NWLI 2012 Q1 10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
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
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 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.




TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
March 31, 2012 (Unaudited) and December 31, 2011
 
 
For the Three Months Ended March 31, 2012 and 2011 (Unaudited)
 
 
For the Three Months Ended March 31, 2012 and 2011 (Unaudited)
 
 
For the Three Months Ended March 31, 2012 and 2011 (Unaudited)
 
 
For the Three Months Ended March 31, 2012 and 2011 (Unaudited)
 
 
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
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)
 
 
ASSETS
March 31,
2012
 
December 31,
2011
 
 
 
 
Investments:
 
 
 
Securities held to maturity, at amortized cost (fair value: $6,125,668 and $6,082,330)
$
5,673,932

 
5,641,909

Securities available for sale, at fair value (cost: $2,527,082 and $2,422,650)
2,738,151

 
2,624,953

Mortgage loans, net of allowance for possible losses ($4,571 and $4,571)
153,394

 
157,460

Policy loans
74,649

 
74,967

Derivatives, index options
83,693

 
30,844

Other long-term investments
44,311

 
34,472

 
 
 
 
Total investments
8,768,130

 
8,564,605

 
 
 
 
Cash and short-term investments
75,491

 
119,290

Deferred policy acquisition costs
713,377

 
722,542

Deferred sales inducements
155,222

 
155,753

Accrued investment income
92,075

 
87,875

Federal income tax receivable
—

 
—

Other assets
80,310

 
77,934

 
 
 
 
Total assets
$
9,884,605

 
9,727,999


See accompanying notes to condensed consolidated financial statements.

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Table of Contents


NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31,
2012
 
December 31,
2011
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
8,126,345

 
8,023,798

Traditional life and annuity contracts
138,842

 
139,657

Other policyholder liabilities
150,568

 
151,308

Deferred Federal income tax liability
36,217

 
46,481

Federal income tax payable
23,125

 
5,962

Other liabilities
105,684

 
84,008

 
 
 
 
Total liabilities
8,580,781

 
8,451,214

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $1 par value; 7,500,000 shares authorized; 3,434,766 issued and outstanding in 2012 and 2011
3,435

 
3,435

Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2012 and 2011
200

 
200

Additional paid-in capital
37,767

 
37,767

Accumulated other comprehensive income
60,474

 
53,176

Retained earnings
1,201,948

 
1,182,207

 
 
 
 
Total stockholders’ equity
1,303,824

 
1,276,785

 
 
 
 
Total liabilities and stockholders' equity
$
9,884,605

 
9,727,999


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.


4
Table of Contents

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)

 
2012
 
2011
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
36,199

 
29,832

Traditional life and annuity contract premiums
4,083

 
4,022

Net investment income
149,558

 
133,515

Other revenues
5,655

 
9,906

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) losses
(277
)
 
—

Portion of OTTI losses recognized in other comprehensive income
78

 
—

Net OTTI losses recognized in earnings
(199
)
 
—

Other net investment gains (losses)
1,366

 
3,092

Total net realized investment gains (losses)
1,167

 
3,092

 
 
 
 
Total revenues
196,662

 
180,367

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
13,678

 
12,216

Amortization of deferred policy acquisition costs
31,711

 
27,489

Universal life and annuity contract interest
101,543

 
92,149

Other operating expenses
20,018

 
20,718

 
 
 
 
Total benefits and expenses
166,950

 
152,572

 
 
 
 
Earnings before Federal income taxes
29,712

 
27,795

 
 
 
 
Federal income taxes
9,971

 
9,584

 
 
 
 
Net earnings
$
19,741

 
18,211

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
5.58

 
5.16

Class B
$
2.79

 
2.58

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
5.58

 
5.15

Class B
$
2.79

 
2.58


See accompanying notes to condensed consolidated financial statements.


5
Table of Contents

 
 
 
 
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)

 
2012
 
2011
 
 
 
 
Net earnings
$
19,741

 
18,211

 
 
 
 
Other comprehensive income, net of effects of deferred costs and taxes:
 

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains arising during period
7,752

 
6

Net unrealized liquidity gains (losses)
(24
)
 
201

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
)
 
 
 
 
Net unrealized gains (losses) on securities
6,689

 
(1,685
)
 
 
 
 
Foreign currency translation adjustments
386

 
(75
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain
223

 
290

 
 
 
 
Other comprehensive income
7,298

 
(1,470
)
 
 
 
 
Comprehensive income
$
27,039

 
16,741


See accompanying notes to condensed consolidated financial statements.


6
Table of Contents

 
 
 
 
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)

 
2012
 
2011
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
3,635

 
3,629

Shares exercised under stock option plan
—

 
4

 
 
 
 
       Balance at end of period
3,635

 
3,633

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
37,767

 
37,140

Shares exercised under stock option plan
—

 
622

 
 
 
 
       Balance at end of period
37,767

 
37,762

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains on non-impaired securities:
 

 
 

Balance at beginning of period
69,116

 
62,499

Change in unrealized gains during period, net of tax
6,713

 
(1,886
)
 
 
 
 
   Balance at end of period
75,829

 
60,613

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(2,320
)
 
(2,713
)
Cumulative effect of change in accounting principal
—

 
—

Amortization
6

 
217

Other-than-temporary impairments, non-credit, net of tax
(51
)
 
—

Additional credit loss on previously impaired securities
—

 
—

Change in shadow deferred policy acquisition costs
21

 
(16
)
 
 
 
 
   Balance at end of period
(2,344
)
 
(2,512
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(608
)
 
—

Other-than-temporary impairments, non-credit, net of tax
—

 
—

Change in shadow deferred policy acquisition costs
—

 


Recoveries, net of tax
—

 
—

 
 
 
 
  Balance at end of period
(608
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 

7
Table of Contents

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)

 
 
 
 
 
2012
 
2011
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
2,368

 
2,585

Change in translation adjustments during period
386

 
(75
)
 
 
 
 
  Balance at end of period
2,754

 
2,510

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(15,380
)
 
(11,963
)
Amortization of net prior service cost and net gain, net of tax
223

 
290

 
 
 
 
  Balance at end of period
(15,157
)
 
(11,673
)
 
 
 
 
Accumulated other comprehensive income at end of period
60,474

 
48,938

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,182,207

 
1,127,614

   Net earnings
19,741

 
18,211

   Stockholder dividends
—

 
—

 
 
 
 
   Balance at end of period
1,201,948

 
1,145,825

 
 
 
 
Total stockholders' equity
$
1,303,824

 
$
1,236,158


See accompanying notes to condensed consolidated financial statements.



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Table of Contents

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)
 
2012
 
2011
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
19,741

 
18,211

Adjustments to reconcile net earnings to net cash from operating activities:
 

 
 

Universal life and annuity contract interest
101,543

 
92,149

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

(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

(Decrease) increase in other policyholder liabilities
(740
)
 
3,541

Decrease in Federal income taxes
3,298

 
9,847

(Decrease) increase in other liabilities
2,932

 
(3,532
)
Other, net
127

 
—

 
 
 
 
Net cash provided by operating activities
76,004

 
50,002

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Securities available for sale
418

 
10,010

Other investments
477

 
1,940

Proceeds from maturities and redemptions of:
 

 
 

Securities held to maturity
384,604

 
150,205

Securities available for sale
79,767

 
29,127

Index options
260

 
10,180

Purchases of:
 

 
 

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

Cost of mortgage loans acquired
(390
)
 
(9,432
)
Decrease (increase) in policy loans
318

 
909

Other, net
3

 
(1
)
 
 
 
 
Net cash used in investing activities
(121,955
)
 
(204,996
)
 
 
 
 
 
Continued on Next Page
 

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Table of Contents

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)
 
2012
 
2011
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
212,423

 
346,146

Return of account balances on universal life and annuity contracts
(210,657
)
 
(209,714
)
Issuance of common stock under stock option plan
—

 
626

 
 
 
 
Net cash provided by financing activities
1,766

 
137,058

 
 
 
 
Effect of foreign exchange
386

 
(75
)
 
 
 
 
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

 
 
 
 
Cash and short-term investments at end of period
$
75,491

 
$
62,321

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid during the period for:
 

 
 

Interest
$
10

 
$
10

Income taxes
$
6,539

 
$
—

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
1,314

 
$
5,117


See accompanying notes to condensed consolidated financial statements.



10
Table of Contents
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(1)
 CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of 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.


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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(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.



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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(3)
 STOCKHOLDERS' EQUITY

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.

(4)
 EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income by the weighted-average basic common shares outstanding during the period. Diluted earnings per share assumes the issuance of common shares applicable to stock options in the denominator.
 
Three Months Ended March 31,
 
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

 
 
 
 
 
 
 
 

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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.

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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.


15
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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

 
 
 
 
 
 
 
 
 
 

16
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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

 
 
 
 
 
 
 
 
 
 


17
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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




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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



(7)
  SHARE-BASED PAYMENTS

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.


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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.


20
Table of Contents
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.


21
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(8)
COMMITMENTS AND CONTINGENCIES

(A)
Legal Proceedings

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.


22
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(9)
INVESTMENTS

(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
)
 
—




23
Table of Contents
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



24
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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



25
Table of Contents
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
)