NWLI 2012 Q1 10Q
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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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FORM 10-Q |
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R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2012
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
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 |
(Exact name of Registrant as specified in its charter) |
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COLORADO | 84-0467208 |
(State of Incorporation) | (I.R.S. Employer Identification Number) |
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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 R No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes R No £
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 £ Accelerated filer R Non-accelerated filer £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R
As of May 9, 2012, the number of shares of Registrant's common stock outstanding was: Class A – 3,434,763 and Class B - 200,000.
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TABLE OF CONTENTS |
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March 31, 2012 (Unaudited) and December 31, 2011 | |
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For the Three Months Ended March 31, 2012 and 2011 (Unaudited) | |
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For the Three Months Ended March 31, 2012 and 2011 (Unaudited) | |
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For the Three Months Ended March 31, 2012 and 2011 (Unaudited) | |
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For the Three Months Ended March 31, 2012 and 2011 (Unaudited) | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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| (Unaudited) | | |
ASSETS | March 31, 2012 | | December 31, 2011 |
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Investments: | | | |
Securities held to maturity, at amortized cost (fair value: $6,125,668 and $6,082,330) | $ | 5,673,932 |
| | 5,641,909 |
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Securities available for sale, at fair value (cost: $2,527,082 and $2,422,650) | 2,738,151 |
| | 2,624,953 |
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Mortgage loans, net of allowance for possible losses ($4,571 and $4,571) | 153,394 |
| | 157,460 |
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Policy loans | 74,649 |
| | 74,967 |
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Derivatives, index options | 83,693 |
| | 30,844 |
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Other long-term investments | 44,311 |
| | 34,472 |
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Total investments | 8,768,130 |
| | 8,564,605 |
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Cash and short-term investments | 75,491 |
| | 119,290 |
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Deferred policy acquisition costs | 713,377 |
| | 722,542 |
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Deferred sales inducements | 155,222 |
| | 155,753 |
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Accrued investment income | 92,075 |
| | 87,875 |
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Federal income tax receivable | — |
| | — |
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Other assets | 80,310 |
| | 77,934 |
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Total assets | $ | 9,884,605 |
| | 9,727,999 |
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See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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| (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | March 31, 2012 | | December 31, 2011 |
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LIABILITIES: | | | |
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Future policy benefits: | | | |
Universal life and annuity contracts | $ | 8,126,345 |
| | 8,023,798 |
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Traditional life and annuity contracts | 138,842 |
| | 139,657 |
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Other policyholder liabilities | 150,568 |
| | 151,308 |
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Deferred Federal income tax liability | 36,217 |
| | 46,481 |
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Federal income tax payable | 23,125 |
| | 5,962 |
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Other liabilities | 105,684 |
| | 84,008 |
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Total liabilities | 8,580,781 |
| | 8,451,214 |
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COMMITMENTS AND CONTINGENCIES (Note 8) |
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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; 3,434,766 issued and outstanding in 2012 and 2011 | 3,435 |
| | 3,435 |
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Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2012 and 2011 | 200 |
| | 200 |
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Additional paid-in capital | 37,767 |
| | 37,767 |
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Accumulated other comprehensive income | 60,474 |
| | 53,176 |
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Retained earnings | 1,201,948 |
| | 1,182,207 |
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Total stockholders’ equity | 1,303,824 |
| | 1,276,785 |
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Total liabilities and stockholders' equity | $ | 9,884,605 |
| | 9,727,999 |
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Note: The Condensed Consolidated Balance Sheet at December 31, 2011, has been derived from the audited Consolidated Financial Statements as of that date.
See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31, 2012 and 2011
(Unaudited)
(In thousands, except per share amounts)
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| 2012 | | 2011 |
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Premiums and other revenues: | | | |
Universal life and annuity contract charges | $ | 36,199 |
| | 29,832 |
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Traditional life and annuity contract premiums | 4,083 |
| | 4,022 |
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Net investment income | 149,558 |
| | 133,515 |
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Other revenues | 5,655 |
| | 9,906 |
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Net realized investment gains (losses): | |
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Total other-than-temporary impairment (“OTTI”) losses | (277 | ) | | — |
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Portion of OTTI losses recognized in other comprehensive income | 78 |
| | — |
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Net OTTI losses recognized in earnings | (199 | ) | | — |
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Other net investment gains (losses) | 1,366 |
| | 3,092 |
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Total net realized investment gains (losses) | 1,167 |
| | 3,092 |
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Total revenues | 196,662 |
| | 180,367 |
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Benefits and expenses: | |
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Life and other policy benefits | 13,678 |
| | 12,216 |
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Amortization of deferred policy acquisition costs | 31,711 |
| | 27,489 |
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Universal life and annuity contract interest | 101,543 |
| | 92,149 |
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Other operating expenses | 20,018 |
| | 20,718 |
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Total benefits and expenses | 166,950 |
| | 152,572 |
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Earnings before Federal income taxes | 29,712 |
| | 27,795 |
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Federal income taxes | 9,971 |
| | 9,584 |
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Net earnings | $ | 19,741 |
| | 18,211 |
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Basic earnings per share: | |
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Class A | $ | 5.58 |
| | 5.16 |
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Class B | $ | 2.79 |
| | 2.58 |
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Diluted earnings per share: | |
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Class A | $ | 5.58 |
| | 5.15 |
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Class B | $ | 2.79 |
| | 2.58 |
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See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2012 and 2011
(Unaudited)
(In thousands)
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| 2012 | | 2011 |
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Net earnings | $ | 19,741 |
| | 18,211 |
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Other comprehensive income, net of effects of deferred costs and taxes: | |
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Unrealized gains (losses) on securities: | |
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Net unrealized holding gains arising during period | 7,752 |
| | 6 |
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Net unrealized liquidity gains (losses) | (24 | ) | | 201 |
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Reclassification adjustment for net amounts included in net earnings | (1,040 | ) | | (1,885 | ) |
Amortization of net unrealized (gains) losses related to transferred securities | 1 |
| | (7 | ) |
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Net unrealized gains (losses) on securities | 6,689 |
| | (1,685 | ) |
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Foreign currency translation adjustments | 386 |
| | (75 | ) |
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Benefit plans: | |
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Amortization of net prior service cost and net gain | 223 |
| | 290 |
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Other comprehensive income | 7,298 |
| | (1,470 | ) |
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Comprehensive income | $ | 27,039 |
| | 16,741 |
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See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended March 31, 2012 and 2011 (Unaudited) (In thousands)
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| 2012 | | 2011 |
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Common stock: | | | |
Balance at beginning of period | $ | 3,635 |
| | 3,629 |
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Shares exercised under stock option plan | — |
| | 4 |
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Balance at end of period | 3,635 |
| | 3,633 |
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Additional paid-in capital: | |
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Balance at beginning of period | 37,767 |
| | 37,140 |
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Shares exercised under stock option plan | — |
| | 622 |
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Balance at end of period | 37,767 |
| | 37,762 |
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Accumulated other comprehensive income: | |
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Unrealized gains on non-impaired securities: | |
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Balance at beginning of period | 69,116 |
| | 62,499 |
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Change in unrealized gains during period, net of tax | 6,713 |
| | (1,886 | ) |
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Balance at end of period | 75,829 |
| | 60,613 |
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Unrealized losses on impaired held to maturity securities: | |
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Balance at beginning of period | (2,320 | ) | | (2,713 | ) |
Cumulative effect of change in accounting principal | — |
| | — |
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Amortization | 6 |
| | 217 |
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Other-than-temporary impairments, non-credit, net of tax | (51 | ) | | — |
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Additional credit loss on previously impaired securities | — |
| | — |
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Change in shadow deferred policy acquisition costs | 21 |
| | (16 | ) |
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Balance at end of period | (2,344 | ) | | (2,512 | ) |
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Unrealized losses on impaired available for sale securities: | |
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Balance at beginning of period | (608 | ) | | — |
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Other-than-temporary impairments, non-credit, net of tax | — |
| | — |
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Change in shadow deferred policy acquisition costs | — |
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Recoveries, net of tax | — |
| | — |
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Balance at end of period | (608 | ) | | — |
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued) For the Three Months Ended March 31, 2012 and 2011 (Unaudited) (In thousands)
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| 2012 | | 2011 |
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Foreign currency translation adjustments: | |
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Balance at beginning of period | 2,368 |
| | 2,585 |
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Change in translation adjustments during period | 386 |
| | (75 | ) |
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Balance at end of period | 2,754 |
| | 2,510 |
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Benefit plan liability adjustment: | |
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Balance at beginning of period | (15,380 | ) | | (11,963 | ) |
Amortization of net prior service cost and net gain, net of tax | 223 |
| | 290 |
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Balance at end of period | (15,157 | ) | | (11,673 | ) |
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Accumulated other comprehensive income at end of period | 60,474 |
| | 48,938 |
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Retained earnings: | | | |
Balance at beginning of period | 1,182,207 |
| | 1,127,614 |
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Net earnings | 19,741 |
| | 18,211 |
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Stockholder dividends | — |
| | — |
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Balance at end of period | 1,201,948 |
| | 1,145,825 |
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Total stockholders' equity | $ | 1,303,824 |
| | $ | 1,236,158 |
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See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2012 and 2011 (Unaudited) (In thousands) |
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| 2012 | | 2011 |
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Cash flows from operating activities: | | | |
Net earnings | $ | 19,741 |
| | 18,211 |
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Adjustments to reconcile net earnings to net cash from operating activities: | |
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Universal life and annuity contract interest | 101,543 |
| | 92,149 |
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Surrender charges and other policy revenues | (3,500 | ) | | (6,770 | ) |
Realized (gains) losses on investments | (1,167 | ) | | (3,092 | ) |
Accrual and amortization of investment income | (708 | ) | | (509 | ) |
Depreciation and amortization | 10,823 |
| | 195 |
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(Increase) decrease in value of index options | (42,437 | ) | | (31,849 | ) |
Decrease (increase) in deferred policy acquisition and sales inducement costs | 2,427 |
| | (19,730 | ) |
Increase in accrued investment income | (4,200 | ) | | (8,035 | ) |
Increase in other assets | (14,058 | ) | | (7,329 | ) |
Increase in liabilities for future policy benefits | 1,923 |
| | 6,905 |
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(Decrease) increase in other policyholder liabilities | (740 | ) | | 3,541 |
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Decrease in Federal income taxes | 3,298 |
| | 9,847 |
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(Decrease) increase in other liabilities | 2,932 |
| | (3,532 | ) |
Other, net | 127 |
| | — |
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Net cash provided by operating activities | 76,004 |
| | 50,002 |
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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 | 418 |
| | 10,010 |
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Other investments | 477 |
| | 1,940 |
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Proceeds from maturities and redemptions of: | |
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Securities held to maturity | 384,604 |
| | 150,205 |
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Securities available for sale | 79,767 |
| | 29,127 |
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Index options | 260 |
| | 10,180 |
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Purchases of: | |
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Securities held to maturity | (406,536 | ) | | (321,632 | ) |
Securities available for sale | (173,237 | ) | | (71,388 | ) |
Index options | (10,672 | ) | | (12,039 | ) |
Other investments | (1,503 | ) | | (779 | ) |
Principal payments on mortgage loans | 4,536 |
| | 7,904 |
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Cost of mortgage loans acquired | (390 | ) | | (9,432 | ) |
Decrease (increase) in policy loans | 318 |
| | 909 |
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Other, net | 3 |
| | (1 | ) |
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Net cash used in investing activities | (121,955 | ) | | (204,996 | ) |
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED For the Three Months Ended March 31, 2012 and 2011 (Unaudited) (In thousands) |
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| 2012 | | 2011 |
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Cash flows from financing activities: | |
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Deposits to account balances for universal life and annuity contracts | 212,423 |
| | 346,146 |
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Return of account balances on universal life and annuity contracts | (210,657 | ) | | (209,714 | ) |
Issuance of common stock under stock option plan | — |
| | 626 |
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Net cash provided by financing activities | 1,766 |
| | 137,058 |
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Effect of foreign exchange | 386 |
| | (75 | ) |
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Net increase (decrease) in cash and short-term investments | (43,799 | ) | | (18,011 | ) |
Cash and short-term investments at beginning of period | 119,290 |
| | 80,332 |
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Cash and short-term investments at end of period | $ | 75,491 |
| | $ | 62,321 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
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Cash paid during the period for: | |
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Interest | $ | 10 |
| | $ | 10 |
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Income taxes | $ | 6,539 |
| | $ | — |
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Noncash operating activities: | | | |
Deferral of sales inducements | $ | 1,314 |
| | $ | 5,117 |
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See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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(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” or "National Western") as of March 31, 2012, and the results of its operations and its cash flows for the three months ended March 31, 2012 and 2011. The results of operations for the three months ended March 31, 2012 and 2011 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, 2011 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, 2011 has been derived from the audited consolidated financial statements as of that date.
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., NWLSM, 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, (6) commitments and contingencies, and (7) valuation allowances for mortgage loans and real estate.
The Company implemented new actuarial reserving systems that enhance its ability to provide better estimates used in establishing future policy liabilities, monitor the deferred acquisition cost asset and the deferred sales inducements asset as well as support other actuarial processes within the Company. The implementation of these new reserving systems for specific blocks of business began in the second quarter of 2009 and was completed in the fourth quarter of 2011. As the Company applied these new systems to a line of business, current reserving assumptions were reviewed and updated as appropriate. In different reporting periods during this time period, certain corrections were made to reserve and Deferred Policy Acquisition Costs balances as a result of the implementation of the new reserving system. As the amounts of these corrections were determined to have occurred over the course of multiple previously reported periods, it was concluded that the amounts of the corrections were immaterial to the financial results reported in any of these periods. None of these corrections occurred during the three month period ended March 31, 2011.
Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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(2) | NEW ACCOUNTING PRONOUNCEMENTS |
During July 2010, the Financial Accounting Standards Board ("FASB") issued new guidance that requires additional disclosures related to an entity’s financing receivables and the nature of its credit risks related to financing receivables. The effective date is for interim and annual periods ending after December 15, 2010. The adoption of this guidance was effective December 31, 2010. See Note 3, Investments, of the accompanying condensed consolidated financial statements for additional disclosures.
During October 2010, the FASB issued new guidance affecting insurance companies that incur costs in the acquisition of new and renewal insurance contracts. The guidance addresses the diversity in practice regarding the interpretation for which costs relating to the acquisition of new or renewal business qualifies for deferral. The new guidance specifies the acquisition costs which are capitalizable and those which must be expensed. The effective date is for interim and annual periods ending after December 15, 2011. The Company has evaluated the impact of this guidance on the condensed consolidated financial statements. Based on evaluation of actual expenses from 2011 the Company determined that $2.5 million of capitalized expenses during 2011 would not have been deferrable under the new guidance. The change would have reduced 2011 pretax operating income by 3.0%. Thus, management prospectively adapted the guidance and has concluded the new guidance does not have a significant impact on the condensed consolidated financial statements.
During January 2011, the FASB issued new guidance which defers the effective date of disclosures about troubled debt restructurings in Accounting Standards Update No. 2010-20. The new anticipated effective date is for interim and annual periods ending after June 15, 2011. The adoption of this guidance will not have a significant impact on the condensed consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,”. ASU No. 2011-04 does not extend the use of the existing concepts or guidance regarding fair value. The guidance emphasizes using the same meaning and disclosures of fair value within the financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). The guidance requires disclose of additional information about transfers between Level 1 and Level 2 of the fair value hierarchy, additional disclosures for Level 3 fair value measurement, including quantitative and qualitative information about significant unobservable inputs and discussions about the sensitivity of these unobservable inputs and a description of the Company's valuation process. ASU 2011-04 is effective for annual reporting periods beginning after December 15, 2011. The Company has included the additional disclosures in the notes to the condensed consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”). ASU No. 2011-05 provides that entities must present the components of net income, the components of comprehensive income and the total of comprehensive income for all periods presented. ASU No. 2011-05 is effective for interim or annual periods beginning on or after December 15, 2011. The provisions of ASU No. 2011-05 relate only to the presentation of other comprehensive income and, accordingly, its adoption did not have an impact on the Company's condensed consolidated financial position or the results of its operations. This guidance was amended by ASU No. 2011-12 below.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers certain provisions of ASU 2011-05, Presentation of Comprehensive Income. One of ASU 2011-05's provisions requires entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. This requirement is indefinitely deferred by ASU 2011-12. ASUs 2011-05 and 2011-12 are effective for fiscal years, and interim periods beginning after December 15, 2011. The guidance did not have a significant impact on condensed consolidated financial statements and current disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Pubic Accounts ("AICPA"), and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company is restricted by state insurance laws from the Colorado Division of Insurance as to dividend amounts which may be paid to stockholders without prior approval. The restrictions are based on statutory earnings and surplus levels of the Company. The maximum dividend payment which may be made without prior approval in 2012 is $91.9 million. The Company did not pay cash dividends on common stock during the three months ended March 31, 2012 and 2011.
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.
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| Three Months Ended March 31, |
| 2012 | | 2011 |
| Class A | | Class B | | Class A | | Class B |
| (In thousands except per share amounts) |
| | | | | | | |
Numerator for Basic and Diluted Earnings Per Share: | | | | | | | |
Net income | $ | 19,741 |
| | | | 18,211 |
| | |
Dividends - Class A shares | — |
| | | | — |
| | |
Dividends - Class B shares | — |
| | | | — |
| | |
| | | | | | | |
Undistributed income | $ | 19,741 |
| | | | 18,211 |
| | |
| | | | | | | |
Allocation of net income: | |
| | | | |
| | |
Dividends | $ | — |
| | — |
| | — |
| | — |
|
Allocation of undistributed income | 19,183 |
| | 558 |
| | 17,696 |
| | 515 |
|
| | | | | | | |
Net income | $ | 19,183 |
| | 558 |
| | 17,696 |
| | 515 |
|
| | | | | | | |
Denominator: | |
| | |
| | |
| | |
|
Basic earnings per share - weighted-average shares | 3,435 |
| | 200 |
| | 3,430 |
| | 200 |
|
Effect of dilutive stock options | — |
| | — |
| | 9 |
| | — |
|
| | | | | | | |
Diluted earnings per share - adjusted weighted-average shares for assumed conversions | 3,435 |
| | 200 |
| | 3,439 |
| | 200 |
|
| | | | | | | |
Basic Earnings Per Share | $ | 5.58 |
| | 2.79 |
| | 5.16 |
| | 2.58 |
|
|
|
| |
|
| |
|
| |
|
|
Diluted Earnings Per Share | $ | 5.58 |
| | 2.79 |
| | 5.15 |
| | 2.58 |
|
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 complies 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 table summarizes the components of net periodic benefit cost.
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Service cost | $ | 18 |
| | — |
|
Interest cost | 121 |
| | 259 |
|
Expected return on plan assets | — |
| | (259 | ) |
Amortization of prior service cost | — |
| | 1 |
|
Amortization of net loss | 66 |
| | 124 |
|
| | | |
Net periodic benefit cost | $ | 205 |
| | 125 |
|
The Company expects to contribute $1.3 million to the plan in 2012. As of March 31, 2012, the Company has contributed $0.3 million to the plan.
The Company also sponsors a non-qualified defined benefit plan primarily for senior officers. The plan provides benefits based on the participants' years of service and compensation. The pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO"). ANICO has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the 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 defined benefit 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 defined benefit plan as previously discussed, while complying with the requirements of the Act.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table summarizes the components of net periodic benefit costs for the Chairman and President non-qualified defined benefit plans.
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Service cost | $ | 26 |
| | 13 |
|
Interest cost | 297 |
| | 266 |
|
Amortization of prior service cost | 16 |
| | 129 |
|
Amortization of net loss | 231 |
| | 164 |
|
| | | |
Net periodic benefit cost | $ | 570 |
| | 572 |
|
The Company expects to contribute $2.0 million to these plans in 2012. As of March 31, 2012, the Company has contributed $0.4 million to the plans.
| |
(B) | Defined Benefit Postretirement Healthcare Plans |
The Company sponsors two healthcare plans to provide postretirement benefits to certain fully-vested individuals. The following table summarizes the components of net periodic benefit costs.
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Interest cost | $ | 37 |
| | 38 |
|
Amortization of prior service cost | $ | 27 |
| | 28 |
|
Amortization of net loss | 5 |
| | — |
|
| | | |
Net periodic benefit cost | $ | 69 |
| | 66 |
|
The Company expects to contribute minimal amounts to the plan in 2012.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(6) | SEGMENT AND OTHER OPERATING 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, 2012 and 2011 is provided below.
|
| | | | | | | | | | | | | | | |
Selected Segment Information: | | | | | | | | | |
| Domestic Life Insurance | | International Life Insurance | | Annuities | | All Others | | Totals |
| | | | | (In thousands) | | | | |
| | | | | | | | | |
March 31, 2012 | | | | | | | | | |
Selected Condensed Consolidated Balance Sheet Items: | | | | | | | | | |
Deferred policy acquisition costs and sales inducements | $ | 36,432 |
| | 230,753 |
| | 601,414 |
| | — |
| | 868,599 |
|
Total segment assets | 413,630 |
| | 1,076,573 |
| | 8,100,477 |
| | 226,709 |
| | 9,817,389 |
|
Future policy benefits | 351,915 |
| | 796,354 |
| | 7,116,918 |
| | — |
| | 8,265,187 |
|
Other policyholder liabilities | 10,738 |
| | 18,457 |
| | 121,373 |
| |
|
| | 150,568 |
|
| | | | | | | | | |
Three Months Ended | | | | | | | | | |
|
March 31, 2012 | | | | | | | | | |
|
Condensed Consolidated Income Statements: | | | | | | | | | |
|
Premiums and contract revenues | $ | 10,539 |
| | 23,431 |
| | 6,312 |
| | — |
| | 40,282 |
|
Net investment income | 5,818 |
| | 15,397 |
| | 124,389 |
| | 3,954 |
| | 149,558 |
|
Other revenues | 7 |
| | 32 |
| | 61 |
| | 5,555 |
| | 5,655 |
|
| | | | | | | | | |
Total revenues | 16,364 |
| | 38,860 |
| | 130,762 |
| | 9,509 |
| | 195,495 |
|
| | | | | | | | | |
Life and other policy benefits | 1,648 |
| | 3,480 |
| | 8,550 |
| | — |
| | 13,678 |
|
Amortization of deferred acquisition costs | 2,391 |
| | 5,608 |
| | 23,712 |
| | — |
| | 31,711 |
|
Universal life and annuity contract interest | 7,213 |
| | 14,812 |
| | 79,518 |
| | — |
| | 101,543 |
|
Other operating expenses | 4,768 |
| | 5,818 |
| | 4,028 |
| | 5,404 |
| | 20,018 |
|
Federal income taxes (benefit) | 115 |
| | 3,063 |
| | 5,010 |
| | 1,375 |
| | 9,563 |
|
| | | | | | | | | |
Total expenses | 16,135 |
| | 32,781 |
| | 120,818 |
| | 6,779 |
| | 176,513 |
|
| | | | | | | | | |
Segment earnings (loss) | $ | 229 |
| | 6,079 |
| | 9,944 |
| | 2,730 |
| | 18,982 |
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | |
Selected Segment Information: | | | | | | | | | |
| Domestic Life Insurance | | International Life Insurance | | Annuities | | All Others | | Totals |
| | | | | (In thousands) | | | | |
| | | | | | | | | |
March 31, 2011 | | | | | | | | | |
Selected Condensed Consolidated Balance Sheet Items: | | | | | | | | | |
Deferred policy acquisition costs and sales inducements | $ | 42,078 |
| | 227,966 |
| | 589,592 |
| |
|
| | 859,636 |
|
Total segment assets | 391,358 |
| | 1,042,710 |
| | 7,326,346 |
| | 213,103 |
| | 8,973,517 |
|
Future policy benefits | 326,875 |
| | 735,002 |
| | 6,414,621 |
| |
|
| | 7,476,498 |
|
Other policyholder liabilities | 13,239 |
| | 23,142 |
| | 118,687 |
| |
|
| | 155,068 |
|
| | | | | | | | | |
Three Months Ended | |
| | |
| | |
| | |
| | |
|
March 31, 2011 | |
| | |
| | |
| | |
| | |
|
Condensed Consolidated Income Statements: | |
| | |
| | |
| | |
| | |
|
Premiums and contract revenues | $ | 6,032 |
| | 24,560 |
| | 3,262 |
| | — |
| | 33,854 |
|
Net investment income | 4,996 |
| | 13,021 |
| | 113,112 |
| | 2,386 |
| | 133,515 |
|
Other revenues | 7 |
| | 24 |
| | 4,061 |
| | 5,814 |
| | 9,906 |
|
| | | | | | | | | |
Total revenues | 11,035 |
| | 37,605 |
| | 120,435 |
| | 8,200 |
| | 177,275 |
|
| | | | | | | | | |
Life and other policy benefits | 5,234 |
| | 4,962 |
| | 2,020 |
| | — |
| | 12,216 |
|
Amortization of deferred acquisition costs | 2,883 |
| | 8,198 |
| | 16,408 |
| | — |
| | 27,489 |
|
Universal life and annuity contract interest | 2,638 |
| | 12,919 |
| | 76,592 |
| | — |
| | 92,149 |
|
Other operating expenses | 3,666 |
| | 6,926 |
| | 4,903 |
| | 5,223 |
| | 20,718 |
|
Federal income taxes (benefit) | (1,165 | ) | | 1,583 |
| | 7,059 |
| | 1,025 |
| | 8,502 |
|
| | | | | | | | | |
Total expenses | 13,256 |
| | 34,588 |
| | 106,982 |
| | 6,248 |
| | 161,074 |
|
| | | | | | | | | |
Segment earnings (loss) | $ | (2,221 | ) | | 3,017 |
| | 13,453 |
| | 1,952 |
| | 16,201 |
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Reconciliations of segment information to the Company's condensed consolidated financial statements are provided below.
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Premiums and Other Revenues: | | | |
Premiums and contract revenues | $ | 40,282 |
| | 33,854 |
|
Net investment income | 149,558 |
| | 133,515 |
|
Other revenues | 5,655 |
| | 9,906 |
|
Realized gains (losses) on investments | 1,167 |
| | 3,092 |
|
| | | |
Total condensed consolidated premiums and other revenues | $ | 196,662 |
| | 180,367 |
|
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Federal Income Taxes: | | | |
Total segment Federal income taxes | $ | 9,563 |
| | 8,502 |
|
Taxes on realized gains (losses) on investments | 408 |
| | 1,082 |
|
| | | |
Total condensed consolidated Federal income taxes | $ | 9,971 |
| | 9,584 |
|
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Net Earnings: | | | |
Total segment earnings | $ | 18,982 |
| | 16,202 |
|
Realized gains (losses) on investments, net of taxes | 759 |
| | 2,010 |
|
| | | |
Total condensed consolidated net earnings | $ | 19,741 |
| | 18,212 |
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | |
| March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Assets: | | | |
Total segment assets | $ | 9,817,389 |
| | 8,973,517 |
|
Other unallocated assets | 67,216 |
| | 56,479 |
|
| | | |
Total condensed consolidated assets | $ | 9,884,605 |
| | 9,029,996 |
|
The Company had a stock and incentive plan ("1995 Plan") which provided 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 were allowed to be issued under the 1995 Plan, or as to which stock appreciation rights or other awards were allowed to be granted, could 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 par value, common stock shares eligible for issue not to exceed 300,000. These shares may be authorized and unissued shares. The Company has issued only nonqualified stock options and stock appreciation rights under these plans.
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. No awards were issued during the first quarter of 2012 and 2011.
Effective during March 2006, the Company adopted and implemented a limited stock buy-back program with respect to the 1995 Plan 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 1995 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.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company uses the current fair value method to measure compensation cost. As of March 31, 2012 and 2011, the liability balance was $1.6 million and $3.5 million, respectively. A summary of shares available for grant and stock option activity is detailed below.
|
| | | | | | | | | |
| | | Options Outstanding |
| Shares Available For Grant | | Shares | | Weighted- Average Exercise Price |
| | | | | |
Stock Options: | | | | | |
Balance at January 1, 2012 | 291,000 |
| | 86,118 |
| | $ | 187.83 |
|
Exercised | — |
| | — |
| |
|
|
Forfeited | — |
| | — |
| |
|
|
Expired | — |
| | (950 | ) | | 205.33 |
|
Stock options granted | — |
| | — |
| |
|
|
| | | | | |
Balance at March 31, 2012 | 291,000 |
| | 85,168 |
| | $ | 187.63 |
|
|
| | | | | | |
| Stock Appreciation Rights Outstanding |
| Awards | | Weighted- Average Exercise Price |
| | | |
Stock Appreciation Rights: | | | |
Balance at January 1, 2012 | 75,411 |
| | $ | 135.08 |
|
Exercised | (500 | ) | | 114.64 |
|
Forfeited | (1,250 | ) | | 170.35 |
|
Granted | — |
| | — |
|
| | | |
Balance at March 31, 2012 | 73,661 |
| | $ | 134.62 |
|
The total intrinsic value of options exercised was $17,000 and $332,000 for the three months ended March 31, 2012 and 2011, respectively. The total share-based liabilities paid were $17,000 and $68,000 for the three months ended March 31, 2012 and 2011, respectively. The total fair value of shares vested during the three months ended March 31, 2012 and 2011 was $0.3 million and $0.0 million, respectively. For the quarters ended March 31, 2012 and 2011, the total cash received from the exercise of options under the Plans was $0 and $346,000, respectively.
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, 2012.
|
| | | | | | | | | | |
| | Options/SARs Outstanding |
| | Number Outstanding | | Weighted- Average Remaining Contractual Life | | Options Exercisable |
| | | | | | |
Exercise prices: | | | | | |
$150.00 | | 50,650 |
| | 2.1 years | | 50,650 |
|
255.13 | | 25,518 |
| | 6.1 years | | 5,104 |
|
208.05 | | 9,000 |
| | 6.2 years | | 5,400 |
|
251.49 | | 1,000 |
| | 6.4 years | | 200 |
|
236.00 | | 250 |
| | 6.4 years | | 50 |
|
114.64 | | 35,143 |
| | 6.9 years | | 10,629 |
|
132.56 | | 37,268 |
| | 9.7 years | | — |
|
Totals | | 158,829 |
| | | | 72,033 |
|
| |
| | | | |
|
Aggregate intrinsic value (in thousands) | $ | 942 |
| | | | $ | 245 |
|
The aggregate intrinsic value in the table above is based on the closing stock price of $136.87 per share on March 31, 2012.
In estimating the fair value of the options outstanding at March 31, 2012 and December 31, 2011, the Company employed the Black-Scholes option pricing model with assumptions as detailed below.
|
| | | | | |
| March 31, 2012 | | December 31, 2011 |
| | | |
Expected term of options | 2 to 10 years |
| | 2 to 10 years |
|
Expected volatility: | | | |
Range | 26.73% to 35.49% |
| | 25.39% to 37.73% |
|
Weighted-average | 30.71 | % | | 30.87 | % |
Expected dividend yield | 0.26 | % | | 0.26 | % |
Risk-free rate: | | | |
Range | 0.57% to 2.02% |
| | 0.73% to 2.03% |
|
Weighted-average | 1.12 | % | | 1.16 | % |
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 of the option’s expected exercise date.
The pre-tax compensation cost (benefit) recognized in the financial statements related to the two plans defined above was $0 and $(0.7) million for the three months ended March 31, 2012 and 2011, respectively. The related tax expense (benefit) recognized was $0 million and $(0.2) million for the three months ended March 31, 2012 and 2011, respectively.
As of March 31, 2012, the total compensation cost related to nonvested options not yet recognized was $2.0 million. This amount is expected to be recognized over a weighted-average period of 3.5 years. The Company recognizes compensation cost over the graded vesting periods.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(8) | COMMITMENTS AND CONTINGENCIES |
In the normal course of business, the Company is involved or may become involved in various legal actions in which claims for alleged economic and punitive damages have been or may be asserted, some for substantial amounts. In recent years, carriers offering life insurance and annuity products have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices, and similar claims. As discussed below, the Company has been a defendant over the past several years in two such class action lawsuits. Given the uncertainty involved in these types of actions, the ability to make a reliable evaluation of the likelihood of an unfavorable outcome or an estimate of the amount of or range of potential loss is endemic to the particular circumstances and evolving developments of each individual matter on its own merits.
The Company is currently a defendant in a class action lawsuit pending as of June 12, 2006, in the U.S. District Court for the Southern District of California. The case is titled In Re National Western Life Insurance Deferred Annuities Litigation. The complaint asserts claims for RICO violations, Financial Elder Abuse, Violation of Cal. Bus. & Prof. Code 17200, et seq, Violation of Cal. Bus. & Prof. Code 17500, et seq, Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, Fraudulent Concealment, Cal. Civ. Code 1710, et seq, Breach of the Duty of Good Faith and Fair Dealing, and Unjust Enrichment and Imposition of Constructive Trust. On July 12, 2010 the Court certified a nationwide class of policyholders under the RICO allegation and a California class under all of the remaining causes of action except breach of fiduciary duty. The Company believes that it has meritorious defenses in this cause and intends to vigorously defend itself against the asserted claims. In addition, given the speculative and vague damage theories presented by the plaintiffs in the matter, the inability to ascertain any financial harm to the class of policyholders, and the current status of the case before the Court, the Company is unable to reasonably estimate a possible range of loss for disclosure in the accompanying financial statements. Therefore, no amounts have been provided in the financial statements of the Company as of March 31, 2012 for this matter.
In addition to the class action lawsuit described above, the Company is the named defendant in the case of Sheila Newman vs. National Western Life Insurance Company, which alleged mishandling of policyholder funds by an agent. On February 3, 2010, the 415th Judicial District Court of Parker County in Weatherford, Texas, entered a Final Judgment against the Company of approximately $208,000 including actual damages of $113,000 and amounts for attorney's fees, and prejudgment interest on the actual damages. In addition, the Final Judgment included $150 million for exemplary damages. The Court of Appeals on August 11, 2011, reversed the trial court judgment in its entirety and rendered a take nothing verdict in favor of National Western Life Insurance Company. Plaintiffs (Appellees) filed a motion for a rehearing which the Court ruled on October 13, 2011, that the trial court's judgment was still reversed and judgment was still entered that Newman take nothing, all in favor of National Western Life Insurance Company. The Plaintiffs (Appellees) filed a Motion for Reconsideration En Banc which the Court of Appeals denied on October 27, 2011. The Plaintiffs (Appellees) then filed a Motion for Rehearing of the Court's amended decision, which the Court of Appeals denied on December 22, 2011. On March 21, 2012, Plaintiffs (Appellees) filed a Petition for Review with the Texas Supreme Court and the Company filed its response on April 20, 2012.
Although there can be no assurances, at the present time, the Company does not anticipate that the ultimate liability arising from such other potential, pending, or threatened legal actions will have a material adverse effect on the financial condition or operating results of the Company.
The Company was involved in litigation as the plaintiff in a matter pending in the United States District Court for the Western District of Texas (“District Court”) against defendant, Western National Life Insurance Company and its parent company, AGC Life Insurance Company. The matter dealt with the alleged infringement of registered trademarks held by the Company. On March 25, 2011, the parties executed a Memorandum of Understanding on Settlement (“Memorandum”) under which the Company was to receive a settlement payment of $4 million. This amount was received and included in Other revenues, net of attorney fees, in the financial statements in the second quarter, 2011. The parties entered into a final written confidential settlement agreement originally dated May 2, 2011 and amended August 15, 2011.
Brazilian insurance regulators have sought to impose substantial penal fines against National Western Life Insurance Company. The Company firmly believes that Brazilian insurance regulators have no jurisdiction over the Company and that any such fines would be unenforceable against it.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(A) | Investment Gains and Losses |
The table below presents realized investment gains and losses, excluding impairment losses, for the periods indicated.
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Available for sale debt securities: | | | |
Realized gains on disposal | $ | 1,628 |
| | 2,807 |
|
Realized losses on disposal | — |
| | — |
|
Held to maturity debt securities: |
|
| | |
|
Realized gains on disposal | 116 |
| | 374 |
|
Realized losses on disposal | (374 | ) | | — |
|
Equity securities realized gains (losses) | (4 | ) | | — |
|
Real estate write-down | — |
| | (50 | ) |
Mortgage loans write-downs | — |
| | (39 | ) |
Other | — |
| | — |
|
| | | |
Totals | $ | 1,366 |
| | 3,092 |
|
The Company uses the specific identification method in computing realized gains and losses.
The table below presents net impairment losses recognized in earnings for the periods indicated.
|
| | | | | | |
| Three Months Ended March 31, |
| 2012 | | 2011 |
| (In thousands) |
| | | |
Total other-than-temporary impairment losses on debt securities | $ | (253 | ) | | — |
|
Portion of loss recognized in comprehensive income | 78 |
| | — |
|
| | | |
Net impairment losses on debt securities recognized in earnings | (175 | ) | | — |
|
Equity securities impairments | (24 | ) | | — |
|
| | | |
Totals | $ | (199 | ) | | — |
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below presents a roll forward of credit losses on securities for which the Company also recorded non-credit other-than-temporary impairments in other comprehensive loss.
|
| | | | | | |
| Three Months Ended March 31, 2012 | | Twelve Months Ended December 31, 2011 |
| | | |
| | | |
Beginning balance, cumulative credit losses related to other-than-temporary impairments | $ | 1,122 |
| | 997 |
|
Additions for credit losses not previously recognized in other-than-temporary impairments | 175 |
| | 125 |
|
| | | |
Ending balance, cumulative credit losses related to other-than-temporary impairment | $ | 1,297 |
| | 1,122 |
|
| |
(B) | Debt and Equity Securities |
The table below presents amortized costs and fair values of securities held to maturity at March 31, 2012.
|
| | | | | | | | | | | | |
| Securities Held to Maturity |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
| | | | | | | |
Debt securities: | | | | | | | |
U.S. agencies | $ | 98,155 |
| | 3,235 |
| | (35 | ) | | 101,355 |
|
U.S. Treasury | 1,938 |
| | 586 |
| | — |
| | 2,524 |
|
States and political subdivisions | 372,566 |
| | 28,077 |
| | (259 | ) | | 400,384 |
|
Foreign governments | 9,981 |
| | 896 |
| | — |
| | 10,877 |
|
Public utilities | 676,056 |
| | 73,557 |
| | (2,288 | ) | | 747,325 |
|
Corporate | 2,417,276 |
| | 200,685 |
| | (8,182 | ) | | 2,609,779 |
|
Mortgage-backed | 2,060,595 |
| | 153,109 |
| | (388 | ) | | 2,213,316 |
|
Home equity | 23,257 |
| | 3,250 |
| | (1,441 | ) | | 25,066 |
|
Manufactured housing | 14,108 |
| | 934 |
| | — |
| | 15,042 |
|
| | | | | | | |
Totals | $ | 5,673,932 |
| | 464,329 |
| | (12,593 | ) | | 6,125,668 |
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below presents amortized costs and fair values of securities available for sale at March 31, 2012.
|
| | | | | | | | | | | | |
| Securities Available for Sale |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
| | | | | | | |
Debt securities: | | | | | | | |
States and political subdivisions | $ | 4,041 |
| | 22 |
| | (100 | ) | | 3,963 |
|
Foreign governments | 15,141 |
| | 394 |
| | — |
| | 15,535 |
|
Public utilities | 318,879 |
| | 31,650 |
| | (174 | ) | | 350,355 |
|
Corporate | 2,019,919 |
| | 168,632 |
| | (3,014 | ) | | 2,185,537 |
|
Mortgage-backed | 144,579 |
| | 12,371 |
| | — |
| | 156,950 |
|
Home equity | 10,889 |
| | 46 |
| | (1,962 | ) | | 8,973 |
|
Manufactured housing | 7,337 |
| | 670 |
| | — |
| | 8,007 |
|
| 2,520,785 |
| | 213,785 |
| | (5,250 | ) | | 2,729,320 |
|
| | | | | | | |
Equity public | 6,297 |
| | 2,652 |
| | (118 | ) | | 8,831 |
|
| | | | | | | |
Totals | $ | 2,527,082 |
| | 216,437 |
| | (5,368 | ) | | 2,738,151 |
|
The table below presents amortized costs and fair values of securities held to maturity at December 31, 2011.
|
| | | | | | | | | | | | |
| Securities Held to Maturity |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
| | | | | | | |
Debt securities: | | | | | | | |
U.S. agencies | $ | 205,464 |
| | 3,519 |
| | (330 | ) | | 208,653 |
|
U.S. Treasury | 1,937 |
| | 648 |
| | — |
| | 2,585 |
|
States and political subdivisions | 358,364 |
| | 27,338 |
| | (280 | ) | | 385,422 |
|
Foreign governments | 9,979 |
| | 927 |
| | — |
| | 10,906 |
|
Public utilities | 685,989 |
| | 77,060 |
| | (4,498 | ) | | 758,551 |
|
Corporate | 2,258,640 |
| | 195,551 |
| | (14,483 | ) | | 2,439,708 |
|
Mortgage-backed | 2,082,650 |
| | 155,413 |
| | (29 | ) | | 2,238,034 |
|
Home equity | 23,815 |
| | 439 |
| | (1,649 | ) | | 22,605 |
|
Manufactured housing | 15,071 |
| | 876 |
| | (81 | ) | | 15,866 |
|
| | | | | | | |
Totals | $ | 5,641,909 |
| | 461,771 |
| | (21,350 | ) | | 6,082,330 |
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below presents amortized costs and fair values of securities available for sale at December 31, 2011.
|
| | | | | | | | | | | | |
| Securities Available for Sale |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
| | | | | | | |
Debt securities: | | | | | | | |
States and political subdivisions | $ | 4,042 |
| | 16 |
| | (170 | ) | | 3,888 |
|
Foreign governments | 20,145 |
| | 588 |
| | — |
| | 20,733 |
|
Public utilities | 327,794 |
| | 32,511 |
| | (907 | ) | | 359,398 |
|
Corporate | 1,881,735 |
| | 155,144 |
| | (5,839 | ) | | 2,031,040 |
|
Mortgage-backed | 163,856 |
| | 12,389 |
| | (189 | ) | | 176,056 |
|
Home equity | 10,887 |
| | 30 |
| | (2,054 | ) | | 8,863 |
|
Manufactured housing | 7,689 |
| | 740 |
| | — |
| | 8,429 |
|
| 2,416,148 |
| | 201,418 |
| | (9,159 | ) | | 2,608,407 |
|
| | | | | | | |
Equity private | 195 |
| | 7,923 |
| | — |
| | 8,118 |
|
Equity public | 6,307 |
| | 2,266 |
| | (145 | ) | | 8,428 |
|
| | | | | | | |
Totals | $ | 2,422,650 |
| | 211,607 |
| | (9,304 | ) | | 2,624,953 |
|
The following table shows the gross unrealized losses and fair values of the Company's held to maturity investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at March 31, 2012.
|
| | | | | | | | | | | | | | | | | | |
| Securities Held to Maturity |
| Less than 12 Months | | 12 Months or Greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| (In thousands) |
| | | | | | | | | | | |
Debt securities: | | | | | | | | | | | |
U.S. Government agencies | $ | 29,989 |
| | (35 | ) | |