Edgar Filing: NATIONAL WESTERN LIFE INSURANCE CO

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 September 30, 2007

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 November 7, 2007, the number of shares of Registrant's common stock outstanding was: Class A – 3,422,324 and Class B - 200,000.

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	Page

Part I. Financial Information:	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets	3
September 30, 2007 (Unaudited) and December 31, 2006

Condensed Consolidated Statements of Earnings	5
For the Three Months Ended September 30, 2007 and 2006 (Unaudited)

Condensed Consolidated Statements of Earnings	6
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)

Condensed Consolidated Statements of Comprehensive Income	7
For the Three Months Ended September 30, 2007 and 2006 (Unaudited)

Condensed Consolidated Statements of Comprehensive Income	8
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)

Condensed Consolidated Statements of Stockholders' Equity	9
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)

Condensed Consolidated Statements of Cash Flows	10
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Item 2. Management's Discussion and Analysis of	24
Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk	48

Item 4. Controls and Procedures	48

Part II. Other Information:	48

Item 1. Legal Proceedings	48

Item 1A. Risk Factors	48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 6. Exhibits	49

Signatures	50

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)


	(Unaudited)
	September 30,		December 31,
	2007		2006
ASSETS
Investments:
Securities held to maturity, at amortized cost	$	3,750,933		3,603,434
Securities available for sale, at fair value		1,893,854		1,902,568
Mortgage loans, net of allowances for possible
losses ($3,566 and $2,100)		98,852		103,325
Policy loans		84,377		86,856
Derivatives		51,797		72,012
Other long-term investments		16,965		22,822

Total investments		5,896,778		5,791,017

Cash and short-term investments		41,036		49,901
Deferred policy acquisition costs		653,893		643,964
Deferred sales inducements		101,888		93,139
Accrued investment income		63,469		64,393
Federal income tax receivable		10,922		-
Other assets		47,197		51,029

	$	6,815,183		6,693,443

Note: The condensed consolidated balance sheet at December 31, 2006, has been derived from the audited consolidated financial statements as of that date.

See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)


	(Unaudited)
	September 30,			December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY	2007			2006

LIABILITIES:

Future policy benefits:
Traditional life and annuity contracts	$	138,720			138,382
Universal life and annuity contracts		5,454,962			5,395,075
Other policyholder liabilities		117,342			112,449
Federal income tax liability:
Current		-			1,666
Deferred		46,366			32,207
Other liabilities		77,727			80,680

Total liabilities		5,835,117			5,760,459

COMMITMENTS AND CONTINGENCIES (Note 5 and 9)

STOCKHOLDERS' EQUITY:

Common stock:
Class A - $1 par value; 7,500,000 shares authorized; 3,422,324 and
3,420,824 issued and outstanding in 2007 and 2006		3,422			3,421
Class B - $1 par value; 200,000 shares authorized, issued,
and outstanding in 2007 and 2006		200			200
Additional paid-in capital		36,236			36,110
Accumulated other comprehensive loss		(9,458	)		(3,731	)
Retained earnings		949,666			896,984

Total stockholders' equity		980,066			932,984

	$	6,815,183			6,693,443

Note: The condensed consolidated balance sheet at December 31, 2006, has been derived from the audited consolidated financial statements as of that date.

See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands, except per share amounts)


	2007			2006

Premiums and other revenue:
Traditional life and annuity premiums	$	4,755			3,654
Universal life and annuity contract revenues		30,025			26,923
Net investment income		75,075			96,049
Other income		3,786			3,064
Realized gains (losses) on investments		(1,505	)		190

Total premiums and other revenue		112,136			129,880

Benefits and expenses:
Life and other policy benefits		11,337			9,212
Amortization of deferred acquisition costs		25,238			24,430
Universal life and annuity contract interest		38,219			59,065
Other operating expenses		12,871			12,513

Total benefits and expenses		87,665			105,220

Earnings before Federal income taxes		24,471			24,660

Provision (benefit) for Federal income taxes:
Current		(2,836	)		8,214
Deferred		11,685			374

Total Federal income taxes		8,849			8,588

Net earnings	$	15,622			16,072


Basic Earnings Per Share	$	4.31			4.44


Diluted Earnings Per Share	$	4.28			4.40


See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands, except per share amounts)


	2007		2006

Premiums and other revenue:
Traditional life and annuity premiums	$	14,074		11,742
Universal life and annuity contract revenues		87,474		79,477
Net investment income		260,033		261,059
Other income		10,461		11,271
Realized gains on investments		2,901		3,229

Total premiums and other revenue		374,943		366,778

Benefits and expenses:
Life and other policy benefits		32,748		28,300
Amortization of deferred acquisition costs		74,660		69,443
Universal life and annuity contract interest		143,037		138,678
Other operating expenses		43,354		51,611

Total benefits and expenses		293,799		288,032

Earnings before Federal income taxes		81,144		78,746

Provision (benefit) for Federal income taxes:
Current		6,551		28,987
Deferred		18,448		(2,585	)

Total Federal income taxes		24,999		26,402

Net earnings	$	56,145		52,344


Basic Earnings Per Share	$	15.50		14.46


Diluted Earnings Per Share	$	15.37		14.32


See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)


	2007		2006

Net earnings	$	15,622		16,072

Other comprehensive income (loss), net of effects of
deferred policy acquisition costs and taxes:
Net unrealized gains on securities:
Net unrealized holding gains arising during period		4,860		15,866
Reclassification adjustment for (gains) and losses included
in net earnings		16		(42	)
Amortization of net unrealized gains
related to transferred securities		25		6

Net unrealized gains on securities		4,901		15,830

Foreign currency translation adjustments		47		(317	)
Benefit plan adjustment		308		-

Other comprehensive income		5,256		15,513

Comprehensive income	$	20,878		31,585


See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)


	2007			2006

Net earnings	$	56,145			52,344

Other comprehensive income (loss), net of effects of
deferred policy acquisition costs and taxes:
Net unrealized losses on securities:
Net unrealized holding losses arising during period		(3,745	)		(4,394	)
Reclassification adjustment for gains included in net earnings		(2,848	)		(1,740	)
Amortization of net unrealized gains (losses)
related to transferred securities		79			(90	)

Net unrealized losses on securities		(6,514	)		(6,224	)

Foreign currency translation adjustments		(139	)		(152	)
Benefit plan adjustment		926			-

Other comprehensive loss		(5,727	)		(6,376	)

Comprehensive income	$	50,418			45,968


See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)


	2007			2006
Common stock:
Balance at beginning of year	$	3,621			3,613
Shares exercised under stock option plan		1			8

Balance at end of period		3,622			3,621

Additional paid-in capital:
Balance at beginning of year		36,110			37,923
Shares exercised under the stock option plan		126			510
Adjustment for stock option liability classification		-			(1,211	)

Balance at end of period		36,236			37,222

Accumulated other comprehensive income:
Unrealized gains (losses) on securities:
Balance at beginning of year		3,148			10,401
Change in unrealized losses during period		(6,514	)		(6,224	)

Balance at end of period		(3,366	)		4,177

Foreign currency translation adjustments:
Balance at beginning of year		3,122			3,300
Change in translation adjustments during period		(139	)		(152	)

Balance at end of period		2,983			3,148

Benefit plan liability adjustment:
Balance at beginning of year		(10,001	)		(3,137	)
Change in benefit plan liability adjustment during period		926			-

Balance at end of period		(9,075	)		(3,137	)

Accumulated other comprehensive loss at end of period		(9,458	)		4,188

Retained earnings:
Balance at beginning of year		896,984			821,908
Cumulative effect of change in accounting principle, net of tax		(2,195	)		-
Net earnings		56,145			52,344
Stockholder dividends		(1,268	)		(1,267	)

Balance at end of period		949,666			872,985

Total stockholders' equity	$	980,066			918,016


See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)


	2007			2006

Cash flows from operating activities:
Net earnings	$	56,144			52,344
Adjustments to reconcile net earnings to net cash
from operating activities:
Universal life and annuity contract interest		143,037			138,678
Surrender charges and other policy revenues		(26,776	)		(24,226	)
Realized gains on investments		(2,901	)		(3,229	)
Accrual and amortization of investment income		(3,829	)		(3,793	)
Depreciation and amortization		746			1,030
(Increase) decrease in value of derivatives		26,393			(7,901	)
Increase in deferred policy acquisition and sales inducement costs		(9,730	)		(6,479	)
(Increase) decrease in accrued investment income		924			(615	)
(Increase) decrease in other assets		582			(7,126	)
Increase (decrease) in liabilities for future policy benefits		338			(612	)
Increase in other policyholder liabilities		4,893			15,913
Increase (decrease) in Federal income tax liability		6,861			987
Increase (decrease) in other liabilities		(5,924	)		14,941
Other		168			(72	)

Net cash provided by operating activities		190,926			169,840

Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity		5,175			-
Securities available for sale		28,418			21,502
Other investments		33,255			32,951
Proceeds from maturities and redemptions of:
Securities held to maturity		106,023			199,590
Securities available for sale		268,999			86,848
Purchases of:
Securities held to maturity		(256,014	)		(254,994	)
Securities available for sale		(284,742	)		(160,576	)
Other investments		(35,619	)		(33,039	)
Principal payments on mortgage loans		21,623			8,867
Cost of mortgage loans acquired		(18,480	)		(3,999	)
Decrease in policy loans		(2,309	)		(29	)
Other		(2,006	)		(247	)

Net cash used in investing activities		(135,677	)		(103,126	)


	(Continued on next page)

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)


	2007			2006

Cash flows from financing activities:
Deposits to account balances for universal life
and annuity contracts	$	380,708			419,003
Return of account balances on universal life
and annuity contracts		(444,877	)		(393,077	)
Issuance of common stock under stock option plan		127			510

Net cash (used in) provided by financing activities		(64,042	)		26,436

Effect of foreign exchange		(72	)		738

Net increase (decrease) in cash and short-term investments		(8,865	)		93,888
Cash and short-term investments at beginning of year		49,901			31,355

Cash and short-term investments at end of period	$	41,036			125,243


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the nine month period for:
Interest	$	30			30
Income taxes		19,155			24,990



See accompanying notes to condensed consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) CONSOLIDATION AND BASIS OF PRESENTATION

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 the Company as of September 30, 2007, and the results of its operations and its cash flows for the three months and nine months ended September 30, 2007 and 2006. The results of operations for the three months and nine months ended September 30, 2007 and 2006 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, 2006 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 ("Company"), The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., and NWL Financial, Inc. All significant intercorporate transactions and accounts have been eliminated in consolidation.

Certain reclassifications have been made to the prior periods to conform to the reporting categories used in 2007.

(2) CHANGES IN ACCOUNTING PRINCIPLES

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1") which is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The Company has an impact related to the adoption of SOP 05-1 for contracts which have annuitized and relative to reinstatements of contracts in that the unamortized deferred acquisition costs and deferred sales inducement assets must be written-off at the time of annuitization and may not be continued related to reinstatements. SOP 05-1 results in changes in assumptions relative to estimated gross profits which affects unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement balances as of the beginning of the year. The effect of this SOP on beginning retained earnings as of January 1, 2007 was a decrease of $2.2 million, net of tax, as detailed below.

	Amounts
	(In thousands)

Write-off of deferred acquisition cost	$	3,321
Adjustment to deferred annuity revenue		56
		3,377

Federal income tax		(1,182	)

Cumulative effect of change in accounting for
internal replacements and investment contracts	$	2,195

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The FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"), dated June, 2006. The interpretation requires public companies to recognize the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. The amount recognized would be the amount that represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability would be recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess. FIN 48 requires a tabular reconciliation of the change in the aggregate unrecognized tax benefits claimed, or expected to be claimed, in tax returns and disclosure relating to accrued interest and penalties for unrecognized tax benefits. Discussion is required for those uncertain tax positions where it is reasonably possible that the estimate of the tax benefit will change significantly in the next 12 months. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Company's consolidated financial statements.

On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivatives and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Hybrid financial instruments are single financial instruments that contain an embedded derivative. Under SFAS No. 155, entities can elect to record certain hybrid financial instruments at fair value as individual financial instruments. Prior to this amendment, certain hybrid financial instruments were required to be separated into two instruments – a derivative and host – and generally only the derivative was recorded at fair value. SFAS No. 155 also requires that beneficial interests in securitized assets be evaluated for either freestanding or embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued after January 1, 2007. SFAS No. 155 did not have a material effect on the Company's consolidated financial statements on the date of adoption.

In September 2006, the FASB issued 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. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1, 2008. The Company is currently assessing the impact of SFAS No. 157 on the Company's consolidated financial position and results of operations.

In February of 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159.

(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 paid no cash dividends on common stock during the nine months ended September 30, 2007 and 2006. However, the Company declared a cash dividend on August 24, 2007 payable November 29, 2007 to stockholders on record as of October 31, 2007. The dividends declared were $0.36 per common share to Class A stockholders and $0.18 per common share to Class B stockholders. The dividend payment was approved by the Colorado Division of Insurance. A dividend in the same amounts per share on Class A and Class B shares was declared in August and payable in November of 2006.

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(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				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
	(In thousands, except per share data)

Numerator for basic and diluted
earnings per share:
Earnings available to common stockholders
before and after assumed conversions	$	15,622		16,072		56,145		52,344


Denominator:
Basic earnings per share -
weighted-average shares		3,622		3,621		3,622		3,620

Effect of dilutive stock options		31		34		31		36

Diluted earnings per share -
adjusted weighted-average
shares for assumed conversions		3,653		3,655		3,653		3,656


Basic earnings per share	$	4.31		4.44		15.50		14.46


Diluted earnings per share	$	4.28		4.40		15.37		14.32

(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 complies with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The following summarizes the components of net periodic benefit cost.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands)

Service cost	$	180			175			540			518
Interest cost		272			279			815			766
Expected return on plan assets		(275	)		(255	)		(825	)		(710	)
Amortization of prior service cost		1			1			3			3
Amortization of net loss		80			99			240			264

Net periodic benefit cost	$	258			299			773			841

The Company has contributed $1.8 million to the qualified plan in 2007. No further contributions are expected in 2007.

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Effective October 19, 2007, the Company’s Board of Directors approved an amendment to freeze the Plan as of December 31, 2007. As of that date, the freeze will cease future benefit accruals to all participants and close the Plan to any new participants. In addition, all participants will become immediately 100% vested in their accrued benefits as of that date. Using estimated assumptions the cumulative estimated minimum required contribution for the next five years is $2.1 million at which time the Plan is expected to be fully funded. Future pension expense is projected to be minimal.

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.

The following summarizes the components of net periodic benefit costs for these non-qualified plans.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)

Service cost	$	194		574		580		1,222
Interest cost		240		385		721		531
Amortization of prior service cost		260		457		780		780
Amortization of net loss		101		137		303		137

Net periodic benefit cost	$	795		1,553		2,384		2,670

The Company expects to contribute $1.4 million to these plans in 2007. As of September 30, 2007, the Company has contributed $1.0 million to the plan.

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(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 September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)

Interest cost	$	36		38		106		88
Amortization of prior service cost		25		26		77		77
Amortization of net loss		7		-		22		-

Net periodic benefit cost	$	68		64		205		165

As previously disclosed in its financial statements for the year ended December 31, 2006, the Company expects to contribute minimal amounts to the plan in 2007.

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(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 September 30, 2007 and 2006 is provided below.

Selected Segment Information.
	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others		Totals
	(In thousands)

September 30, 2007:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	57,063		189,866		508,852		-		755,781
Total segment assets		392,465		769,225		5,513,462		104,786		6,779,938
Future policy benefits		318,171		541,526		4,733,985		-		5,593,682
Other policyholder liabilities		10,915		17,225		89,202		-		117,342

Three Months Ended
September 30, 2007:
Condensed Income Statements:
Premiums and contract
revenues	$	6,875		21,826		6,079		-		34,780
Net investment income		4,774		6,460		62,833		1,008		75,075
Other income		7		19		543		3,217		3,786

Total revenues		11,656		28,305		69,455		4,225		113,641

Life and other policy benefits		3,969		6,353		1,015		-		11,337
Amortization of deferred
policy acquisition costs		2,229		8,045		14,964		-		25,238
Universal life and annuity
contract interest		2,396		6,131		29,692		-		38,219
Other operating expenses		2,877		3,616		3,593		2,785		12,871
Federal income taxes (benefit)		42		1,457		7,314		563		9,376

Total expenses		11,513		25,602		56,578		3,348		97,041

Segment earnings	$	143		2,703		12,877		877		16,600

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	Domestic			International
	Life			Life				All
	Insurance			Insurance		Annuities		Others		Totals
	(In thousands)

Nine Months Ended
September 30, 2007:
Condensed Income Statements:
Premiums and contract
revenues	$	19,522			64,061		17,965		-		101,548
Net investment income		13,967			21,075		220,263		4,728		260,033
Other income		34			106		909		9,412		10,461

Total revenues		33,523			85,242		239,137		14,140		372,042

Life and other policy benefits		12,727			17,330		2,691		-		32,748
Amortization of deferred
policy acquisition costs		5,041			25,401		44,218		-		74,660
Universal life and annuity
contract interest		7,028			19,227		116,782		-		143,037
Other operating expenses		9,084			12,388		13,673		8,209		43,354
Federal income taxes (benefit)		(109	)		3,340		18,936		1,817		23,984

Total expenses		33,771			77,686		196,300		10,026		317,783

Segment earnings (losses)	$	(248	)		7,556		42,837		4,114		54,259

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Selected Segment Information.
	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others		Totals
	(In thousands)

September 30, 2006:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	49,041		177,482		499,212		-		725,735
Total segment assets		377,777		691,455		5,414,024		98,269		6,581,525
Future policy benefits		312,671		479,838		4,671,975		-		5,464,484
Other policyholder liabilities		9,702		21,680		85,089		-