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, 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 November 6, 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
September 30, 2008 (Unaudited) and December 31, 2007

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

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

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

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

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Item 2. Management's Discussion and Analysis of	33
Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk	58

Item 4. Controls and Procedures	58

Part II. Other Information:	58

Item 1. Legal Proceedings	58

Item 1A. Risk Factors	59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 6. Exhibits	59

Signatures	60

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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,
ASSETS	2008		2007

Investments:
Securities held to maturity, at amortized cost	$	3,850,139		3,778,603
Securities available for sale, at fair value		1,793,722		1,900,714
Mortgage loans, net of allowance for possible losses
($3,571 and $3,567)		87,789		99,033
Policy loans		80,937		83,772
Derivatives, index options		6,095		25,907
Other long-term investments		23,523		16,562

Total investments		5,842,205		5,904,591

Cash and short-term investments		34,851		45,206
Deferred policy acquisition costs		688,973		664,805
Deferred sales inducements		117,177		104,029
Accrued investment income		67,503		65,034
Federal income tax receivable		5,184		10,010
Other assets		44,975		41,651

	$	6,800,868		6,835,326

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	2008			2007

LIABILITIES:

Future policy benefits:
Traditional life and annuity contracts	$	137,978			138,672
Universal life and annuity contracts		5,419,282			5,441,871
Other policyholder liabilities		129,078			120,400
Federal income tax liability:
Current		-			-
Deferred		36,428			61,720
Other liabilities		81,833			60,978

Total liabilities		5,804,599			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		(44,448	)		(7,065	)
Retained earnings		1,000,411			978,892

Total stockholders’ equity		996,269			1,011,685

	$	6,800,868			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.

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


	2008			2007

Premiums and other revenue:
Life and annuity premiums	$	4,057			4,755
Universal life and annuity contract revenues		32,885			30,025
Net investment income		69,582			75,075
Other income		3,056			3,786
Net investment losses		(21,620	)		(1,505	)

Total premiums and other revenue		87,960			112,136

Benefits and expenses:
Life and other policy benefits		10,794			11,337
Amortization of deferred policy acquisition costs		37,188			25,238
Universal life and annuity contract interest		38,339			38,219
Other operating expenses		17,905			12,871

Total benefits and expenses		104,226			87,665

Earnings (loss) before Federal income taxes		(16,266	)		24,471

Provision (benefit) for Federal income taxes:
Current		3,488			(2,836	)
Deferred		(9,954	)		11,685

Total Federal income taxes		(6,466	)		8,849

Net earnings (loss)	$	(9,800	)		15,622

Basic Earnings (Loss) Per Share:
Class A	$	(2.78	)		4.44
Class B	$	(1.39	)		2.22

Diluted Earnings (Loss) Per Share:
Class A	$	(2.78	)		4.38
Class B	$	(1.39	)		2.22

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, 2008 and 2007
(Unaudited)
(In thousands, except per share amounts)


	2008			2007

Premiums and other revenue:
Life and annuity premiums	$	12,575			14,074
Universal life and annuity contract revenues		98,696			87,474
Net investment income		201,290			260,033
Other income		9,348			10,461
Net investment gains (losses)		(21,931	)		2,901

Total premiums and other revenue		299,978			374,943

Benefits and expenses:
Life and other policy benefits		28,905			32,748
Amortization of deferred policy acquisition costs		93,699			74,660
Universal life and annuity contract interest		98,511			143,037
Other operating expenses		45,962			43,354

Total benefits and expenses		267,077			293,799

Earnings before Federal income taxes		32,901			81,144

Provision (benefit) for Federal income taxes:
Current		15,307			6,551
Deferred		(5,194	)		18,448

Total Federal income taxes		10,113			24,999

Net earnings	$	22,788			56,145

Basic Earnings Per Share:
Class A	$	6.47			15.94
Class B	$	3.23			7.97

Diluted Earnings Per Share:
Class A	$	6.42			15.74
Class B	$	3.23			7.97

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, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Net earnings (loss)	$	(9,800	)		15,622

Other comprehensive income (loss), net of effects of
deferred costs and taxes:
Unrealized losses on securities:
Net unrealized holding gains (losses) arising during period		(34,258	)		4,860
Reclassification adjustment for net losses
included in net earnings		11,707			16
Amortization of net unrealized gains related to
transferred securities		11			25

Net unrealized gains (losses) on securities		(22,540	)		4,901

Foreign currency translation adjustments		(8	)		47

Benefit plans:
Amortization of net prior service cost and net loss		342			308

Other comprehensive income (loss)		(22,206	)		5,256

Comprehensive income (loss)	$	(32,006	)		20,878

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, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Net earnings	$	22,788			56,145

Other comprehensive income (loss), net of effects of
deferred costs and taxes:
Unrealized losses on securities:
Net unrealized holding losses arising during period		(49,353	)		(3,745	)
Reclassification adjustment for net losses (gains)
included in net earnings		11,097			(2,848	)
Amortization of net unrealized gains (losses) related to
transferred securities		(3	)		79

Net unrealized losses on securities		(38,259	)		(6,514	)

Foreign currency translation adjustments		(150	)		(139	)

Benefit plans:
Amortization of net prior service cost and net loss		1,026			926

Other comprehensive loss		(37,383	)		(5,727	)

Comprehensive income (loss)	$	(14,595	)		50,418

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, 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 loss:
Unrealized gains (losses) on securities:
Balance at beginning of year		1,184			3,148
Change in unrealized losses during period		(38,259	)		(6,514	)

Balance at end of period		(37,075	)		(3,366	)

Foreign currency translation adjustments:
Balance at beginning of year		3,078			3,122
Change in translation adjustments during period		(150	)		(139	)

Balance at end of period		2,928			2,983

Benefit plan liability adjustment:
Balance at beginning of year		(11,327	)		(10,001	)
Amortization of net prior service cost and net gain		1,026			926

Balance at end of period		(10,301	)		(9,075	)

Accumulated other comprehensive loss at end of period		(44,448	)		(9,458	)

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		22,788			56,145
Stockholder dividends		(1,269	)		(1,268	)

Balance at end of period		1,000,411			949,666

Total stockholders' equity	$	996,269			980,066

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, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Cash flows from operating activities:
Net earnings	$	22,788			56,145
Adjustments to reconcile net earnings to net cash
from operating activities:
Universal life and annuity contract interest		98,511			143,037
Surrender charges and other policy revenues		(30,324	)		(26,776	)
Net investment losses (gains)		21,931			(2,901	)
Accrual and amortization of investment income		(3,715	)		(3,829	)
Depreciation and amortization		786			746
Decrease in value of derivatives		52,824			26,393
Decrease (increase) in deferred policy acquisition and
sales inducement costs		14,508			(9,730	)
(Increase) decrease in accrued investment income		(2,496	)		924
Decrease in other assets		991			582
(Decrease) increase in liabilities for future policy benefits		(694	)		338
Increase in other policyholder liabilities		8,678			4,893
(Decrease) increase in Federal income tax liability		(368	)		6,861
Increase (decrease) in other liabilities		11,116			(5,924	)
Other		844			167

Net cash provided by operating activities		195,380			190,926

Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity		-			5,175
Securities available for sale		1,522			28,418
Other investments		5,382			33,255
Proceeds from maturities and redemptions of:
Securities held to maturity		417,933			106,023
Securities available for sale		190,284			268,999
Other investments		-			-
Purchases of:
Securities held to maturity		(493,363	)		(256,014	)
Securities available for sale		(190,039	)		(284,742	)
Other investments		(47,195	)		(35,619	)
Principal payments on mortgage loans		12,308			21,623
Cost of mortgage loans acquired		(6,046	)		(18,480	)
Decrease in policy loans		2,835			2,309
Other		(4,316)			(6,624	)

Net cash used in investing activities		(110,695	)		(135,677	)

(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, 2008 and 2007
(Unaudited)
(In thousands)


	2008			2007

Cash flows from financing activities:
Deposits to account balances for universal life
and annuity contracts	$	346,119			380,708
Return of account balances on universal life
and annuity contracts		(441,195	)		(444,877	)
Issuance of common stock under stock option plan		448			127

Net cash used in financing activities		(94,628	)		(64,042	)

Effect of foreign exchange		(412	)		(72	)

Net decrease in cash and short-term investments		(10,355	)		(8,865	)
Cash and short-term investments at beginning of period		45,206			49,901

Cash and short-term investments at end of period	$	34,851			41,036

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest	$	30	30
Income taxes		10,481	19,155

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 National Western Life Insurance Company and its subsidiaries (the Company) as of September 30, 2008, and the results of their operations and their cash flows for the three months and nine months ended September 30, 2008 and 2007. The results of operations for the three months and nine months ended September 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

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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 11 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.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. The provisions of FSP FAS 142-3 are to be applied prospectively to intangible assets acquired after January 1, 2009 although the disclosure provisions are required for all intangible assets as of or subsequent to January 1, 2009. The adoption of FSP FAS 142-3 is not expected to impact the Company’s consolidated financial condition and results of operations.

In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60 (“SFAS 163”). The scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance) contracts issued by enterprises that are included within the scope of SFAS No. 60, “Accounting and Reporting by Insurance Enterprises” (“SFAS 60”) and that are not accounted for as derivative instruments. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. The Company does not have financial guarantee insurance products, and, accordingly does not expect the adoption of SFAS 163 to have an effect on the Company’s consolidated financial condition and results of operations.

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In September 2008, the FASB issued FSP No. 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 133 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 does not expect the adoption of FSP FAS 133-1 and FIN 45-4 to have an effect on the Company’s consolidated financial condition and results of operations.

In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This FSP clarifies the application of SFAS 157 in a market that is not active and illustrates key considerations including the use of an entity’s own assumptions about future cash flows and appropriately risk-adjusted discount rates, appropriate risk adjustments for nonperformance and liquidity risks, and the reliance that an entity should place on quotes that do not reflect the result of market transactions. This FSP was preceded by a press release that was jointly issued by the Office of the Chief Accountant of the SEC and the FASB staff on September 30, 2008 which provided immediate clarification on fair value accounting based on the measurement guidance of SFAS 157. The FSP was effective upon issuance and did not have a material impact on the Company’s consolidated financial statements. See Note 11 for disclosures regarding the Company’s fair value measurements.

(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, 2008 and 2007. However, the Company declared a cash dividend on August 22, 2008 payable November 28, 2008 to stockholders on record as of October 31, 2008. 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 paid in November of 2007.

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(4) EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income (loss) 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 September 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 (loss)	$	(9,800	)					15,622
Dividends – Class A shares		(1,233	)					(1,232	)
Dividends – Class B shares		(36	)					(36	)

Undistributed income (loss)	$	(11,069	)					14,354

Allocation of net income (loss):
Dividends	$	1,233			36			1,232			36
Allocation of undistributed income (loss)		(10,755	)		(314	)		13,946			408

Net income (loss)	$	(9,522	)		(278	)		15,178			444

Denominator:
Basic earnings per share -
weighted-average shares		3,426			200			3,422			200
Effect of dilutive
stock options		-			-			42			-

Diluted earnings per share -
adjusted weighted-average
shares for assumed
Conversions		3,426			200			3,464			200

Basic Earnings (Loss) Per Share	$	(2.78	)		(1.39	)		4.44			2.22

Diluted Earnings (Loss) Per Share	$	(2.78	)		(1.39	)		4.38			2.22

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	Nine Months Ended September 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	$	22,788					56,145
Dividends – Class A shares		(1,233	)				(1,232	)
Dividends – Class B shares		(36	)				(36	)

Undistributed income	$	21,519					54,877

Allocation of net income:
Dividends	$	1,233			36		1,232			36
Allocation of undistributed income		20,909			610		53,319			1,558

Net income	$	22,142			646		54,551			1,594

Denominator:
Basic earnings per share -
weighted-average shares		3,425			200		3,422			200
Effect of dilutive
stock options		26			-		45			-

Diluted earnings per share -
adjusted weighted-average
shares for assumed
conversions		3,451			200		3,467			200

Basic Earnings Per Share	$	6.47			3.23		15.94			7.97

Diluted Earnings Per Share	$	6.42			3.23		15.74			7.97

(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.

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The following summarizes the components of net periodic benefit cost.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
	(In thousands)

Service cost	$	-			180			-			540
Interest cost		259			272			777			815
Expected return on plan assets		(285	)		(275	)		(855	)		(825	)
Amortization of prior service cost		1			1			3			3
Amortization of net loss		60			80			182			240

Net periodic benefit cost	$	35			258			107			773

The Company has contributed $1.1 million to the plan in 2008. No further contributions are expected in 2008.

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,
	2008		2007		2008		2007
	(In thousands)

Service cost	$	146		194		439		580
Interest cost		298		240		893		721
Amortization of prior service cost		260		260		780		780
Amortization of net loss		177		101		530		303

Net periodic benefit cost	$	881		795		2,642		2,384

The Company expects to contribute $1.7 million to these plans in 2008. As of September 30, 2008, the Company has contributed $1.2 million to the plans.

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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,
	2008		2007		2008		2007
	(In thousands)

Interest cost	$	34		36		101		106
Amortization of prior service cost		25		25		77		77
Amortization of net loss		1		7		4		22

Net periodic benefit cost	$	60		68		182		205

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.

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(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 September 30, 2008 and 2007 is provided below.

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

September 30, 2008:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	64,669			219,531		521,950		-		806,150
Total segment assets		398,277			837,859		5,385,733		138,787		6,760,656
Future policy benefits		318,080			592,887		4,646,293		-		5,557,260
Other policyholder liabilities		11,786			12,942		104,350		-		129,078

Three Months Ended
September 30, 2008:
Condensed Income Statements:
Premiums and contract
revenues	$	6,798			23,890		6,254		-		36,942
Net investment income		4,912			4,652		58,902		1,116		69,582
Other income		3			13		46		2,994		3,056

Total revenues		11,713			28,555		65,202		4,110		109,580

Life and other policy benefits		3,569			5,765		1,460		-		10,794
Amortization of deferred
policy acquisition costs		3,219			8,877		25,092		-		37,188
Universal life and annuity
contract interest		2,249			4,664		31,426		-		38,339
Other operating expenses		3,070			6,597		5,531		2,707		17,905
Federal income taxes (benefit)		(147	)		694		158		396		1,101

Total expenses		11,960			26,597		63,667		3,103		105,327

Segment earnings (loss)	$	(247	)		1,958		1,535		1,007		4,253

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

Nine Months Ended
September 30, 2008:
Condensed Income Statements:
Premiums and contract
revenues	$	20,108		72,116		19,047		-		111,271
Net investment income		15,103		12,696		168,205		5,286		201,290
Other income		13		38		169		9,128		9,348

Total revenues		35,224		84,850		187,421		14,414		321,909

Life and other policy benefits		10,588		15,364		2,953		-		28,905
Amortization of deferred
policy acquisition costs		7,574		27,278		58,847		-		93,699
Universal life and annuity
contract interest		6,892		11,944		79,675		-		98,511
Other operating expenses		9,093		14,723		13,826		8,320		45,962
Federal income taxes		349		5,042		10,420		1,978		17,789

Total expenses		34,496		74,351		165,721		10,298		284,866

Segment earnings	$	728		10,499		21,700		4,116		37,043

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Selected Segment Information.

Domestic

International

Life

All

Insurance

Annuities

Others

Totals

(In thousands)

September 30, 2007: