Edgar Filing: NATIONAL WESTERN LIFE INSURANCE CO

nwl10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 2-17039


NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)



COLORADO	84-0467208
(State of Incorporation)	(I.R.S. Employer Identification Number)

850 EAST ANDERSON LANE
AUSTIN, TEXAS 78752-1602	(512) 836-1010
(Address of Principal Executive Offices)	(Telephone Number)


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 5, 2009, the number of shares of Registrant's common stock outstanding was: Class A – 3,425,966 and Class B - 200,000.

TABLE OF CONTENTS

	Page

Part I. Financial Information:	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets	3
June 30, 2009 (Unaudited) and December 31, 2008

Condensed Consolidated Statements of Earnings	5
For the Three Months Ended June 30, 2009 and 2008 (Unaudited)

Condensed Consolidated Statements of Earnings	6
For the Six Months Ended June 30, 2009 and 2008 (Unaudited)

Condensed Consolidated Statements of Comprehensive Income	7
For the Three Months Ended June 30, 2009 and 2008 (Unaudited)

Condensed Consolidated Statements of Comprehensive Income	8
For the Six Months Ended June 30, 2009 and 2008 (Unaudited)

Condensed Consolidated Statements of Stockholders' Equity	9
For the Six Months Ended June 30, 2009 and 2008 (Unaudited)

Condensed Consolidated Statements of Cash Flows	11
For the Six Months Ended June 30, 2009 and 2008 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)	13

Item 2. Management's Discussion and Analysis of	46
Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk	72

Item 4. Controls and Procedures	72

Part II. Other Information:	72

Item 1. Legal Proceedings	72

Item 1A. Risk Factors	72

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 4. Submission of Matters to a Vote of Security Holders	73

Item 6. Exhibits	73

Signatures	74

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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




		(Unaudited)
		June 30,	December 31,
ASSETS		2009	2008

Investments:
Securities held to maturity, at amortized cost
(fair value: $4,015,880 and $3,727,353)	$	3,986,365	3,831,417
Securities available for sale, at fair value
(cost: $1,897,918 and $1,904,053)		1,855,738	1,745,266
Mortgage loans, net of allowance for possible losses
($3,577 and $4,587)		93,016	90,733
Policy loans		77,928	79,277
Derivatives, index options		27,018	11,920
Other long-term investments		29,651	14,168

Total investments		6,069,716	5,772,781

Cash and short-term investments		54,850	67,796
Deferred policy acquisition costs		658,921	701,984
Deferred sales inducements		121,202	120,955
Accrued investment income		67,200	64,872
Federal income tax receivable		-	1,820
Other assets		64,862	56,272

	$	7,036,751	6,786,480

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)
	June 30,			December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY	2009			2008

LIABILITIES:

Future policy benefits:
Traditional life and annuity contracts	$	136,470			137,530
Universal life and annuity contracts		5,567,547			5,424,968
Other policyholder liabilities		134,875			131,963
Federal income tax liability:
Current		8,131			-
Deferred		45,365			26,506
Other liabilities		81,214			79,300

Total liabilities		5,973,602			5,800,267

COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)

STOCKHOLDERS’ EQUITY:

Common stock:
Class A - $1 par value; 7,500,000 shares authorized; 3,425,966
and 3,425,454 issued and outstanding in 2009 and 2008		3,426			3,426
Class B - $1 par value; 200,000 shares authorized, issued,
and outstanding in 2009 and 2008		200			200
Additional paid-in capital		36,680			36,680
Accumulated other comprehensive loss		(22,799	)		(65,358	)
Retained earnings		1,045,642			1,011,265

Total stockholders’ equity		1,063,149			986,213

	$	7,036,751			6,786,480

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands, except per share amounts)


	2009			2008

Premiums and other revenue:
Traditional life and annuity premiums	$	4,389			4,624
Universal life and annuity contract charges		38,862			33,593
Net investment income		93,743			72,278
Other revenues		3,507			3,153
Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) losses		(1,849	)		(1,425	)
Portion of OTTI losses recognized in other comprehensive income		1,823			-
Net OTTI losses recognized in earnings		(26	)		(1,425	)
Other net investment gains		192			1,158
Total net realized investment gains (losses)		166			(267	)

Total revenues		140,667			113,381

Benefits and expenses:
Life and other policy benefits		10,248			7,655
Amortization of deferred policy acquisition costs and
deferred sales inducements		28,549			30,263
Universal life and annuity contract interest		57,651			33,555
Other operating expenses		16,631			14,627

Total benefits and expenses		113,079			86,100

Earnings before Federal income taxes		27,588			27,281

Provision (benefit) for Federal income taxes:
Current		15,141			7,928
Deferred		(6,395	)		1,211

Total Federal income taxes		8,746			9,139

Net earnings	$	18,842			18,142

Basic Earnings Per Share:
Class A	$	5.34			5.15
Class B	$	2.67			2.57

Diluted Earnings Per Share:
Class A	$	5.34			5.10
Class B	$	2.67			2.57

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands, except per share amounts)


	2009			2008

Premiums and other revenues:
Traditional life and annuity premiums	$	8,520			8,518
Universal life and annuity contract charges		77,433			65,811
Net investment income		164,349			131,708
Other revenues		7,101			6,292
Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) losses		(7,130	)		(1,450	)
Portion of OTTI losses recognized in other comprehensive income		1,823			-
Net OTTI losses recognized in earnings		(5,307	)		(1,450	)
Other net investment gains		128			1,139
Total net realized investment losses		(5,179	)		(311	)

Total revenues		252,224			212,018

Benefits and expenses:
Life and other policy benefits		23,276			18,111
Amortization of deferred policy acquisition costs and
deferred sales inducements		56,497			56,511
Universal life and annuity contract interest		92,917			60,172
Other operating expenses		29,344			28,057

Total benefits and expenses		202,034			162,851

Earnings before Federal income taxes		50,190			49,167

Provision (benefit) for Federal income taxes:
Current		21,005			11,819
Deferred		(4,685	)		4,760

Total Federal income taxes		16,320			16,579

Net earnings	$	33,870			32,588

Basic Earnings Per Share:
Class A	$	9.61			9.25
Class B	$	4.80			4.62

Diluted Earnings Per Share:
Class A	$	9.60			9.18
Class B	$	4.80			4.62

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 June 30, 2009 and 2008
(Unaudited)
(In thousands)


	2009			2008

Net earnings	$	18,842			18,142

Other comprehensive income (loss), net of effects of
deferred costs and taxes:
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during period		31,868			(15,503	)
Reclassification adjustment for net amounts
included in net earnings		171			(574	)
Amortization of net unrealized gains related to
transferred securities		(12	)		(30	)

Net unrealized gains (losses) on securities		32,027			(16,107	)

Foreign currency translation adjustments		(93	)		39

Benefit plans:
Amortization of net prior service cost and net gain		411			375

Other comprehensive income (loss)		32,345			(15,693	)

Comprehensive income	$	51,187			2,449

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 Six Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands)


	2009			2008

Net earnings	$	33,870			32,588

Other comprehensive income (loss), net of effects of
deferred costs and taxes:
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during period		39,513			(15,095	)
Reclassification adjustment for net amounts
included in net earnings		2,872			(610	)
Amortization of net unrealized gains related to
transferred securities		(44	)		(14	)

Net unrelaized gains (losses) on securities		42,341			(15,719	)

Foreign currency translation adjustments		(98	)		(142	)

Benefit plans:
Amortization of net prior service cost and net gain		823			684

Other comprehensive income (loss)		43,066			(15,177	)

Comprehensive income	$	76,936			17,411

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 Six Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands)


	2009			2008
Common stock:
Balance at beginning of period	$	3,626			3,622
Shares exercised under stock option plan		-			4

Balance at end of period		3,626			3,626

Additional paid-in capital:
Balance at beginning of period		36,680			36,236
Shares exercised under the stock option plan		-			444

Balance at end of period		36,680			36,680

Accumulated other comprehensive income (loss):
Unrealized gains (losses) on non-impaired securities:
Balance at beginning of period		(53,770	)		1,184
Change in unrealized gains (losses) during period		42,902			(15,719	)

Balance at end of period		(10,868	)		(14,535	)

Unrealized losses on impaired held to maturity securities:
Balance at beginning of period		-			-
Cumulative effect of change in accounting principle (See Note 3)		(507	)		-
Amortization		15			-

Balance at end of period		(492	)		-

Unrealized losses on impaired available for sale securities:
Balance at beginning of period		-			-
Other-than-temporary impairments		(576	)		-

Balance at end of period		(576	)		-

Foreign currency translation adjustments:
Balance at beginning of period		2,966			3,078
Change in translation adjustments during period		(98	)		(142	)

Balance at end of period		2,868			2,936

Benefit plan liability adjustment:
Balance at beginning of period		(14,554	)		(11,327	)
Amortization of net prior service cost and net gain		823			684

Balance at end of period		(13,731	)		(10,643	)

Accumulated other comprehensive loss at end of period		(22,799	)		(22,242	)

Continued on next page

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands)


Retained earnings:
Balance at beginning of period		1,011,265	978,892
Cumulative effect of change in accounting principle,
net of tax (See Note 3)		507	-
Net earnings		33,870	32,588

Balance at end of period		1,045,642	1,011,480

Total stockholders' equity	$	1,063,149	1,029,544

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 Six Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands)


	2009			2008

Cash flows from operating activities:
Net earnings	$	33,870			32,588
Adjustments to reconcile net earnings to net cash
from operating activities:
Universal life and annuity contract interest		105,066			69,219
Surrender charges and other policy revenues		(30,471	)		(19,667	)
Realized losses on investments		5,179			311
Accrual and amortization of investment income		(2,833	)		(2,487	)
Depreciation and amortization		1,344			495
(Increase) decrease in value of derivatives		(18,344	)		21,289
Increase in deferred policy acquisition and
sales inducement costs		(9,210	)		(5,741	)
(Increase) decrease in accrued investment income		(2,328	)		172
Increase in other assets		(11,822	)		(5,273	)
Decrease in liabilities for future policy benefits		(1,060	)		(601	)
Increase in other policyholder liabilities		2,912			3,421
Increase in Federal income tax liability		5,266			8,401
Increase (decrease) in other liabilities		13,642			(4,115	)
Other		1,250			359

Net cash provided by operating activities		92,461			98,371

Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity		-			-
Securities available for sale		14,770			999
Other investments		671			443
Proceeds from maturities and redemptions of:
Securities held to maturity		530,236			355,100
Securities available for sale		64,563			140,458
Derivatives, index options		24,405			22,143
Purchases of:
Securities held to maturity		(668,004	)		(379,575	)
Securities available for sale		(101,172	)		(167,134	)
Other investments		(37,603	)		(26,292	)
Principal payments on mortgage loans		3,921			10,200
Cost of mortgage loans acquired		(6,049	)		(1,962	)
Decrease in policy loans		1,349			1,895
Other		-			(3,899	)

Net cash used in investing activities		(172,913	)		(47,624	)

(Continued on next page)

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
(In thousands)


	2009			2008

Cash flows from financing activities:
Deposits to account balances for universal life
and annuity contracts	$	363,145			238,296
Return of account balances on universal life
and annuity contracts		(295,546	)		(300,961	)
Issuance of common stock under stock option plan		-			448

Net cash provided by (used in) financing activities		67,599			(62,217	)

Effect of foreign exchange		(93	)		(351	)

Net decrease in cash and short-term investments		(12,946	)		(11,821	)
Cash and short-term investments at beginning of period		67,796			45,206

Cash and short-term investments at end of period	$	54,850			33,385

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest	$	20	20
Income taxes		10,748	8,178

Noncash operating activities:
Net change in deferral of sales inducements		10,124	9,047

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 (“Company”) as of June 30, 2009, and the results of its operations and its cash flows for the three and six months ended June 30, 2009 and 2008. The results of operations for the six months ended June 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year. It is recommended that these condensed consolidated financial statements be read in conjunction with the audited 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 condensed consolidated balance sheet at December 31, 2008, has been derived from the audited consolidated financial statements as of that date. Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.

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.

(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.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 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 No. 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 No. 160 were effective beginning January 1, 2009. The adoption of SFAS No. 160 did not have a material impact on the Company’s consolidated financial condition and results of operations.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 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 No. 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 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 No. 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. As discussed in Note 10, the adoption of FSP FAS 157-4 did not have a material impact on the Company’s consolidated financial condition and results of operations.

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. 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. 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.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 will have no effect on the Company’s consolidated financial condition and results of operations.

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 to be 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 FSP was effective for the Company as of December 31, 2008. The adoption of this FSP 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 was effective for the Company as of June 30, 2009. The adoption of this FSP did not have a significant impact on the consolidated financial position or results of operations. See Note 10 for the additional disclosures required by this FSP.

On April 9, 2009 the FASB issued FSP FAS 115-2 and FAS 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 was effective for the Company as of June 30, 2009. The impact of the adoption of this FSP is discussed in Note 3, Stockholders Equity.

On May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events. This statement is intended to establish general standards of accounting for the disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. This statement was effective for the Company as of June 30, 2009. The adoption of this statement did not have a significant impact on the consolidated financial position or results of operations. See Note 12 for the additional disclosure required by this FSP.

On June 12, 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets and SFAS No. 167 Amendments to FASB Interpretation No. 46(R), which changes the way entities account for securitizations and special purpose entities. Both statements are effective as of the beginning of the Company’s first annual reporting period beginning after November 15, 2009. The adoption of these statements should not have a significant impact on the 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 paid no cash dividends on common stock during the six months ended June 30, 2009 and 2008.

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(UNAUDITED)

Change in Accounting Principles

With the adoption of the new FSP FAS 115-2 and FAS 124-2, the Company reviewed all previously-recorded other-than-temporary impairments of securities and estimated the credit versus the non-credit component consistent with the methodology used in the current period to analyze and bifurcate impairments into credit and non-credit components. As a result, the Company determined that $0.8 million in previously recorded other-than-temporary impairments had been due to non-credit impairments.

For each security, the Company developed its best estimate of the net present value of the cash flows expected to be received. The credit component of the impairment for these securities was determined to be the difference between the amortized cost of the security and the projected net cash flows. The non-credit component was determined to be the difference between projected net cash flows and fair value. It also determined whether it had the intent to sell the security, or if it was more likely than not that it will be required to sell the security, prior to the recovery of the non-credit component.

With the implementation of this FSP, the Company recorded a net of tax opening balance adjustment that increased retained earnings in the amount of $0.5 million and increased accumulated other comprehensive loss in the amount of $0.5 million. See Note 9 for further discussion of the adoption of the new FSP.

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(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 June 30,
	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	$	18,842				18,142
Dividends – Class A shares		-				-
Dividends – Class B shares		-				-

Undistributed income	$	18,842				18,142

Allocation of net income:
Dividends	$	-		-		-		-
Allocation of undistributed income		18,307		535		17,627		515

Net income	$	18,307		535		17,627		515

Denominator:
Basic earnings per share -
weighted-average shares		3,426		200		3,426		200
Effect of dilutive
stock options		4		-		27		-

Diluted earnings per share -
adjusted weighted-average
shares for assumed
conversions		3,430		200		3,453		200

Basic Earnings Per Share	$	5.34		2.67		5.15		2.57

Diluted Earnings Per Share	$	5.34		2.67		5.10		2.57

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Six Months Ended June 30,
	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	$	33,870				32,588
Dividends – Class A shares		-				-
Dividends – Class B shares		-				-

Undistributed income	$	33,870				32,588

Allocation of net income:
Dividends	$	-		-		-		-
Allocation of undistributed income		32,909		961		31,664		924

Net income	$	32,909		961		31,664		924

Denominator:
Basic earnings per share -
weighted-average shares		3,426		200		3,424		200
Effect of dilutive
stock options		4		-		26		-

Diluted earnings per share -
adjusted weighted-average
shares for assumed
conversions		3,430		200		3,450		200

Basic Earnings Per Share	$	9.61		4.80		9.25		4.62

Diluted Earnings Per Share	$	9.60		4.80		9.18		4.62

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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 June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(In thousands)

Service cost	$	-			(180	)		-			-
Interest cost		262			246			524			518
Expected return on plan assets		(223	)		(295	)		(445	)		(570	)
Amortization of prior service cost		1			1			2			2
Amortization of net loss		149			42			297			122

Net periodic benefit cost	$	189			(186	)		378			72

The Company expects to contribute $1.8 million to the plan in 2009. As of June 30, 2009, the Company has contributed $0.1 million to the plan.

The Company also sponsors a non-qualified defined benefit plan primarily for senior officers. The plan provides benefits based on the participants' years of service and compensation. The pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO"). ANICO has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the pension plan should these entities be unable to meet their obligations under the existing agreements. Also, the Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with the Company beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan. If any of these conditions are met, the Company would be responsible for any additional pension obligations resulting from these items. Amendments were made to the plan to allow an additional employee to participate and to change the benefit formula for the Chairman of the Company. As previously mentioned, these additional obligations are a liability to the Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the Chairman and the President of the Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, the Company established a second non-qualified defined benefit plan for the benefit of the Chairman of the Company. This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed non-qualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, the Company established a third non-qualified defined benefit plan for the benefit of the President of the Company. This plan is intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first non-qualified plan as previously discussed, while complying with the requirements of the Act.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
	(In thousands)

Service cost	$	37		100		74		293
Interest cost		309		354		617		595
Amortization of prior service cost		260		260		520		520
Amortization of net loss		198		252		396		353

Net periodic benefit cost	$	804		966		1,607		1,761

The Company expects to contribute $2.0 million to these plans in 2009. As of June 30, 2009, the Company has contributed $0.7 million to the plans.

(B) Defined Benefit Postretirement Plans

The Company sponsors two healthcare plans to provide postretirement benefits to certain fully-vested individuals. The following summarizes the components of net periodic benefit costs.

	Three Months Ended June 30,					Six Months Ended June 30,
	2009		2008			2009		2008
	(In thousands)

Interest cost	$	33		32			65		67
Amortization of prior service cost		26		26			52		52
Amortization of net loss (gain)		-		(4	)		-		3

Net periodic benefit cost	$	59		54			117		122

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.

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(UNAUDITED)

(6) SEGMENT AND OTHER OPERATING INFORMATION

Under SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, the Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. These segments are organized based on product types and geographic marketing areas. A summary of segment information as of and for the periods ended June 30, 2009 and 2008 is provided below.

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

June 30, 2009:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	61,850		209,021		509,252		-		780,123
Total segment assets		393,864		1,000,007		5,448,684		146,332		6,988,887
Future policy benefits		319,259		608,331		4,776,427		-		5,704,017
Other policyholder liabilities		11,748		24,726		98,401		-		134,875

Three Months Ended
June 30, 2009:
Condensed Income Statements:
Premiums and contract
revenues	$	9,418		26,585		7,248		-		43,251
Net investment income		4,962		9,822		75,096		3,863		93,743
Other income		6		12		78		3,411		3,507

Total revenues		14,386		36,419		82,422		7,274		140,501

Life and other policy benefits		4,334		4,374		1,540		-		10,248
Amortization of deferred
policy acquisition costs		1,979		11,600		14,970		-		28,549
Universal life and annuity
contract interest		2,226		10,480		44,945		-		57,651
Other operating expenses