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 June 30, 2008

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 August 4, 2008, the number of shares of Registrant's common stock outstanding was: Class A – 3,425,966 and Class B - 200,000.

TABLE OF CONTENTS

	Page

Part I. Financial Information:	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets	3
June 30, 2008 (Unaudited) and December 31, 2007

Condensed Consolidated Statements of Earnings	5
For the Three Months Ended June 30, 2008 and 2007 (Unaudited)

Condensed Consolidated Statements of Earnings	6
For the Six Months Ended June 30, 2008 and 2007 (Unaudited)

Condensed Consolidated Statements of Comprehensive Income	7
For the Three Months Ended June 30, 2008 and 2007 (Unaudited)

Condensed Consolidated Statements of Comprehensive Income	8
For the Six Months Ended June 30, 2008 and 2007 (Unaudited)

Condensed Consolidated Statements of Stockholders' Equity	9
For the Six Months Ended June 30, 2008 and 2007 (Unaudited)

Condensed Consolidated Statements of Cash Flows	10
For the Six Months Ended June 30, 2008 and 2007 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Item 2. Management's Discussion and Analysis of	28
Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk	53

Item 4. Controls and Procedures	53

Part II. Other Information:	53

Item 1. Legal Proceedings	53

Item 1A. Risk Factors	53

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 4. Submission of Matters to a Vote of Security Holders	54

Item 6. Exhibits	54

Signatures	55

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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




	(Unaudited)
	June 30,		December 31,
ASSETS	2008		2007

Investments:
Securities held to maturity, at amortized cost	$	3,804,745		3,778,603
Securities available for sale, at fair value		1,884,442		1,900,714
Mortgage loans, net of allowance for possible losses
($3,571 and $3,567)		90,857		99,033
Policy loans		81,877		83,772
Derivatives		6,880		25,907
Other long-term investments		17,638		16,562

Total investments		5,886,439		5,904,591

Cash and short-term investments		33,385		45,206
Deferred policy acquisition costs		678,825		664,805
Deferred sales inducements		110,021		104,029
Accrued investment income		64,862		65,034
Federal income tax receivable		6,369		10,010
Other assets		46,429		41,651

	$	6,826,330		6,835,326

See accompanying notes to condensed consolidated financial statements.

Table of Contents

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


	(Unaudited)
	June 30,			December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY	2008			2007

LIABILITIES:

Future policy benefits:
Traditional life and annuity contracts	$	138,070			138,672
Universal life and annuity contracts		5,419,712			5,441,871
Other policyholder liabilities		123,821			120,400
Federal income tax liability:
Current		-			-
Deferred		58,320			61,720
Other liabilities		56,863			60,978

Total liabilities		5,796,786			5,823,641

COMMITMENTS AND CONTINGENCIES (Notes 5 and 9)

STOCKHOLDERS’ EQUITY:

Common stock:
Class A - $1 par value; 7,500,000 shares authorized; 3,425,966 and
3,422,324 issued and outstanding in 2008 and 2007		3,426			3,422
Class B - $1 par value; 200,000 shares authorized, issued,
and outstanding in 2008 and 2007		200			200
Additional paid-in capital		36,680			36,236
Accumulated other comprehensive loss		(22,242	)		(7,065	)
Retained earnings		1,011,480			978,892

Total stockholders’ equity		1,029,544			1,011,685

	$	6,826,330			6,835,326

Note: The condensed consolidated balance sheet at December 31, 2007, has been derived from the audited consolidated financial statements as of that date.

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands, except per share amounts)


	2008			2007

Premiums and other revenue:
Life and annuity premiums	$	4,624			4,586
Universal life and annuity contract revenues		33,593			28,653
Net investment income		72,278			107,932
Other income		3,153			3,359
Realized gains (losses) on investments		(267	)		4,165

Total premiums and other revenue		113,381			148,695

Benefits and expenses:
Life and other policy benefits		7,655			10,437
Amortization of deferred policy acquisition costs		30,263			25,637
Universal life and annuity contract interest		33,555			67,385
Other operating expenses		14,627			16,367

Total benefits and expenses		86,100			119,826

Earnings before Federal income taxes		27,281			28,869

Provision for Federal income taxes:
Current		7,928			5,073
Deferred		1,211			1,945

Total Federal income taxes		9,139			7,018

Net earnings	$	18,142			21,851

Basic Earnings Per Share:
Class A	$	5.15			6.20
Class B	$	2.57			3.10

Diluted Earnings Per Share:
Class A	$	5.10			6.12
Class B	$	2.57			3.10

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Six Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands, except per share amounts)


	2008			2007

Premiums and other revenue:
Life and annuity premiums	$	8,518			9,319
Universal life and annuity contract revenues		65,811			57,449
Net investment income		131,708			184,958
Other income		6,292			6,675
Realized gains (losses) on investments		(311	)		4,406

Total premiums and other revenue		212,018			262,807

Benefits and expenses:
Life and other policy benefits		18,111			21,411
Amortization of deferred policy acquisition costs		56,511			49,422
Universal life and annuity contract interest		60,172			104,818
Other operating expenses		28,057			30,483

Total benefits and expenses		162,851			206,134

Earnings before Federal income taxes		49,167			56,673

Provision for Federal income taxes:
Current		11,819			9,387
Deferred		4,760			6,763

Total Federal income taxes		16,579			16,150

Net earnings	$	32,588			40,523

Basic Earnings Per Share:
Class A	$	9.25			11.51
Class B	$	4.62			5.75

Diluted Earnings Per Share:
Class A	$	9.18			11.35
Class B	$	4.62			5.75

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Net earnings	$	18,142			21,851

Other comprehensive income (loss), net of effects of
deferred costs and taxes:
Unrealized losses on securities:
Net unrealized holding losses arising during period		(15,503	)		(13,326	)
Reclassification adjustment for net gains
included in net earnings		(574	)		(2,697	)
Amortization of net unrealized gains (losses) related to
transferred securities		(30	)		34

Net unrealized losses on securities		(16,107	)		(15,989	)

Foreign currency translation adjustments		39			(99	)

Benefit plans:
Amortization of net prior service cost and net gain		375			618

Other comprehensive loss		(15,693	)		(15,470	)

Comprehensive income	$	2,449			6,381

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Net earnings	$	32,588			40,523

Other comprehensive income (loss), net of effects of
deferred costs and taxes:
Unrealized losses on securities:
Net unrealized holding losses arising during period		(15,095	)		(8,605	)
Reclassification adjustment for net gains
included in net earnings		(610	)		(2,864	)
Amortization of net unrealized gains (losses) related to
transferred securities		(14	)		54

Net unrealized losses on securities		(15,719	)		(11,415	)

Foreign currency translation adjustments		(142	)		(186	)

Benefit plans:
Amortization of net prior service cost and net gain		684			618

Other comprehensive loss		(15,177	)		(10,983	)

Comprehensive income	$	17,411			29,540

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007
Common stock:
Balance at beginning of year	$	3,622			3,621
Shares exercised under stock option plan		4			1

Balance at end of period		3,626			3,622

Additional paid-in capital:
Balance at beginning of year		36,236			36,110
Shares exercised under the stock option plan		444			126

Balance at end of period		36,680			36,236

Accumulated other comprehensive income (loss):
Unrealized gains (losses) on securities:
Balance at beginning of year		1,184			3,148
Change in unrealized gains (losses) during period		(15,719	)		(11,415	)

Balance at end of period		(14,535	)		(8,267	)

Foreign currency translation adjustments:
Balance at beginning of year		3,078			3,122
Change in translation adjustments during period		(142	)		(186	)

Balance at end of period		2,936			2,936

Benefit plan liability adjustment:
Balance at beginning of year		(11,327	)		(10,001	)
Amortization of net prior service cost and net gain		684			618

Balance at end of period		(10,643	)		(9,383	)

Accumulated other comprehensive loss at end of period		(22,242	)		(14,714	)

Retained earnings:
Balance at beginning of year		978,892			896,984
Cumulative effect of change in accounting principle, net of tax		-			(2,195	)
Net earnings		32,588			40,523

Balance at end of period		1,011,480			935,312

Total stockholders' equity	$	1,029,544			960,456

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Cash flows from operating activities:
Net earnings	$	32,588			40,523
Adjustments to reconcile net earnings to net cash
from operating activities:
Universal life and annuity contract interest		60,172			104,818
Surrender charges and other policy revenues		(19,667	)		(17,630	)
Realized losses (gains) on investments		311			(4,406	)
Accrual and amortization of investment income		(2,487	)		(2,641	)
Depreciation and amortization		495			707
Decrease (increase) in value of derivatives		21,289			(78	)
Decrease (increase) in deferred policy acquisition and
sales inducement costs		3,306			(4,601	)
Decrease (increase) in accrued investment income		172			(59	)
(Increase) decrease in other assets		(5,273	)		1,157
(Decrease) increase in liabilities for future policy benefits		(601	)		727
Increase in other policyholder liabilities		3,421			11,068
Decrease (increase) in Federal income tax liability		8,401			(2,365	)
Decrease in other liabilities		(4,115	)		(10,946	)
Other		359			1,802

Net cash provided by operating activities		98,371			118,076

Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity		-			5,175
Securities available for sale		999			11,562
Other investments		443			12,766
Proceeds from maturities and redemptions of:
Securities held to maturity		355,100			73,694
Securities available for sale		140,458			186,519
Derivatives		22,143			8,570
Purchases of:
Securities held to maturity		(379,575	)		(182,115	)
Securities available for sale		(167,134	)		(174,781	)
Other investments		(26,292	)		(24,947	)
Principal payments on mortgage loans		10,200			15,275
Cost of mortgage loans acquired		(1,962	)		(15,932	)
Decrease in policy loans		(1,895	)		(1,446	)
Other		(3,899	)		(1,872	)

Net cash used in investing activities		(47,624	)		(87,532	)

(Continued on next page)

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Six Months Ended June 30, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Cash flows from financing activities:
Deposits to account balances for universal life
and annuity contracts	$	238,296			247,944
Return of account balances on universal life
and annuity contracts		(300,961	)		(299,755	)
Issuance of common stock under stock option plan		448			127

Net cash used in financing activities		(62,217	)		(51,684	)

Effect of foreign exchange		(351	)		(195	)

Net decrease in cash and short-term investments		(11,821	)		(21,335	)
Cash and short-term investments at beginning of period		45,206			49,901

Cash and short-term investments at end of period	$	33,385			28,566

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest	$	20	20
Income taxes		8,178	19,097

See accompanying notes to condensed consolidated financial statements.

Table of Contents

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 June 30, 2008, and the results of its operations and its cash flows for the three months and six months ended June 30, 2008 and 2007. The results of operations for the three months and six months ended June 30, 2008 and 2007 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, 2007 accessible free of charge through the Company's internet site at www.nationalwesternlife.com or the Securities and Exchange Commission (“SEC”) 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., NWL Financial, Inc., NWL Mortgage I Corp, NWL Mortgage, Ltd. and Regent Care San Marcos Holdings, LLC. All significant intercorporate transactions and accounts have been eliminated in consolidation.

(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 was 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 had an impact related to the adoption of SOP 05-1 for contracts which annuitized and for reinstatements of contracts. The unamortized deferred acquisition costs and deferred sales inducement assets have to be written-off at the time of annuitization and can not be continued related to reinstatements. SOP 05-1 resulted in changes in assumptions relative to estimated gross profits which affected unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement balances as of the beginning of 2007. 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

Table of Contents

In September 2006, the Financial Accounting Standards Board (“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 and expands disclosures about fair value measurements. The Company adopted SFAS 157 effective January 1, 2008, and the adoption did not have an impact on the Company’s consolidated financial statements. See Note 10 for additional disclosures concerning fair value measurement.

In February 2008, the FASB issued 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.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. The Company adopted SFAS 159 effective January 1, 2008, and the adoption did not have an impact on the consolidated financial statements as no items were elected for measurement at fair value upon initial adoption.

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 are effective beginning January 1, 2009. The Company is currently evaluating the impact that the adoption of this statement will have on the consolidated financial position, results of operations and disclosures.

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 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. The adoption of SFAS 141(R) is not expected to have a material impact on the Company’s consolidated financial statements.

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 their 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 adoption of SFAS No. 161 is not expected to have a material impact on the Company’s 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 paid no cash dividends on common stock during the six months ended June 30, 2008 and 2007.

Table of Contents

(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 June 30,
	2008				2007
	Class A		Class B		Class A		Class B
	(In thousands except per share amounts)

Numerator for Basic and
Diluted Earnings Per Share:
Net income	$	18,142				21,851
Dividends – Class A shares		-				-
Dividends – Class B shares		-				-

Undistributed income	$	18,142				21,851

Allocation of net income:
Dividends	$	-		-		-		-
Allocation of undistributed income		17,627		515		21,231		620

Net income	$	17,627		515		21,231		620

Denominator:
Basic earnings per share -
weighted-average shares		3,426		200		3,422		200
Effect of dilutive
stock options		27		-		45		-

Diluted earnings per share -
adjusted weighted-average
shares for assumed
conversions		3,453		200		3,467		200

Basic Earnings Per Share	$	5.15		2.57		6.20		3.10

Diluted Earnings Per Share	$	5.10		2.57		6.12		3.10

Table of Contents

	Six Months Ended June 30,
	2008				2007
	Class A		Class B		Class A		Class B
	(In thousands except per share amounts)

Numerator for Basic and
Diluted Earnings Per Share:
Net income	$	32,588				40,523
Dividends – Class A shares		-				-
Dividends – Class B shares		-				-

Undistributed income	$	32,588				40,523

Allocation of net income:
Dividends	$	-		-		-		-
Allocation of undistributed income		31,664		924		39,372		1,151

Net income	$	31,664		924		39,372		1,151

Denominator:
Basic earnings per share -
weighted-average shares		3,424		200		3,422		200
Effect of dilutive
stock options		26		-		46		-

Diluted earnings per share -
adjusted weighted-average
shares for assumed
conversions		3,450		200		3,468		200

Basic Earnings Per Share	$	9.25		4.62		11.51		5.75

Diluted Earnings Per Share	$	9.18		4.62		11.35		5.75

(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. 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.

Table of Contents

The following summarizes the components of net periodic benefit cost.

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(In thousands)

Service cost	$	(180	)		187			-			360
Interest cost		246			288			518			543
Expected return on plan assets		(295	)		(313	)		(570	)		(550	)
Amortization of prior service cost		1			1			2			2
Amortization of net loss		42			72			122			160

Net periodic benefit cost	$	(186	)		235			72			515

The Company expects to contribute $1.1 million to the plan in 2008. As of June 30, 2008, the Company has contributed $0.3 million 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.

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2008		2007			2008		2007
	(In thousands)

Service cost	$	100		(21	)		293		386
Interest cost		354		304			595		481
Amortization of prior service cost		260		260			520		520
Amortization of net loss		252		156			353		202

Net periodic benefit cost	$	966		699			1,761		1,589

The Company expects to contribute $1.7 million to these plans in 2008. As of June 30, 2008, the Company has contributed $0.7 million to the plans.

Table of Contents

(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 June 30,					Six Months Ended June 30,
	2008			2007		2008		2007
	(In thousands)

Interest cost	$	32			41		67		70
Amortization of prior service cost		26			26		52		52
Amortization of net loss		(4	)		15		3		15

Net periodic benefit cost	$	54			82		122		137

As previously disclosed in its financial statements for the year ended December 31, 2007, the Company expects to contribute minimal amounts to the plan in 2008.

Table of Contents

(6) SEGMENT AND OTHER OPERATING INFORMATION

Under 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 as of and for the periods ended June 30, 2008 and 2007 is provided below.

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

June 30, 2008:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	63,709		213,085		512,052		-		788,846
Total segment assets		401,193		823,498		5,428,195		131,362		6,784,248
Future policy benefits		319,676		579,006		4,659,100		-		5,557,782
Other policyholder liabilities		10,838		12,261		100,722		-		123,821

Three Months Ended
June 30, 2008:
Condensed Income Statements:
Premiums and contract
revenues	$	6,691		24,741		6,785		-		38,217
Net investment income		5,030		5,005		59,006		3,237		72,278
Other income		4		13		85		3,051		3,153

Total revenues		11,725		29,759		65,876		6,288		113,648

Life and other policy benefits		2,814		4,286		555		-		7,655
Amortization of deferred
policy acquisition costs		2,068		9,610		18,585		-		30,263
Universal life and annuity
contract interest		2,288		4,586		26,681		-		33,555
Other operating expenses		3,049		4,254		4,489		2,835		14,627
Federal income taxes		508		2,354		5,210		1,161		9,233

Total expenses		10,727		25,090		55,520		3,996		95,333

Segment earnings	$	998		4,669		10,356		2,292		18,315

Table of Contents

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

Six Months Ended
June 30, 2008:
Condensed Income Statements:
Premiums and contract
revenues	$	13,310		48,226		12,793		-		74,329
Net investment income		10,191		8,044		109,303		4,170		131,708
Other income		10		25		123		6,134		6,292

Total revenues		23,511		56,295		122,219		10,304		212,329

Life and other policy benefits		7,019		9,599		1,493		-		18,111
Amortization of deferred
policy acquisition costs		4,355		18,401		33,755		-		56,511
Universal life and annuity
contract interest		4,643		7,280		48,249		-		60,172
Other operating expenses		6,023		8,126		8,295		5,613		28,057
Federal income taxes		496		4,348		10,262		1,582		16,688

Total expenses		22,536		47,754		102,054		7,195		179,539

Segment earnings	$	975		8,541		20,165		3,109		32,790

Table of Contents

Selected Segment Information.

Domestic

International

Life

All

Insurance

Annuities

Others

Totals

(In thousands)

June 30, 2007:

Selected Balance Sheet Items:

Deferred policy acquisition

costs and sales inducements

54,622

185,507

514,508

754,637

Total segment assets

387,613