilities
|
|
|
2,715 |
|
|
|
10,285 |
|
Increase
in Federal income tax liability
|
|
|
7,211 |
|
|
|
8,100 |
|
(Decrease)
increase in other liabilities
|
|
|
589 |
|
|
|
(814 |
) |
Other
|
|
|
29 |
|
|
|
1,810 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
40,109 |
|
|
|
66,928 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of:
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
11,595 |
|
|
|
124 |
|
Other
investments
|
|
|
1,820 |
|
|
|
197 |
|
Proceeds
from maturities and redemptions of:
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
310,381 |
|
|
|
248,009 |
|
Securities
available for sale
|
|
|
38,830 |
|
|
|
78,696 |
|
Derivatives
|
|
|
11,605 |
|
|
|
8,964 |
|
Purchases
of:
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
(416,297 |
) |
|
|
(234,856 |
) |
Securities
available for sale
|
|
|
(49,420 |
) |
|
|
(67,636 |
) |
Other
investments
|
|
|
(10,120 |
) |
|
|
(11,810 |
) |
Principal
payments on mortgage loans
|
|
|
1,493 |
|
|
|
1,308 |
|
Cost
of mortgage loans acquired
|
|
|
(2,513 |
) |
|
|
(777 |
) |
Decrease
(increase) in policy loans
|
|
|
1,978 |
|
|
|
(1,546 |
) |
Other
|
|
|
- |
|
|
|
(1,893 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(100,648 |
) |
|
|
18,780 |
|
(Continued
on next page)
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
|
|
For
the Three Months Ended March 31, 2009 and 2008
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Deposits
to account balances for universal life
|
|
|
|
|
|
|
and
annuity contracts
|
|
$ |
166,815 |
|
|
|
115,410 |
|
Return
of account balances on universal life
|
|
|
|
|
|
|
|
|
and
annuity contracts
|
|
|
(145,978 |
) |
|
|
(152,553 |
) |
Issuance
of common stock under stock option plan
|
|
|
- |
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
20,837 |
|
|
|
(36,813 |
) |
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange
|
|
|
(5 |
) |
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and short-term investments
|
|
|
(39,707 |
) |
|
|
48,791 |
|
Cash
and short-term investments at beginning of period
|
|
|
67,796 |
|
|
|
45,206 |
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments at end of period
|
|
$ |
28,089 |
|
|
|
93,997 |
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
Interest
|
|
$ |
10 |
|
|
|
10 |
|
Income
taxes
|
|
|
582 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Noncash
operating activities:
|
|
|
|
|
|
|
|
|
Deferral
of sales inducements
|
|
|
4,965 |
|
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
NATIONAL WESTERN
LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for annual financial
statements. In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position of National Western Life Insurance Company and its
subsidiaries (“Company”) as of March 31, 2009, and the results of its operations
and its cash flows for the three months ended March 31, 2009 and
2008. The results of operations for the three months ended March 31,
2009 and 2008 are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated
financial statements and notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 2008 accessible free of charge through the
Company's internet site at www.nationalwesternlife.com
or the Securities and Exchange Commission internet site at www.sec.gov.
The
accompanying condensed consolidated financial statements include the accounts of
National Western Life Insurance Company and its wholly-owned subsidiaries: The
Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., NWL Financial,
Inc., and Regent Care San Marcos Holdings, LLC. All significant
intercorporate transactions and accounts have been eliminated in
consolidation.
The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting periods. Actual
results could differ from those estimates. Significant estimates in the
accompanying condensed consolidated financial statements include (1) liabilities
for future policy benefits, (2) valuation of derivative instruments, (3)
recoverability and amortization of deferred policy acquisition costs, (4)
valuation allowances for deferred tax assets, (5) other-than-temporary
impairment losses on debt securities, and (6) valuation allowances for mortgage
loans and real estate.
Certain
amounts in the prior year condensed consolidated financial statements have been
reclassified to conform to the current year presentation.
(2) NEW ACCOUNTING
PRONOUNCEMENTS
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair
Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and requires additional disclosures about fair value measurements. The Company
adopted this guidance effective January 1, 2008 and the adoption did not
have an impact on the Company’s consolidated financial
statements. See related disclosures in Note 10 to Consolidated
Financial Statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. This Statement permits
entities to choose upon adoption or at specified election dates, to measure at
fair value many financial instruments and certain other items at fair
value. The Company adopted SFAS 159 effective January 1, 2008, with
no impact to the Company’s consolidated financial statements as no eligible
financial assets or liabilities were elected to be measured at fair value upon
initial adoption. Management will continue to evaluate eligible
financial assets and liabilities on their election dates, and will disclose any
future elections in accordance with provisions outlined in the
Statement.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 establishes accounting
and reporting standards for entities that have equity investments that are not
attributable directly to the parent, called noncontrolling interests or minority
interests. Specifically, SFAS 160 states where and how to report
noncontrolling interests in the consolidated statements of financial position
and operations, how to account for changes in noncontrolling interests and
provides disclosure requirements. The provisions of SFAS 160 were
effective beginning January 1, 2009. The adoption of SFAS 160 did not have
a material impact on the Company’s consolidated financial condition and results
of operations.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations. SFAS 141(R) establishes how an entity
accounts for the identifiable assets acquired, liabilities assumed, and any
noncontrolling interests acquired, how to account for goodwill acquired and
determines what disclosures are required as part of a business combination.
SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, early adoption is
prohibited. The adoption of this statement did not have any impact on
the Company’s consolidated financial condition and results of
operations.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No.
157. This FSP delays the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis, to
fiscal years and interim periods beginning after November 15,
2008. The adoption of FSP FAS 157-2 did not have a material impact on
the Company’s consolidated financial condition and results of
operations.
On April
9, 2009 the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP
provides additional guidance for estimating fair value in accordance with SFAS
No. 157, when the volume and level of activity for the asset or liability have
significantly decreased. This FSP also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009. The Company is currently
evaluating the impact the adoption of this FSP will have on its consolidated
financial position, results of operations and disclosures.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133. This statement requires enhanced disclosures regarding an entity’s
derivative and hedging activity to enable investors to better understand the
effects on an entity’s financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company adopted
SFAS No. 161 as of January 1, 2009. See Note 11 for disclosures
regarding derivative instruments and hedging activities.
In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161. This FSP amends SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, to require disclosures by entities
that assume credit risk through the sale of credit derivatives including credit
derivatives embedded in a hybrid instrument to enable users of financial
statements to assess the potential effect on its financial position, financial
performance, and cash flows from these credit derivatives. This FSP also amends
FASB Interpretation No. 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to require additional disclosure about the
current status of the payment/performance risk of a guarantee. FSP FAS 133-1 and
FIN 45-4 are effective for financial statements issued for fiscal years and
interim periods ending after November 15, 2008. The Company adopted FSP FAS
133-1 and FIN 45-4 effective January 1, 2009. The adoption did not
have a material effect on the Company’s consolidated financial condition and
results of operations.
In
December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets. This FSP requires that information
about plan assets be disclosed, on an annual basis, based on the fair value
disclosure requirements of SFAS No. 157. The Company would be required to
separate plan assets into the three fair value hierarchy levels and provide a
rollforward of the changes in fair value of plan assets classified as Level 3.
The disclosures about plan assets required by this FSP are effective for fiscal
years ending after December 15, 2009, but would have no effect on the
Company’s consolidated financial condition and results of
operations.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In
January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment
Guidance of EITF Issue No. 99-20. The FSP amends EITF 99-20’s
impairment model more consistent with SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities, removing its exclusive reliance on “market
participant” estimate of future cash flows used in determining fair
value. Changing the cash flows used to analyze other-than-temporary
impairment from the “market participant” view to a holder’s estimate of whether
there has been a “probable” adverse change in estimated cash flows allows
management to apply reasonable judgment in assessing whether an
other-than-temporary impairment has occurred. The new FSP was
effective for the Company as of December 31, 2008 and did not have a significant
impact on the consolidated financial statements of the Company.
On April
9, 2009 the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No.
107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB
Opinion No. 28, Interim
Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009. The Company is currently
evaluating the impact that the adoption of this statement will have on its
consolidated financial position, results of operations and
disclosures.
On April
9, 2009 the FASB issued FSP FAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. This
FSP is effective for interim and annual reporting periods ending after June 15,
2009. The company is currently evaluating the impact that the adoption of this
FSP will have on its consolidated financial position, results of operations and
disclosures.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company's present or future
consolidated financial statements.
(3) STOCKHOLDERS'
EQUITY
The
Company is restricted by state insurance laws as to dividend amounts which may
be paid to stockholders without prior approval from the Colorado Division of
Insurance. The Company did not pay cash dividends on common stock
during the three months ended March 31, 2009 and 2008.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) EARNINGS
PER SHARE
Basic
earnings per share of common stock are computed by dividing net income by the
weighted-average basic common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common
shares applicable to stock options in the denominator.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Class
A
|
|
|
Class
B
|
|
|
Class
A
|
|
|
Class
B
|
|
|
|
(In
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for Basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
15,028 |
|
|
|
|
|
|
14,446 |
|
|
|
|
Dividends
– Class A shares
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
Dividends
– Class B shares
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
income
|
|
$ |
15,028 |
|
|
|
|
|
|
14,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Allocation
of undistributed income
|
|
|
14,602 |
|
|
|
426 |
|
|
|
14,036 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
14,602 |
|
|
|
426 |
|
|
|
14,036 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average
shares
|
|
|
3,426 |
|
|
|
200 |
|
|
|
3,423 |
|
|
|
200 |
|
Effect
of dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
3 |
|
|
|
- |
|
|
|
24 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjusted
weighted-average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
for assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions
|
|
|
3,429 |
|
|
|
200 |
|
|
|
3,447 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share
|
|
$ |
4.26 |
|
|
|
2.13 |
|
|
|
4.10 |
|
|
|
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share
|
|
$ |
4.26 |
|
|
|
2.13 |
|
|
|
4.07 |
|
|
|
2.05 |
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(5) PENSION
AND OTHER POSTRETIREMENT PLANS
(A) Defined
Benefit Pension Plans
The
Company sponsors a qualified defined benefit pension plan covering substantially
all employees. The plan provides benefits based on the participants' years of
service and compensation. The Company makes annual contributions to the plan
that comply with the minimum funding provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). On October 19, 2007, the Company’s Board
of Directors approved an amendment to freeze the Pension Plan as of December 31,
2007. The freeze ceased future benefit accruals to all participants
and closed the Plan to any new participants. In addition, all participants
became immediately 100% vested in their accrued benefits as of that
date. Going forward future pension expense is projected to be
minimal. Fair values of plan assets and liabilities are measured as
of the prior December 31 for each respective year. The following
summarizes the components of net periodic benefit cost.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
180 |
|
Interest
cost
|
|
|
262 |
|
|
|
272 |
|
Expected
return on plan assets
|
|
|
(222 |
) |
|
|
(275 |
) |
Amortization
of prior service cost
|
|
|
1 |
|
|
|
1 |
|
Amortization
of net loss
|
|
|
148 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
189 |
|
|
|
258 |
|
The
Company expects to contribute $1.8 million to the plan in
2009. During the three months ended March 31, 2009, the Company
contributed $126,000 to the plan.
The
Company also sponsors a non-qualified defined benefit plan primarily for senior
officers. The plan provides benefits based on the participants' years of service
and compensation. The pension obligations and administrative
responsibilities of the plan are maintained by a pension administration firm,
which is a subsidiary of American National Insurance Company ("ANICO"). ANICO
has guaranteed the payment of pension obligations under the
plan. However, the Company has a contingent liability with respect to
the pension plan should these entities be unable to meet their obligations under
the existing agreements. Also, the Company has a contingent liability
with respect to the plan in the event that a plan participant continues
employment with the Company beyond age seventy, the aggregate average annual
participant salary increases exceed 10% per year, or any additional employees
become eligible to participate in the plan. If any of these
conditions are met, the Company would be responsible for any additional pension
obligations resulting from these items. Amendments were made to the
plan to allow an additional employee to participate and to change the benefit
formula for the Chairman of the Company. As previously mentioned,
these additional obligations are a liability to the Company. Effective December
31, 2004, this plan was frozen with respect to the continued accrual of benefits
of the Chairman and the President of the Company in order to comply with law
changes under the American Jobs Creation Act of 2004 ("Act").
Effective
July 1, 2005, the Company established a second non-qualified defined benefit
plan for the benefit of the Chairman of the Company. This plan is
intended to provide for post-2004 benefit accruals that mirror and supplement
the pre-2005 benefit accruals under the previously discussed non-qualified plan,
while complying with the requirements of the Act.
Effective
November 1, 2005, the Company established a third non-qualified defined benefit
plan for the benefit of the President of the Company. This plan is
intended to provide for post-2004 benefit accruals that supplement the pre-2005
benefit accruals under the first non-qualified plan as previously discussed,
while complying with the requirements of the Act.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following summarizes the components of net periodic benefit costs for these
non-qualified plans.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
37 |
|
|
|
193 |
|
Interest
cost
|
|
|
308 |
|
|
|
241 |
|
Amortization
of prior service cost
|
|
|
260 |
|
|
|
260 |
|
Amortization
of net loss
|
|
|
198 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
803 |
|
|
|
795 |
|
The
Company expects to contribute $2.0 million to these plans in
2009. During the three months ended March 31, 2009, the Company did
not contribute to the plan.
(B) Defined
Benefit Postretirement Plans
The
Company sponsors two healthcare plans to provide postretirement benefits to
certain fully-vested individuals. The following summarizes the
components of net periodic benefit costs.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
$ |
32 |
|
|
|
35 |
|
Amortization
of net loss
|
|
|
- |
|
|
|
7 |
|
Amortization
of prior service cost
|
|
|
26 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
58 |
|
|
|
68 |
|
As
previously disclosed in its financial statements for the year ended December 31,
2008, the Company expects to contribute minimal amounts to the plan in
2009.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(6) SEGMENT
AND OTHER OPERATING INFORMATION
Under
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company defines its reportable
operating segments as domestic life insurance, international life insurance, and
annuities. These segments are organized based on product types and geographic
marketing areas. A summary of segment information for the quarters
ended March 31, 2009 and 2008 is provided below.
Selected Segment
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Annuities
|
|
|
Others
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
policy acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
and sales inducements
|
|
$ |
64,022 |
|
|
|
218,487 |
|
|
|
538,634 |
|
|
|
- |
|
|
|
821,143 |
|
Total
segment assets
|
|
|
389,812 |
|
|
|
983,113 |
|
|
|
5,298,071 |
|
|
|
134,691 |
|
|
|
6,805,687 |
|
Future
policy benefits
|
|
|
317,526 |
|
|
|
599,477 |
|
|
|
4,690,822 |
|
|
|
- |
|
|
|
5,607,825 |
|
Other
policyholder liabilities
|
|
|
13,125 |
|
|
|
19,768 |
|
|
|
101,786 |
|
|
|
- |
|
|
|
134,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Income Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
and contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues
|
|
$ |
9,539 |
|
|
|
26,249 |
|
|
|
6,914 |
|
|
|
- |
|
|
|
42,702 |
|
Net
investment income
|
|
|
5,098 |
|
|
|
4,058 |
|
|
|
60,021 |
|
|
|
1,429 |
|
|
|
70,606 |
|
Other
income
|
|
|
14 |
|
|
|
27 |
|
|
|
135 |
|
|
|
3,418 |
|
|
|
3,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
14,651 |
|
|
|
30,334 |
|
|
|
67,070 |
|
|
|
4,847 |
|
|
|
116,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
benefits
|
|
|
3,821 |
|
|
|
7,724 |
|
|
|
1,483 |
|
|
|
- |
|
|
|
13,028 |
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
costs
|
|
|
2,355 |
|
|
|
13,162 |
|
|
|
12,431 |
|
|
|
- |
|
|
|
27,948 |
|
Universal
life and investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
annuity
contract interest
|
|
|
2,272 |
|
|
|
3,720 |
|
|
|
29,274 |
|
|
|
- |
|
|
|
35,266 |
|
Other
operating expenses
|
|
|
2,730 |
|
|
|
3,506 |
|
|
|
3,194 |
|
|
|
3,283 |
|
|
|
12,713 |
|
Federal
income taxes
|
|
|
1,173 |
|
|
|
746 |
|
|
|
6,988 |
|
|
|
538 |
|
|
|
9,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
12,351 |
|
|
|
28,858 |
|
|
|
53,370 |
|
|
|
3,821 |
|
|
|
98,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings
|
|
$ |
2,300 |
|
|
|
1,476 |
|
|
|
13,700 |
|
|
|
1,026 |
|
|
|
18,502 |
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Selected Segment
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Annuities
|
|
|
Others
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
policy acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
and sales inducements
|
|
$ |
61,709 |
|
|
|
206,193 |
|
|
|
500,152 |
|
|
|
- |
|
|
|
768,054 |
|
Total
segment assets
|
|
|
403,186 |
|
|
|
812,575 |
|
|
|
5,489,342 |
|
|
|
123,456 |
|
|
|
6,828,559 |
|
Future
policy benefits
|
|
|
320,225 |
|
|
|
565,910 |
|
|
|
4,675,936 |
|
|
|
- |
|
|
|
5,562,071 |
|
Other
policyholder liabilities
|
|
|
11,502 |
|
|
|
18,608 |
|
|
|
100,575 |
|
|
|
- |
|
|
|
130,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Income Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
and contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues
|
|
$ |
6,619 |
|
|
|
23,485 |
|
|
|
6,008 |
|
|
|
- |
|
|
|
36,112 |
|
Net
investment income
|
|
|
5,161 |
|
|
|
3,039 |
|
|
|
50,297 |
|
|
|
933 |
|
|
|
59,430 |
|
Other
income
|
|
|
6 |
|
|
|
12 |
|
|
|
38 |
|
|
|
3,083 |
|
|
|
3,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
11,786 |
|
|
|
26,536 |
|
|
|
56,343 |
|
|
|
4,016 |
|
|
|
98,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
benefits
|
|
|
4,205 |
|
|
|
5,313 |
|
|
|
937 |
|
|
|
- |
|
|
|
10,455 |
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
costs
|
|
|
2,287 |
|
|
|
8,791 |
|
|
|
15,171 |
|
|
|
- |
|
|
|
26,249 |
|
Universal
life and investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
annuity
contract interest
|
|
|
2,355 |
|
|
|
2,694 |
|
|
|
21,568 |
|
|
|
- |
|
|
|
26,617 |
|
Other
operating expenses
|
|
|
2,974 |
|
|
|
3,872 |
|
|
|
3,806 |
|
|
|
2,778 |
|
|
|
13,430 |
|
Federal
income taxes
|
|
|
(12 |
) |
|
|
1,994 |
|
|
|
5,052 |
|
|
|
421 |
|
|
|
7,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
11,809 |
|
|
|
22,664 |
|
|
|
46,534 |
|
|
|
3,199 |
|
|
|
84,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings (losses)
|
|
$ |
(23 |
) |
|
|
3,872 |
|
|
|
9,809 |
|
|
|
817 |
|
|
|
14,475 |
|
Reconciliations
of segment information to the Company's condensed consolidated financial
statements are provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Premiums and Other
Revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$ |
42,702 |
|
|
|
36,112 |
|
Net
investment income
|
|
|
70,606 |
|
|
|
59,430 |
|
Other
income
|
|
|
3,594 |
|
|
|
3,139 |
|
Realized
losses on investments
|
|
|
(5,345 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
Total
consolidated premiums and other revenue
|
|
$ |
111,557 |
|
|
|
98,637 |
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Federal Income
Taxes:
|
|
|
|
|
|
|
Total
segment Federal income taxes
|
|
$ |
9,445 |
|
|
|
7,455 |
|
Taxes
on realized losses on investments
|
|
|
(1,871 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
Total
consolidated Federal income taxes
|
|
$ |
7,574 |
|
|
|
7,440 |
|
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Net
Earnings:
|
|
|
|
|
|
|
Total
segment earnings
|
|
$ |
18,502 |
|
|
|
14,475 |
|
Realized
losses on investments, net of taxes
|
|
|
(3,474 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
Total
consolidated net earnings
|
|
$ |
15,028 |
|
|
|
14,446 |
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Assets:
|
|
|
|
|
|
|
Total
segment assets
|
|
$ |
6,805,687 |
|
|
|
6,828,559 |
|
Other
unallocated assets
|
|
|
47,297 |
|
|
|
32,515 |
|
|
|
|
|
|
|
|
|
|
Total
consolidated assets
|
|
$ |
6,852,984 |
|
|
|
6,861,074 |
|
(7) SHARE-BASED
PAYMENTS
The
Company has issued only nonqualified stock options and stock appreciation
rights. The Company has a stock and incentive plan ("1995 Plan")
which provides for the grant of any or all of the following types of awards to
eligible employees: (1) stock options, including incentive stock
options and nonqualified stock options; (2) stock appreciation
rights, in tandem with stock options or freestanding; (3) restricted
stock; and (4) performance awards. The 1995 Plan began on
April 21, 1995, and was amended on June 25, 2004 to extend the termination date
to April 20, 2010. The number of shares of Class A, $1.00 par value,
common stock which may be issued under the 1995 Plan, or as to which stock
appreciation rights or other awards may be granted, may not exceed
300,000. Effective June 20, 2008, the Company’s shareholders approved
a 2008 Incentive Plan (“2008 Plan”). The 2008 Plan is substantially
similar to the 1995 Plan and authorized an additional number of Class A, $1.00
per value, common stock shares eligible for issue not to exceed
300,000. These shares may be authorized and unissued
shares.
All of
the employees of the Company and its subsidiaries are eligible to participate in
the two Plans. In addition, directors of the Company are eligible to
receive the same types of awards as employees except that they are not eligible
to receive incentive stock options. Company directors, including
members of the Compensation and Stock Option Committee, are eligible for
nondiscretionary stock options. The directors’ grants vest 20%
annually following one full year of service to the Company from the date of
grant. The employees’ grants vest 20% annually following three full
years of service to the Company from the date of grant. All grants
issued expire after ten years. On February 19, 2009, the Company
awarded 29,393 stock appreciation rights to Company officers and 9,000 stock
appreciation rights to Company directors at a market value price of
$114.64. No awards were issued during the first quarter of
2008.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Effective
during March 2006, the Company adopted and implemented a limited stock buy-back
program which provides option holders the additional alternative of selling
shares acquired through the exercise of options directly back to the
Company. Option holders may elect to sell such acquired shares back
to the Company at any time within ninety (90) days after the exercise of options
at the prevailing market price as of the date of notice of election. The
buy-back program did not alter the terms and conditions of the Plan, however the
program necessitated a change in accounting from the equity classification to
the liability classification.
In August
2008, the Company implemented another limited stock buy-back program,
substantially similar to the 2006 program, for shares issued under the 2008
Plan.
The
Company uses the current fair value method to measure compensation
cost. As of March 31, 2009 and 2008, the liability balance was $1.6
million and $6.4 million, respectively. A summary of shares available
for grant and stock option activity is detailed below.
|
|
|
|
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Shares
|
|
|
|
|
|
Average
|
|
|
|
Available
|
|
|
|
|
|
Exercise
|
|
|
|
For
Grant
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options:
|
|
|
291,400 |
|
|
|
105,812 |
|
|
$ |
174.33 |
|
Balance
at January 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock
options granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
291,400 |
|
|
|
105,812 |
|
|
$ |
174.33 |
|
|
|
Stock
Appreciation Rights Outstanding
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Awards
|
|
|
Price
|
|
|
|
|
|
|
|
|
Stock
Appreciation Rights:
|
|
|
|
|
|
|
Balance
at January 1, 2009
|
|
|
2,750 |
|
|
$ |
245.70 |
|
SARs
granted February 19, 2009
|
|
|
38,393 |
|
|
|
114.64 |
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
41,143 |
|
|
$ |
123.40 |
|
The total
intrinsic value of options exercised was $0 and $1.6 million for the three
months ended March 31, 2009 and 2008, respectively. The total
share-based liabilities paid were $0 and $1.3 million for the three months ended
March 31, 2009 and 2008, respectively. For the quarters ended March
31, 2009 and 2008, the total cash received from the exercise of options under
the Plan was $0 and $0.3 million, respectively. There were no shares
vested during the first quarter of 2009.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following table summarizes information about stock options and SARs outstanding
at March 31, 2009.
|
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Options
|
|
|
|
Outstanding
|
|
|
Contractual
Life
|
|
|
Exercisable
|
|
Exercise
prices:
|
|
|
|
|
|
|
|
|
|
$
92.13
|
|
|
10,194 |
|
|
|
2.1
years |
|
|
|
10,194 |
|
95.00
|
|
|
6,000 |
|
|
|
2.2
years |
|
|
|
6,000 |
|
150.00
|
|
|
52,350 |
|
|
|
5.0
years |
|
|
|
21,450 |
|
255.13
|
|
|
28,268 |
|
|
|
9.0
years |
|
|
|
- |
|
208.05
|
|
|
9,000 |
|
|
|
9.2
years |
|
|
|
- |
|
236.00
|
|
|
1,250 |
|
|
|
9.4
years |
|
|
|
- |
|
251.49
|
|
|
1,000 |
|
|
|
9.4
years |
|
|
|
- |
|
256.00
|
|
|
500 |
|
|
|
9.5
years |
|
|
|
- |
|
114.64
|
|
|
38,393 |
|
|
|
9.9
years |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
146,955 |
|
|
|
|
|
|
|
37,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
$ |
321 |
|
|
|
|
|
|
$ |
321 |
|
The
aggregate intrinsic value in the table above is based on the closing stock price
of $113.00 per share on March 31, 2009.
In
estimating the fair value of the options outstanding at March 31, 2009 and
December 31, 2008, the Company employed the Black-Scholes option pricing model
with assumptions as detailed below.
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Expected
term of options
|
|
1
to 9 years
|
|
|
2
to 10 years
|
|
Expected
volatility:
|
|
|
|
|
|
|
Range
|
|
28.41%
to 101.39
|
% |
|
24.70%
to 77.55
|
% |
Weighted-average
|
|
|
44.03 |
% |
|
|
37.10 |
% |
Expected
dividend yield
|
|
|
0.30 |
% |
|
|
0.22 |
% |
Risk-free
rate:
|
|
|
|
|
|
|
|
|
Range
|
|
1.58%
to 2.89
|
%
|
|
1.44%
to 2.40
|
% |
Weighted-average
|
|
|
2.27 |
% |
|
|
1.94 |
% |
The
Company reviewed the contractual term relative to the options as well as
perceived future behavior patterns of exercise. Volatility is based
on the Company’s historical volatility over the expected term.
The
pre-tax compensation cost recognized in the financial statements related to the
Plan was $(2.2) million and $(0.1) million for the three months ended March 31,
2009 and 2008, respectively. The related tax expense recognized was
$0.8 million and $0 for the three months ended March 31, 2009 and 2008,
respectively.
As of
March 31, 2009, the total compensation cost related to nonvested options not yet
recognized was $1.8 million. This amount is expected to be recognized
over a weighted-average period of 2.5 years. The Company recognizes
compensation cost over the graded vesting periods.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(8)
COMMITMENTS AND CONTINGENCIES
(A)
Legal Proceedings
The
Company is a defendant in two class action lawsuits. In one case, the
Court has certified a class consisting of certain California policyholders age
65 and older alleging violations under California Business and Professions Code
section 17200. The Court has additionally certified a subclass of 36
policyholders alleging fraud against their agent, and vicariously, against the
Company. A second class action lawsuit in federal court in California is
in discovery and the Company is currently opposing a recently filed motion for
class certification. Management believes that the Company has good and
meritorious defenses and intends to continue to vigorously defend itself against
these claims.
The
Company is involved or may become involved in various other legal actions, in
the normal course of business, in which claims for alleged economic and punitive
damages have been or may be asserted, some for substantial amounts. Although
there can be no assurances, at the present time, the Company does not anticipate
that the ultimate liability arising from potential, pending, or threatened legal
actions, will have a material adverse effect on the financial condition or
operating results of the Company.
In
January 2009, the SEC published its newly adopted rule 151A, Indexed Annuities and Certain Other
Insurance Contracts. This rule defines “indexed annuities to be
securities and thus subject to regulation by the SEC and under federal
securities laws”. Currently indexed annuities sold by life insurance
companies are regulated by the States as Insurance products and Section 3(a)(8)
of the Securities Act of 1933 provides an exemption for certain “annuity
contracts,” “optional annuity contracts,” and other insurance contracts.
The new rule is not effective until January 12, 2011. The Company
and others have filed suit in the U. S. Court of Appeals for the District of
Columbia to overturn this rule. The court heard oral arguments on May
8, 2009, and is expected to issue its ruling before September
2009. In the event rule 151A is not overturned, it could have a
material effect on our business, results of operations and financial
condition.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(9)
INVESTMENTS
(A)
Debt and Equity Securities
The
tables below present amortized cost and fair values of securities held to
maturity and securities available for sale at March 31, 2009.
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
48,190 |
|
|
|
3,554 |
|
|
|
- |
|
|
|
51,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
1,922 |
|
|
|
546 |
|
|
|
- |
|
|
|
2,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
and political subdivisions
|
|
|
27,306 |
|
|
|
298 |
|
|
|
387 |
|
|
|
27,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
9,957 |
|
|
|
737 |
|
|
|
- |
|
|
|
10,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
611,700 |
|
|
|
8,902 |
|
|
|
22,180 |
|
|
|
598,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,420,419 |
|
|
|
15,962 |
|
|
|
129,897 |
|
|
|
1,306,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
1,735,321 |
|
|
|
83,253 |
|
|
|
2,904 |
|
|
|
1,815,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
65,676 |
|
|
|
153 |
|
|
|
18,355 |
|
|
|
47,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
3,920,491 |
|
|
|
113,405 |
|
|
|
173,723 |
|
|
|
3,860,173 |
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
and political subdivisions
|
|
|
76,793 |
|
|
|
389 |
|
|
|
6,809 |
|
|
|
70,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
10,403 |
|
|
|
690 |
|
|
|
- |
|
|
|
11,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
298,441 |
|
|
|
1,364 |
|
|
|
16,001 |
|
|
|
283,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,230,730 |
|
|
|
8,852 |
|
|
|
126,003 |
|
|
|
1,113,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
250,987 |
|
|
|
10,018 |
|
|
|
6,134 |
|
|
|
254,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
25,463 |
|
|
|
- |
|
|
|
9,026 |
|
|
|
16,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
6,777 |
|
|
|
7,231 |
|
|
|
1,177 |
|
|
|
12,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
1,899,594 |
|
|
|
28,544 |
|
|
|
165,150 |
|
|
|
1,762,988 |
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
tables below present amortized cost and fair values of securities held to
maturity and securities available for sale at December 31, 2008.
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
119,674 |
|
|
|
3,975 |
|
|
|
- |
|
|
|
123,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
1,923 |
|
|
|
592 |
|
|
|
- |
|
|
|
2,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
and political subdivisions
|
|
|
23,123 |
|
|
|
3 |
|
|
|
801 |
|
|
|
22,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
9,955 |
|
|
|
438 |
|
|
|
- |
|
|
|
10,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
527,277 |
|
|
|
5,073 |
|
|
|
31,530 |
|
|
|
500,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,334,157 |
|
|
|
13,580 |
|
|
|
118,204 |
|
|
|
1,229,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
1,747,104 |
|
|
|
44,213 |
|
|
|
8,210 |
|
|
|
1,783,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
68,204 |
|
|
|
130 |
|
|
|
13,323 |
|
|
|
55,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
3,831,417 |
|
|
|
68,004 |
|
|
|
172,068 |
|
|
|
3,727,353 |
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
and political subdivisions
|
|
|
77,160 |
|
|
|
332 |
|
|
|
13,653 |
|
|
|
63,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
10,418 |
|
|
|
907 |
|
|
|
- |
|
|
|
11,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
287,927 |
|
|
|
300 |
|
|
|
25,085 |
|
|
|
263,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,239,712 |
|
|
|
6,503 |
|
|
|
126,968 |
|
|
|
1,119,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
255,910 |
|
|
|
5,739 |
|
|
|
7,693 |
|
|
|
253,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
25,819 |
|
|
|
- |
|
|
|
5,745 |
|
|
|
20,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
7,107 |
|
|
|
7,481 |
|
|
|
905 |
|
|
|
13,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
1,904,053 |
|
|
|
21,262 |
|
|
|
180,049 |
|
|
|
1,745,266 |
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following table shows the gross unrealized losses and fair values of the
Company's investments by investment category and length of time the individual
securities have been in a continuous unrealized loss position at March 31,
2009.
|
|
Held
to Maturity
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
7,609 |
|
|
|
(136 |
) |
|
|
3,041 |
|
|
|
(251 |
) |
|
|
10,650 |
|
|
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
246,211 |
|
|
|
(12,786 |
) |
|
|
113,041 |
|
|
|
(9,394 |
) |
|
|
359,252 |
|
|
|
(22,180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds
|
|
|
557,379 |
|
|
|
(52,498 |
) |
|
|
303,618 |
|
|
|
(77,399 |
) |
|
|
860,997 |
|
|
|
(129,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
23,471 |
|
|
|
(638 |
) |
|
|
39,786 |
|
|
|
(2,266 |
) |
|
|
63,257 |
|
|
|
(2,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
16,748 |
|
|
|
(2,107 |
) |
|
|
25,539 |
|
|
|
(16,248 |
) |
|
|
42,287 |
|
|
|
(18,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
$ |
851,418 |
|
|
|
(68,165 |
) |
|
|
485,025 |
|
|
|
(105,558 |
) |
|
|
1,336,443 |
|
|
|
(173,723 |
) |
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
Available
For Sale
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S. Agencies
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
45,409 |
|
|
|
(5,719 |
) |
|
|
15,740 |
|
|
|
(1,090 |
) |
|
|
61,149 |
|
|
|
(6,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
108,175 |
|
|
|
(5,189 |
) |
|
|
107,313 |
|
|
|
(10,812 |
) |
|
|
215,488 |
|
|
|
(16,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds
|
|
|
469,875 |
|
|
|
(54,904 |
) |
|
|
353,872 |
|
|
|
(71,099 |
) |
|
|
823,747 |
|
|
|
(126,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
39,126 |
|
|
|
(1,401 |
) |
|
|
9,809 |
|
|
|
(4,733 |
) |
|
|
48,935 |
|
|
|
(6,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
9,196 |
|
|
|
(1,014 |
) |
|
|
7,241 |
|
|
|
(8,012 |
) |
|
|
16,437 |
|
|
|
(9,026 |
) |
|
|
|
671,781 |
|
|
|
(68,227 |
) |
|
|
493,975 |
|
|
|
(95,746 |
) |
|
|
1,165,756 |
|
|
|
(163,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
1,992 |
|
|
|
(641 |
) |
|
|
1,996 |
|
|
|
(536 |
) |
|
|
3,988 |
|
|
|
(1,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
$ |
673,773 |
|
|
|
(68,868 |
) |
|
|
495,971 |
|
|
|
(96,282 |
) |
|
|
1,169,744 |
|
|
|
(165,150 |
) |
Debt securities. The gross
unrealized losses for debt securities at March 31, 2009 are made up of 414
individual issues, or 52.4% of the total debt securities held by the Company.
The market value of these bonds as a percent of amortized cost averages 88.1%.
Of the 414 securities, 177, or approximately 42.8%, fall in the 12 months or
greater aging category; of the 414 debt securities, 392 were rated investment
grade at March 31, 2009. Additional information on debt securities by
investment category is summarized below:
State and political
subdivisions. The unrealized losses on these investments are
the result of holdings in 52 securities. Of these securities, all are
rated A or above except one which is rated BB+. Based on these facts
and the Company's intent to hold to maturity, no other-than-temporary loss was
recognized as of March 31, 2009.
Public
utilities. Of the 88 securities, all are rated BBB or above
except two, one is priced at 94% of par and the other at 70% of
par. At this time, the Company does not consider any of these
unrealized losses as other-than-temporary.
Corporate bonds. Corporate
securities with unrealized losses are reviewed based on monitoring procedures
including; review of the amount of the unrealized loss, the length of time that
the issue has been in an unrealized loss position, credit ratings, analyst
reports, and recent issuer financial information. A total of 232
securities had unrealized losses; with 14 issues rated below investment grade.
More extensive analysis was performed on these 14 issues and based on the work
performed, none of the unrealized losses are considered other-than-temporarily
impaired at March 31, 2009.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Mortgage-backed securities.
These securities are all rated AAA. The Company generally purchases
these investments at a discount relative to their face amount and it is expected
that the securities will not be settled at a price less than the stated
par. Because the decline in market value is attributable to the
current illiquidity in the market and not credit quality, and because the
Company has the ability and intent to hold these securities until a recovery of
fair value, which may be maturity, and based on the lack of adverse changes in
expected cash flows, the Company does not consider these investments to be
other-than-temporarily impaired at March 31, 2009.
Asset-backed securities. Of
the 28 securities, 18 are rated AAA, 2 are rated AA and 8 are rated below
AA. The Company performs a quarterly cash flow analysis on
asset-backed securities that are rated below AA. Based on the lack of
adverse changes in expected cash flows, the 8 issues rated below AA are not
considered impaired.
Equity
securities. The gross unrealized losses for equity securities
are made up of 72 individual issues. These holdings are reviewed for
impairment quarterly. During the three months ended March 31, 2009,
the Company recorded other-than-temporary impairments on 18 equity
securities.
Management
believes the declines in value are temporary for all of the securities for which
other-than-temporary impairment has not been recorded and the Company has the
intent and ability to hold the securities until a market price
recovery.
The
following table shows the gross unrealized losses and fair values of the
Company's investments by investment category and length of time the individual
securities have been in a continuous unrealized loss position at December 31,
2008.
|
|
Held
to Maturity
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
9,687 |
|
|
|
(631 |
) |
|
|
2,635 |
|
|
|
(170 |
) |
|
|
12,322 |
|
|
|
(801 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
312,575 |
|
|
|
(21,485 |
) |
|
|
84,474 |
|
|
|
(10,045 |
) |
|
|
397,049 |
|
|
|
(31,530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds
|
|
|
518,841 |
|
|
|
(52,581 |
) |
|
|
278,975 |
|
|
|
(65,623 |
) |
|
|
797,816 |
|
|
|
(118,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
4,624 |
|
|
|
(299 |
) |
|
|
54,582 |
|
|
|
(7,911 |
) |
|
|
59,206 |
|
|
|
(8,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
23,408 |
|
|
|
(1,963 |
) |
|
|
26,681 |
|
|
|
(11,360 |
) |
|
|
50,089 |
|
|
|
(13,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
$ |
869,135 |
|
|
|
(76,959 |
) |
|
|
447,347 |
|
|
|
(95,109 |
) |
|
|
1,316,482 |
|
|
|
(172,068 |
) |
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
Available
For Sale
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In
thousands)
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Agencies
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
45,848 |
|
|
|
(8,675 |
) |
|
|
13,486 |
|
|
|
(4,978 |
) |
|
|
59,334 |
|
|
|
(13,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
governments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
148,901 |
|
|
|
(9,286 |
) |
|
|
105,498 |
|
|
|
(15,799 |
) |
|
|
254,399 |
|
|
|
(25,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds
|
|
|
560,028 |
|
|
|
(56,214 |
) |
|
|
367,933 |
|
|
|
(70,754 |
) |
|
|
927,961 |
|
|
|
(126,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
- |
|
|
|
- |
|
|
|
48,540 |
|
|
|
(7,693 |
) |
|
|
48,540 |
|
|
|
(7,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
|
11,745 |
|
|
|
(3,612 |
) |
|
|
8,329 |
|
|
|
(2,133 |
) |
|
|
20,074 |
|
|
|
(5,745 |
) |
|
|
|
766,522 |
|
|
|
(77,787 |
) |
|
|
543,786 |
|
|
|
(101,357 |
) |
|
|
1,310,308 |
|
|
|
(179,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
2,057 |
|
|
|
(577 |
) |
|
|
1,205 |
|
|
|
(328 |
) |
|
|
3,262 |
|
|
|
(905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
$ |
768,579 |
|
|
|
(78,364 |
) |
|
|
544,991 |
|
|
|
(101,685 |
) |
|
|
1,313,570 |
|
|
|
(180,049 |
) |
(B)
Investment Gains and Losses
The table
below presents realized investment gains and losses for the periods
indicated.
|
|
Three
months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Available
for sale debt securities:
|
|
|
|
|
|
|
Realized
gains on disposal
|
|
$ |
58 |
|
|
|
57 |
|
Realized
losses on disposal
|
|
|
(150 |
) |
|
|
- |
|
Held
to maturity debt securities:
|
|
|
|
|
|
|
|
|
Realized
gains on disposal
|
|
|
79 |
|
|
|
122 |
|
Realized
losses on disposal
|
|
|
(5 |
) |
|
|
- |
|
Impairments
on debt securities
|
|
|
(4,875 |
) |
|
|
(258 |
) |
Equity
securities realized gains (losses)
|
|
|
(41 |
) |
|
|
7 |
|
Equity
securities impairments
|
|
|
(405 |
) |
|
|
- |
|
Mortgage
loans
|
|
|
(6 |
) |
|
|
- |
|
Other
|
|
|
- |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
(5,345 |
) |
|
|
(44 |
) |
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(10) FAIR
VALUES OF FINANCIAL INSTRUMENTS
Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and requires additional disclosures
about fair value measurements.
In
compliance with SFAS No. 157, the Company has categorized its financial
instruments, based on the priority of the inputs to the valuation technique,
into a three level hierarchy. The fair value hierarchy gives the
highest priority to quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). If the inputs used to measure fair value fall within different
levels of the hierarchy, the category level is based on the lowest priority
level input that is significant to the fair value measurement of the
instrument.
Financial
assets and liabilities recorded at fair value on the Condensed Consolidated
Balance Sheets are categorized as follows:
Level 1: Fair value
is based on unadjusted quoted prices in active markets that are accessible to
the Company for identical assets or liabilities. Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing basis. These generally
provide the most reliable evidence and are used to measure fair value whenever
available. The Company’s Level 1 assets include equity securities that are
traded in an active exchange market. Valuations are obtained from readily
available pricing sources for market transactions involving identical
assets.
Level 2: Fair value
is based upon significant inputs other than quoted prices in active markets
included in Level 1, which are either directly or indirectly observable for
substantially the full term of the asset or liability through corroboration with
observable market data as of the reporting date. Level 2 inputs include quoted
market prices in active markets for similar assets and liabilities, quoted
market prices in markets that are not active for identical or similar assets or
liabilities, model-derived valuations whose inputs are observable or whose
significant value drivers are observable and other observable inputs. The
Company’s Level 2 assets include fixed maturity debt securities (corporate and
private bonds, government or agency securities, asset-backed and mortgage-backed
securities), preferred stock, certain equity securities, and over-the-counter
derivative contracts. The Company’s Level 2 liabilities consist of
certain product-related embedded derivatives. Valuations are
generally obtained from third party pricing services for identical or comparable
assets or determined through use of valuation methodologies using observable
market inputs.
Level 3: Fair value
is based on significant unobservable inputs which reflect the entity’s or third
party pricing service assumptions about the assumptions market participants
would use in pricing an asset or liability. The Company’s Level 3 assets include
certain equity securities and certain less liquid or private fixed maturity debt
securities where significant valuation inputs cannot be corroborated with market
observable data. The Company’s Level 3 liabilities consist of
share-based compensation obligations. Valuations are estimated based
on non-binding broker prices or internally developed valuation models or
methodologies, discounted cash flow models and other similar
techniques.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following table sets forth the Company’s assets and liabilities that are
measured at fair value on a recurring basis as of the date
indicated:
|
|
March
31, 2009
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities, available for sale
|
|
$ |
1,750,157 |
|
|
|
- |
|
|
|
1,743,181 |
|
|
|
6,976 |
|
Equity
securities, available for sale
|
|
|
12,831 |
|
|
|
5,674 |
|
|
|
- |
|
|
|
7,157 |
|
Derivatives
|
|
|
9,116 |
|
|
|
- |
|
|
|
9,116 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,772,104 |
|
|
|
5,674 |
|
|
|
1,752,297 |
|
|
|
14,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
account balances (a)
|
|
$ |
16,027 |
|
|
|
- |
|
|
|
16,027 |
|
|
|
- |
|
Other
liabilities (b)
|
|
|
1,573 |
|
|
|
- |
|
|
|
- |
|
|
|
1,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$ |
17,600 |
|
|
|
- |
|
|
|
16,207 |
|
|
|
1,573 |
|
|
|
December
31, 2008
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities, available for sale
|
|
$ |
1,731,583 |
|
|
|
- |
|
|
|
1,721,341 |
|
|
|
10,242 |
|
Equity
securities, available for sale
|
|
|
13,683 |
|
|
|
6,493 |
|
|
|
- |
|
|
|
7,190 |
|
Derivatives
|
|
|
11,920 |
|
|
|
- |
|
|
|
11,920 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,757,186 |
|
|
|
6,493 |
|
|
|
1,733,261 |
|
|
|
17,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
account balances (a)
|
|
$ |
19,377 |
|
|
|
- |
|
|
|
19,377 |
|
|
|
- |
|
Other
liabilities (b)
|
|
|
3,787 |
|
|
|
- |
|
|
|
- |
|
|
|
3,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$ |
23,164 |
|
|
|
- |
|
|
|
19,377 |
|
|
|
3,787 |
|
(a) Represents the
fair value of certain product-related embedded derivatives that were recorded at
fair value.
(b) Represents the
liability for share-based compensation.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following tables provide additional information about fair value measurements
for which significant unobservable (Level 3) inputs were utilized to determine
fair value.
|
|
For
the Three Months Ended March 31, 2009
|
|
|
|
Debt
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Securities,
|
|
|
Securities,
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
Available
|
|
|
Total
|
|
|
Other
|
|
|
|
For
Sale
|
|
|
For
Sale
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance, January 1, 2009
|
|
$ |
10,242 |
|
|
|
7,190 |
|
|
|
17,432 |
|
|
|
3,787 |
|
Total
realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,275 |
) |
Included
in other comprehensive loss
|
|
|
(3,264 |
) |
|
|
(33 |
) |
|
|
(3,297 |
) |
|
|
- |
|
Purchases,
sales, issuances and settlements, net
|
|
|
(2 |
) |
|
|
- |
|
|
|
(2 |
) |
|
|
61 |
|
Transfers
into (out of) Level 3
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance, March 31, 2009
|
|
$ |
6,976 |
|
|
|
7,157 |
|
|
|
14,133 |
|
|
|
1,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
of total gains (losses) for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income attributable to the change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
unrealized gains (losses) relating to assets still
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
as of March 31, 2009
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,275 |
) |
Realized
gains (losses) on debt and equity securities are reported in the consolidated
statements of earnings as net investment gains (losses), unrealized gain
(losses) on available for sale debt and equity securities are reported as other
comprehensive income (loss) within stockholders’ equity.
The fair
value hierarchy classifications are reviewed each reporting period.
Reclassification of certain financial assets and liabilities may result based on
changes in the observability of valuation attributes. Reclassifications are
reported as transfers into and out of Level 3 at the beginning fair value for
the reporting period in which the changes occur.
For
assets measured at fair value on a nonrecurring basis, the fair value
measurements by level within the fair value hierarchy at March 31, 2009 are as
follows:
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
$ |
3,534 |
|
|
|
- |
|
|
|
- |
|
|
|
3,534 |
|
In
accordance with the provisions of EITF 99-20, the Company recorded
other-than-temporary impairments on certain held-to-maturity securities during
the three months ended March 31, 2009 due to adverse changes in cash
flows. These securities had a carrying value of $4.3 million and were
written down to their fair market value of $3.5 million.
As of
December 31, 2008, all held-to-maturity securities for which an
other-than-temporary impairment had been recorded were transferred to
available-for-sale due to the events leading to the writedowns also providing
evidence of a significant deterioration in the issuers’
creditworthiness.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Fair
value estimates are made at a specific point in time based on relevant market
information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
(11) Derivative
Investments
Fixed-indexed
products provide traditional fixed annuities and universal life contracts with
the option to have credited interest rates linked in part to an underlying
equity index or a combination of equity indices. The equity return
component of such policy contracts is identified separately and accounted for in
future policy benefits as embedded derivatives on the consolidated balance
sheet. The remaining portions of these policy contracts are
considered the host contracts and are recorded separately as fixed annuity or
universal life contracts. The host contracts are accounted for under debt
instrument type accounting in which future policy benefits are recorded as
discounted debt instruments that are accreted, using the effective yield method,
to their minimum account values at their projected maturities or termination
dates.
The
Company purchases over-the-counter index options, which are derivative financial
instruments, to hedge the equity return component of its fixed-indexed annuity
and life products. The index options act as hedges to match closely
the returns on the underlying index or indices. The amounts which may
be credited to policyholders are linked, in part, to the returns of the
underlying index or indices. As a result, changes to policyholders' liabilities
are substantially offset by changes in the value of the options. Cash is
exchanged upon purchase of the index options and no principal or interest
payments are made by either party during the option periods. Upon maturity or
expiration of the options, cash is paid to the Company based on the underlying
index or indices performance and terms of the contract.
The
Company does not elect hedge accounting relative to these derivative
instruments. The
index options are reported at fair value in the accompanying consolidated
financial statements. The changes in the values of the index options
and the changes in the policyholder liabilities are both reflected in the
condensed consolidated statement of earnings. Any changes relative to
the embedded derivatives associated with policy contracts are reflected in
contract interest in the condensed consolidated statement of
earnings. Any gains or losses from the sale or expiration of the
options, as well as period-to-period changes in values, are reflected as net
investment income in the condensed consolidated statement of
earnings.
Although
there is credit risk in the event of nonperformance by counterparties to the
index options, the Company does not expect any counterparties to fail to meet
their obligations, given their high credit ratings. In addition,
credit support agreements are in place with all counterparties for option
holdings in excess of specific limits, which may further reduce the Company's
credit exposure. At March 31, 2009 and 2008, the fair values of index
options owned by the Company totaled $9.1 million and $8.1 million,
respectively.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table
below presents the fair value of derivative instruments of March 31,
2009.
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
|
Sheet
|
|
Fair
|
|
Sheet
|
|
Fair
|
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
|
|
|
(In
millions)
|
|
|
|
(In
millions)
|
|
Derivatives
not designated as
|
|
|
|
|
|
|
|
|
hedging
instruments under
|
|
|
|
|
|
|
|
|
statement
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
index options
|
Derivatives,
|
|
|
|
|
|
|
|
|
Index
Options
|
|
$ |
9,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal
Life
|
|
|
|
|
|
|
|
|
|
|
and
Annuity
|
|
|
|
|
Fixed-index
products
|
|
|
|
|
|
Contracts
|
|
$ |
16,027 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
9,166 |
|
|
|
$ |
16,027 |
|
The table
below presents the effect of derivative instruments in the condensed
consolidated statement of earnings for the three months ended March 31,
2009.
|
|
|
Amount
of Gain
|
|
|
|
|
or
(Loss)
|
|
|
|
|
Recognized
In
|
|
Derivatives
Not Designated as
|
Location
of Gain or (Loss) Recognized
|
|
Income
on
|
|
Hedging
Instruments Under Statement 133
|
In
Income on Derivative
|
|
Derivative
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Equity
index options
|
Net
investment income
|
|
$ |
(12,970 |
) |
|
|
|
|
|
|
Fixed-index
products
|
Universal
life and annuity contract interest
|
|
|
3,350 |
|
|
|
|
|
|
|
|
|
|
$ |
(9,620 |
) |
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking statements. Certain information contained herein or
in other written or oral statements made by or on behalf of National Western
Life Insurance Company or its subsidiaries is or may be viewed as
forward-looking. Although the Company has taken appropriate care in
developing any such information, forward-looking information involves risks and
uncertainties that could significantly impact actual results. These
risks and uncertainties include, but are not limited to, matters described in
the Company’s SEC filings such as exposure to market risks, anticipated cash
flows or operating performance, future capital needs, and statutory or
regulatory related issues. However, National Western, as a matter of
policy, does not make any specific projections as to future earnings, nor does
it endorse any projections regarding future performance that may be made by
others. Whether or not actual results differ materially from
forward-looking statements may depend on numerous foreseeable and unforeseeable
events or developments. Also, the Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future developments, or otherwise.
Management’s
discussion and analysis of financial condition and results of operations
(“MD&A”) of National Western Life Insurance Company for the three months
ended March 31, 2009 follows. This discussion should be read in
conjunction with the Company’s condensed consolidated financial statements and
related notes beginning on page 3 of this report.
Overview
The
Company provides life insurance products on a global basis for the savings and
protection needs of policyholders and annuity contracts for the asset
accumulation and retirement needs of contractholders both domestically and
internationally. The Company accepts funds from policyholders or contractholders
and establishes a liability representing future obligations to pay the policy or
contract-holders and their beneficiaries. To ensure the Company will
be able to pay these future commitments, the funds received as premium payments
and deposits are invested in high quality investments, primarily fixed income
securities.
Due to
the business of accepting funds to pay future obligations in later years, the
underlying economics and relevant factors affecting the life insurance industry
include the following:
Ÿ
|
level
of premium revenues collected
|
Ÿ
|
persistency
of policies and contracts
|
Ÿ
|
investment
credit quality
|
Ÿ
|
levels
of policy benefits and costs to acquire
business
|
Ÿ
|
effect
of interest rate changes on revenues and investments including asset and
liability matching
|
Ÿ
|
adequate
levels of capital and surplus
|
The
Company monitors these factors continually as key business
indicators. The discussion that follows in this Item includes these
indicators and presents information useful to an overall understanding of the
Company’s business performance in 2009, incorporating required disclosures in
accordance with the rules and regulations of the Securities and Exchange
Commission.
Insurance
Operations - Domestic
The
Company is currently licensed to do business in all states except for New
York. Products marketed are annuities, universal life insurance,
fixed-indexed annuities and fixed-indexed universal life, and traditional life
insurance, which include both term and whole life products. The
Company’s domestic sales have historically been more heavily weighted toward
annuity products, which include single and flexible premium deferred annuities,
single premium immediate annuities, and fixed-indexed annuities. Most
of these annuities can be sold as tax qualified or nonqualified
products. At March 31, 2009, the Company maintained approximately
117,000 annuity policies in force.
National
Western markets and distributes its domestic products primarily through
independent national marketing organizations ("NMOs"). These NMOs assist the
Company in recruiting, contracting, and managing independent agents. The Company
currently has approximately 4,600 independent agents
contracted. Roughly 30% of these contracted agents have submitted
policy applications to the Company in the past twelve months.
Insurance
Operations - International
The
Company's international operations focus on foreign nationals in upper
socioeconomic classes. Insurance products are issued primarily to
residents of countries in Central and South America, the Caribbean, Eastern
Europe, Asia and the Pacific Rim. Issuing policies to residents of countries in
these different regions provides diversification that helps to minimize large
fluctuations that could arise due to various economic, political, and
competitive pressures that may occur from one country to
another. Products issued to international residents are almost
entirely universal life and traditional life insurance
products. However, certain annuity and investment contracts are also
available. At March 31, 2009, the Company had approximately 73,680 international
life insurance policies in force representing approximately $15.8 billion in
face amount of coverage.
International
applications are submitted by independent contractor consultants and
broker-agents. The Company has approximately 5,000 independent international
consultants and brokers currently contracted, 41% of which have submitted policy
applications to the Company in the past twelve months.
There are
some inherent risks of accepting international applications which are not
present within the domestic market that are reduced substantially by the Company
in several ways. As previously described, the Company accepts
applications from foreign nationals in upper socioeconomic classes who have
substantial financial resources. This targeted customer base coupled
with the Company's conservative underwriting practices have historically
resulted in claims experience, due to natural causes, similar to that in the
United States. The Company minimizes exposure to foreign currency
risks by requiring payment of premiums, claims and other benefits almost
entirely in United States dollars. The Company's over forty years of experience
with the international products and its longstanding independent consultant and
broker-agents relationships further serve to minimize risks.
SALES
Life
Insurance
The
following table sets forth information regarding the Company's life insurance
sales activity as measured by annualized first year premiums. While the figures
shown below are in accordance with industry practice and represent the amount of
new business sold during the periods indicated, they are considered a non-GAAP
financial measure. The Company believes sales are a measure of distribution
productivity and are a leading indicator of future revenue trends. However,
revenues are driven by sales in prior periods as well as in the current period
and therefore, a reconciliation of sales to revenues is not meaningful or
determinable.
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
Universal
life
|
|
$ |
3,539 |
|
|
|
3,230 |
|
Traditional
life
|
|
|
1,348 |
|
|
|
1,354 |
|
Fixed-indexed
life
|
|
|
1,800 |
|
|
|
4,107 |
|
|
|
|
6,687 |
|
|
|
8,691 |
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
Universal
life
|
|
|
232 |
|
|
|
899 |
|
Traditional
life
|
|
|
46 |
|
|
|
38 |
|
Fixed-indexed
life
|
|
|
500 |
|
|
|
2,332 |
|
|
|
|
778 |
|
|
|
3,269 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
7,465 |
|
|
|
11,960 |
|
Life
insurance sales as measured by annualized first year premiums declined 38% in
the first quarter of 2009 as compared to the first quarter of 2008. Both of the
Company's life insurance lines of business, international and domestic, posted
decreases over the comparable results in the first quarter of 2008 with
international sales 23% lower and domestic life sales down 76%.
Management
has placed considerable emphasis on building domestic life insurance sales as a
strategic focus for future growth. This focus was partially in response to
comments from outside rating agencies who expressed a preference for a greater
proportion of overall Company earnings to derive from the life insurance line of
business. The Company’s domestic operations have historically been more heavily
skewed toward annuity sales than on life insurance sales. The Company spent the
greater part of 2003 and 2004 revamping its domestic life operations by changing
the way it contracts distribution for life business, eliminating products and
distribution that had not contributed significantly to earnings, and creating
new and competitive products. A single premium universal life ("SPUL") product
was launched at the end of 2003 beginning a diversification of the Company's
product portfolio away from smaller dollar face amount policies. The Company
released its first fixed equity-indexed universal life ("EIUL") product for its
domestic markets at the end of 2005. Since its introduction, this product has
generally accounted for 40% to 60% of domestic life insurance sales. The Company
subsequently developed hybrids of the initial EIUL and SPUL products, combining
features, and discontinued the marketing of smaller premium and volume life
insurance policies. As a result, the Company attracted new independent
distributors with access to customers purchasing larger face amounts of
insurance per policy. During the latter part of 2008, the Company’s internal
checking and monitoring procedures detected potential instances of rebating in
certain geographic markets and instituted commission caps and other preventive
procedures to discourage this practice. Although not illegal in these
markets, the practice of rebating is particularly prone to large face amount
policies not renewing premium payments beyond the initial year of the
policy. The Company’s actions discouraged sales of larger face
amounts resulting in lower sales levels and amounts of insurance per policy as
shown below.
|
|
Average
New Policy Face Amount
|
|
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2004
|
|
|
101,700 |
|
|
|
234,500 |
|
Year
ended December 31, 2005
|
|
|
137,900 |
|
|
|
245,900 |
|
Year
ended December 31, 2006
|
|
|
315,800 |
|
|
|
254,700 |
|
Year
ended December 31, 2007
|
|
|
416,800 |
|
|
|
251,000 |
|
Year
ended December 31, 2008
|
|
|
455,200 |
|
|
|
272,000 |
|
Three
months ended March 31, 2009
|
|
|
200,300 |
|
|
|
294,700 |
|
The
Company's international life business consists of applications submitted from
residents in various regions outside of the United States, the volume of which
typically varies based upon changes in the socioeconomic climates of these
regions. Historically, the Company has experienced a simultaneous combination of
rising and declining sales in various countries; however, the appeal of the
Company's dollar-denominated life insurance products overcomes many of the local
and national difficulties. In the “financial crisis” economic climate of the
past 12 to 18 months, individuals in countries outside of the United States have
become increasingly leery of the U.S. economy and the stability of financial
institutions and markets. These concerns have manifested in the past several
quarters via reduced international sales.
Applications
submitted from residents of Latin America and the Pacific Rim perennially have
comprised the majority of the Company's international life insurance sales. Over
the past few years, new sales efforts were directed toward the sale of a
traditional endowment form of life insurance product for residents of Eastern
European and the Commonwealth of Independent States (former Soviet Union). As
noted previously, the Company’s international sales by geographic market tend to
fluctuate with the socio and economic climates in these regions. The Company’s
mix of international sales by geographic region is as follows.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Percentage
of International Sales:
|
|
|
|
|
|
|
Latin
America
|
|
|
65.8
|
% |
|
|
60.1
|
% |
Pacific
Rim
|
|
|
23.5 |
|
|
|
25.3 |
|
Eastern
Europe
|
|
|
10.7 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.0
|
% |
|
|
100.0
|
% |
Year-to-date,
the Company has recorded sales to residents outside of the United States in over
thirty different countries with Taiwan (22%), Brazil (19%), and Venezuela (10%)
making up the largest markets.
The table
below sets forth information regarding the Company's life insurance in force for
each date presented.
|
|
Insurance
In Force as of March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($
in thousands)
|
|
Universal
life:
|
|
|
|
|
|
|
Number
of policies
|
|
|
68,450 |
|
|
|
73,140 |
|
Face
amounts
|
|
$ |
7,785,350 |
|
|
|
8,157,590 |
|
|
|
|
|
|
|
|
|
|
Traditional
life:
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
49,020 |
|
|
|
51,230 |
|
Face
amounts
|
|
$ |
2,184,620 |
|
|
|
1,856,520 |
|
|
|
|
|
|
|
|
|
|
Fixed-indexed
life:
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
28,080 |
|
|
|
25,520 |
|
Face
amounts
|
|
$ |
6,534,820 |
|
|
|
5,828,780 |
|
|
|
|
|
|
|
|
|
|
Rider
face amounts
|
|
$ |
2,151,320 |
|
|
|
2,088,800 |
|
|
|
|
|
|
|
|
|
|
Total
life insurance:
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
145,550 |
|
|
|
149,890 |
|
Face
amounts
|
|
$ |
18,656,110 |
|
|
|
17,931,690 |
|
Annuities
The
following table sets forth information regarding the Company's annuity sales
activity as measured by single and annualized first year premiums. Similar to
life insurance sales, these figures are considered a non-GAAP financial measure
but are shown in accordance with industry practice and depict the Company's
sales productivity.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
$ |
106,865 |
|
|
|
73,008 |
|
Other
deferred annuities
|
|
|
44,093 |
|
|
|
25,822 |
|
Immediate
annuities
|
|
|
5,814 |
|
|
|
1,728 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
156,772 |
|
|
|
100,558 |
|
Annuity
sales for the first quarter of 2009 were 56% higher than the comparable period
in 2008 reversing a declining trend of the past several years. Since 2003 when
the Company achieved nearly $1.2 billion in sales, annuity sales have trended
lower due to a combination of declining interest rates, investors returning to
alternative investment vehicles, rating agency concerns regarding the percentage
of new business derived from the annuity line of business, and the Company
managing its targeted levels of risk and statutory capital and surplus. In
addition, during a large portion of the past several years the interest rate
yield curve has either been inverted (shorter term rates higher than longer term
rates) or relatively flat. In such an interest rate environment, consumers tend
toward short term investment vehicles such as bank certificates of deposits
rather than longer term choices which include fixed rate annuities.
The
recessionary contraction and financial market crisis that began in the latter
half of 2007 has impacted many annuity carriers. Losses from investment
impairments and equity exposure through variable annuity product offerings have
crippled the capital position of numerous insurers and limited their ability to
write new business. The Company’s substantial capital position achieved through
ongoing operating profitability and limited investment loss exposure has
positioned it to write additional levels of annuity new business. The sales
increase in the first quarter of 2009 over the first quarter of 2008 is
indicative of the Company’s enhanced competitive position in the marketplace.
Management has performed analyses of the capital strain associated with
incrementally higher levels of annuity new business and determined that the
Company’s capital position is more than sufficient to handle increased sales
activity.
The
Company's mix of annuity sales tends to shifts with interest rate levels and the
relative performance of the equity market. Over the past several years, sales of
fixed-indexed products have consistently accounted for more than one-half of all
annuity sales and were 68% of annuity activity during the first three months of
2009. For all fixed-indexed products, the Company purchases over the counter
options to hedge the equity return feature. The options are purchased relative
to the issuance of the annuity contracts in such a manner to minimize timing
risk. Generally, the index return during the indexing period (if the underlying
index increases) becomes a component in a formula (set forth in the annuity),
the result of which is credited as interest to contract holders electing the
index formula crediting method at the beginning of the indexing period. The
formula result can never be less than zero with these products. The Company does
not deliberately mismatch or under hedge for the equity feature of the products.
Fixed-indexed products also provide the contractholder the alternative to elect
a fixed interest rate crediting option. With the performance of the equity
markets over the past eighteen months, an increasing percentage of fixed-indexed
contractholders have elected this crediting option.
The level
of annuity sales volume the past several years has required a greater level of
asset/liability analysis. The Company monitors its asset/liability matching
within the self-constraints of desired capital levels and risk tolerance.
Despite the amounts of new business, the Company's capital level remains
substantially above industry averages and regulator targets.
The
following table sets forth information regarding annuities in force for each
date presented.
|
|
Annuities
In Force as of March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
|
|
|
|
|
Number
of policies
|
|
|
33,390 |
|
|
|
32,380 |
|
GAAP
annuity reserves
|
|
$ |
2,050,431 |
|
|
|
1,959,740 |
|
|
|
|
|
|
|
|
|
|
Other
deferred annuities
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
68,630 |
|
|
|
73,230 |
|
GAAP
annuity reserves
|
|
$ |
2,295,391 |
|
|
|
2,451,216 |
|
|
|
|
|
|
|
|
|
|
Immediate
annuities
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
14,980 |
|
|
|
13,510 |
|
GAAP
annuity reserves
|
|
$ |
340,541 |
|
|
|
262,237 |
|
|
|
|
|
|
|
|
|
|
Total
annuities
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
117,000 |
|
|
|
119,120 |
|
GAAP
annuity reserves
|
|
$ |
4,686,363 |
|
|
|
4,673,193 |
|
Critical
Accounting Policies
Accounting
policies discussed below are those considered critical to an understanding of
the Company’s financial statements.
Impairment of Investment
Securities. The Company’s accounting policy requires that a
decline in the value of a security below its amortized cost basis be evaluated
to determine if the decline is other-than-temporary. The primary
factors considered in evaluating whether a decline in value for fixed income and
equity securities is other-than-temporary include: (a) the length of time and
the extent to which the fair value has been less than cost, (b) the reasons for
the decline in value (credit event, interest rate related, credit spread
widening), (c) the overall financial condition as well as the near-term
prospects of the issuer, (d) whether the debtor is current on contractually
obligated principal and interest payments, and (e) the intent and ability of the
Company to retain the investment for a period of time sufficient to allow for
any anticipated recovery. In addition, certain securitized financial
assets with contractual cash flows are evaluated periodically by the Company to
update the estimated cash flows over the life of the security. If the
Company determines that the fair value of the securitized financial asset is
less than its carrying amount and there has been a decrease in the present value
of the estimated cash flows since the previous purchase or prior impairment,
then an other-than-temporary impairment charge is recognized. The
Company would recognize impairment of securities due to changing of interest
rates or market dislocations only if the Company no longer had the ability to
hold the securities until recovery or maturity. When a security is
deemed to be impaired a charge is recorded as a realized loss equal to the
difference between the fair value and amortized cost basis of the
security. Once an impairment charge has been recorded, the fair value
of the impaired investment becomes its new cost basis and the Company continues
to review the other-than-temporarily impaired security for appropriate valuation
on an ongoing basis. However, the new cost basis of an impaired
security is not adjusted for subsequent increases in estimated fair
value.
Deferred Acquisition Costs
(“DAC”). The Company is required to defer certain policy
acquisition costs and amortize them over future periods. These costs
include commissions and certain other expenses that vary with and are primarily
associated with acquiring new business. The deferred costs are
recorded as an asset commonly referred to as deferred policy acquisition costs.
The DAC asset balance is subsequently charged to income over the lives of the
underlying contracts in relation to the anticipated emergence of revenue or
profits. Actual revenue or profits can vary from Company estimates
resulting in increases or decreases in the rate of amortization. The
Company does regular evaluations to determine if actual experience or other
evidence suggests that earlier estimates should be revised. Assumptions
considered significant include surrender and lapse rates, mortality, expense
levels, investment performance, and estimated interest spread. Should
actual experience dictate that the Company change its assumptions regarding the
emergence of future revenues or profits (commonly referred to as “unlocking”),
the Company would record a charge or credit to bring its DAC balance to the
level it would have been if using the new assumptions from the inception date of
each policy.
DAC is
also subject to periodic recoverability and loss recognition
testing. These tests ensure that the present value of future
contract-related cash flows will support the capitalized DAC balance to be
amortized in the future. The present value of these cash flows, less
the benefit reserve, is compared with the unamortized DAC balance and if the DAC
balance is greater, the deficiency is charged to expense as a component of
amortization and the asset balance is reduced to the recoverable
amount.
Deferred Sales
Inducements. Costs related to sales inducements offered on
sales to new customers, principally on investment type contracts and primarily
in the form of additional credits to the customer’s account value or
enhancements to interest credited for a specified period, which are beyond
amounts currently being credited to existing contracts, are deferred and
recorded as other assets. All other sales inducements are expensed as
incurred and included in interest credited to contract holders’
funds. Deferred sales inducements are amortized to income using the
same methodology and assumptions as DAC, and are included in interest credited
to contract holders’ funds. Deferred sales inducements are
periodically reviewed for recoverability.
Future Policy
Benefits. Because of the long-term nature of insurance
contracts, the Company is liable for policy benefit payments many years into the
future. The liability for future policy benefits represents estimates
of the present value of the Company’s expected benefit payments, net of the
related present value of future net premium collections. For
traditional life insurance contracts, this is determined by standard actuarial
procedures, using assumptions as to mortality (life expectancy), morbidity
(health expectancy), persistency, and interest rates, which are based on the
Company’s experience with similar products. The assumptions used are
those considered to be appropriate at the time the policies are
issued. An additional provision is made on most products to allow for
possible adverse deviation from the assumptions assumed. For
universal life and annuity products, the Company’s liability is the amount of
the contract’s account balance. Account balances are also subject to
minimum liability calculations as a result of minimum guaranteed interest rates
in the policies. While management and Company actuaries have used their best
judgment in determining the assumptions and in calculating the liability for
future policy benefits, there is no assurance that the estimate of the
liabilities reflected in the financial statements represents the Company’s
ultimate obligation. In addition, significantly different assumptions could
result in materially different reported amounts.
Revenue
Recognition. Premium income for the Company’s traditional life
insurance contracts is generally recognized as the premium becomes due from
policyholders. For annuity and universal life contracts, the amounts
collected from policyholders are considered deposits and are not included in
revenue. For these contracts, fee income consists of policy charges for policy
administration, cost of insurance charges and surrender charges assessed against
policyholders’ account balances which are recognized in the period the services
are provided.
Investment
activities of the Company are integral to its insurance operations. Since life
insurance benefits may not be paid until many years into the future, the
accumulation of cash flows from premium receipts are invested with income
reported as revenue when earned. Anticipated yields on investments are reflected
in premium rates, contract liabilities, and other product contract
features. These anticipated yields are implied in the interest
required on the Company’s net insurance liabilities (future policy benefits less
deferred acquisition costs) and contractual interest obligations in its
insurance and annuity products. The Company benefits to the extent
actual net investment income exceeds the required interest on net insurance
liabilities and manages the rates it credits on its products to maintain the
targeted excess or “spread” of investment earnings over interest credited. The
Company will continue to be required to provide for future contractual
obligations in the event of a decline in investment yield. For more information
concerning revenue recognition, investment accounting, and interest sensitivity,
please refer to Note 1, Summary of Significant Accounting Policies, Note 9,
Investments, in the Notes to Consolidated Financial Statements.
Pension Plans and Other
Postretirement Benefits. The Company sponsors a qualified
defined benefit pension plan, which was frozen effective December 31, 2007,
covering substantially all employees, and three nonqualified defined benefit
plans covering certain senior officers. In addition, the Company has
postretirement health care benefits for certain senior officers. The
freeze of the qualified benefit pension plan ceased future benefit accruals to
all participants and closed the Plan to any new participants. In addition, all
participants became immediately 100% vested in their accrued benefits as of that
date. In accordance with prescribed accounting standards, the Company
annually reviews plan assumptions.
The
Company annually reviews its pension benefit plans assumptions which include the
discount rate, the expected long-term rate of return on plan assets, and the
compensation increase rate. The assumed discount rate is set based on
the rates of return on high quality long-term fixed income investments currently
available and expected to be available during the period to maturity of the
pension benefits. The assumed long-term rate of return on plan assets
is generally set at the rate expected to be earned based on the long-term
investment policy of the plans, the various classes of the invested funds, based
on the input of the plan’s investment advisors and consulting actuary, and the
plan’s historic rate of return. The compensation rate increase
assumption is generally set at a rate consistent with current and expected
long-term compensation and salary policy, including inflation. These
assumptions involve uncertainties and judgment, and therefore actual performance
may not be reflective of the assumptions.
Other
postretirement benefit assumptions include future events affecting retirement
age, mortality, dependency status, per capita claims costs by age, health care
trend rates, and discount rates. Per capita claims cost by age is the
current cost of providing postretirement health care benefits for one year at
each age from the youngest age to the oldest age at which plan participants are
expected to receive benefits under the plan. Health care trend rates
involve assumptions about the annual rate(s) of change in the cost of health
care benefits currently provided by the plan, due to factors other than changes
in the composition of the plan population by age and dependency
status. These rates implicitly consider estimates of health care
inflation, changes in utilization, technological advances and changes in health
status of the participants.
Share-Based
Payments. Liability awards under a share-based payment
arrangement have been measured based on the award's fair value at the reporting
date. The Black-Scholes valuation method has been used to estimate
the fair value of the options. This fair value calculation of the
options include assumptions relative to the following:
Ÿ
|
expected
term based on contractual term and perceived future behavior relative to
exercise
|
Ÿ
|
risk-free
interest rates
|
These
assumptions are continually reviewed by the Company and adjustments may be made
based upon current facts and circumstances.
Other
significant accounting policies, although not involving the same level of
measurement uncertainties as those discussed above, but nonetheless important to
an understanding of the financial statements, are described in Note 1, Summary
of Significant Accounting Policies.
Impact
of Recent Business Environment
The
financial markets began experiencing stress during the second half of 2007 which
significantly increased during 2008 and on into 2009. The volatility and
disruption in the financial markets has caused the availability and cost of
credit to be materially affected. Combined with volatile oil prices, depressed
home prices, increasing foreclosures, falling equity market values, declining
business and consumer confidence, and higher unemployment, these factors
precipitated a severe recession that continued through the first quarter 2009.
The combination of economic conditions began to negatively impact our sales in
2008, particularly in the international markets, and continued to adversely
impact the demand for our life products during the first quarter of 2009. As
such going forward, we also may experience a higher incidence of claims, lapses
or surrenders of policies.
The fixed
income markets, our primary investment source, are experiencing a high level of
volatility and limited market liquidity conditions. Credit downgrade events have
continued and there is an increased probability of default for many fixed income
instruments. These volatile market conditions have also increased the difficulty
of valuing certain securities as trading is less frequent and/or market data is
less observable. Certain securities that were in active markets with significant
observable data became illiquid due to the current financial environment
resulting in valuations that require greater estimation and judgment as well as
valuation methods which are more complex. Such valuations may not ultimately be
realizable in a market transaction and may change very rapidly as market
conditions change and valuation assumptions need to be modified.
Credit
spreads (difference between bond yields and risk-free interest rates) on fixed
maturity securities remain high given the market conditions. While the increase
in credit spreads generated higher yields making our products more attractive to
consumers, the higher rate levels caused a reduction in the carrying value of
our marked-to-market investments in 2008 negatively impacting our financial
condition and reported book value per share. There are early signs that the
economy and the financial markets are starting to stabilize. During
the first quarter the fair value of our mark to market securities showed an
increase from their year-end values.
Our
operating strategy is to maintain capital levels substantially above regulatory
and rating agency requirements. While not significant, our statutory capital
levels were impacted during the first quarter as a result of rating declines on
some of our holdings.
RESULTS
OF OPERATIONS
The
Company's consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). In addition, the Company
regularly evaluates operating performance using non-GAAP financial measures
which exclude or segregate derivatives and realized investment gains and losses
from operating revenues and earnings. Similar measures are commonly used in the
insurance industry in order to assess profitability and results from ongoing
operations. The Company believes that the presentation of these non-GAAP
financial measures enhances the understanding of the Company's results of
operations by highlighting the results from ongoing operations and the
underlying profitability factors of the Company's business. The Company excludes
or segregates derivatives and realized investment gains and losses because such
items are often the result of events which may or may not be at the Company's
discretion and the fluctuating effects of these items could distort trends in
the underlying profitability of the Company's business. Therefore, in the
following sections discussing consolidated operations and segment operations,
appropriate reconciliations have been included to report information management
considers useful in enhancing an understanding of the Company's operations to
reportable GAAP balances reflected in the consolidated financial
statements.
Consolidated
Operations
Revenues. The
following details Company revenues.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Traditional
life and annuity premiums
|
|
$ |
4,131 |
|
|
|
3,894 |
|
Universal
life and annuity contract revenues
|
|
|
38,571 |
|
|
|
32,218 |
|
Net
investment income (excluding derivatives)
|
|
|
83,576 |
|
|
|
83,987 |
|
Other
income
|
|
|
3,594 |
|
|
|
3,139 |
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
129,872 |
|
|
|
123,238 |
|
Derivative
loss
|
|
|
(12,970 |
) |
|
|
(24,557 |
) |
Realized
gains (losses) on investments
|
|
|
(5,345 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$ |
111,557 |
|
|
|
98,637 |
|
Traditional life and annuity
premiums - Traditional life and annuity premiums increased 6% in the
first three months of 2009 compared to the same period in
2008. Traditional life insurance premiums for products such as whole
life and term life are recognized as revenues over the premium-paying period.
These are products that supplement the Company’s main core offering of universal
life products, particularly equity-indexed universal life products.
Universal life and annuity
contract revenues - Revenues for universal life and annuity contracts
increased 19.7% for the three months in 2009 compared to 2008 and consist of
policy charges for the cost of insurance, administration charges, and surrender
charges assessed against policyholder account balances. Revenues in
the form of cost of insurance charges were $21.3 million in the first quarter of
2009 compared to $20.0 million for the quarter ended March 31, 2008, reflecting
the growing block of life insurance in force. Surrender charges
assessed against policyholder account balances upon withdrawal increased to
$13.6 million in the first quarter of 2009 versus $9.0 million in 2008
indicative of a higher incidence of policy withdrawals and
terminations.
Net investment income
- A detail of net investment income is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Gross
investment income:
|
|
|
|
|
|
|
Debt
securities
|
|
$ |
79,727 |
|
|
|
78,693 |
|
Mortgage
loans
|
|
|
1,859 |
|
|
|
1,959 |
|
Policy
loans
|
|
|
1,476 |
|
|
|
1,520 |
|
Short-term
investments
|
|
|
1,081 |
|
|
|
1,163 |
|
Other
invested assets
|
|
|
414 |
|
|
|
1,308 |
|
|
|
|
|
|
|
|
|
|
Total
investment income
|
|
|
84,557 |
|
|
|
84,643 |
|
Investment
expenses
|
|
|
981 |
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
|
|
(excluding
derivatives)
|
|
|
83,576 |
|
|
|
83,987 |
|
Derivative
loss
|
|
|
(12,970 |
) |
|
|
(24,557 |
) |
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
70,606 |
|
|
|
59,430 |
|
Income
from other invested assets for the three months ended March 31, 2008 includes a
settlement payment of $0.9 million from a previously impaired and sold
security. Derivative income and losses are recorded as a component of
investment income but may fluctuate substantially from period to period based on
the performance of the underlying indices. See the discussion that
follows this section relating to index options and derivatives.
To ensure
the Company will be able to pay future commitments to policyholders and provide
a financial return, the funds received as premium payments and deposits are
invested in high quality investments, primarily fixed maturity debt
securities. The income from these investments is closely monitored by
the Company due to its significant impact on the business. In the
quarter ended March 31, 2009, the Company’s insurance operations purchased $191
million of debt securities with a weighted average yield to maturity of 6.34%
and average Standard and Poor’s credit quality rating of “A”.
Net
investment income performance is summarized as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Excluding
derivatives:
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
83,576 |
|
|
|
83,987 |
|
Average
invested assets, at amortized cost
|
|
$ |
5,820,019 |
|
|
|
5,820,135 |
|
Annual
yield on average invested assets
|
|
|
5.74 |
% |
|
|
5.77 |
% |
|
|
|
|
|
|
|
|
|
Including
derivatives:
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
70,606 |
|
|
|
59,430 |
|
Average
invested assets, at amortized cost
|
|
$ |
5,863,471 |
|
|
|
5,886,236 |
|
Annual
yield on average invested assets
|
|
|
4.82 |
% |
|
|
4.04 |
% |
The lower
yield on average invested assets in 2009 compared to 2008 is due to the
additional income recognized from the other invested assets in 2008. Although
long-term interest rate levels were lower in the first quarter of 2009 compared
to the first quarter of 2008, the increase in corporate spreads over treasury
rates substantially offset the lower interest rate level such that long-term
investment yields remained largely the same. Net investment income
performance is analyzed excluding the derivative income which is a common
practice in the insurance industry in order to assess underlying profitability
and results from ongoing operations.
Other income - Other
income primarily pertains to the Company's operations involving a nursing home
in Reno, Nevada. Revenues associated with this operation were $3.4
million and $3.1 million for the three months ended March 31, 2009 and 2008,
respectively.
Derivative income
(loss) - Index options are derivative financial instruments used to hedge
the equity return component of the Company's fixed-indexed products. Index
options are intended to act as hedges to match closely the returns on the
product’s underlying reference index and the rise or decline in the index causes
option values to likewise increase or decline. Any income or loss
from the sale or expiration of the options, as well as period-to-period changes
in fair values, are reflected as a component of net investment income. However,
increases or decreases in income from these options are substantially offset by
corresponding increases or decreases in amounts credited to fixed-indexed
annuity and life policyholders.
Derivative
components included in net investment income and the corresponding contract
interest amounts are detailed below for each date presented.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
Unrealized
loss
|
|
$ |
(1,365 |
) |
|
|
(20,480 |
) |
Realized
loss
|
|
|
(11,605 |
) |
|
|
(4,077 |
) |
|
|
|
|
|
|
|
|
|
Total
loss included in net investment income
|
|
$ |
(12,970 |
) |
|
|
(24,557 |
) |
|
|
|
|
|
|
|
|
|
Total
contract interest
|
|
$ |
35,265 |
|
|
|
26,617 |
|
Benefits and
Expenses. The following details benefits and
expenses.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
$ |
13,028 |
|
|
|
10,455 |
|
Amortization
of deferred acquisition costs
|
|
|
27,948 |
|
|
|
26,249 |
|
Universal
life and annuity contract interest
|
|
|
35,266 |
|
|
|
26,617 |
|
Other
operating expenses
|
|
|
12,713 |
|
|
|
13,430 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
88,955 |
|
|
|
76,751 |
|
Life and other policy
benefits - Death claim benefits increased to $9.9 million during the
first quarter of 2009 from $8.0 million for the quarter ended March 31,
2008. During the quarter the Company reviewed and updated its IBNR
claims reserving assumptions. The updated estimates resulted in a
one-time reduction in the IBNR claims reserve. While death claim
amounts are subject to variation from period to period, the Company's mortality
experience has generally been consistent with or better than its product pricing
assumptions.
Amortization of deferred
acquisition costs - Life insurance companies are required to defer
certain expenses associated with acquiring new business. The majority
of these acquisition expenses consist of commissions paid to agents,
underwriting costs, and certain marketing expenses and sales
inducements. The Company defers sales inducements in the form of
first year interest bonuses on annuity and universal life products that are
directly related to the production of new business. These charges are
deferred and amortized using the same methodology and assumptions used to
amortize other capitalized acquisition costs and the amortization is included in
contract interest. Recognition of these deferred policy acquisition
costs in the financial statements occurs over future periods in relation to the
emergence of profits priced into the products sold. This emergence of
profits is based upon assumptions regarding premium payment patterns, mortality,
persistency, investment performance, and expense patterns. Companies
are required to review these assumptions periodically to ascertain whether
actual experience has deviated significantly from that assumed. If it is
determined that a significant deviation has occurred, the emergence of profits
pattern is to be "unlocked" and reset based upon the actual
experience. While the Company is required to evaluate its emergence
of profits continually, management believes that the current amortization
patterns of deferred policy acquisition costs are reflective of actual
experience.
Amortization
of deferred policy acquisition costs increased by $1.7 million in the first
quarter of 2009 compared to 2008. The increase in amortization reflects the
current quarter activity related to partial surrender rates, surrender rates,
mortality rates, portfolio yield rates and crediting rates on the deferred
annuities and universal life products.
Universal life and annuity
contract interest - The Company closely monitors its credited interest
rates on interest sensitive policies, taking into consideration such factors as
profitability goals, policyholder benefits, product marketability, and economic
market conditions. As long term interest rates change, the Company's
credited interest rates are often adjusted accordingly, taking into
consideration the factors as described above. The difference between yields
earned over policy credited rates is often referred to as the "interest
spread".
The
Company's approximated average credited rates are as follows:
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Excluding
derivative products)
|
|
|
(Including
derivative products)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity
|
|
|
1.77 |
% |
|
|
2.79 |
% |
|
|
2.51 |
% |
|
|
1.84 |
% |
Interest
sensitive life
|
|
|
2.20 |
% |
|
|
3.41 |
% |
|
|
3.06 |
% |
|
|
2.71 |
% |
Contract
interest also includes the performance of the equity-indexed component of the
Company's derivative products as noted which resulted in losses of $13.0 million
and $24.6 million in the first three months of 2009 and 2008, respectively. As
previously noted, the market performance of these equity-index features is
largely included in contract interest expense while also impacting the Company's
investment income given the hedge nature of the options purchased for these
products.
Other operating
expenses - Other operating expenses consist of general administrative
expenses, licenses and fees, and commissions not subject to
deferral. Like revenues from other income, nursing home operation
expenses are included in other operating expenses and were $3.3 million and $2.8
million for the first quarter of 2009 and 2008, respectively. Other
operating expenses include compensation costs under SFAS 123(R) for the
Company's stock option plan pertaining to the current charge related to
outstanding vested and unvested options. Compensation costs recorded
in the first quarter of 2009 and 2008 were $(2.2) million and ($0.1) million,
respectively.
Federal Income
Taxes. Federal income taxes on earnings from continuing
operations reflect effective tax rates of 33.5% and 34.0% for the first quarter
of 2009 and 2008, respectively. Actual rates are lower than the
expected Federal rate of 35%, primarily due to tax-exempt investment income
related to municipal securities and dividends-received deductions on income from
stocks.
Segment
Operations
Summary
of Segment Earnings
A summary
of segment earnings (losses) for the quarters ended March 31, 2009 and 2008 is
provided below. The segment earnings exclude realized gains and
losses on investments, net of taxes.
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Annuities
|
|
|
Others
|
|
|
Totals
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
$ |
2,300 |
|
|
|
1,476 |
|
|
|
13,700 |
|
|
|
1,026 |
|
|
|
18,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
$ |
(23 |
) |
|
|
3,872 |
|
|
|
9,809 |
|
|
|
817 |
|
|
|
14,475 |
|
Domestic
Life Insurance Operations
A
comparative analysis of results of operations for the Company's domestic life
insurance segment is detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$ |
9,539 |
|
|
|
6,619 |
|
Net
investment income
|
|
|
5,098 |
|
|
|
5,161 |
|
Other
income
|
|
|
14 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
14,651 |
|
|
|
11,786 |
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
3,821 |
|
|
|
4,205 |
|
Amortization
of deferred policy acquisition costs
|
|
|
2,355 |
|
|
|
2,287 |
|
Universal
life insurance contract interest
|
|
|
2,272 |
|
|
|
2,355 |
|
Other
operating expenses
|
|
|
2,730 |
|
|
|
2,974 |
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
11,178 |
|
|
|
11,821 |
|
|
|
|
|
|
|
|
|
|
Segment
earnings (losses) before Federal income taxes
|
|
|
3,473 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
Federal
income taxes (benefit)
|
|
|
1,173 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
Segment
earnings (losses)
|
|
$ |
2,300 |
|
|
|
(23 |
) |
Revenues
from domestic life insurance operations include life insurance premiums on
traditional type products and revenues from universal life
insurance. Revenues from traditional products are simply premiums
collected, while revenues from universal life insurance consist of policy
charges for the cost of insurance, policy administration fees, and surrender
charges assessed during the period. A comparative detail of premiums
and contract revenues is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Universal
life insurance revenues
|
|
$ |
8,695 |
|
|
|
6,045 |
|
Traditional
life insurance premiums
|
|
|
2,172 |
|
|
|
1,622 |
|
Reinsurance
premiums
|
|
|
(1,328 |
) |
|
|
(1,048 |
) |
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
9,539 |
|
|
|
6,619 |
|
The
Company's efforts over the past several years have been to attract new
independent agents and to promote life products to improve domestic life
sales. Consequently, the increased sales levels of the past several
years have translated to the increase in insurance revenues.
Along
with the increased revenues, earnings for the domestic life insurance segment
improved due to more favorable mortality experience in the first quarter of 2009
compared to the first quarter of 2008. This favorable experience caused benefits
and expenses to decrease by $0.6 million.
Premiums
collected on universal life products are not reflected as revenues in the
Company's statements of earnings in accordance with GAAP. Actual
universal life premiums collected, which were impacted by the Company’s actions
to discourage new larger face amount policies as discussed above, are detailed
below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Universal
life insurance:
|
|
|
|
|
|
|
First
year and single premiums
|
|
$ |
2,182 |
|
|
|
4,330 |
|
Renewal
premiums
|
|
|
5,568 |
|
|
|
4,728 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
7,750 |
|
|
|
9,058 |
|
International
Life Insurance Operations
A
comparative analysis of results of operations for the Company's international
life insurance segment is detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$ |
26,249 |
|
|
|
23,485 |
|
Net
investment income
|
|
|
4,058 |
|
|
|
3,039 |
|
Other
income
|
|
|
27 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
30,334 |
|
|
|
26,536 |
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
7,724 |
|
|
|
5,313 |
|
Amortization
of deferred policy acquisition costs
|
|
|
13,162 |
|
|
|
8,791 |
|
Universal
life insurance contract interest
|
|
|
3,720 |
|
|
|
2,694 |
|
Other
operating expenses
|
|
|
3,506 |
|
|
|
3,872 |
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
28,112 |
|
|
|
20,670 |
|
|
|
|
|
|
|
|
|
|
Segment
earnings before Federal income taxes
|
|
|
2,222 |
|
|
|
5,866 |
|
|
|
|
|
|
|
|
|
|
Provision
for Federal income taxes
|
|
|
746 |
|
|
|
1,994 |
|
|
|
|
|
|
|
|
|
|
Segment
earnings
|
|
$ |
1,476 |
|
|
|
3,872 |
|
As with
domestic operations, revenues from the international life insurance segment
include both premiums on traditional type products and revenues from universal
life insurance. A comparative detail of premiums and contract revenues is
provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Universal
life insurance revenues
|
|
$ |
27,725 |
|
|
|
23,952 |
|
Traditional
life insurance premiums
|
|
|
2,729 |
|
|
|
3,041 |
|
Reinsurance
premiums
|
|
|
(4,205 |
) |
|
|
(3,508 |
) |
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
26,249 |
|
|
|
23,485 |
|
Premiums
collected on universal life products are not reflected as revenues in the
Company's statements of earnings in accordance with GAAP. Actual
universal life premiums collected are detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Universal
life insurance:
|
|
|
|
|
|
|
First
year and single premiums
|
|
$ |
7,601 |
|
|
|
9,386 |
|
Renewal
premiums
|
|
|
22,346 |
|
|
|
22,556 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
29,947 |
|
|
|
31,942 |
|
The
Company reported decreased premiums for fixed-indexed universal life products
with approximately $15.2 million and $18.3 million for the first quarter of 2009
and 2008, respectively. Contract revenues increased as the amount of
international life insurance in force grew from $15.0 billion as of March 31,
2008, to $15.8 billion as of March 31, 2009.
As
previously noted, net investment income and contract interest include
period-to-period changes in fair values pertaining to options purchased that are
tied to the performance of the underlying indexes. The largest selling product
in the international life insurance segment for the past five years has been an
equity-indexed universal life policy with the equity component linked in part to
the underlying indices. With the growth in this block of business, the
period-to-period changes in fair values of the underlying options can have a
significant impact on net investment and contract interest. A detail of net
investment income for international life insurance operations is provided
below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
(excluding
derivatives)
|
|
$ |
7,197 |
|
|
|
7,067 |
|
Derivative
loss
|
|
|
(3,139 |
) |
|
|
(4,028 |
) |
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
4,058 |
|
|
|
3,039 |
|
Amortization
of deferred policy acquisition costs increased approximately 49.7% comparing the
first three months of 2009 to the same period in 2008, reflecting higher lapse
activity due to current economic conditions.
Annuity
Operations
The
Company's annuity operations are almost exclusively in the United
States. Although some of the Company's investment contracts are
available to international residents, current sales are small relative to total
annuity sales. A comparative analysis of results of operations for
the Company's annuity segment is detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$ |
6,914 |
|
|
|
6,008 |
|
Net
investment income
|
|
|
60,021 |
|
|
|
50,297 |
|
Other
income
|
|
|
135 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
67,070 |
|
|
|
56,343 |
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
1,483 |
|
|
|
937 |
|
Amortization
of deferred policy acquisition costs
|
|
|
12,431 |
|
|
|
15,171 |
|
Annuity
contract interest
|
|
|
29,274 |
|
|
|
21,568 |
|
Other
operating expenses
|
|
|
3,194 |
|
|
|
3,806 |
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
46,382 |
|
|
|
41,482 |
|
|
|
|
|
|
|
|
|
|
Segment
earnings before Federal income taxes
|
|
|
20,688 |
|
|
|
14,861 |
|
|
|
|
|
|
|
|
|
|
Provision
for Federal income taxes
|
|
|
6,988 |
|
|
|
5,052 |
|
|
|
|
|
|
|
|
|
|
Segment
earnings
|
|
$ |
13,700 |
|
|
|
9,809 |
|
Revenues
from annuity operations primarily include surrender charges and recognition of
deferred revenues relating to immediate or payout annuities. A
comparative detail of the components of premiums and annuity contract revenues
is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Surrender
charges
|
|
$ |
5,353 |
|
|
|
4,795 |
|
Payout
annuity and other revenues
|
|
|
1,557 |
|
|
|
1,207 |
|
Traditional
annuity premiums
|
|
|
4 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
6,914 |
|
|
|
6,008 |
|
The
Company's earnings are dependent upon annuity contracts persisting or remaining
in force. While premium and contract revenues increase with an
increase in surrender charges, the Company's investment earnings benefit as more
policies remain in force.
Deposits
collected on annuity contracts are not reflected as revenues in the Company's
statements of earnings in accordance with GAAP. Actual annuity deposits
collected for the three months ended March 31, 2009 and 2008 are detailed
below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
$ |
103,766 |
|
|
|
69,024 |
|
Other
deferred annuities
|
|
|
47,549 |
|
|
|
29,728 |
|
Immediate
annuities
|
|
|
5,238 |
|
|
|
1,649 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
156,553 |
|
|
|
100,401 |
|
Fixed-indexed
product sales typically follow the stock market in that sales are higher when
confidence is high in the stock market and low if the stock market is showing
poor performance. However, in a low interest environment the
Company’s experience has shown a higher proportion of fixed-indexed annuity
sales relative to other deferred annuity products which have a fixed interest
rate of interest credited to the policy.
Other
deferred annuity product sales have been trending lower over the past few years
due to low interest rates and investor preferences. As a selling
inducement, many of the deferred products, as well as the fixed-indexed annuity
products, include a first year interest bonus in addition to a base interest
rate. These bonus rates are deferred in conjunction with other
capitalized policy acquisition costs. The amount deferred and
amortized over future periods amounted to approximately $8.5 million and $4.5
million during the first quarter of 2009 and 2008, respectively.
A detail
of net investment income for annuity operations is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
(excluding
derivatives)
|
|
$ |
69,395 |
|
|
|
70,826 |
|
Derivative
loss
|
|
|
(9,374 |
) |
|
|
(20,529 |
) |
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
60,021 |
|
|
|
50,297 |
|
As noted
previously, derivative income and loss fluctuate from period to period based on
the performance of the underlying indices.
Annuity
contract interest includes the equity component return associated with the
Company's fixed-indexed annuities. The detail of fixed-indexed
annuity contract interest compared to contract interest for all other annuities
is as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
$ |
24,070 |
|
|
|
4,917 |
|
All
other annuities
|
|
|
10,192 |
|
|
|
18,350 |
|
|
|
|
|
|
|
|
|
|
Gross
contract interest
|
|
|
34,262 |
|
|
|
23,267 |
|
Bonus
interest deferred and capitalized
|
|
|
(8,479 |
) |
|
|
(4,484 |
) |
Bonus
interest amortization
|
|
|
3,491 |
|
|
|
2,785 |
|
|
|
|
|
|
|
|
|
|
Total
contract interest
|
|
$ |
29,274 |
|
|
|
21,568 |
|
Contract
interest includes the portion of its return on fixed interest products
associated with the performance of the underlying indices.
Amortization
of deferred policy acquisition costs decreased approximately 18.1% comparing the
first three months of 2009 to the same period in 2008. During the
first three months of 2008 the Company experienced an increased conversion
activity of deferred annuities, into payout annuities. This resulted
in a higher amortization. Current amounts should be more reflective
of ongoing activity.
Other
Operations
National
Western's primary business encompasses its domestic and international life
insurance operations and its annuity operations. However, National
Western also has small real estate, nursing home, and other investment
operations through its wholly-owned subsidiaries. Nursing home
operations generated $0.1 million and $0.3 million of operating earnings in the
first quarters of 2009 and 2008, respectively.
INVESTMENTS
General
The
Company's investment philosophy emphasizes the careful handling of policyowners'
and stockholders' funds to achieve security of principal, to obtain the maximum
possible yield while maintaining security of principal, and to maintain
liquidity in a measure consistent with current and long-term requirements of the
Company.
The
Company's overall conservative investment philosophy is reflected in the
allocation of its investments, which is detailed below. The Company
emphasizes investment grade debt securities, with smaller holdings in mortgage
loans and policy loans.
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
%
|
|
|
Value
|
|
|
%
|
|
|
|
(In
thousands)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$ |
5,670,648 |
|
|
|
96.5 |
|
|
|
5,563,000 |
|
|
|
96.3 |
|
Mortgage
loans
|
|
|
91,430 |
|
|
|
1.6 |
|
|
|
90,733 |
|
|
|
1.6 |
|
Policy
loans
|
|
|
77,299 |
|
|
|
1.3 |
|
|
|
79,277 |
|
|
|
1.4 |
|
Derivatives
|
|
|
9,116 |
|
|
|
0.2 |
|
|
|
11,920 |
|
|
|
0.2 |
|
Equity
securities
|
|
|
12,831 |
|
|
|
0.2 |
|
|
|
13,683 |
|
|
|
0.2 |
|
Real
estate
|
|
|
10,763 |
|
|
|
0.2 |
|
|
|
10,828 |
|
|
|
0.2 |
|
Other
|
|
|
2,885 |
|
|
|
0.0 |
|
|
|
3,340 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
5,874,972 |
|
|
|
100.0 |
|
|
|
5,772,781 |
|
|
|
100.0 |
|
Debt
and Equity Securities
The
Company maintains a diversified portfolio which consists primarily of corporate,
mortgage-backed, and public utility fixed income securities. Investments in
mortgage-backed securities primarily include U.S. government agency pass-through
securities and collateralized mortgage obligations ("CMO"). As of
March 31, 2009 and December 31, 2008, the Company's debt securities portfolio
consisted of the following:
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
%
|
|
|
Value
|
|
|
%
|
|
|
|
(In
thousands)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$ |
2,533,998 |
|
|
|
44.8 |
|
|
|
2,453,404 |
|
|
|
44.0 |
|
Mortgage-backed
securities
|
|
|
1,990,192 |
|
|
|
35.1 |
|
|
|
2,001,060 |
|
|
|
36.0 |
|
Public
utilities
|
|
|
895,504 |
|
|
|
15.8 |
|
|
|
790,419 |
|
|
|
14.2 |
|
U.S.
Agencies
|
|
|
48,190 |
|
|
|
0.8 |
|
|
|
119,674 |
|
|
|
2.2 |
|
U.S.
Treasury
|
|
|
1,922 |
|
|
|
- |
|
|
|
1,923 |
|
|
|
- |
|
Asset-backed
securities
|
|
|
82,113 |
|
|
|
1.4 |
|
|
|
88,278 |
|
|
|
1.6 |
|
States
& political subdivisions
|
|
|
97,679 |
|
|
|
1.7 |
|
|
|
86,962 |
|
|
|
1.6 |
|
Foreign
governments
|
|
|
21,050 |
|
|
|
0.4 |
|
|
|
21,280 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
5,670,648 |
|
|
|
100.0 |
|
|
|
5,563,000 |
|
|
|
100.0 |
|
Because
the Company's holdings of mortgage-backed securities are subject to prepayment
and extension risk, the Company has substantially reduced these risks by
investing in collateralized mortgage obligations, which have more predictable
cash flow patterns than pass-through securities. These securities,
known as planned amortization class I ("PAC I"), very accurately defined
maturity ("VADM") and sequential tranches are designed to amortize in a more
predictable manner than other CMO classes or pass-throughs. The
Company does not purchase tranches, such as PAC II and support tranches, that
subject the portfolio to greater than average prepayment risk. Using
this strategy, the Company can more effectively manage and reduce prepayment and
extension risks, thereby helping to maintain the appropriate matching of the
Company's assets and liabilities.
Due to
recent negative news relative to the mortgage industry and in particular
subprime mortgages the Company has included detailed information below related
to the exposure at March 31, 2009 in the debt securities
portfolio. The Company holds approximately $82.1 million in
asset-backed securities at March 31, 2009. This portfolio includes
$39.7 million of manufactured housing bonds and $42.4 million of home equity
loans (also referred to as subprime securities). The Company does not have any
holdings in collaterized bond obligations (CBOs), collateralized debt
obligations (CDOs), or collateralized loan obligations (CLOs). Principal risks
in holding asset-backed securities are structural, credit, and capital market
risks. Structural risks include the securities’ priority in the issuer’s capital
structure, the adequacy of and ability to realize proceeds from collateral and
the potential for prepayments. Credit risks include corporate credit risks or
consumer credit risks for financing such as subprime mortgages. Capital market
risks include the general level of interest rates and the liquidity for these
securities in the marketplace.
The
mortgage-backed portfolio includes one Alt-A security with a carrying value of
$3.5 million. The Alt-A sector is a sub-sector of the jumbo prime MBS
sector. The average FICO for an Alt-A borrower is approximately 715 compared to
a score of 730 for a jumbo prime borrower. The Company’s exposure to
the Alt-A and subprime sectors is limited to investments in the senior tranches
of structured securities collateralized by Alt-A or subprime residential
mortgage loans. The asset-backed portfolio includes thirteen subprime
securities, totaling $42.4 million. The subprime sector is generally
categorized under the asset-backed sector. This sector lends to borrowers who do
not qualify for prime interest rates due to poor or insufficient credit history.
Subprime borrowers generally have FICO scores of 660 or below. The slowing
housing market, rising interest rates, and relaxed underwriting standards for
loans originated after 2005 resulted in higher delinquency rates and losses
beginning in 2007. These events caused illiquidity in the market and volatility
in the market prices of subprime securities. All of the loans
classified as Alt-A or subprime in the Company’s portfolio as of March 31, 2009
were underwritten prior to 2005 as noted in the table below.
Investment
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
Origination
Year
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime:
|
|
|
|
|
|
|
|
|
|
|
|
|
1998
|
|
$ |
10,987 |
|
|
|
10,395 |
|
|
|
12,125 |
|
|
|
11,157 |
|
2002
|
|
|
1,110 |
|
|
|
534 |
|
|
|
1,123 |
|
|
|
556 |
|
2003
|
|
|
6,743 |
|
|
|
2,949 |
|
|
|
6,894 |
|
|
|
3,779 |
|
2004
|
|
|
23,556 |
|
|
|
14,585 |
|
|
|
26,817 |
|
|
|
21,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
subprime
|
|
$ |
42,396 |
|
|
|
28,463 |
|
|
|
46,959 |
|
|
|
37,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt
A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
$ |
3,521 |
|
|
|
3,521 |
|
|
|
3,821 |
|
|
|
3,821 |
|
As of
March 31, 2009, nine of the subprime securities were rated AAA, two were rated
AA, one was rated A, and one was rated BBB.
In
addition to diversification, an important aspect of the Company's investment
approach is managing the credit quality of its investments in debt
securities. Thorough credit analysis is performed on potential
corporate investments including examination of a company's credit and industry
outlook, financial ratios and trends, and event risks. This emphasis
is reflected in the high average credit rating of the Company's portfolio with
98.1% held in investment grade securities. In the table below,
investments in debt securities are classified according to credit ratings by
Standard and Poor's ("S&P®"), or
other nationally recognized statistical rating organizations if securities were
not rated by S&P®.
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
%
|
|
|
Value
|
|
|
%
|
|
|
|
(In
thousands)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
and U.S. government
|
|
$ |
2,156,753 |
|
|
|
38.2 |
|
|
|
2,306,694 |
|
|
|
41.5 |
|
AA
|
|
|
291,234 |
|
|
|
5.1 |
|
|
|
205,729 |
|
|
|
3.7 |
|
A
|
|
|
1,454,268 |
|
|
|
25.6 |
|
|
|
1,431,703 |
|
|
|
25.7 |
|
BBB
|
|
|
1,657,859 |
|
|
|
29.2 |
|
|
|
1,546,720 |
|
|
|
27.8 |
|
BB
and other below investment grade
|
|
|
110,534 |
|
|
|
1.9 |
|
|
|
72,154 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
5,670,648 |
|
|
|
100.0 |
|
|
|
5,563,000 |
|
|
|
100.0 |
|
The
Company does not purchase below investment grade
securities. Investments held in debt securities below investment
grade are the result of subsequent downgrades of the
securities. These holdings are summarized below.
|
|
Below
Investment Grade Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of
|
|
|
|
Amortized
|
|
|
Carrying
|
|
|
Fair
|
|
|
Invested
|
|
|
|
Cost
|
|
|
Value
|
|
|
Value
|
|
|
Assets
|
|
|
|
(In
thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
$ |
129,424 |
|
|
|
110,534 |
|
|
|
97,393 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
84,229 |
|
|
|
72,154 |
|
|
|
67,375 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$ |
105,067 |
|
|
|
100,221 |
|
|
|
97,618 |
|
|
|
1.7 |
% |
As of
March 31, 2009, the Company's percentage of below investment grade securities
compared to total invested assets totaled 1.9%. The increase from
December 31, 2008 is primarily due to seven securities being downgraded during
the quarter. The Company's holdings of below investment grade
securities as a percentage of total invested assets is relatively small compared
to industry averages.
Holdings
in below investment grade securities by category as of March 31, 2009 are
summarized below, including March 31, 2009 and December 31, 2008 fair values for
comparison. The Company is continually monitoring developments in these
industries that may affect security valuation issues.
|
|
Below
Investment Grade Debt Securities
|
|
|
|
Amortized
|
|
|
Carrying
|
|
|
Fair
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
March
31,
|
|
|
December
31,
|
|
Industry
Category
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
13,986 |
|
|
|
12,847 |
|
|
|
12,410 |
|
|
|
9,808 |
|
Telecommunications
|
|
|
6,322 |
|
|
|
4,957 |
|
|
|
4,957 |
|
|
|
3,808 |
|
Medical
|
|
|
13,000 |
|
|
|
12,580 |
|
|
|
11,895 |
|
|
|
11,050 |
|
Utilities/energy
|
|
|
12,176 |
|
|
|
11,841 |
|
|
|
11,477 |
|
|
|
11,287 |
|
Asset-backed
|
|
|
11,485 |
|
|
|
11,484 |
|
|
|
8,821 |
|
|
|
7,965 |
|
Mortgage-backed
|
|
|
4,934 |
|
|
|
2,044 |
|
|
|
2,044 |
|
|
|
3,671 |
|
Auto
finance
|
|
|
1,503 |
|
|
|
1,275 |
|
|
|
1,275 |
|
|
|
1,173 |
|
Banking/finance
|
|
|
13,974 |
|
|
|
12,751 |
|
|
|
5,547 |
|
|
|
5,738 |
|
Manufacturing
|
|
|
37,571 |
|
|
|
30,669 |
|
|
|
28,881 |
|
|
|
28,726 |
|
Transportation
|
|
|
1,984 |
|
|
|
1,591 |
|
|
|
1,591 |
|
|
|
1,389 |
|
Other
|
|
|
12,489 |
|
|
|
8,495 |
|
|
|
8,495 |
|
|
|
8,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
129,424 |
|
|
|
110,534 |
|
|
|
97,393 |
|
|
|
93,303 |
|
The
Company closely monitors its below investment grade holdings by reviewing
investment performance indicators, including information such as issuer
operating performance, debt ratings, analyst reports and other economic factors
that may affect these specific investments. While additional losses
are not currently anticipated, based on the existing status and condition of
these securities, continued credit deterioration of some securities or the
markets in general is possible, which may result in further
writedowns.
The
Company is required to classify its investments in debt and equity securities
into one of three categories: (a) trading securities, (b) securities available
for sale, or (c) securities held to maturity. The Company purchases
securities with the intent to hold to maturity and accordingly does not maintain
a portfolio of trading securities. Of the remaining two categories,
available for sale and held to maturity, the Company makes a determination as to
which category based on various factors including the type and quality of the
particular security and how it will be incorporated into the Company's overall
asset/liability management strategy. As shown in the table below, at March 31,
2009, approximately 31.4% of the Company's total debt and equity securities,
based on fair values, were classified as securities available for
sale. These holdings provide flexibility to the Company to react to
market opportunities and conditions and to practice active management within the
portfolio to provide adequate liquidity to meet policyholder obligations and
other cash needs.
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
(Losses)
|
|
|
|
(In
thousands)
|
|
Securities
held to maturity:
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$ |
3,860,173 |
|
|
|
3,920,491 |
|
|
|
(60,318 |
) |
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
|
1,750,157 |
|
|
|
1,892,817 |
|
|
|
(142,660 |
) |
Equity
securities
|
|
|
12,831 |
|
|
|
6,777 |
|
|
|
6,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
5,623,161 |
|
|
|
5,820,085 |
|
|
|
(196,924 |
) |
For the
three months ended March 31, 2009, the Company recorded other-than-temporary
impairment writedowns on debt securities totaling $4.9 million and equity
securities totaling $0.4 million.
Market
Risk
Market
risk is the risk of change in market values of financial instruments due to
changes in interest rates, currency exchange rates, commodity prices, or equity
prices. The most significant market risk exposure for National
Western is interest rate risk. The fair values of fixed income debt securities
correlate to external market interest rate conditions. Because
interest rates are fixed on almost all of the Company's debt securities, market
values typically increase when market interest rates decline, and decrease when
market interest rates rise. However, market values may fluctuate for
other reasons, such as changing economic conditions or increasing event-risk
concerns.
The
correlation between fair values and interest rates for debt securities is
reflected in the tables below.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands except percentages)
|
|
|
|
|
|
|
|
|
Debt
securities - fair value
|
|
$ |
5,610,330 |
|
|
|
5,458,936 |
|
Debt
securities - amortized cost
|
|
$ |
5,813,308 |
|
|
|
5,728,363 |
|
Fair
value as a percentage of amortized cost
|
|
|
96.51
|
% |
|
|
95.30
|
% |
Unrealized
loss balance
|
|
$ |
(202,978 |
) |
|
|
(269,427 |
) |
Ten-year
U.S. Treasury bond – increase (decrease)
|
|
|
|
|
|
|
|
|
in
yield for the quarter
|
|
|
0.45
|
% |
|
|
(1.81 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Loss Balance
|
|
|
|
|
|
|
At
|
|
|
At
|
|
|
Change
in
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
Unrealized
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities held to maturity
|
|
$ |
(60,318 |
) |
|
|
(104,064 |
) |
|
|
43,746 |
|
Debt
securities available for sale
|
|
|
(142,660 |
) |
|
|
(165,363 |
) |
|
|
22,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
(202,978 |
) |
|
|
(269,427 |
) |
|
|
66,449 |
|
Changes
in interest rates typically have a sizable effect on the fair values of the
Company's debt securities. Market interest rates of the ten-year U.S. Treasury
bond increased approximately 45 basis points from year-end 2008 causing an
unrealized gain of $66.4 million during the quarter on a portfolio of
approximately $5.8 billion. The Company would expect similar results
in the future from any significant upward or downward movement in market
rates. However, since the majority of the Company's debt securities
are classified as held to maturity, which are recorded at amortized cost,
changes in fair values have relatively small effects on the Company's
consolidated balance sheet.
The
Company manages interest rate risk through ongoing cash flow testing required
for insurance regulatory purposes. Computer models are used to perform cash flow
testing under various commonly used stress test interest rate scenarios to
determine if existing assets would be sufficient to meet projected liability
outflows. Sensitivity analysis allows the Company to measure the
potential gain or loss in fair value of its interest-sensitive instruments and
to protect its economic value and achieve a predictable spread between what is
earned on invested assets and what is paid on liabilities. The
Company seeks to minimize the impact of interest risk through surrender charges
that are imposed to discourage policy surrenders. Interest rate
changes can be anticipated in the computer models and the corresponding risk
addressed by management actions affecting asset and liability
instruments. However, potential changes in the values of financial
instruments indicated by hypothetical interest rate changes will likely be
different from actual changes experienced, and the differences could be
significant.
The
Company performed detailed sensitivity analysis as of December 31, 2008, for its
interest rate-sensitive assets and liabilities. The changes in market
values of the Company's debt securities in the first quarter of 2009 were
reasonable given the expected range of results of this analysis.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Liquidity
requirements are met primarily by funds provided from operations. Premium
deposits and annuity considerations, investment income, and investment
maturities and prepayments are the primary sources of funds while investment
purchases, policy benefits in the form of claims, and payments to policyholders
and contract holders in connection with surrenders and withdrawals as well as
operating expenses are the primary uses of funds. To ensure the
Company will be able to pay future commitments, the funds received as premium
payments and deposits are invested in high quality investments, primarily fixed
income securities. Funds are invested with the intent that the income
from investments, plus proceeds from maturities, will meet the ongoing cash flow
needs of the Company. The approach of matching asset and liability
durations and yields requires an appropriate mix of
investments. Although the Company historically has not been put in
the position of liquidating invested assets to provide cash flow, its
investments consist primarily of marketable debt securities that could be
readily converted to cash for liquidity needs. The Company may also
borrow up to $40 million on its bank line of credit for short-term cash
needs.
A primary
liquidity concern is the risk of an extraordinary level of early policyholder
withdrawals. The Company includes provisions within its annuity and
universal life insurance policies, such as surrender and market value adjustment
charges, that help limit and discourage early withdrawals. The
following table sets forth withdrawal characteristics of the Company's annuity
reserves and deposit liabilities (based on statutory liability values) as of the
dates indicated.
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Product
Line:
|
|
|
|
|
|
|
Traditional
Life
|
|
$ |
1,279 |
|
|
|
1,072 |
|
Universal
Life
|
|
|
15,865 |
|
|
|
9,450 |
|
Annuities
|
|
|
97,153 |
|
|
|
99,847 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
114,297 |
|
|
|
110,369 |
|
The above
contractual withdrawals, as well as the level of surrenders experienced, were
generally consistent with the Company's assumptions in asset/liability
management, and the associated cash outflows did not have an adverse impact on
overall liquidity. Individual life insurance policies are less susceptible to
withdrawal than annuity reserves and deposit liabilities because policyholders
may incur surrender charges and undergo a new underwriting process in order to
obtain a new insurance policy. Cash flow projections and tests under various
market interest rate scenarios are also performed to assist in evaluating
liquidity needs and adequacy. The Company currently expects available
liquidity sources and future cash flows to be more than adequate to meet the
demand for funds.
In the
past, cash flows from the Company's insurance operations have been sufficient to
meet current needs. Cash flows from operating activities were $40.1
million and $66.9 million for the three months ended March 31, 2009 and 2008,
respectively. The Company also has significant cash flows from both scheduled
and unscheduled investment security maturities, redemptions, and
prepayments. These cash flows totaled $(100.6) million and $18.8
million for the three months ended March 31, 2009 and 2008,
respectively. These cash flow items could be reduced if interest
rates rise. Net cash flows from the Company's universal life and
investment annuity deposit product operations totaled $20.8 million and $(37.1)
million during the three months ended March 31, 2009 and 2008,
respectively.
Capital
Resources
The
Company relies on stockholders' equity for its capital resources as there is no
long-term debt outstanding and the Company does not anticipate the need for any
long-term debt in the near future. As of March 31, 2009, the Company
had commitments of approximately $2.1 million which were approved by the
Company's Board of Directors for the construction of a nursing home facility in
Central Texas. The construction of the new facility began in 2007 and
is expected to be completed in the second quarter of 2009.
OFF-BALANCE
SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
It is not
Company practice to enter into off-balance sheet arrangements or to issue
guarantees to third parties, other than in the normal course of issuing
insurance contracts. Commitments related to insurance products sold
are reflected as liabilities for future policy benefits. Insurance
contracts guarantee certain performances by the Company.
Insurance
reserves are the means by which life insurance companies determine the
liabilities that must be established to assure that future policy benefits are
provided for and can be paid. These reserves are required by law and
based upon standard actuarial methodologies to ensure fulfillment of commitments
guaranteed to policyholders and their beneficiaries, even though the obligations
may not be due for many years. Refer to Note (1) in the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2008 for a discussion of reserving
methods.
The table
below summarizes future estimated cash payments under existing contractual
obligations.
|
|
Payment
Due by Period
|
|
|
|
|
|
|
Less
Than
|
|
|
1 -
3
|
|
|
3 -
5
|
|
|
More
Than
|
|
|
|
Total
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations (1)
|
|
$ |
261 |
|
|
|
196 |
|
|
|
65 |
|
|
|
- |
|
|
|
- |
|
Construction
commitments
|
|
|
2,059 |
|
|
|
2,059 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Life
claims payable (2)
|
|
|
50,678 |
|
|
|
50,678 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
long-term reserve liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reflected
on the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
GAAP (3)
|
|
|
7,875,120 |
|
|
|
799,683 |
|
|
|
1,455,634 |
|
|
|
1,788,254 |
|
|
|
3,831,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,928,118 |
|
|
|
852,616 |
|
|
|
1,455,699 |
|
|
|
1,788,254 |
|
|
|
3,831,549 |
|
(1) Refer
to Note 9 in the Notes to Consolidated Financial Statements relating to leases
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
(2) Life
claims payable include benefit and claim liabilities for which the Company
believes the amount and timing of the payment is essentially fixed and
determinable. Such amounts generally relate to incurred and reported
death and critical illness claims including an estimate of claims incurred but
not reported.
(3) Other
long-term liabilities include estimated life and annuity obligations related to
death claims, policy surrenders, policy withdrawals, maturities and annuity
payments based on mortality, lapse, annuitization, and withdrawal assumptions
consistent with the Company’s historical experience. These estimated life and
annuity obligations are undiscounted projected cash outflows that assume
interest crediting and market growth consistent with assumptions used in
amortizing deferred acquisition costs. They do not include any offsets for
future premiums or deposits. Other long-term liabilities also include
determinable payout patterns related to immediate annuities. In contrast to this
table, the majority of the Company’s liabilities for future obligations recorded
on the consolidated balance sheet do not incorporate future credited interest
and market growth. Therefore, the estimated life and annuity obligations
presented in this table significantly exceed the life and annuity liabilities
recorded in the reserves for future life and annuity obligations. Due to the
significance of the assumptions used, the actual cash outflows will differ both
in amount and timing, possibly materially, from these estimates.
CHANGES
IN ACCOUNTING PRINCIPLES AND CRITICAL ACCOUNTING POLICIES
Changes
in Accounting Principles
Refer to
Note 1 of the Notes to Condensed Consolidated Financial Statements.
REGULATORY
AND OTHER ISSUES
Statutory
Accounting Practices
Regulations
that affect the Company and the insurance industry are often the result of
efforts by the National Association of Insurance Commissioners
("NAIC"). The NAIC routinely publishes new regulations as model acts
or laws which states subsequently adopt as part of their insurance
regulations. Currently, the Company is not aware of any NAIC
regulatory matter material to its operations or reporting of financial
results.
Risk-Based
Capital Requirements
The NAIC
established risk-based capital ("RBC") requirements to help state regulators
monitor the financial strength and stability of life insurers by identifying
those companies that may be inadequately capitalized. Under the
NAIC's requirements, each insurer must maintain its total capital above a
calculated threshold or take corrective measures to achieve the
threshold. The threshold of adequate capital is based on a formula
that takes into account the amount of risk each company faces on its products
and investments. The RBC formula takes into consideration four major
areas of risk which are: (i) asset risk which primarily focuses on
the quality of investments; (ii) insurance risk which encompasses mortality and
morbidity risk; (iii) interest rate risk which involves asset/liability matching
issues; and (iv) other business risks. Statutory laws prohibit public
dissemination of certain RBC information. However, the Company's
current statutory capital and surplus is significantly in excess of the
threshold RBC requirements.
ABOUT
MARKET RISK
This
information is included in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Investments in Debt and
Equity Securities section.
The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Finanical Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing, and reporting,
on a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
There
have been no changes in the Company's internal controls over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
quarter ended March 31, 2009 that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
Refer to
Note 8 "Legal Proceedings" of the accompanying financial statements included in
this Form 10-Q.
There
have been no changes relative to the risk factors disclosed in the Company's
Annual Report on Form 10-K for the year ended December 31, 2008.
Effective
August 22, 2008, the Company adopted and implemented a limited stock buy-back
program associated with the Company's 2008 Incentive Plan which provides Option
Holders the additional alternative of selling shares acquired through the
exercise of options directly back to the Company. This program
succeeded a similar buy-back program implemented March 10, 2006 associated with
the Company’s 1995 Stock Option and Incentive Plan. Option Holders
may elect to sell such acquired shares back to the Company at any time within
ninety (90) days after the exercise of options at the prevailing market price as
of the date of notice of election.
(a)
Exhibits
Exhibit
10(ch)
|
-
|
Amended
National Western Life Insurance Company Excess Benefit Plan , effective
May 1, 2009.
|
|
|
|
Exhibit
31(a)
|
-
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Exhibit
31(b)
|
-
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Exhibit
32(a)
|
-
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 11, 2009
|
|
|
/S/
Ross R. Moody
|
|
|
|
|
|
Ross
R. Moody
|
|
|
|
|
|
President,
Chief Operating Officer,
|
|
|
|
|
|
and
Director
|
|
|
|
|
|
(Authorized
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 11, 2009
|
|
|
/S/
Brian M. Pribyl
|
|
|
|
|
|
Brian
M. Pribyl
|
|
|
|
|
|
Senior
Vice President,
|
|
|
|
|
|
Chief
Financial & Administrative
|
|
|
|
|
|
Officer
and Treasurer
|
|
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 11, 2009
|
|
|
/S/
Michael G. Kean
|
|
|
|
|
|
Michael
G. Kean
|
|
|
|
|
|
Vice
President,
|
|
|
|
|
|
Controller
and Assistant Treasurer
|
|
|
|
|
|
(Principal
Accounting Officer)
|
|
|