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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-Q
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þ QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the Quarterly Period Ended March 31, 2009
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from __________ to __________
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Commission
File Number: 2-17039
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NATIONAL
WESTERN LIFE INSURANCE COMPANY
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(Exact
name of Registrant as specified in its charter)
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COLORADO
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84-0467208
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(State
of Incorporation)
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(I.R.S.
Employer Identification Number)
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850
EAST ANDERSON LANE
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AUSTIN,
TEXAS 78752-1602
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(512)
836-1010
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(Address
of Principal Executive Offices)
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(Telephone
Number)
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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
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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.
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Large
accelerated filer o Accelerated
filer þ Non-accelerated
filer o
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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
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As
of May 7, 2009, the number of shares of Registrant's common stock
outstanding was: Class A – 3,425,966 and Class B -
200,000.
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Page
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3
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3
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March
31, 2009 (Unaudited) and December 31, 2008
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3
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For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
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5
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For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
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6
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For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
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7
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For
the Three Months Ended March 31, 2009 and 2008 (Unaudited)
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8
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10
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Financial
Condition and Results of Operations
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33
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59
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59
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60
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60
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60
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60
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60
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61
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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||||||||
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(In
thousands)
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||||||||
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(Unaudited)
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||||||||
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March
31,
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December
31,
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|||||||
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ASSETS
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2009
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2008
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||||||
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Investments:
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||||||||
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Securities
held to maturity, at amortized cost
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||||||||
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(fair
value: $3,860,173 and $3,727,353)
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$ | 3,920,491 | 3,831,417 | |||||
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Securities
available for sale, at fair value
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||||||||
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(cost:
$1,899,594 and $1,904,053)
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1,762,988 | 1,745,266 | ||||||
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Mortgage
loans, net of allowance for possible losses
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||||||||
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($4,593
and $4,587)
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91,430 | 90,733 | ||||||
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Policy
loans
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77,299 | 79,277 | ||||||
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Derivatives,
index options
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9,116 | 11,920 | ||||||
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Other
long-term investments
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13,648 | 14,168 | ||||||
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Total
Investments
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5,874,972 | 5,772,781 | ||||||
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Cash
and short-term investments
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28,089 | 67,796 | ||||||
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Deferred
policy acquisition costs
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696,564 | 701,984 | ||||||
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Deferred
sales inducements
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124,579 | 120,955 | ||||||
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Accrued
investment income
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66,572 | 64,872 | ||||||
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Federal
income tax receivable
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- | 1,820 | ||||||
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Other
assets
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62,208 | 56,272 | ||||||
| $ | 6,852,984 | 6,786,480 | ||||||
See
accompanying notes to condensed consolidated financial statements.
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NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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(In
thousands, except share amounts)
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(Unaudited)
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||||||||
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March
31,
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December
31,
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|||||||
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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2009
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2008
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||||||
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LIABILITIES:
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||||||||
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Future
policy benefits:
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||||||||
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Traditional
life and annuity contracts
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$ | 137,362 | 137,530 | |||||
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Universal
life and annuity contracts
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5,470,463 | 5,424,968 | ||||||
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Other
policyholder liabilities
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134,679 | 131,963 | ||||||
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Federal
income tax liability:
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Current
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3,462 | - | ||||||
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Deferred
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33,988 | 26,506 | ||||||
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Other
liabilities
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61,068 | 79,300 | ||||||
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Total
liabilities
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5,841,022 | 5,800,267 | ||||||
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COMMITMENTS
AND CONTINGENCIES (Note 9)
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STOCKHOLDERS’
EQUITY:
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Common
stock:
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Class
A - $1 par value; 7,500,000 shares authorized; 3,425,966
and
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3,425,454
issued and outstanding in 2009 and 2008
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3,426 | 3,426 | ||||||
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Class
B - $1 par value; 200,000 shares authorized, issued,
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and
outstanding in 2009 and 2008
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200 | 200 | ||||||
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Additional
paid-in capital
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36,680 | 36,680 | ||||||
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Accumulated
other comprehensive loss
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(54,637 | ) | (65,358 | ) | ||||
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Retained
earnings
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1,026,293 | 1,011,265 | ||||||
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Total
stockholders’ equity
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1,011,962 | 986,213 | ||||||
| $ | 6,852,984 | 6,786,480 | ||||||
Note: The
condensed consolidated balance sheet at December 31, 2008, has been derived from
the audited consolidated financial statements as of that date.
See
accompanying notes to condensed consolidated financial statements.
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NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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For
the Three Months Ended March 31, 2009 and 2008
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(Unaudited)
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(In
thousands, except per share amounts)
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2009
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2008
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Premiums
and other revenue:
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Life
and annuity premiums
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$ | 4,131 | 3,894 | |||||
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Universal
life and annuity contract revenues
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38,571 | 32,218 | ||||||
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Net
investment income
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70,606 | 59,430 | ||||||
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Other
income
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3,594 | 3,139 | ||||||
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Realized
losses on investments
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(5,345 | ) | (44 | ) | ||||
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Total
premiums and other revenue
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111,557 | 98,637 | ||||||
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Benefits
and expenses:
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Life
and other policy benefits
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13,028 | 10,455 | ||||||
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Amortization
of deferred policy acquisition costs
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27,948 | 26,249 | ||||||
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Universal
life and annuity contract interest
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35,266 | 26,617 | ||||||
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Other
operating expenses
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12,713 | 13,430 | ||||||
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Total
benefits and expenses
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88,955 | 76,751 | ||||||
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Earnings
before Federal income taxes
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22,602 | 21,886 | ||||||
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Provision
for Federal income taxes:
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Current
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5,864 | 3,890 | ||||||
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Deferred
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1,710 | 3,550 | ||||||
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Total
Federal income taxes
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7,574 | 7,440 | ||||||
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Net
earnings
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$ | 15,028 | 14,446 | |||||
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Basic
Earnings Per Share:
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Class
A
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$ | 4.26 | 4.10 | |||||
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Class
B
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$ | 2.13 | 2.05 | |||||
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Diluted
Earnings Per Share:
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Class
A
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$ | 4.26 | 4.07 | |||||
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Class
B
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$ | 2.13 | 2.05 | |||||
See
accompanying notes to condensed consolidated financial statements.
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NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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For
the Three Months Ended March 31, 2009 and 2008
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(Unaudited)
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||||||||
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(In
thousands)
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||||||||
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2009
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2008
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Net
earnings
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$ | 15,028 | 14,446 | |||||
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Other
comprehensive income, net of effects of
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||||||||
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deferred
costs and taxes:
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Unrealized
gains on securities:
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Net
unrealized holding gains arising during period
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7,645 | 408 | ||||||
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Reclassification
adjustment for net losses (gains)
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included
in net earnings
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2,701 | (36 | ) | |||||
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Amortization
of net unrealized losses (gains) related
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to
transferred securities
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(32 | ) | 16 | |||||
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Net
unrealized gains on securities
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10,314 | 388 | ||||||
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Foreign
currency translation adjustments
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(5 | ) | (181 | ) | ||||
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Benefit
plans:
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Amortization
of net prior service cost and net gain
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412 | 309 | ||||||
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Other
comprehensive gain
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10,721 | 516 | ||||||
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Comprehensive
income
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$ | 25,749 | 14,962 | |||||
See
accompanying notes to condensed consolidated financial statements.
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NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
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For
the Three Months Ended March 31, 2009 and 2008
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(Unaudited)
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(In
thousands)
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||||||||
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2009
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2008
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Common
stock:
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Balance
at beginning of year
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$ | 3,626 | 3,622 | |||||
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Shares
exercised under stock option plan
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- | 3 | ||||||
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Balance
at end of period
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3,626 | 3,625 | ||||||
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Additional
paid-in capital:
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Balance
at beginning of year
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36,680 | 36,236 | ||||||
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Shares
exercised under the stock option plan
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- | 327 | ||||||
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Balance
at end of period
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36,680 | 36,563 | ||||||
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Accumulated
other comprehensive (loss):
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||||||||
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Unrealized
(losses) gains on securities:
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Balance
at beginning of year
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(53,770 | ) | 1,184 | |||||
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Change
in unrealized gains during period
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10,314 | 388 | ||||||
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Balance
at end of period
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(43,456 | ) | 1,572 | |||||
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Foreign
currency translation adjustments:
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Balance
at beginning of year
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2,966 | 3,078 | ||||||
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Change
in translation adjustments during period
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(5 | ) | (181 | ) | ||||
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Balance
at end of period
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2,961 | 2,897 | ||||||
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Benefit
plan liability adjustment:
|
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Balance
at beginning of year
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(14,554 | ) | (11,327 | ) | ||||
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Amortization
of net prior service cost and net gain
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412 | 309 | ||||||
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Balance
at end of period
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(14,142 | ) | (11,018 | ) | ||||
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Accumulated
other comprehensive loss at end of period
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(54,637 | ) | (6,549 | ) | ||||
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Retained
earnings:
|
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Balance
at beginning of year
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1,011,265 | 978,892 | ||||||
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Net
earnings
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15,028 | 14,446 | ||||||
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Balance
at end of period
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1,026,293 | 993,338 | ||||||
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Total
stockholders' equity
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$ | 1,011,962 | 1,026,977 | |||||
See
accompanying notes to condensed consolidated financial statements.
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
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For
the Three Months Ended March 31, 2009 and 2008
|
||||||||
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(Unaudited)
|
||||||||
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(In
thousands)
|
||||||||
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2009
|
2008
|
|||||||
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Cash
flows from operating activities:
|
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Net
earnings
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$ | 15,028 | 14,446 | |||||
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Adjustments
to reconcile net earnings to net cash
|
||||||||
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from
operating activities:
|
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Universal
life and annuity contract interest
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40,230 | 26,617 | ||||||
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Surrender
charges and other policy revenues
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(15,598 | ) | (9,568 | ) | ||||
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Realized
losses on investments
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5,345 | 44 | ||||||
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Accrual
and amortization of investment income
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(1,427 | ) | (1,300 | ) | ||||
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Depreciation
and amortization
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(2,062 | ) | 272 | |||||
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Decrease
in value of derivatives
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1,365 | 20,480 | ||||||
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Increase
in deferred policy acquisition and sales inducement costs
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(4,516 | ) | (1,535 | ) | ||||
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Decrease
(increase) in accrued investment income
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(1,700 | ) | 812 | |||||
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Increase
in other assets
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(6,930 | ) | (2,773 | ) | ||||
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Increase
(decrease) in liabilities for future policy benefits
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(170 | ) | 52 | |||||
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Increase
in other policyholder liabilities
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2,715 | 10,285 | ||||||
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Increase
in Federal income tax liability
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7,211 | 8,100 | ||||||
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(Decrease)
increase in other liabilities
|
589 | (814 | ) | |||||
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Other
|
29 | 1,810 | ||||||
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Net
cash provided by operating activities
|
40,109 | 66,928 | ||||||
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Cash
flows from investing activities:
|
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Proceeds
from sales of:
|
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Securities
available for sale
|
11,595 | 124 | ||||||
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Other
investments
|
1,820 | 197 | ||||||
|
Proceeds
from maturities and redemptions of:
|
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Securities
held to maturity
|
310,381 | 248,009 | ||||||
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Securities
available for sale
|
38,830 | 78,696 | ||||||
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Derivatives
|
11,605 | 8,964 | ||||||
|
Purchases
of:
|
||||||||
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Securities
held to maturity
|
(416,297 | ) | (234,856 | ) | ||||
|
Securities
available for sale
|
(49,420 | ) | (67,636 | ) | ||||
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Other
investments
|
(10,120 | ) | (11,810 | ) | ||||
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Principal
payments on mortgage loans
|
1,493 | 1,308 | ||||||
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Cost
of mortgage loans acquired
|
(2,513 | ) | (777 | ) | ||||
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Decrease
(increase) in policy loans
|
1,978 | (1,546 | ) | |||||
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Other
|
- | (1,893 | ) | |||||
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Net
cash provided by (used in) investing activities
|
(100,648 | ) | 18,780 | |||||
(Continued
on next page)
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
||||||||
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
|
||||||||
|
For
the Three Months Ended March 31, 2009 and 2008
|
||||||||
|
(Unaudited)
|
||||||||
|
(In
thousands)
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows from financing activities:
|
||||||||
|
Deposits
to account balances for universal life
|
||||||||
|
and
annuity contracts
|
$ | 166,815 | 115,410 | |||||
|
Return
of account balances on universal life
|
||||||||
|
and
annuity contracts
|
(145,978 | ) | (152,553 | ) | ||||
|
Issuance
of common stock under stock option plan
|
- | 330 | ||||||
|
Net
cash provided by (used in) financing activities
|
20,837 | (36,813 | ) | |||||
|
Effect
of foreign exchange
|
(5 | ) | (104 | ) | ||||
|
Net
increase (decrease) in cash and short-term investments
|
(39,707 | ) | 48,791 | |||||
|
Cash
and short-term investments at beginning of period
|
67,796 | 45,206 | ||||||
|
Cash
and short-term investments at end of period
|
$ | 28,089 | 93,997 | |||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
|
Cash
paid during the year for:
|
||||||||
|
Interest
|
$ | 10 | 10 | |||||
|
Income
taxes
|
582 | - | ||||||
|
Noncash
operating activities:
|
||||||||
|
Deferral
of sales inducements
|
4,965 | 1,678 | ||||||
See
accompanying notes to condensed consolidated financial
statements.
9
NATIONAL WESTERN
LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for annual financial
statements. In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position of National Western Life Insurance Company and its
subsidiaries (“Company”) as of March 31, 2009, and the results of its operations
and its cash flows for the three months ended March 31, 2009 and
2008. The results of operations for the three months ended March 31,
2009 and 2008 are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated
financial statements and notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 2008 accessible free of charge through the
Company's internet site at www.nationalwesternlife.com
or the Securities and Exchange Commission internet site at www.sec.gov.
The
accompanying condensed consolidated financial statements include the accounts of
National Western Life Insurance Company and its wholly-owned subsidiaries: The
Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., NWL Financial,
Inc., and Regent Care San Marcos Holdings, LLC. All significant
intercorporate transactions and accounts have been eliminated in
consolidation.
The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting periods. Actual
results could differ from those estimates. Significant estimates in the
accompanying condensed consolidated financial statements include (1) liabilities
for future policy benefits, (2) valuation of derivative instruments, (3)
recoverability and amortization of deferred policy acquisition costs, (4)
valuation allowances for deferred tax assets, (5) other-than-temporary
impairment losses on debt securities, and (6) valuation allowances for mortgage
loans and real estate.
Certain
amounts in the prior year condensed consolidated financial statements have been
reclassified to conform to the current year presentation.
(2) NEW ACCOUNTING
PRONOUNCEMENTS
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair
Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and requires additional disclosures about fair value measurements. The Company
adopted this guidance effective January 1, 2008 and the adoption did not
have an impact on the Company’s consolidated financial
statements. See related disclosures in Note 10 to Consolidated
Financial Statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. This Statement permits
entities to choose upon adoption or at specified election dates, to measure at
fair value many financial instruments and certain other items at fair
value. The Company adopted SFAS 159 effective January 1, 2008, with
no impact to the Company’s consolidated financial statements as no eligible
financial assets or liabilities were elected to be measured at fair value upon
initial adoption. Management will continue to evaluate eligible
financial assets and liabilities on their election dates, and will disclose any
future elections in accordance with provisions outlined in the
Statement.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 establishes accounting
and reporting standards for entities that have equity investments that are not
attributable directly to the parent, called noncontrolling interests or minority
interests. Specifically, SFAS 160 states where and how to report
noncontrolling interests in the consolidated statements of financial position
and operations, how to account for changes in noncontrolling interests and
provides disclosure requirements. The provisions of SFAS 160 were
effective beginning January 1, 2009. The adoption of SFAS 160 did not have
a material impact on the Company’s consolidated financial condition and results
of operations.
Continued
on Next Page
10
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations. SFAS 141(R) establishes how an entity
accounts for the identifiable assets acquired, liabilities assumed, and any
noncontrolling interests acquired, how to account for goodwill acquired and
determines what disclosures are required as part of a business combination.
SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, early adoption is
prohibited. The adoption of this statement did not have any impact on
the Company’s consolidated financial condition and results of
operations.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No.
157. This FSP delays the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis, to
fiscal years and interim periods beginning after November 15,
2008. The adoption of FSP FAS 157-2 did not have a material impact on
the Company’s consolidated financial condition and results of
operations.
On April
9, 2009 the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP
provides additional guidance for estimating fair value in accordance with SFAS
No. 157, when the volume and level of activity for the asset or liability have
significantly decreased. This FSP also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009. The Company is currently
evaluating the impact the adoption of this FSP will have on its consolidated
financial position, results of operations and disclosures.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133. This statement requires enhanced disclosures regarding an entity’s
derivative and hedging activity to enable investors to better understand the
effects on an entity’s financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company adopted
SFAS No. 161 as of January 1, 2009. See Note 11 for disclosures
regarding derivative instruments and hedging activities.
In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161. This FSP amends SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, to require disclosures by entities
that assume credit risk through the sale of credit derivatives including credit
derivatives embedded in a hybrid instrument to enable users of financial
statements to assess the potential effect on its financial position, financial
performance, and cash flows from these credit derivatives. This FSP also amends
FASB Interpretation No. 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, to require additional disclosure about the
current status of the payment/performance risk of a guarantee. FSP FAS 133-1 and
FIN 45-4 are effective for financial statements issued for fiscal years and
interim periods ending after November 15, 2008. The Company adopted FSP FAS
133-1 and FIN 45-4 effective January 1, 2009. The adoption did not
have a material effect on the Company’s consolidated financial condition and
results of operations.
In
December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets. This FSP requires that information
about plan assets be disclosed, on an annual basis, based on the fair value
disclosure requirements of SFAS No. 157. The Company would be required to
separate plan assets into the three fair value hierarchy levels and provide a
rollforward of the changes in fair value of plan assets classified as Level 3.
The disclosures about plan assets required by this FSP are effective for fiscal
years ending after December 15, 2009, but would have no effect on the
Company’s consolidated financial condition and results of
operations.
Continued
on Next Page
11
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In
January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment
Guidance of EITF Issue No. 99-20. The FSP amends EITF 99-20’s
impairment model more consistent with SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities, removing its exclusive reliance on “market
participant” estimate of future cash flows used in determining fair
value. Changing the cash flows used to analyze other-than-temporary
impairment from the “market participant” view to a holder’s estimate of whether
there has been a “probable” adverse change in estimated cash flows allows
management to apply reasonable judgment in assessing whether an
other-than-temporary impairment has occurred. The new FSP was
effective for the Company as of December 31, 2008 and did not have a significant
impact on the consolidated financial statements of the Company.
On April
9, 2009 the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No.
107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB
Opinion No. 28, Interim
Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009. The Company is currently
evaluating the impact that the adoption of this statement will have on its
consolidated financial position, results of operations and
disclosures.
On April
9, 2009 the FASB issued FSP FAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. This
FSP is effective for interim and annual reporting periods ending after June 15,
2009. The company is currently evaluating the impact that the adoption of this
FSP will have on its consolidated financial position, results of operations and
disclosures.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company's present or future
consolidated financial statements.
(3) STOCKHOLDERS'
EQUITY
The
Company is restricted by state insurance laws as to dividend amounts which may
be paid to stockholders without prior approval from the Colorado Division of
Insurance. The Company did not pay cash dividends on common stock
during the three months ended March 31, 2009 and 2008.
Continued
on Next Page
12
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) EARNINGS
PER SHARE
Basic
earnings per share of common stock are computed by dividing net income by the
weighted-average basic common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common
shares applicable to stock options in the denominator.
|
Three
Months Ended March 31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Class
A
|
Class
B
|
Class
A
|
Class
B
|
|||||||||||||
|
(In
thousands except per share amounts)
|
||||||||||||||||
|
Numerator
for Basic and
|
||||||||||||||||
|
Diluted
Earnings Per Share:
|
||||||||||||||||
|
Net
income
|
$ | 15,028 | 14,446 | |||||||||||||
|
Dividends
– Class A shares
|
- | - | ||||||||||||||
|
Dividends
– Class B shares
|
- | - | ||||||||||||||
|
Undistributed
income
|
$ | 15,028 | 14,446 | |||||||||||||
|
Allocation
of net income:
|
||||||||||||||||
|
Dividends
|
$ | - | - | - | - | |||||||||||
|
Allocation
of undistributed income
|
14,602 | 426 | 14,036 | 410 | ||||||||||||
|
Net
income
|
$ | 14,602 | 426 | 14,036 | 410 | |||||||||||
|
Denominator:
|
||||||||||||||||
|
Basic
earnings per share -
|
||||||||||||||||
|
weighted-average
shares
|
3,426 | 200 | 3,423 | 200 | ||||||||||||
|
Effect
of dilutive
|
||||||||||||||||
|
stock
options
|
3 | - | 24 | - | ||||||||||||
|
Diluted
earnings per share -
|
||||||||||||||||
|
adjusted
weighted-average
|
||||||||||||||||
|
shares
for assumed
|
||||||||||||||||
|
conversions
|
3,429 | 200 | 3,447 | 200 | ||||||||||||
|
Basic
Earnings Per Share
|
$ | 4.26 | 2.13 | 4.10 | 2.05 | |||||||||||
|
Diluted
Earnings Per Share
|
$ | 4.26 | 2.13 | 4.07 | 2.05 | |||||||||||
Continued
on Next Page
13
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(5) PENSION
AND OTHER POSTRETIREMENT PLANS
(A) Defined
Benefit Pension Plans
The
Company sponsors a qualified defined benefit pension plan covering substantially
all employees. The plan provides benefits based on the participants' years of
service and compensation. The Company makes annual contributions to the plan
that comply with the minimum funding provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). On October 19, 2007, the Company’s Board
of Directors approved an amendment to freeze the Pension Plan as of December 31,
2007. The freeze ceased future benefit accruals to all participants
and closed the Plan to any new participants. In addition, all participants
became immediately 100% vested in their accrued benefits as of that
date. Going forward future pension expense is projected to be
minimal. Fair values of plan assets and liabilities are measured as
of the prior December 31 for each respective year. The following
summarizes the components of net periodic benefit cost.
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Service
cost
|
$ | - | 180 | |||||
|
Interest
cost
|
262 | 272 | ||||||
|
Expected
return on plan assets
|
(222 | ) | (275 | ) | ||||
|
Amortization
of prior service cost
|
1 | 1 | ||||||
|
Amortization
of net loss
|
148 | 80 | ||||||
|
Net
periodic benefit cost
|
$ | 189 | 258 | |||||
The
Company expects to contribute $1.8 million to the plan in
2009. During the three months ended March 31, 2009, the Company
contributed $126,000 to the plan.
The
Company also sponsors a non-qualified defined benefit plan primarily for senior
officers. The plan provides benefits based on the participants' years of service
and compensation. The pension obligations and administrative
responsibilities of the plan are maintained by a pension administration firm,
which is a subsidiary of American National Insurance Company ("ANICO"). ANICO
has guaranteed the payment of pension obligations under the
plan. However, the Company has a contingent liability with respect to
the pension plan should these entities be unable to meet their obligations under
the existing agreements. Also, the Company has a contingent liability
with respect to the plan in the event that a plan participant continues
employment with the Company beyond age seventy, the aggregate average annual
participant salary increases exceed 10% per year, or any additional employees
become eligible to participate in the plan. If any of these
conditions are met, the Company would be responsible for any additional pension
obligations resulting from these items. Amendments were made to the
plan to allow an additional employee to participate and to change the benefit
formula for the Chairman of the Company. As previously mentioned,
these additional obligations are a liability to the Company. Effective December
31, 2004, this plan was frozen with respect to the continued accrual of benefits
of the Chairman and the President of the Company in order to comply with law
changes under the American Jobs Creation Act of 2004 ("Act").
Effective
July 1, 2005, the Company established a second non-qualified defined benefit
plan for the benefit of the Chairman of the Company. This plan is
intended to provide for post-2004 benefit accruals that mirror and supplement
the pre-2005 benefit accruals under the previously discussed non-qualified plan,
while complying with the requirements of the Act.
Effective
November 1, 2005, the Company established a third non-qualified defined benefit
plan for the benefit of the President of the Company. This plan is
intended to provide for post-2004 benefit accruals that supplement the pre-2005
benefit accruals under the first non-qualified plan as previously discussed,
while complying with the requirements of the Act.
Continued
on Next Page
14
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following summarizes the components of net periodic benefit costs for these
non-qualified plans.
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Service
cost
|
$ | 37 | 193 | |||||
|
Interest
cost
|
308 | 241 | ||||||
|
Amortization
of prior service cost
|
260 | 260 | ||||||
|
Amortization
of net loss
|
198 | 101 | ||||||
|
Net
periodic benefit cost
|
$ | 803 | 795 | |||||
The
Company expects to contribute $2.0 million to these plans in
2009. During the three months ended March 31, 2009, the Company did
not contribute to the plan.
(B) Defined
Benefit Postretirement Plans
The
Company sponsors two healthcare plans to provide postretirement benefits to
certain fully-vested individuals. The following summarizes the
components of net periodic benefit costs.
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Interest
cost
|
$ | 32 | 35 | |||||
|
Amortization
of net loss
|
- | 7 | ||||||
|
Amortization
of prior service cost
|
26 | 26 | ||||||
|
Net
periodic benefit cost
|
$ | 58 | 68 | |||||
As
previously disclosed in its financial statements for the year ended December 31,
2008, the Company expects to contribute minimal amounts to the plan in
2009.
Continued
on Next Page
15
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(6) SEGMENT
AND OTHER OPERATING INFORMATION
Under
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company defines its reportable
operating segments as domestic life insurance, international life insurance, and
annuities. These segments are organized based on product types and geographic
marketing areas. A summary of segment information for the quarters
ended March 31, 2009 and 2008 is provided below.
|
Selected Segment
Information:
|
||||||||||||||||||||
|
Domestic
|
International
|
|||||||||||||||||||
|
Life
|
Life
|
All
|
||||||||||||||||||
|
Insurance
|
Insurance
|
Annuities
|
Others
|
Total
|
||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
March
31, 2009:
|
||||||||||||||||||||
|
Selected
Balance Sheet Items:
|
||||||||||||||||||||
|
Deferred
policy acquisition
|
||||||||||||||||||||
|
costs
and sales inducements
|
$ | 64,022 | 218,487 | 538,634 | - | 821,143 | ||||||||||||||
|
Total
segment assets
|
389,812 | 983,113 | 5,298,071 | 134,691 | 6,805,687 | |||||||||||||||
|
Future
policy benefits
|
317,526 | 599,477 | 4,690,822 | - | 5,607,825 | |||||||||||||||
|
Other
policyholder liabilities
|
13,125 | 19,768 | 101,786 | - | 134,679 | |||||||||||||||
|
Three
Months Ended
|
||||||||||||||||||||
|
March
31, 2009:
|
||||||||||||||||||||
|
Condensed
Income Statements:
|
||||||||||||||||||||
|
Premiums
and contract
|
||||||||||||||||||||
|
revenues
|
$ | 9,539 | 26,249 | 6,914 | - | 42,702 | ||||||||||||||
|
Net
investment income
|
5,098 | 4,058 | 60,021 | 1,429 | 70,606 | |||||||||||||||
|
Other
income
|
14 | 27 | 135 | 3,418 | 3,594 | |||||||||||||||
|
Total
revenues
|
14,651 | 30,334 | 67,070 | 4,847 | 116,902 | |||||||||||||||
|
Policy
benefits
|
3,821 | 7,724 | 1,483 | - | 13,028 | |||||||||||||||
|
Amortization
of deferred
|
||||||||||||||||||||
|
acquisition
costs
|
2,355 | 13,162 | 12,431 | - | 27,948 | |||||||||||||||
|
Universal
life and investment
|
||||||||||||||||||||
|
annuity
contract interest
|
2,272 | 3,720 | 29,274 | - | 35,266 | |||||||||||||||
|
Other
operating expenses
|
2,730 | 3,506 | 3,194 | 3,283 | 12,713 | |||||||||||||||
|
Federal
income taxes
|
1,173 | 746 | 6,988 | 538 | 9,445 | |||||||||||||||
|
Total
expenses
|
12,351 | 28,858 | 53,370 | 3,821 | 98,400 | |||||||||||||||
|
Segment
earnings
|
$ | 2,300 | 1,476 | 13,700 | 1,026 | 18,502 | ||||||||||||||
Continued
on Next Page
16
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
Selected Segment
Information:
|
||||||||||||||||||||
|
Domestic
|
International
|
|||||||||||||||||||
|
Life
|
Life
|
All
|
||||||||||||||||||
|
Insurance
|
Insurance
|
Annuities
|
Others
|
Total
|
||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
March
31, 2008:
|
||||||||||||||||||||
|
Selected
Balance Sheet Items:
|
||||||||||||||||||||
|
Deferred
policy acquisition
|
||||||||||||||||||||
|
costs
and sales inducements
|
$ | 61,709 | 206,193 | 500,152 | - | 768,054 | ||||||||||||||
|
Total
segment assets
|
403,186 | 812,575 | 5,489,342 | 123,456 | 6,828,559 | |||||||||||||||
|
Future
policy benefits
|
320,225 | 565,910 | 4,675,936 | - | 5,562,071 | |||||||||||||||
|
Other
policyholder liabilities
|
11,502 | 18,608 | 100,575 | - | 130,685 | |||||||||||||||
|
Three
Months Ended
|
||||||||||||||||||||
|
March
31, 2008:
|
||||||||||||||||||||
|
Condensed
Income Statements:
|
||||||||||||||||||||
|
Premiums
and contract
|
||||||||||||||||||||
|
revenues
|
$ | 6,619 | 23,485 | 6,008 | - | 36,112 | ||||||||||||||
|
Net
investment income
|
5,161 | 3,039 | 50,297 | 933 | 59,430 | |||||||||||||||
|
Other
income
|
6 | 12 | 38 | 3,083 | 3,139 | |||||||||||||||
|
Total
revenues
|
11,786 | 26,536 | 56,343 | 4,016 | 98,681 | |||||||||||||||
|
Policy
benefits
|
4,205 | 5,313 | 937 | - | 10,455 | |||||||||||||||
|
Amortization
of deferred
|
||||||||||||||||||||
|
acquisition
costs
|
2,287 | 8,791 | 15,171 | - | 26,249 | |||||||||||||||
|
Universal
life and investment
|
||||||||||||||||||||
|
annuity
contract interest
|
2,355 | 2,694 | 21,568 | - | 26,617 | |||||||||||||||
|
Other
operating expenses
|
2,974 | 3,872 | 3,806 | 2,778 | 13,430 | |||||||||||||||
|
Federal
income taxes
|
(12 | ) | 1,994 | 5,052 | 421 | 7,455 | ||||||||||||||
|
Total
expenses
|
11,809 | 22,664 | 46,534 | 3,199 | 84,206 | |||||||||||||||
|
Segment
earnings (losses)
|
$ | (23 | ) | 3,872 | 9,809 | 817 | 14,475 | |||||||||||||
Reconciliations
of segment information to the Company's condensed consolidated financial
statements are provided below.
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Premiums and Other
Revenue:
|
||||||||
|
Premiums
and contract revenues
|
$ | 42,702 | 36,112 | |||||
|
Net
investment income
|
70,606 | 59,430 | ||||||
|
Other
income
|
3,594 | 3,139 | ||||||
|
Realized
losses on investments
|
(5,345 | ) | (44 | ) | ||||
|
Total
consolidated premiums and other revenue
|
$ | 111,557 | 98,637 | |||||
Continued
on Next Page
17
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Federal Income
Taxes:
|
||||||||
|
Total
segment Federal income taxes
|
$ | 9,445 | 7,455 | |||||
|
Taxes
on realized losses on investments
|
(1,871 | ) | (15 | ) | ||||
|
Total
consolidated Federal income taxes
|
$ | 7,574 | 7,440 | |||||
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Net
Earnings:
|
||||||||
|
Total
segment earnings
|
$ | 18,502 | 14,475 | |||||
|
Realized
losses on investments, net of taxes
|
(3,474 | ) | (29 | ) | ||||
|
Total
consolidated net earnings
|
$ | 15,028 | 14,446 | |||||
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
thousands)
|
||||||||
|
Assets:
|
||||||||
|
Total
segment assets
|
$ | 6,805,687 | 6,828,559 | |||||
|
Other
unallocated assets
|
47,297 | 32,515 | ||||||
|
Total
consolidated assets
|
$ | 6,852,984 | 6,861,074 | |||||
(7) SHARE-BASED
PAYMENTS
The
Company has issued only nonqualified stock options and stock appreciation
rights. The Company has a stock and incentive plan ("1995 Plan")
which provides for the grant of any or all of the following types of awards to
eligible employees: (1) stock options, including incentive stock
options and nonqualified stock options; (2) stock appreciation
rights, in tandem with stock options or freestanding; (3) restricted
stock; and (4) performance awards. The 1995 Plan began on
April 21, 1995, and was amended on June 25, 2004 to extend the termination date
to April 20, 2010. The number of shares of Class A, $1.00 par value,
common stock which may be issued under the 1995 Plan, or as to which stock
appreciation rights or other awards may be granted, may not exceed
300,000. Effective June 20, 2008, the Company’s shareholders approved
a 2008 Incentive Plan (“2008 Plan”). The 2008 Plan is substantially
similar to the 1995 Plan and authorized an additional number of Class A, $1.00
per value, common stock shares eligible for issue not to exceed
300,000. These shares may be authorized and unissued
shares.
All of
the employees of the Company and its subsidiaries are eligible to participate in
the two Plans. In addition, directors of the Company are eligible to
receive the same types of awards as employees except that they are not eligible
to receive incentive stock options. Company directors, including
members of the Compensation and Stock Option Committee, are eligible for
nondiscretionary stock options. The directors’ grants vest 20%
annually following one full year of service to the Company from the date of
grant. The employees’ grants vest 20% annually following three full
years of service to the Company from the date of grant. All grants
issued expire after ten years. On February 19, 2009, the Company
awarded 29,393 stock appreciation rights to Company officers and 9,000 stock
appreciation rights to Company directors at a market value price of
$114.64. No awards were issued during the first quarter of
2008.
Continued
on Next Page
18
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Effective
during March 2006, the Company adopted and implemented a limited stock buy-back
program which provides option holders the additional alternative of selling
shares acquired through the exercise of options directly back to the
Company. Option holders may elect to sell such acquired shares back
to the Company at any time within ninety (90) days after the exercise of options
at the prevailing market price as of the date of notice of election. The
buy-back program did not alter the terms and conditions of the Plan, however the
program necessitated a change in accounting from the equity classification to
the liability classification.
In August
2008, the Company implemented another limited stock buy-back program,
substantially similar to the 2006 program, for shares issued under the 2008
Plan.
The
Company uses the current fair value method to measure compensation
cost. As of March 31, 2009 and 2008, the liability balance was $1.6
million and $6.4 million, respectively. A summary of shares available
for grant and stock option activity is detailed below.
|
Options
Outstanding
|
||||||||||||
|
Weighted-
|
||||||||||||
|
Shares
|
Average
|
|||||||||||
|
Available
|
Exercise
|
|||||||||||
|
For
Grant
|
Shares
|
Price
|
||||||||||
|
Stock
Options:
|
291,400 | 105,812 | $ | 174.33 | ||||||||
|
Balance
at January 1, 2009
|
||||||||||||
|
Exercised
|
- | - | - | |||||||||
|
Forfeited
|
- | - | - | |||||||||
|
Stock
options granted
|
- | - | - | |||||||||
|
Balance
at March 31, 2009
|
291,400 | 105,812 | $ | 174.33 | ||||||||
|
Stock
Appreciation Rights Outstanding
|
||||||||
|
Weighted-
|
||||||||
|
Average
|
||||||||
|
Exercise
|
||||||||
|
Awards
|
Price
|
|||||||
|
Stock
Appreciation Rights:
|
||||||||
|
Balance
at January 1, 2009
|
2,750 | $ | 245.70 | |||||
|
SARs
granted February 19, 2009
|
38,393 | 114.64 | ||||||
|
Balance
at March 31, 2009
|
41,143 | $ | 123.40 | |||||
The total
intrinsic value of options exercised was $0 and $1.6 million for the three
months ended March 31, 2009 and 2008, respectively. The total
share-based liabilities paid were $0 and $1.3 million for the three months ended
March 31, 2009 and 2008, respectively. For the quarters ended March
31, 2009 and 2008, the total cash received from the exercise of options under
the Plan was $0 and $0.3 million, respectively. There were no shares
vested during the first quarter of 2009.
Continued
on Next Page
19
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The
following table summarizes information about stock options and SARs outstanding
at March 31, 2009.
|
Options
Outstanding
|
||||||||||||
|
Weighted-
|
||||||||||||
|
Average
|
||||||||||||
|
Number
|
Remaining
|
Options
|
||||||||||
|
Outstanding
|
Contractual
Life
|
Exercisable
|
||||||||||
|
Exercise
prices:
|
||||||||||||
|
$
92.13
|
10,194 | 2.1 years | 10,194 | |||||||||
|
95.00
|
6,000 | 2.2 years | 6,000 | |||||||||
|
150.00
|
52,350 | 5.0 years | 21,450 | |||||||||
|
255.13
|
28,268 | 9.0 years | - | |||||||||
|
208.05
|
9,000 | 9.2 years | - | |||||||||
|
236.00
|
1,250 | 9.4 years | - | |||||||||
|
251.49
|
1,000 | 9.4 years | - | |||||||||
|
256.00
|
500 | 9.5 years | - | |||||||||
|
114.64
|
38,393 | 9.9 years | - | |||||||||
|
Totals
|
146,955 | 37,644 | ||||||||||
|
Aggregate
intrinsic value
|
||||||||||||
|
(in
thousands)
|
$ | 321 | $ | 321 | ||||||||
The
aggregate intrinsic value in the table above is based on the closing stock price
of $113.00 per share on March 31, 2009.
In
estimating the fair value of the options outstanding at March 31, 2009 and
December 31, 2008, the Company employed the Black-Scholes option pricing model
with assumptions as detailed below.
|
2009
|
2008
|
|||||||
|
Expected
term of options
|
1
to 9 years
|
2
to 10 years
|
||||||
|
Expected
volatility:
|
||||||||
|
Range
|
28.41%
to 101.39
|
% |
24.70%
to 77.55
|
% | ||||
|
Weighted-average
|
44.03 | % | 37.10 | % | ||||
|
Expected
dividend yield
|
0.30 | % | 0.22 | % | ||||
|
Risk-free
rate:
|
||||||||
|
Range
|
1.58%
to 2.89
|
%
|
1.44%
to 2.40
|
% | ||||
|
Weighted-average
|
2.27 | % | 1.94 | % | ||||
The
Company reviewed the contractual term relative to the options as well as
perceived future behavior patterns of exercise. Volatility is based
on the Company’s historical volatility over the expected term.
The
pre-tax compensation cost recognized in the financial statements related to the
Plan was $(2.2) million and $(0.1) million for the three months ended March 31,
2009 and 2008, respectively. The related tax expense recognized was
$0.8 million and $0 for the three months ended March 31, 2009 and 2008,
respectively.
As of
March 31, 2009, the total compensation cost related to nonvested options not yet
recognized was $1.8 million. This amount is expected to be recognized
over a weighted-average period of 2.5 years. The Company recognizes
compensation cost over the graded vesting periods.
Continued
on Next Page
20
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(8)
COMMITMENTS AND CONTINGENCIES
(A)
Legal Proceedings
The
Company is a defendant in two class action lawsuits. In one case, the
Court has certified a class consisting of certain California policyholders age
65 and older alleging violations under California Business and Professions Code
section 17200. The Court has additionally certified a subclass of 36
policyholders alleging fraud against their agent, and vicariously, against the
Company. A second class action lawsuit in federal court in California is
in discovery and the Company is currently opposing a recently filed motion for
class certification. Management believes that the Company has good and
meritorious defenses and intends to continue to vigorously defend itself against
these claims.
The
Company is involved or may become involved in various other legal actions, in
the normal course of business, in which claims for alleged economic and punitive
damages have been or may be asserted, some for substantial amounts. Although
there can be no assurances, at the present time, the Company does not anticipate
that the ultimate liability arising from potential, pending, or threatened legal
actions, will have a material adverse effect on the financial condition or
operating results of the Company.
In
January 2009, the SEC published its newly adopted rule 151A, Indexed Annuities and Certain Other
Insurance Contracts. This rule defines “indexed annuities to be
securities and thus subject to regulation by the SEC and under federal
securities laws”. Currently indexed annuities sold by life insurance
companies are regulated by the States as Insurance products and Section 3(a)(8)
of the Securities Act of 1933 provides an exemption for certain “annuity
contracts,” “optional annuity contracts,” and other insurance contracts.
The new rule is not effective until January 12, 2011. The Company
and others have filed suit in the U. S. Court of Appeals for the District of
Columbia to overturn this rule. The court heard oral arguments on May
8, 2009, and is expected to issue its ruling before September
2009. In the event rule 151A is not overturned, it could have a
material effect on our business, results of operations and financial
condition.
Continued
on Next Page
21
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(9)
INVESTMENTS
(A)
Debt and Equity Securities
The
tables below present amortized cost and fair values of securities held to
maturity and securities available for sale at March 31, 2009.
|
Securities
Held to Maturity
|
||||||||||||||||
|
Gross
|
Gross
|
|||||||||||||||