NWLI 2014 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, 2014
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 8, 2014, the number of shares of Registrant's common stock outstanding was: Class A – 3,434,765 and  Class B - 200,000.




TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
March 31, 2014 (Unaudited) and December 31, 2013
 
 
For the Three Months Ended March 31, 2014 and 2013 (Unaudited)
 
 
For the Three Months Ended March 31, 2014 and 2013 (Unaudited)
 
 
For the Three Months Ended March 31, 2014 and 2013 (Unaudited)
 
 
For the Three Months Ended March 31, 2014 and 2013 (Unaudited)
 
 
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

 
(Unaudited)
 
 
ASSETS
March 31,
2014
 
December 31,
2013
 
 
 
 
Investments:
 
 
 
Securities held to maturity, at amortized cost (fair value: $6,853,264 and $6,656,144)
$
6,605,854

 
6,510,320

Securities available for sale, at fair value (cost: $2,534,116 and $2,535,264)
2,681,662

 
2,651,544

Mortgage loans, net of allowance for possible losses ($650 and $650)
128,506

 
132,765

Policy loans
65,144

 
65,969

Derivatives, index options
134,916

 
169,314

Other long-term investments
30,682

 
30,991

 
 
 
 
Total investments
9,646,764

 
9,560,903

 
 
 
 
Cash and short-term investments
132,839

 
120,859

Deferred policy acquisition costs
774,741

 
785,706

Deferred sales inducements
163,038

 
169,570

Accrued investment income
98,564

 
95,367

Federal income tax receivable
1,786

 
—

Other assets
94,885

 
98,011

 
 
 
 
Total assets
$
10,912,617

 
10,830,416


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,
2014
 
December 31,
2013
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,019,804

 
8,987,062

Traditional life reserves
138,064

 
138,072

Other policyholder liabilities
143,738

 
142,587

Deferred Federal income tax liability
22,622

 
7,199

Federal income tax payable
—

 
10,067

Other liabilities
110,701

 
97,481

 
 
 
 
Total liabilities
9,434,929

 
9,382,468

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $1 par value; 7,500,000 shares authorized; 3,434,765 issued and outstanding in 2014 and 2013
3,435

 
3,435

Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2014 and 2013
200

 
200

Additional paid-in capital
37,767

 
37,767

Accumulated other comprehensive income
47,994

 
38,080

Retained earnings
1,388,292

 
1,368,466

 
 
 
 
Total stockholders’ equity
1,477,688

 
1,447,948

 
 
 
 
Total liabilities and stockholders' equity
$
10,912,617

 
10,830,416


Note:  The Condensed Consolidated Balance Sheet at December 31, 2013 has been derived from the audited Consolidated Financial Statements as of that date.

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


4
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended March 31, 2014 and 2013
(Unaudited)
(In thousands, except per share amounts)
 
2014
 
2013
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
38,005

 
37,899

Traditional life premiums
4,271

 
3,864

Net investment income
108,451

 
180,814

Other revenues
5,763

 
6,142

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
(32
)
 
382

Portion of OTTI (gains) losses recognized in other comprehensive income
(3
)
 
(443
)
Net OTTI losses recognized in earnings
(35
)
 
(61
)
Other net investment gains (losses)
1,548

 
2,374

Total net realized investment gains (losses)
1,513

 
2,313

 
 
 
 
Total revenues
158,003

 
231,032

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
12,963

 
12,690

Amortization of deferred policy acquisition costs
28,579

 
30,804

Universal life and annuity contract interest
62,936

 
140,300

Other operating expenses
23,463

 
21,924

 
 
 
 
Total benefits and expenses
127,941

 
205,718

 
 
 
 
Earnings before Federal income taxes
30,062

 
25,314

 
 
 
 
Federal income taxes
10,236

 
8,682

 
 
 
 
Net earnings
$
19,826

 
16,632

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
5.61

 
4.71

Class B
$
2.80

 
2.35

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
5.61

 
4.70

Class B
$
2.80

 
2.35


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, 2014 and 2013
(Unaudited)
(In thousands)

 
2014
 
2013
 
 
 
 
Net earnings
$
19,826

 
16,632

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

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
11,002

 
(1,125
)
Net unrealized liquidity gains (losses)
23

 
138

Reclassification adjustment for net amounts included in net earnings
(425
)
 
(1,359
)
Amortization of net unrealized (gains) losses related to transferred securities
—

 
—

 
 
 
 
Net unrealized gains (losses) on securities
10,600

 
(2,346
)
 
 
 
 
Foreign currency translation adjustments
(511
)
 
590

 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net loss
(176
)
 
381

 
 
 
 
Other comprehensive income
9,913

 
(1,375
)
 
 
 
 
Comprehensive income
$
29,739

 
15,257


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, 2014 and 2013
(Unaudited)
(In thousands)

 
2014
 
2013
 
 
 
 
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
46,693

 
91,972

Change in unrealized gains during period, net of tax
10,578

 
(2,483
)
 
 
 
 
   Balance at end of period
57,271

 
89,489

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(1,287
)
 
(1,426
)
Amortization
57

 
—

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

 
—

Additional credit loss on previously impaired securities
—

 
25

Change in shadow deferred policy acquisition costs
(35
)
 
(17
)
 
 
 
 
   Balance at end of period
(1,265
)
 
(1,418
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(2
)
 
(196
)
Other-than-temporary impairments, non-credit, net of tax
—

 
—

Change in shadow deferred policy acquisition costs
(1
)
 
(133
)
Recoveries, net of tax
2

 
263

 
 
 
 
  Balance at end of period
(1
)
 
(66
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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, 2014 and 2013
(Unaudited)
(In thousands)
 
2014
 
2013
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
3,241

 
2,589

Change in translation adjustments during period
(511
)
 
590

 
 
 
 
  Balance at end of period
2,730

 
3,179

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(10,565
)
 
(16,153
)
Amortization of net prior service cost and net loss, net of tax
(176
)
 
381

 
 
 
 
  Balance at end of period
(10,741
)
 
(15,772
)
 
 
 
 
Accumulated other comprehensive income at end of period
47,994

 
75,412

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,368,466

 
1,273,492

   Net earnings
19,826

 
16,632

   Stockholder dividends
—

 
—

 
 
 
 
   Balance at end of period
1,388,292

 
1,290,124

 
 
 
 
Total stockholders' equity
$
1,477,688

 
$
1,406,938


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



8
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2014 and 2013
(Unaudited)
(In thousands)
 
2014
 
2013
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
19,826

 
16,632

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

 
 

Universal life and annuity contract interest
62,936

 
140,300

Surrender charges and other policy revenues
(4,148
)
 
(3,605
)
Realized (gains) losses on investments
(1,513
)
 
(2,313
)
Accretion/amortization of discounts and premiums, investments
(216
)
 
(447
)
Depreciation and amortization
883

 
1,406

(Increase) decrease in value of index options
(548
)
 
(74,432
)
(Increase) decrease in deferred policy acquisition and sales inducement costs
2,344

 
(453
)
(Increase) decrease in accrued investment income
(3,197
)
 
(4,933
)
(Increase) decrease in other assets
(1,515
)
 
(500
)
Increase (decrease) in liabilities for future policy benefits
(648
)
 
2,748

Increase (decrease) in other policyholder liabilities
1,151

 
6,921

Increase (decrease) in Federal income taxes
(2,138
)
 
8,281

Increase (decrease) in other liabilities
(213
)
 
(7,324
)
Other, net
1

 
—

 
 
 
 
Net cash provided by operating activities
73,005

 
82,281

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Securities held to maturity
—

 
—

Securities available for sale
2,042

 
609

Other investments
579

 
2,884

Proceeds from maturities and redemptions of:
 

 
 

Securities held to maturity
134,670

 
403,974

Securities available for sale
53,872

 
66,052

Index options
54,133

 
14,980

Purchases of:
 

 
 

Securities held to maturity
(212,725
)
 
(509,924
)
Securities available for sale
(57,141
)
 
(121,242
)
Index options
(15,507
)
 
(12,169
)
Other investments
(164
)
 
(15
)
Principal payments on mortgage loans
5,845

 
17,000

Cost of mortgage loans acquired
(1,537
)
 
(253
)
Decrease (increase) in policy loans
825

 
406

Other, net
—

 
(2
)
 
 
 
 
Net cash used in investing activities
(35,108
)
 
(137,700
)
 
 
 
 
 
Continued on Next Page
 

9
Table of Contents

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
For the Three Months Ended March 31, 2014 and 2013
(Unaudited)
(In thousands)
 
2014
 
2013
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
199,563

 
231,749

Return of account balances on universal life and annuity contracts
(224,969
)
 
(214,665
)
Issuance of common stock under stock option plan
—

 
—

 
 
 
 
Net cash (used in) provided by financing activities
(25,406
)
 
17,084

 
 
 
 
Effect of foreign exchange
(511
)
 
590

 
 
 
 
Net increase (decrease) in cash and short-term investments
11,980

 
(37,745
)
Cash and short-term investments at beginning of period
120,859

 
124,561

 
 
 
 
Cash and short-term investments at end of period
$
132,839

 
$
86,816

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid during the period for:
 

 
 

Interest
$
10

 
$
20

Income taxes
$
11,918

 
$
2,484

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(3,450
)
 
$
714


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, 2014, and the results of its operations and its cash flows for the three months ended March 31, 2014 and 2013. The results of operations for the three months ended March 31, 2014 and 2013 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, 2013 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, 2013 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.

The table below shows the amounts included in the condensed consolidated statements of earnings that were reclassified from accumulated other comprehensive income during the three months ended March 31, 2014 and 2013.

 
Amount Reclassified From Accumulated Other Comprehensive Income
 
Affected Line Item In The Statements of Earnings
 
Three Months Ended March 31,
 
 
 
2014
 
2013
 
 
 
(In thousands)
 
 
Unrealized gains and losses on available-for-sale securities
 
 
 
 
 
 
$
689

 
2,114

 
Other net investment gains (losses)
 
(35
)
 
(23
)
 
Net OTTI losses recognized in earnings
 
654

 
2,091

 
Earnings before Federal income taxes
 
229

 
732

 
Federal income taxes
 
 
 
 
 
 
 
$
425

 
1,359

 
Net earnings


11
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
 NEW ACCOUNTING PRONOUNCEMENTS

During February 2013, the Financial Accounting Standards Board ("FASB") issued new guidance related to the presentation of amounts reclassified out of accumulated other comprehensive income. The new guidance requires disclosure regarding the statement of income amounts affected by the reclassification. This information is provided in Note 1 of the condensed consolidated financial statements. Implementation of the new guidance did not have an impact on the Company's condensed consolidated financial statements and results of operations.

In July 2013, the FASB issued guidance to amend the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as reduction to deferred tax assets for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This guidance is effective for annual reporting periods beginning on or after December 15, 2013 and interim periods within those annual periods. The Company adopted this guidance as of January 1, 2014 and the adoption did not have an effect on the deferred tax asset or liability classification on the Company's balance sheet and did not result in any additional disclosures to the financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Pubic Accountants ("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.



(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 2014 is $112.3 million. The Company did not declare or pay cash dividends on common stocks during the three months ended March 31, 2014 and 2013.


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

(4)
 EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income by the weighted-average basic common shares outstanding during the period. Diluted earnings per share assumes the issuance of common shares applicable to stock options in the denominator.
 
Three Months Ended March 31,
 
2014
 
2013
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
19,826

 
 
 
16,632

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
19,826

 
 
 
16,632

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
19,265

 
561

 
16,162

 
470

 
 
 
 
 
 
 
 
Net income
$
19,265

 
561

 
16,162

 
470

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

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

 
200

 
3,435

 
200

Effect of dilutive stock options
2

 
—

 
5

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,437

 
200

 
3,440

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
5.61

 
2.80

 
4.71

 
2.35

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
5.61

 
2.80

 
4.70

 
2.35


Stock options that were outstanding during the three months ended March 31, 2014 and 2013, but were not included in the computation of diluted earnings per share because the effect was antidilutive were approximately 22,000 and 32,000, respectively.
 
 
 
 
 
 
 
 

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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,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Service cost
$
42

 
47

Interest cost
240

 
218

Expected return on plan assets
(320
)
 
(283
)
Amortization of prior service cost
1

 
1

Amortization of net loss
105

 
203

 
 
 
 
Net periodic benefit cost
$
68

 
186


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 2014 plan year is zero. In addition, the Company had a remaining contribution payable for the 2013 plan year of $0.2 million as of March 31, 2014 which it will pay during the remainder of 2014. As of March 31, 2014, the Company had contributed a total of $0.1 million to the plan for the 2014 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,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Service cost
$
73

 
44

Interest cost
251

 
200

Amortization of prior service cost
15

 
15

Amortization of net loss
323

 
294

 
 
 
 
Net periodic benefit cost
$
662

 
553


The Company expects to contribute $2.0 million to these plans in 2014.  As of March 31, 2014, 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,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Interest cost
$
28

 
29

Amortization of prior service cost
26

 
26

Amortization of net loss
(1
)
 
8

 
 
 
 
Net periodic benefit cost
$
53

 
63


The Company expects to contribute minimal amounts to the plan in 2014.


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, 2014 and March 31, 2013 is provided below.

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2014
 
 
 
 
 
 
 
 
 
Selected Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
53,815

 
239,432

 
644,532

 
—

 
937,779

Total segment assets
634,334

 
1,188,473

 
8,627,243

 
264,435

 
10,714,485

Future policy benefits
554,247

 
920,665

 
7,682,956

 
—

 
9,157,868

Other policyholder liabilities
11,867

 
15,587

 
116,284

 
—

 
143,738

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 

March 31, 2014
 
 
 
 
 
 
 
 
 

Condensed Consolidated Income Statements:
 
 
 
 
 
 
 
 
 

Premiums and contract revenues
$
8,165

 
29,108

 
5,003

 
—

 
42,276

Net investment income
6,283

 
10,718

 
86,617

 
4,833

 
108,451

Other revenues
18

 
241

 
37

 
5,467

 
5,763

 
 
 
 
 
 
 
 
 
 
Total revenues
14,466

 
40,067

 
91,657

 
10,300

 
156,490

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
2,492

 
5,035

 
5,436

 
—

 
12,963

Amortization of deferred acquisition costs
2,400

 
6,745

 
19,434

 
—

 
28,579

Universal life and annuity contract interest
5,105

 
10,205

 
47,626

 
—

 
62,936

Other operating expenses
4,279

 
7,025

 
7,096

 
5,063

 
23,463

Federal income taxes (benefit)
65

 
3,759

 
4,102

 
1,780

 
9,706

 
 
 
 
 
 
 
 
 
 
Total expenses
14,341

 
32,769

 
83,694

 
6,843

 
137,647

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
125

 
7,298

 
7,963

 
3,457

 
18,843


 
 
 
 
 
 
 
 
 
 

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, 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


 
 
 
 
 
 
 
 
 
 


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,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Premiums and Other Revenues:
 
 
 
Premiums and contract revenues
$
42,276

 
41,763

Net investment income
108,451

 
180,814

Other revenues
5,763

 
6,142

Realized gains (losses) on investments
1,513

 
2,313

 
 
 
 
Total condensed consolidated premiums and other revenues
$
158,003

 
231,032


 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Federal Income Taxes:
 
 
 
Total segment Federal income taxes
$
9,706

 
7,872

Taxes on realized gains (losses) on investments
530

 
810

 
 
 
 
Total condensed consolidated Federal income taxes
$
10,236

 
8,682



 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Net Earnings:
 
 
 
Total segment earnings
$
18,843

 
15,129

Realized gains (losses) on investments, net of taxes
983

 
1,503

 
 
 
 
Total condensed consolidated net earnings
$
19,826

 
16,632




18
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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
March 31,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Assets:
 
 
 
Total segment assets
$
10,714,485

 
10,321,396

Other unallocated assets
198,132

 
155,105

 
 
 
 
Total condensed consolidated assets
$
10,912,617

 
10,476,501



(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 three months of 2014 or 2013.

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, 2014 and 2013, the liability balance was $7.1 million and $4.1 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, 2014
291,000

 
36,668

 
$
229.24

Exercised
—

 
(3,000
)
 
$
150.00

Forfeited
—

 
(250
)
 
$
255.13

Expired
—

 
—

 
$
—

Stock options granted
—

 
—

 
$
—

 
 
 
 
 
 
Balance at March 31, 2014
291,000

 
33,418

 
$
236.16


 
Stock Appreciation Rights Outstanding
 
Awards
 
Weighted-
Average
Exercise
Price
 
 
 
 
Stock Appreciation Rights:
 
 
 
Balance at January 1, 2014
99,461

 
$
156.93

Exercised
(1,475
)
 
$
114.64

Forfeited
(1,400
)
 
$
158.38

Granted
—

 
$
—

 
 
 
 
Balance at March 31, 2014
96,586

 
$
157.56


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, 2014 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 $0.5 million and $0.1 million for the three months ended March 31, 2014 and 2013, respectively. The total share-based liabilities paid were $0.5 million and $0.1 million for the three months ended March 31, 2014 and 2013, respectively. The total fair value of shares vested during the three months ended March 31, 2014 and 2013 was $0.4 million and $0.3 million, respectively. For the quarters ended March 31, 2014 and 2013, the total cash received from the exercise of options under the Plans was $0 and $0, respectively.


20
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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, 2014.

 
 
Options/SARs Outstanding
 
 
Number
Outstanding
 
Weighted-
Average
Remaining
Contractual Life
 
Options
Exercisable
 
 
 
 
 
 
 
Exercise prices:
 
 
 
 
 
150.00 (options)
 
2,000

 
0.2 years
 
2,000

255.13 (options)
 
22,418

 
4.0 years
 
13,511

208.05 (options)
 
9,000

 
4.2 years
 
9,000

236.00 (SARs)
 
250

 
4.4 years
 
150

114.64 (SARs)
 
27,068

 
4.9 years
 
18,111

132.56 (SARs)
 
32,268

 
7.8 years
 
3,600

210.22 (SARs)
 
37,000

 
9.7 years
 
—

 
 
 
 
 
 
 
Totals
 
130,004

 
 
 
46,372

 
 

 
 
 
 

Aggregate intrinsic value (in thousands)
$
7,646

 
 
 
$
3,273


The aggregate intrinsic value in the table above is based on the closing stock price of $244.50 per share on March 31, 2014.

In estimating the fair value of the options outstanding at March 31, 2014 and December 31, 2013, the Company employed the Black-Scholes option pricing model with assumptions as detailed below.

 
March 31,
2014
 
December 31,
2013
 
 
 
 
Expected term of options
0 to 10 years

 
0 to 10 years

Expected volatility:
 
 
 
Range
16.13% to 39.12%

 
21.03% to 42.71%

Weighted-average
20.83
%
 
30.50
%
Expected dividend yield
0.15
%
 
0.16
%
Risk-free rate:
 
 
 
Range
0.12% to 1.52%

 
0.12% to 3.93%

Weighted-average
0.35
%
 
2.10
%

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 recognized in the financial statements related to the two plans defined above was $1.7 million and $1.5 million for the three months ended March 31, 2014 and 2013, respectively. The related tax expense recognized was $0.6 million and $0.5 million for the three months ended March 31, 2014 and 2013, respectively.

As of March 31, 2014, the total compensation cost related to nonvested options not yet recognized was $3.4 million.  This amount is expected to be recognized over a weighted-average period of 2.5 years.  The Company recognizes compensation cost over the graded vesting periods.


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. 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 has resolved a class action lawsuit pending since 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 asserted 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 parties entered into a Settlement and Release Agreement in August of 2013 ("Settlement") which was finally approved by the Court on February 11, 2014. On February 12, 2014, the Court issued a redacted final approval order granting the Motion for Final Approval of Class Action Settlement. The Settlement became final and non-appealable on April 12, 2014. The Settlement Agreement and Plaintiffs' Request for Attorneys' Fees and Costs were approved by the Court, and the Company paid the Court-approved amount of attorneys’ fees and costs in April 2014. The Company will also make certain payments to surrendered and annualized policyholders, and has agreed to provide bonuses on annuitization for active policyholders who choose a 10-year or a 20-year certain and life settlement option. At December 31, 2013, the Company had reserved $6.5 million for the matter which it still maintained as of March 31, 2014.

In addition to the class action lawsuit described above, the Company was 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. The Supreme Court denied Plaintiff's Motion for Rehearing on June 7, 2013. As a result, this case is now over.

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.


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

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.

(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 condensed 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 $28.0 million of commitments to extend credit relating to mortgage loans at March 31, 2014. 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,
 
2014
 
2013
 
(In thousands)
 
 
 
 
Available for sale debt securities:
 
 
 
Realized gains on disposal
$
692

 
1,796

Realized losses on disposal
(8
)
 
—

Held to maturity debt securities:


 


Realized gains on disposal
782

 
329

Realized losses on disposal
(11
)
 
(69
)
Equity securities realized gains (losses)
4

 
318

Real estate gains (losses)
89

 
—

Mortgage loans write-downs
—

 
—

Other
—

 
—

 
 
 
 
Totals
$
1,548

 
2,374



23
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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 96.9% 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,
 
 
2014
 
2013
 
 
(In thousands)
 
 
 
 
 
Total other-than-temporary impairment gains (losses) on debt securities
 
$
(4
)
 
382

Portion of loss (gain) recognized in comprehensive income
 
(3
)
 
(443
)
 
 
 
 
 
Net impairment losses on debt securities recognized in earnings
 
(7
)
 
(61
)
Equity securities impairments
 
(28
)
 
—

 
 
 
 
 
Totals
 
$
(35
)
 
(61
)

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, 2014
 
Twelve Months
Ended
December 31,
2013
 
 
 
 
 
 
 
 
Beginning balance, cumulative credit losses related to other-than-temporary impairments
$
2,472

 
2,247

Reductions for securities sold during current period
—

 
(17
)
Additions for credit losses not previously recognized in other-than-temporary impairments
7

 
242

 
 
 
 
Ending balance, cumulative credit losses related to other-than-temporary impairments
$
2,479

 
2,472



24
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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, 2014.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
23,082

 
1,426

 
—

 
24,508

U.S. Treasury
1,915

 
433

 
—

 
2,348

States and political subdivisions
425,741

 
21,586

 
(5,059
)
 
442,268

Foreign governments
9,999

 
43

 
—

 
10,042

Public utilities
866,304

 
58,534

 
(3,912
)
 
920,926

Corporate
3,535,559

 
173,952

 
(44,891
)
 
3,664,620

Mortgage-backed
1,716,534

 
59,658

 
(19,568
)
 
1,756,624

Home equity
19,953

 
4,834

 
(29
)
 
24,758

Manufactured housing
6,767

 
403

 
—

 
7,170

 
 
 
 
 
 
 
 
Totals
$
6,605,854

 
320,869

 
(73,459
)
 
6,853,264


The table below presents amortized costs and fair values of securities available for sale at March 31, 2014.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
593

 
—

 
(64
)
 
529

Foreign governments
9,933

 
92

 
—

 
10,025

Public utilities
218,776

 
14,300

 
(818
)
 
232,258

Corporate
2,214,837

 
139,585

 
(15,037
)
 
2,339,385

Mortgage-backed
63,301

 
4,589

 
—

 
67,890

Home equity
11,978

 
266

 
(5
)
 
12,239

Manufactured housing
3,532

 
117

 
—

 
3,649

 
2,522,950

 
158,949

 
(15,924
)
 
2,665,975

 
 
 
 
 
 
 
 
Equity public
11,166

 
5,006

 
(485
)
 
15,687

 
 
 
 
 
 
 
 
Totals
$
2,534,116

 
163,955

 
(16,409
)
 
2,681,662



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 held to maturity at December 31, 2013.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
23,088

 
1,700

 
—

 
24,788

U.S. Treasury
1,913

 
434

 
—

 
2,347

States and political subdivisions
423,286

 
13,433

 
(10,944
)
 
425,775

Foreign governments
9,997

 
159

 
—

 
10,156

Public utilities
864,324

 
53,222

 
(9,687
)
 
907,859

Corporate
3,463,521

 
153,442

 
(81,760
)
 
3,535,203

Mortgage-backed
1,696,887

 
54,035

 
(33,376
)
 
1,717,546

Home equity
20,179

 
4,738

 
(32
)
 
24,885

Manufactured housing
7,125

 
460

 
—

 
7,585

 
 
 
 
 
 
 
 
Totals
$
6,510,320

 
281,623

 
(135,799
)
 
6,656,144


The table below presents amortized costs and fair values of securities available for sale at December 31, 2013.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
594

 
—

 
(110
)
 
484

Foreign governments
9,931

 
—

 
(156
)
 
9,775

Public utilities
233,788

 
15,014

 
(1,397
)
 
247,405

Corporate
2,195,124

 
124,519

 
(30,732
)
 
2,288,911

Mortgage-backed
68,799

 
5,040

 
—

 
73,839

Home equity
12,079

 
245

 
(7
)