NWLI 2013 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, 2013
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 5, 2013, 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, 2013 (Unaudited) and December 31, 2012
 
 
For the Three Months Ended March 31, 2013 and 2012 (Unaudited)
 
 
For the Three Months Ended March 31, 2013 and 2012 (Unaudited)
 
 
For the Three Months Ended March 31, 2013 and 2012 (Unaudited)
 
 
For the Three Months Ended March 31, 2013 and 2012 (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,
2013
 
December 31,
2012
 
 
 
 
Investments:
 
 
 
Securities held to maturity, at amortized cost (fair value: $6,588,874 and $6,503,627)
$
6,078,141

 
5,962,120

Securities available for sale, at fair value (cost: $2,656,308 and $2,658,512)
2,904,202

 
2,826,001

Mortgage loans, net of allowance for possible losses ($650 and $650)
125,539

 
142,170

Policy loans
71,143

 
71,549

Derivatives, index options
130,967

 
57,890

Other long-term investments
39,136

 
41,439

 
 
 
 
Total investments
9,349,128

 
9,101,169

 
 
 
 
Cash and short-term investments
86,816

 
124,561

Deferred policy acquisition costs
709,329

 
705,397

Deferred sales inducements
154,673

 
152,844

Accrued investment income
96,355

 
92,665

Federal income tax receivable
—

 
5,655

Other assets
80,200

 
81,567

 
 
 
 
Total assets
$
10,476,501

 
10,263,858


See accompanying notes to condensed consolidated financial statements (unaudited).

3
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31,
2013
 
December 31,
2012
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
8,587,555

 
8,430,545

Traditional life reserves
137,826

 
138,309

Other policyholder liabilities
155,482

 
148,561

Deferred Federal income tax liability
36,556

 
55,054

Federal income tax payable
19,861

 
—

Other liabilities
132,283

 
99,709

 
 
 
 
Total liabilities
9,069,563

 
8,872,178

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $1 par value; 7,500,000 shares authorized; 3,434,763 issued and outstanding in 2013 and 2012
3,435

 
3,435

Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2013 and 2012
200

 
200

Additional paid-in capital
37,767

 
37,767

Accumulated other comprehensive income
75,412

 
76,786

Retained earnings
1,290,124

 
1,273,492

 
 
 
 
Total stockholders’ equity
1,406,938

 
1,391,680

 
 
 
 
Total liabilities and stockholders' equity
$
10,476,501

 
10,263,858


Note:  The Condensed Consolidated Balance Sheet at December 31, 2012, has been derived from the audited Consolidated Financial Statements as of that date.

See accompanying notes to condensed consolidated financial statements (unaudited).


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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
(In thousands, except per share amounts)

 
2013
 
2012
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
37,899

 
36,199

Traditional life premiums
3,864

 
4,083

Net investment income
180,814

 
149,558

Other revenues
6,142

 
5,655

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
382

 
(277
)
Portion of OTTI (gains) losses recognized in other comprehensive income
(443
)
 
78

Net OTTI losses recognized in earnings
(61
)
 
(199
)
Other net investment gains (losses)
2,374

 
1,366

Total net realized investment gains (losses)
2,313

 
1,167

 
 
 
 
Total revenues
231,032

 
196,662

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
12,690

 
13,678

Amortization of deferred policy acquisition costs
30,804

 
31,711

Universal life and annuity contract interest
140,300

 
101,543

Other operating expenses
21,924

 
20,018

 
 
 
 
Total benefits and expenses
205,718

 
166,950

 
 
 
 
Earnings before Federal income taxes
25,314

 
29,712

 
 
 
 
Federal income taxes
8,682

 
9,971

 
 
 
 
Net earnings
$
16,632

 
19,741

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
4.71

 
5.58

Class B
$
2.35

 
2.79

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
4.70

 
5.58

Class B
$
2.35

 
2.79


See accompanying notes to condensed consolidated financial statements (unaudited).

 
 
 
 

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
(In thousands)

 
2013
 
2012
 
 
 
 
Net earnings
$
16,632

 
19,741

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

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains arising during period
(1,125
)
 
7,752

Net unrealized liquidity gains (losses)
138

 
(24
)
Reclassification adjustment for net amounts included in net earnings
(1,359
)
 
(1,040
)
Amortization of net unrealized (gains) losses related to transferred securities
—

 
1

 
 
 
 
Net unrealized gains (losses) on securities
(2,346
)
 
6,689

 
 
 
 
Foreign currency translation adjustments
590

 
386

 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
381

 
223

 
 
 
 
Other comprehensive income
(1,375
)
 
7,298

 
 
 
 
Comprehensive income
$
15,257

 
27,039


See accompanying notes to condensed consolidated financial statements (unaudited).



 
 
 
 




6
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
(In thousands)

 
2013
 
2012
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
3,635

 
3,635

Shares exercised under stock option plan
—

 
—

 
 
 
 
       Balance at end of period
3,635

 
3,635

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
37,767

 
37,767

Shares exercised under stock option plan
—

 
—

 
 
 
 
       Balance at end of period
37,767

 
37,767

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains on non-impaired securities:
 

 
 

Balance at beginning of period
91,972

 
69,116

Change in unrealized gains during period, net of tax
(2,483
)
 
6,713

 
 
 
 
   Balance at end of period
89,489

 
75,829

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(1,426
)
 
(2,320
)
Amortization
—

 
6

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

 
(51
)
Additional credit loss on previously impaired securities
25

 
—

Change in shadow deferred policy acquisition costs
(17
)
 
21

 
 
 
 
   Balance at end of period
(1,418
)
 
(2,344
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(196
)
 
(608
)
Other-than-temporary impairments, non-credit, net of tax
—

 


Change in shadow deferred policy acquisition costs
(133
)
 


Recoveries, net of tax
263

 
—

 
 
 
 
  Balance at end of period
(66
)
 
(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, 2013 and 2012
(Unaudited)
(In thousands)

 
2013
 
2012
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
2,589

 
2,368

Change in translation adjustments during period
590

 
386

 
 
 
 
  Balance at end of period
3,179

 
2,754

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(16,153
)
 
(15,380
)
Amortization of net prior service cost and net gain, net of tax
381

 
223

 
 
 
 
  Balance at end of period
(15,772
)
 
(15,157
)
 
 
 
 
Accumulated other comprehensive income at end of period
75,412

 
60,474

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,273,492

 
1,182,207

   Net earnings
16,632

 
19,741

   Stockholder dividends
—

 
—

 
 
 
 
   Balance at end of period
1,290,124

 
1,201,948

 
 
 
 
Total stockholders' equity
$
1,406,938

 
$
1,303,824


See accompanying notes to condensed consolidated financial statements (unaudited).



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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March, 2013 and 2012
(Unaudited)
(In thousands)
 
2013
 
2012
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
16,632

 
19,741

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

 
 

Universal life and annuity contract interest
140,300

 
101,543

Surrender charges and other policy revenues
(3,605
)
 
(3,500
)
Realized (gains) losses on investments
(2,313
)
 
(1,167
)
Accrual and amortization of investment income
(447
)
 
(708
)
Depreciation and amortization
1,406

 
1,417

(Increase) decrease in value of index options
(74,432
)
 
(42,355
)
(Increase) decrease in deferred policy acquisition and sales inducement costs
(453
)
 
2,427

(Increase) decrease in accrued investment income
(4,933
)
 
(4,200
)
(Increase) decrease in other assets
(500
)
 
(4,734
)
Increase (decrease) in liabilities for future policy benefits
2,748

 
1,923

Increase (decrease) in other policyholder liabilities
6,921

 
(740
)
Increase (decrease) in Federal income taxes
8,281

 
3,298

Increase (decrease) in other liabilities
(7,324
)
 
2,932

Other, net
—

 
127

 
 
 
 
Net cash provided by operating activities
82,281

 
76,004

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Securities available for sale
609

 
418

Other investments
2,884

 
477

Proceeds from maturities and redemptions of:
 

 
 

Securities held to maturity
403,974

 
384,604

Securities available for sale
66,052

 
79,767

Index options
14,980

 
260

Purchases of:
 

 
 

Securities held to maturity
(509,924
)
 
(406,536
)
Securities available for sale
(121,242
)
 
(173,237
)
Index options
(12,169
)
 
(10,672
)
Other investments
(15
)
 
(1,503
)
Principal payments on mortgage loans
17,000

 
4,536

Cost of mortgage loans acquired
(253
)
 
(390
)
Decrease (increase) in policy loans
406

 
318

Other, net
(2
)
 
3

 
 
 
 
Net cash used in investing activities
(137,700
)
 
(121,955
)
 
 
 
 
 
Continued on Next Page
 

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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, 2013 and 2012
(Unaudited)
(In thousands)
 
2013
 
2012
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
231,749

 
212,423

Return of account balances on universal life and annuity contracts
(214,665
)
 
(210,657
)
Issuance of common stock under stock option plan
—

 
—

 
 
 
 
Net cash provided by financing activities
17,084

 
1,766

 
 
 
 
Effect of foreign exchange
590

 
386

 
 
 
 
Net increase (decrease) in cash and short-term investments
(37,745
)
 
(43,799
)
Cash and short-term investments at beginning of period
124,561

 
119,290

 
 
 
 
Cash and short-term investments at end of period
$
86,816

 
$
75,491

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid during the period for:
 

 
 

Interest
$
20

 
$
10

Income taxes
$
2,484

 
$
6,539

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
714

 
$
1,314


See accompanying notes to condensed consolidated financial statements (unaudited).



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, 2013, and the results of its operations and its cash flows three months ended March 31, 2013. The results of operations for the three months ended March 31, 2013 and 2012 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, 2012 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, 2012 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited 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.

Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.


(2)
 NEW ACCOUNTING PRONOUNCEMENTS

During February 2013, the FASB issued new guidance related to the presentation of amounts reclassified out of accumulated other comprehensive income. The new guidance requires disclosure on the statement of income amounts reclassified. As the Company already reports reclassifications on its Income Statement and Statement of Comprehensive Income the new guidance will not have a significant impact on the Company's consolidated financial statements and results of operations.

During October 2010, the Financial Accounting Standards Board ("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 adoption of this guidance was effective January 1, 2012. See Note 1, Summary of Significant Accounting Policies, of the accompanying consolidated financial statements for additional 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 as to dividend amounts which may be paid to stockholders without prior approval from the Colorado Division of Insurance.  The restrictions are based on the greater of statutory earnings from operations excluding capital gains or 10% of statutory capital and surplus of the Company.  The maximum dividend payment which may be made without prior approval in 2013 is $100.5 million. The Company did not declare or pay cash dividends on common stock during the three months ended March 31, 2013 and 2012.


(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,
 
2013
 
2012
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
16,632

 
 
 
19,741

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
16,632

 
 
 
19,741

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
16,162

 
470

 
19,183

 
558

 
 
 
 
 
 
 
 
Net income
$
16,162

 
470

 
19,183

 
558

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic earnings per share - weighted-average shares
3,435

 
200

 
3,435

 
200

Effect of dilutive stock options
5

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,440

 
200

 
3,435

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
4.71

 
2.35

 
5.58

 
2.79

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
4.70

 
2.35

 
5.58

 
2.79

 
 
 
 
 
 
 
 



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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,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Service cost
$
47

 
44

Interest cost
218

 
232

Expected return on plan assets
(283
)
 
(268
)
Amortization of prior service cost
1

 
1

Amortization of net loss
203

 
196

 
 
 
 
Net periodic benefit cost
$
186

 
205


The service costs shown in the above table represent plan expenses expected to be paid out of plan assets. Under clarification provided by the Pension Protection Act, plan expenses paid from plan assets are to be included in the plan's service cost component.

The Company's minimum required contribution for the 2013 plan year is $0.7 million of which it expects to contribute approximately $0.4 million during 2013 with the remainder to be contributed in 2014. In addition, the Company had a remaining contribution payable for the 2012 plan year of $0.1 million which it paid during the first quarter of 2013. As of March 31, 2013, the Company had contributed a total of $0.1 million to the plan for the 2012 and 2013 plan years.

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.


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

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.

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,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Service cost
$
44

 
42

Interest cost
200

 
228

Amortization of prior service cost
15

 
15

Amortization of net loss
294

 
285

 
 
 
 
Net periodic benefit cost
$
553

 
570


The Company expects to contribute $2.0 million to these plans in 2013.  As of March 31, 2013, 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,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Interest cost
$
29

 
32

Amortization of prior service cost
26

 
26

Amortization of net loss
8

 
11

 
 
 
 
Net periodic benefit cost
$
63

 
69


The Company expects to contribute minimal amounts to the plan in 2013.


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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, 2013 and March 31, 2012 is provided below.

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
Selected Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
41,026

 
227,263

 
595,713

 
—

 
864,002

Total segment assets
496,778

 
1,148,773

 
8,418,536

 
257,309

 
10,321,396

Future policy benefits
427,006

 
861,854

 
7,436,521

 
—

 
8,725,381

Other policyholder liabilities
12,547

 
10,139

 
132,796

 
—

 
155,482

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 

March 31, 2013
 
 
 
 
 
 
 
 
 

Condensed Consolidated Income Statements:
 
 
 
 
 
 
 
 
 

Premiums and contract revenues
$
9,610

 
28,019

 
4,134

 
—

 
41,763

Net investment income
7,773

 
18,630

 
150,378

 
4,033

 
180,814

Other revenues
12

 
43

 
39

 
6,048

 
6,142

 
 
 
 
 
 
 
 
 
 
Total revenues
17,395

 
46,692

 
154,551

 
10,081

 
228,719

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
3,030

 
3,645

 
6,015

 
—

 
12,690

Amortization of deferred acquisition costs
2,035

 
5,787

 
22,982

 
—

 
30,804

Universal life and annuity contract interest
7,191

 
21,991

 
111,118

 
—

 
140,300

Other operating expenses
3,767

 
6,708

 
6,086

 
5,363

 
21,924

Federal income taxes (benefit)
470

 
2,930

 
2,857

 
1,615

 
7,872

 
 
 
 
 
 
 
 
 
 
Total expenses
16,493

 
41,061

 
149,058

 
6,978

 
213,590

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
902

 
5,631

 
5,493

 
3,103

 
15,129


 
 
 
 
 
 
 
 
 
 

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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, 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)

Reconciliations of segment information to the Company's condensed consolidated financial statements are provided below.

 
Three Months Ended March 31,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Premiums and Other Revenues:
 
 
 
Premiums and contract revenues
$
41,763

 
40,282

Net investment income
180,814

 
149,558

Other revenues
6,142

 
5,655

Realized gains (losses) on investments
2,313

 
1,167

 
 
 
 
Total condensed consolidated premiums and other revenues
$
231,032

 
196,662


 
Three Months Ended March 31,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Federal Income Taxes:
 
 
 
Total segment Federal income taxes
$
7,872

 
9,563

Taxes on realized gains (losses) on investments
810

 
408

 
 
 
 
Total condensed consolidated Federal income taxes
$
8,682

 
9,971



 
Three Months Ended March 31,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Net Earnings:
 
 
 
Total segment earnings
$
15,129

 
18,982

Realized gains (losses) on investments, net of taxes
1,503

 
759

 
 
 
 
Total condensed consolidated net earnings
$
16,632

 
19,741




17
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
March 31,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Assets:
 
 
 
Total segment assets
$
10,321,396

 
9,817,389

Other unallocated assets
155,105

 
67,216

 
 
 
 
Total condensed consolidated assets
$
10,476,501

 
9,884,605



(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 current 2008 Plan (as well as previously in the expired 1995 Plan). 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 2013 or 2012.

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, 2013 and 2012, the liability balance was $4.1 million and $1.6 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, 2013
291,000

 
82,468

 
$
186.19

Exercised
—

 
(2,850
)
 
150.00

Forfeited
—

 
(400
)
 
255.13

Expired
—

 
—

 
—

Stock options granted
—

 
—

 
—

 
 
 
 
 
 
Balance at March 31, 2013
291,000

 
79,218

 
$
187.14


 
Stock Appreciation Rights Outstanding
 
Awards
 
Weighted-
Average
Exercise
Price
 
 
 
 
Stock Appreciation Rights:
 
 
 
Balance at January 1, 2013
66,461

 
$
125.03

Exercised
(800
)
 
114.64

Forfeited
(400
)
 
251.49

Granted
—

 
—

 
 
 
 
Balance at March 31, 2013
65,261

 
$
124.38


Stock options and stock appreciation rights (SARs) shown as forfeited in the above tables represent vested and unvested awards not exercised by plan participants prior to their termination from the Company. Forfeited stock options during the three months ended March 31, 2013 were awarded under the 1995 Plan. As the 1995 Plan terminated during calendar year 2010, the forfeited shares are not shown as being added back to the "Shares Available For Grant" balance.

The total intrinsic value of options exercised was $0.1 million and $0 for the three months ended March 31, 2013 and 2012, respectively. The total share-based liabilities paid were $126,337 and $17,000 for the three months ended March 31, 2013 and 2012, respectively. The total fair value of shares vested during the three months ended March 31, 2013 and 2012 was $0.3 million and $0.3 million, respectively. For the quarters ended March 31, 2013 and 2012, the total cash received from the exercise of options under the Plans was $0 and $0, respectively.


19
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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, 2013.

 
 
Options/SARs Outstanding
 
 
Number
Outstanding
 
Weighted-
Average
Remaining
Contractual Life
 
Options
Exercisable
 
 
 
 
 
 
 
Exercise prices:
 
 
 
 
 
$150.00
 
47,200

 
1.1 years
 
47,200

255.13
 
23,018

 
5.1 years
 
9,208

208.05
 
9,000

 
5.2 years
 
7,200

236.00
 
250

 
5.4 years
 
100

114.64
 
31,243

 
5.8 years
 
15,558

132.56
 
33,768

 
8.7 years
 
1,800

Totals
 
144,479

 
 
 
81,066

 
 

 
 
 
 

Aggregate intrinsic value (in thousands)
$
4,611

 
 
 
$
2,260


The aggregate intrinsic value in the table above is based on the closing stock price of $176.00 per share on March 31, 2013.

In estimating the fair value of the options outstanding at March 31, 2013 and December 31, 2012, the Company employed the Black-Scholes option pricing model with assumptions as detailed below.

 
March 31,
2013
 
December 31,
2012
 
 
 
 
Expected term of options
1 to 9 years

 
0 to 9 years

Expected volatility:
 
 
 
Range
18.86% to 33.49%

 
19.54% to 34.93%

Weighted-average
24.93
%
 
25.96
%
Expected dividend yield
20.20
%
 
23.00
%
Risk-free rate:
 
 
 
Range
0.42% to 1.64%

 
0.39% to 1.49%

Weighted-average
0.84
%
 
0.84
%

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 $1.5 and $0 million for the three months ended March 31, 2013 and 2012, respectively. The related tax expense (benefit) recognized was $0.5 million and $0.0 million for the three months ended March 31, 2013 and 2012, respectively.

As of March 31, 2013, the total compensation cost related to nonvested options not yet recognized was $1.8 million.  This amount is expected to be recognized over a weighted-average period of 1.4 years.  The Company recognizes compensation cost over the graded vesting periods.


20
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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, 2013 for this matter. The trial date has been vacated and a pretrial conference is scheduled for May 31, 2013.

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 Company vigorously defended this case and appealed the Final Judgment to the Court of Appeals Second District of Texas in Fort Worth. 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. 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. 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. The Supreme Court asked the parties for briefs on the issues before deciding on whether to hear the case and both parties submitted their briefs. On February 14, 2013, the Supreme Court denied the Plaintiffs petition for review. On April 3, 2013, Plaintiff filed a Motion for Rehearing.

On October 26, 2011 the Brazilian Superintendence of Private Insurance (“SUSEP”) attempted to serve the Company with a subpoena regarding an administrative proceeding initiated by SUSEP in which it alleged that the Company was operating as an insurance company in Brazil without due authorization.  The Company has been informed that SUSEP is attempting to impose a penal fine of approximately $6.0 billion on the Company.  SUSEP has unsuccessfully attempted to serve the Company with notice regarding this matter.  The Company does not transact business in Brazil and has no officers, employees, property, or assets in Brazil.  The Company and its legal advisors believe that SUSEP has no jurisdiction over the Company, that SUSEP's attempts at service of process have been invalid, and that any penal fine would be unenforceable.  For the reasons described above, the Company does not believe that this matter meets the definition of a material pending legal proceeding as such term is defined in Item 103 of Regulation S-K but has included the foregoing description solely due to the purported amount of the fine sought.

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.


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

(B) Financial Instruments

In order to meet the financing needs of its customers in the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments are commitments to extend credit which involve elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amounts, assuming that the amounts are fully advanced and that collateral or other security is of no value. Commitments to extend credit are legally binding agreements to lend to a customer that generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments do not necessarily represent future liquidity requirements, as some could expire without being drawn upon. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company controls the credit risk of these transactions through credit approvals, limits, and monitoring procedures.

The Company had $5.7 million of commitments to extend credit relating to mortgage loans at March 31, 2013. The Company evaluates each customer's creditworthiness on a case-by-case basis.


(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,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Available for sale debt securities:
 
 
 
Realized gains on disposal
$
1,796

 
1,628

Realized losses on disposal
—

 
—

Held to maturity debt securities:


 


Realized gains on disposal
329

 
116

Realized losses on disposal
(69
)
 
(374
)
Equity securities realized gains (losses)
318

 
(4
)
Real estate gains (losses)
—

 
—

Mortgage loans write-downs
—

 
—

Other
—

 
—

 
 
 
 
Totals
$
2,374

 
1,366



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

The Company uses the specific identification method in computing realized gains and losses. Approximately 15.5% of the gains on bonds are due to calls of securities rather than sales. This includes calls out of the Company's available for sale portfolio of debt securities.

The table below presents net impairment losses recognized in earnings for the periods indicated.

 
Three Months Ended March 31,
 
2013
 
2012
 
(In thousands)
 
 
 
 
Total other-than-temporary impairment gains (losses) on debt securities
$
382

 
(253
)
Portion of loss (gain) recognized in comprehensive income
(443
)
 
78

 
 
 
 
Net impairment losses (gains) on debt securities recognized in earnings
(61
)
 
(175
)
Equity securities impairments
—

 
(24
)
 
 
 
 
Totals
$
(61
)
 
(199
)

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, 2013
 
Twelve Months
Ended
December 31,
2012
 
 
 
 
 
 
 
 
Beginning balance, cumulative credit losses related to other-than-temporary impairments
$
2,247

 
1,122

Reductions for securities sold during current period
$
—

 
(118
)
Additions for credit losses not previously recognized in other-than-temporary impairments
61

 
1,243

 
 
 
 
Ending balance, cumulative credit losses related to other-than-temporary impairment
$
2,308

 
2,247



23
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(B)
Debt and Equity Securities

The table below presents amortized costs and fair values of securities held to maturity at March 31, 2013.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
23,107

 
2,551

 
—

 
25,658

U.S. Treasury
1,909

 
617

 
—

 
2,526

States and political subdivisions
415,553

 
40,932

 
(718
)
 
455,767

Foreign governments
9,990

 
507

 
—

 
10,497

Public utilities
778,321

 
86,375

 
(181
)
 
864,515

Corporate
3,052,451

 
260,064

 
(5,675
)
 
3,306,840

Mortgage-backed
1,766,021

 
121,769

 
(484
)
 
1,887,306

Home equity
21,057

 
4,556

 
(359
)
 
25,254

Manufactured housing
9,732

 
779

 
—

 
10,511

 
 
 
 
 
 
 
 
Totals
$
6,078,141

 
518,150

 
(7,417
)
 
6,588,874



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, 2013.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
598

 
—

 
(32
)
 
566

Foreign governments
9,925

 
570

 
—

 
10,495

Public utilities
257,807

 
25,107

 
(9
)
 
282,905

Corporate
2,259,238

 
211,922

 
(1,915
)
 
2,469,245

Mortgage-backed
101,497

 
8,789

 
—

 
110,286

Home equity
12,222

 
17

 
(394
)
 
11,845

Manufactured housing
4,695

 
223

 
—

 
4,918

 
2,645,982

 
246,628

 
(2,350
)
 
2,890,260

 
 
 
 
 
 
 
 
Equity public
10,326

 
3,654

 
(38
)
 
13,942

 
 
 
 
 
 
 
 
Totals
$
2,656,308

 
250,282

 
(2,388
)
 
2,904,202


The table below presents amortized costs and fair values of securities held to maturity at December 31, 2012.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
23,114

 
2,748

 
—

 
25,862

U.S. Treasury
1,907

 
648

 
—

 
2,555

States and political subdivisions
391,062

 
41,150

 
(431
)
 
431,781

Foreign governments
9,988

 
616

 
—

 
10,604

Public utilities
781,239

 
89,162

 
(103
)
 
870,298

Corporate
2,887,572

 
273,431

 
(3,753
)
 
3,157,250

Mortgage-backed
1,835,051

 
133,684

 
(261
)
 
1,968,474

Home equity
21,545

 
4,443

 
(549
)
 
25,439

Manufactured housing
10,642

 
722

 
—

 
11,364

 
 
 
 
 
 
 
 
Totals
$
5,962,120

 
546,604

 
(5,097
)
 
6,503,627



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, 2012.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
599

 
—

 
(28
)
 
571

Foreign governments
15,134

 
932

 
—

 
16,066

Public utilities
254,853

 
26,621

 
(47
)
 
281,427

Corporate
2,157,706

 
222,587

 
(2,981
)
 
2,377,312

Mortgage-backed
113,488

 
8,905

 
(64
)
 
122,329

Home equity
12,242

 
—

 
(1,483
)
 
10,759

Manufactured housing
5,030

 
240

 
—

 
5,270

 
2,559,052

 
259,285

 
(4,603
)
 
2,813,734

 
 
 
 
 
 
 
 
Equity public
9,460

 
2,865

 
(58
)
 
12,267

 
 
 
 
 
 
 
 
Totals
$
2,568,512

 
262,150

 
(4,661
)
 
2,826,001


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, 2013.

 
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. agencies
$
—

 
—