UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
|
FORM
10-Q
|
|
þ
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the Quarterly Period Ended March 31, 2008
|
|
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the transition period from __________ to __________
|
|
Commission
File Number: 2-17039
|
|
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY
|
(Exact
name of Registrant as specified in its charter)
|
|
|
|
|
COLORADO
|
84-0467208
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification Number)
|
|
|
850
EAST ANDERSON LANE
|
|
AUSTIN,
TEXAS 78752-1602
|
(512)
836-1010
|
(Address
of Principal Executive Offices)
|
(Telephone
Number)
|
|
|
|
|
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes
þ
No
o
|
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated file" in Rule 12b-2 of the
Exchange Act.
|
|
Large
accelerated filer
o
Accelerated
filer
þ
Non-accelerated
filer
o
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
þ
|
|
As
of May 6, 2008, the number of shares of Registrant's common stock
outstanding was: Class A – 3,425,454 and Class B -
200,000.
|
TABLE OF CONTENTS
|
|
|
|
Page
|
|
|
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3
|
|
|
|
3
|
|
|
|
|
March
31, 2008 (Unaudited) and December 31, 2007
|
3
|
|
|
|
|
For
the Three Months Ended March 31, 2008 and 2007 (Unaudited)
|
5
|
|
|
|
|
For
the Three Months Ended March 31, 2008 and 2007 (Unaudited)
|
6
|
|
|
|
|
For
the Three Months Ended March 31, 2008 and 2007 (Unaudited)
|
7
|
|
|
|
|
For
the Three Months Ended March 31, 2008 and 2007 (Unaudited)
|
8
|
|
|
|
10
|
|
|
|
|
Financial
Condition and Results of Operations
|
21
|
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
|
|
46
|
|
|
|
47
|
|
|
|
47
|
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|
|
48
|
PART I. FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
ITEM 1. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
NATIONAL WESTERN LIFE INSURANCE COMPANY AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
ASSETS
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Securities
held to maturity, at amortized cost
|
|
$
|
3,766,162
|
|
|
|
3,778,603
|
|
Securities
available for sale, at fair value
|
|
|
1,911,583
|
|
|
|
1,900,714
|
|
Mortgage
loans, net of allowance for possible losses
|
|
|
|
|
|
|
|
|
($3,568
and $3,567)
|
|
|
98,530
|
|
|
|
99,033
|
|
Policy
loans
|
|
|
82,032
|
|
|
|
83,772
|
|
Derivatives
|
|
|
8,069
|
|
|
|
25,907
|
|
Other
long-term investments
|
|
|
16,214
|
|
|
|
16,562
|
|
|
|
|
|
|
|
|
|
|
Total
Investments
|
|
|
5,882,590
|
|
|
|
5,904,591
|
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
93,997
|
|
|
|
45,206
|
|
Deferred
policy acquisition costs
|
|
|
663,117
|
|
|
|
664,805
|
|
Deferred
sales inducements
|
|
|
104,937
|
|
|
|
104,029
|
|
Accrued
investment income
|
|
|
64,222
|
|
|
|
65,034
|
|
Federal
income tax receivable
|
|
|
6,099
|
|
|
|
10,010
|
|
Other
assets
|
|
|
46,112
|
|
|
|
41,651
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,861,074
|
|
|
|
6,835,326
|
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
policy benefits:
|
|
|
|
|
|
|
Traditional
life and annuity contracts
|
|
$
|
138,723
|
|
|
|
138,672
|
|
Universal
life and annuity contracts
|
|
|
5,423,348
|
|
|
|
5,441,871
|
|
Other
policyholder liabilities
|
|
|
130,685
|
|
|
|
120,400
|
|
Federal
income tax liability:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
65,599
|
|
|
|
61,720
|
|
Other
liabilities
|
|
|
75,742
|
|
|
|
60,978
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
5,834,097
|
|
|
|
5,823,641
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Notes 5 and 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock:
|
|
|
|
|
|
|
|
|
Class
A - $1 par value; 7,500,000 shares authorized; 3,425,454
and
|
|
|
|
|
|
|
|
|
3,422,324
issued and outstanding in 2008 and 2007
|
|
|
3,425
|
|
|
|
3,422
|
|
Class
B - $1 par value; 200,000 shares authorized, issued,
|
|
|
|
|
|
|
|
|
and
outstanding in 2008 and 2007
|
|
|
200
|
|
|
|
200
|
|
Additional
paid-in capital
|
|
|
36,563
|
|
|
|
36,236
|
|
Accumulated
other comprehensive loss
|
|
|
(6,549
|
)
|
|
|
(7,065
|
)
|
Retained
earnings
|
|
|
993,338
|
|
|
|
978,892
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
1,026,977
|
|
|
|
1,011,685
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,861,074
|
|
|
|
6,835,326
|
|
Note: The
condensed consolidated balance sheet at December 31, 2007, has been derived from
the audited consolidated financial statements as of that date.
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS
|
|
For
the Three Months Ended March 31, 2008 and 2007
|
|
(Unaudited)
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Life
and annuity premiums
|
|
$
|
3,894
|
|
|
|
4,733
|
|
Universal
life and annuity contract revenues
|
|
|
32,218
|
|
|
|
28,796
|
|
Net
investment income
|
|
|
59,430
|
|
|
|
77,026
|
|
Other
income
|
|
|
3,139
|
|
|
|
3,316
|
|
Realized
gains (losses) on investments
|
|
|
(44
|
)
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
98,637
|
|
|
|
114,112
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
10,455
|
|
|
|
10,974
|
|
Amortization
of deferred policy acquisition costs
|
|
|
26,249
|
|
|
|
23,785
|
|
Universal
life and annuity contract interest
|
|
|
26,617
|
|
|
|
37,433
|
|
Other
operating expenses
|
|
|
13,430
|
|
|
|
14,116
|
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
76,751
|
|
|
|
86,308
|
|
|
|
|
|
|
|
|
|
|
Earnings
before Federal income taxes
|
|
|
21,886
|
|
|
|
27,804
|
|
|
|
|
|
|
|
|
|
|
Provision
for Federal income taxes:
|
|
|
|
|
|
|
|
|
Current
|
|
|
3,890
|
|
|
|
4,314
|
|
Deferred
|
|
|
3,550
|
|
|
|
4,818
|
|
|
|
|
|
|
|
|
|
|
Total
Federal income taxes
|
|
|
7,440
|
|
|
|
9,132
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
14,446
|
|
|
|
18,672
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share:
|
|
|
|
|
|
|
|
|
Class
A
|
|
$
|
4.10
|
|
|
|
5.30
|
|
Class
B
|
|
$
|
2.05
|
|
|
|
2.65
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
Class
A
|
|
$
|
4.07
|
|
|
|
5.23
|
|
Class
B
|
|
$
|
2.05
|
|
|
|
2.65
|
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
|
|
For
the Three Months Ended March 31, 2008 and 2007
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
14,446
|
|
|
|
18,672
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of effects of
|
|
|
|
|
|
|
|
|
deferred
costs and taxes:
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities:
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains arising during period
|
|
|
408
|
|
|
|
4,723
|
|
Reclassification
adjustment for net gains
|
|
|
|
|
|
|
|
|
included
in net earnings
|
|
|
(36
|
)
|
|
|
(167
|
)
|
Amortization
of net unrealized gains related to transferred securities
|
|
|
16
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains on securities
|
|
|
388
|
|
|
|
4,576
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(181
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
Benefit
plans:
|
|
|
|
|
|
|
|
|
Amortization
of net prior service cost and net gain
|
|
|
309
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive gain
|
|
|
516
|
|
|
|
4,489
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
14,962
|
|
|
|
23,161
|
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
|
|
For
the Three Months Ended March 31, 2008 and 2007
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Common
stock:
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
3,622
|
|
|
|
3,621
|
|
Shares
exercised under stock option plan
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
3,625
|
|
|
|
3,622
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
36,236
|
|
|
|
36,110
|
|
Shares
exercised under the stock option plan
|
|
|
327
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
36,563
|
|
|
|
36,236
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
1,184
|
|
|
|
3,148
|
|
Change
in unrealized gains during period
|
|
|
388
|
|
|
|
4,576
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
1,572
|
|
|
|
7,724
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
3,078
|
|
|
|
3,122
|
|
Change
in translation adjustments during period
|
|
|
(181
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
2,897
|
|
|
|
3,035
|
|
|
|
|
|
|
|
|
|
|
Benefit
plan liability adjustment:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
(11,327
|
)
|
|
|
(10,001
|
)
|
Amortization
of net prior service cost and net gain
|
|
|
309
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
(11,018
|
)
|
|
|
(10,001
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income (loss) at end of period
|
|
|
(6,549
|
)
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
978,892
|
|
|
|
896,984
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
-
|
|
|
|
(2,195
|
)
|
Net
earnings
|
|
|
14,446
|
|
|
|
18,672
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
|
993,338
|
|
|
|
913,461
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
$
|
1,026,977
|
|
|
|
954,077
|
|
See
accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For
the Three Months Ended March 31, 2008 and 2007
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
14,446
|
|
|
|
18,672
|
|
Adjustments
to reconcile net earnings to net cash
|
|
|
|
|
|
|
|
|
from
operating activities:
|
|
|
|
|
|
|
|
|
Universal
life and annuity contract interest
|
|
|
26,617
|
|
|
|
37,433
|
|
Surrender
charges and other policy revenues
|
|
|
(9,568
|
)
|
|
|
(8,600
|
)
|
Realized
(gains) losses on investments
|
|
|
44
|
|
|
|
(241
|
)
|
Accrual
and amortization of investment income
|
|
|
(1,300
|
)
|
|
|
(996
|
)
|
Depreciation
and amortization
|
|
|
272
|
|
|
|
356
|
|
Decrease
in value of derivatives
|
|
|
20,480
|
|
|
|
8,590
|
|
Increase
in deferred policy acquisition and sales inducement costs
|
|
|
(1,535
|
)
|
|
|
(1,290
|
)
|
Decrease
in accrued investment income
|
|
|
812
|
|
|
|
610
|
|
(Increase)
decrease in other assets
|
|
|
(2,773
|
)
|
|
|
5,580
|
|
Increase
in liabilities for future policy benefits
|
|
|
52
|
|
|
|
784
|
|
Increase
in other policyholder liabilities
|
|
|
10,285
|
|
|
|
6,173
|
|
Increase
in Federal income tax liability
|
|
|
8,100
|
|
|
|
7,788
|
|
Decrease
in other liabilities
|
|
|
(814
|
)
|
|
|
(10,547
|
)
|
Other
|
|
|
1,810
|
|
|
|
(1,742
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
66,928
|
|
|
|
62,570
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of:
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
-
|
|
|
|
5,175
|
|
Securities
available for sale
|
|
|
124
|
|
|
|
234
|
|
Other
investments
|
|
|
197
|
|
|
|
171
|
|
Proceeds
from maturities and redemptions of:
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
248,009
|
|
|
|
28,571
|
|
Securities
available for sale
|
|
|
78,696
|
|
|
|
78,592
|
|
Derivatives
|
|
|
8,964
|
|
|
|
8,570
|
|
Purchases
of:
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
(234,856
|
)
|
|
|
(71,837
|
)
|
Securities
available for sale
|
|
|
(67,636
|
)
|
|
|
(87,912
|
)
|
Other
investments
|
|
|
(11,810
|
)
|
|
|
(9,576
|
)
|
Principal
payments on mortgage loans
|
|
|
1,308
|
|
|
|
13,912
|
|
Cost
of mortgage loans acquired
|
|
|
(777
|
)
|
|
|
(16,066
|
)
|
Decrease
in policy loans
|
|
|
(1,546
|
)
|
|
|
(613
|
)
|
Other
|
|
|
(1,893
|
)
|
|
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
18,780
|
|
|
|
(51,717
|
)
|
(Continued
on next page)
NATIONAL
WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
|
|
For
the Three Months Ended March 31, 2008 and 2007
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Deposits
to account balances for universal life
|
|
|
|
|
|
|
and
annuity contracts
|
|
$
|
115,410
|
|
|
|
111,937
|
|
Return
of account balances on universal life
|
|
|
|
|
|
|
|
|
and
annuity contracts
|
|
|
(152,553
|
)
|
|
|
(137,622
|
)
|
Issuance
of common stock under stock option plan
|
|
|
330
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(36,813
|
)
|
|
|
(25,558
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange
|
|
|
(104
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and short-term investments
|
|
|
48,791
|
|
|
|
(14,861
|
)
|
Cash
and short-term investments at beginning of year
|
|
|
45,206
|
|
|
|
49,901
|
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments at end of period
|
|
$
|
93,997
|
|
|
|
35,040
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the three month period for:
|
|
|
|
|
|
|
Interest
|
|
$
|
10
|
|
|
|
10
|
|
Income
taxes
|
|
|
-
|
|
|
|
1,254
|
|
See
accompanying notes to condensed consolidated financial statements.
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 the Company as of March 31, 2008, and the
results of its operations and its cash flows for the three months ended March
31, 2008 and 2007. The results of operations for the three months
ended March 31, 2008 and 2007 are not necessarily indicative of the results to
be expected for the full year. For further information, refer to the
consolidated financial statements and notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2007 accessible free of
charge through the Company's internet site at
ww
w
.nationalwesternlife.com
or the Securities and Exchange Commission internet site at
www.sec.gov
.
The
accompanying condensed consolidated financial statements include the accounts of
National Western Life Insurance Company and its wholly-owned subsidiaries
("Company"), The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc.,
NWL Financial, Inc., and Regent Care San Marcos Holdings, LLC. All
significant intercorporate transactions and accounts have been eliminated in
consolidation.
(2) CHANGES
IN ACCOUNTING PRINCIPLES
In
September 2005, the AICPA issued Statement of Position 05-1,
Accounting by Insurance Enterprises
for Deferred Acquisition Costs in Connection with Modifications or Exchanges of
Insurance Contracts
("SOP 05-1") which was effective for internal
replacements occurring in fiscal years beginning after December 15, 2006
.
SOP 05-1 provides guidance
on accounting by insurance enterprises for deferred acquisition costs on
internal replacements of insurance and investment contracts other than those
specifically described in FASB No. 97. SOP 05-1 defines an internal replacement
as a modification in product benefits, features, rights, or coverages that
occurs by the exchange of a contract for a new contract, or by amendment,
endorsement, or rider to a contract, or by the election of a feature or coverage
within a contract. The Company had an impact related to the adoption
of SOP 05-1 for contracts which annuitized and for reinstatements of
contracts. The unamortized deferred acquisition costs and deferred
sales inducement assets have to be written-off at the time of annuitization and
can not be continued related to reinstatements. SOP 05-1 resulted in
changes in assumptions relative to estimated gross profits which affected
unamortized deferred acquisition costs, unearned revenue liabilities, and
deferred sales inducement balances as of the beginning of 2007. The
effect of this SOP on beginning retained earnings as of January 1, 2007 was a
decrease of $2.2 million, net of tax, as detailed below.
|
|
Amounts
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Write-off
of deferred acquisition cost
|
|
$
|
3,321
|
|
Adjustment
to deferred annuity revenue
|
|
|
56
|
|
|
|
|
3,377
|
|
|
|
|
|
|
Federal
income tax
|
|
|
(1,182
|
)
|
|
|
|
|
|
Cumulative
effect of change in accounting for
|
|
|
|
|
internal
replacements and investment contracts
|
|
$
|
2,195
|
|
In
September of 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157,
Fair Value
Measurements
. This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The Company adopted SFAS 157 effective January 1, 2008,
and the adoption did not have an impact on the Company’s consolidated financial
statements. See Note 9 for additional disclosures concerning fair
value measurement.
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
, which permits entities to choose to
measure at fair value many financial instruments and certain other items that
are not currently required to be measured at fair value. The Company
adopted SFAS 159 effective January 1, 2008, which did not have an
impact on the consolidated financial statements as no items were elected for
measurement at fair value upon initial adoption.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements.
SFAS 160 establishes accounting and
reporting standards for entities that have equity investments that are not
attributable directly to the parent, called noncontrolling interests or minority
interests. Specifically, SFAS 160 states where and how to report
noncontrolling interests in the consolidated statements of financial position
and operations, how to account for changes in noncontrolling interests and
provides disclosure requirements. The provisions of SFAS 160 are effective
beginning January 1, 2009. The Company is currently evaluating
the impact that the adoption of this statement will have on the consolidated
financial position, results of operations and disclosures.
In
December 2007, the FASB issued SFAS No. 141(R),
Business
Combinations
. SFAS 141(R) establishes how an entity accounts
for the identifiable assets acquired, liabilities assumed, and any
noncontrolling interests acquired, how to account for goodwill acquired and
determines what disclosures are required as part of a business combination. SFAS
141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008, early adoption is prohibited. The adoption
of SFAS 141(R) is not expected to have a material impact on the Company’s
consolidated financial statements.
In
February 2008, the FASB issued FSP FAS 157-2,
Effective Date of FASB Statement No.
157.
This FSP delays the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis, to
fiscal years and interim periods beginning after November 15,
2008.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.
This statement requires enhanced disclosures regarding an entity’s
derivative and hedging activity to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. SFAS 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. The adoption of SFAS 161
is not expected to have a material impact on the Company’s consolidated
financial statements.
(3) STOCKHOLDERS'
EQUITY
The
Company is restricted by state insurance laws as to dividend amounts which may
be paid to stockholders without prior approval from the Colorado Division of
Insurance. The Company paid no cash dividends on common stock during
the three months ended March 31, 2008 and 2007.
(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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Class
A
|
|
|
Class
B
|
|
|
Class
A
|
|
|
Class
B
|
|
|
|
(In
thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for Basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
14,446
|
|
|
|
|
|
|
18,672
|
|
|
|
|
Dividends
– Class A shares
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
|
Dividends
– Class B shares
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
income
|
|
$
|
14,446
|
|
|
|
|
|
|
18,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Allocation
of undistributed income
|
|
|
14,036
|
|
|
|
410
|
|
|
|
18,142
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
14,036
|
|
|
|
410
|
|
|
|
18,142
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average
shares
|
|
|
3,423
|
|
|
|
200
|
|
|
|
3,421
|
|
|
|
200
|
|
Effect
of dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
24
|
|
|
|
-
|
|
|
|
48
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjusted
weighted-average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
for assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions
|
|
|
3,447
|
|
|
|
200
|
|
|
|
3,469
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share
|
|
$
|
4.10
|
|
|
|
2.05
|
|
|
|
5.30
|
|
|
|
2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share
|
|
$
|
4.07
|
|
|
|
2.05
|
|
|
|
5.23
|
|
|
|
2.65
|
|
(5) PENSION
AND OTHER POSTRETIREMENT PLANS
(A) Defined
Benefit Pension Plans
The
Company sponsors a qualified defined benefit pension plan covering substantially
all employees. The plan provides benefits based on the participants' years of
service and compensation. The Company makes annual contributions to the plan
that comply with the minimum funding provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). On October 19, 2007, the Company’s Board
of Directors approved an amendment to freeze the Pension Plan as of December 31,
2007. The freeze ceased future benefit accruals to all participants
and closed the Plan to any new participants. In addition, all participants
became immediately 100% vested in their accrued benefits as of that
date. Using estimated assumptions, the cumulative estimated minimum
required contribution for the next five years is $2.1 million at which time the
Plan is expected to be fully funded. Future pension expense is
projected to be minimal. The following summarizes the components of
net periodic benefit cost.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
180
|
|
|
|
173
|
|
Interest
cost
|
|
|
272
|
|
|
|
255
|
|
Expected
return on plan assets
|
|
|
(275
|
)
|
|
|
(237
|
)
|
Amortization
of prior service cost
|
|
|
1
|
|
|
|
1
|
|
Amortization
of net loss
|
|
|
80
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$
|
258
|
|
|
|
280
|
|
The
Company expects to contribute $1.1 million to the plan in 2008. As of
March 31, 2008, the Company has not yet contributed to the plan.
The
Company also sponsors a non-qualified defined benefit plan primarily for senior
officers. The plan provides benefits based on the participants' years of service
and compensation. The pension obligations and administrative
responsibilities of the plan are maintained by a pension administration firm,
which is a subsidiary of American National Insurance Company ("ANICO"). ANICO
has guaranteed the payment of pension obligations under the
plan. However, the Company has a contingent liability with respect to
the pension plan should these entities be unable to meet their obligations under
the existing agreements. Also, the Company has a contingent liability
with respect to the plan in the event that a plan participant continues
employment with the Company beyond age seventy, the aggregate average annual
participant salary increases exceed 10% per year, or any additional employees
become eligible to participate in the plan. If any of these
conditions are met, the Company would be responsible for any additional pension
obligations resulting from these items. Amendments were made to the
plan to allow an additional employee to participate and to change the benefit
formula for the Chairman of the Company. As previously mentioned,
these additional obligations are a liability to the Company. Effective December
31, 2004, this plan was frozen with respect to the continued accrual of benefits
of the Chairman and the President of the Company in order to comply with law
changes under the American Jobs Creation Act of 2004 ("Act").
Effective
July 1, 2005, the Company established a second non-qualified defined benefit
plan for the benefit of the Chairman of the Company. This plan is
intended to provide for post-2004 benefit accruals that mirror and supplement
the pre-2005 benefit accruals under the previously discussed non-qualified plan,
while complying with the requirements of the Act.
Effective
November 1, 2005, the Company established a third non-qualified defined benefit
plan for the benefit of the President of the Company. This plan is
intended to provide for post-2004 benefit accruals that supplement the pre-2005
benefit accruals under the first non-qualified plan as previously discussed,
while complying with the requirements of the Act.
The
following summarizes the components of net periodic benefit costs for these
non-qualified plans.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
193
|
|
|
|
407
|
|
Interest
cost
|
|
|
241
|
|
|
|
177
|
|
Amortization
of prior service cost
|
|
|
260
|
|
|
|
260
|
|
Amortization
of net loss
|
|
|
101
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$
|
795
|
|
|
|
890
|
|
The
Company expects to contribute $1.7 million to these plans in 2008. As
of March 31, 2008, the Company has not yet contributed to the plan.
(B) Defined
Benefit Postretirement Plans
The
Company sponsors two healthcare plans to provide postretirement benefits to
certain fully-vested individuals. The following summarizes the
components of net periodic benefit costs.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
$
|
35
|
|
|
|
29
|
|
Amortization
of net loss
|
|
|
7
|
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$
|
68
|
|
|
|
55
|
|
As
previously disclosed in its financial statements for the year ended December 31,
2007, the Company expects to contribute minimal amounts to the plan in
2008.
(6) SEGMENT
AND OTHER OPERATING INFORMATION
Under
Statement of Financial Accounting Standards ("SFAS") No. 131
, Disclosures about Segments of an
Enterprise and Related Information
, the Company defines its reportable
operating segments as domestic life insurance, international life insurance, and
annuities. These segments are organized based on product types and geographic
marketing areas. A summary of segment information for the quarters
ended March 31, 2008 and 2007 is provided below.
Selected Segment
Information
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Annuities
|
|
|
Others
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
policy acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
and sales inducements
|
|
$
|
61,709
|
|
|
|
206,193
|
|
|
|
500,152
|
|
|
|
-
|
|
|
|
768,054
|
|
Total
segment assets
|
|
|
403,186
|
|
|
|
812,575
|
|
|
|
5,489,342
|
|
|
|
123,456
|
|
|
|
6,828,559
|
|
Future
policy benefits
|
|
|
320,225
|
|
|
|
565,910
|
|
|
|
4,675,936
|
|
|
|
-
|
|
|
|
5,562,071
|
|
Other
policyholder liabilities
|
|
|
11,502
|
|
|
|
18,608
|
|
|
|
100,575
|
|
|
|
-
|
|
|
|
130,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Income Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
and contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues
|
|
$
|
6,619
|
|
|
|
23,485
|
|
|
|
6,008
|
|
|
|
-
|
|
|
|
36,112
|
|
Net
investment income
|
|
|
5,161
|
|
|
|
3,039
|
|
|
|
50,297
|
|
|
|
933
|
|
|
|
59,430
|
|
Other
income
|
|
|
6
|
|
|
|
12
|
|
|
|
38
|
|
|
|
3,083
|
|
|
|
3,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
11,786
|
|
|
|
26,536
|
|
|
|
56,343
|
|
|
|
4,016
|
|
|
|
98,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
benefits
|
|
|
4,205
|
|
|
|
5,313
|
|
|
|
937
|
|
|
|
-
|
|
|
|
10,455
|
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
costs
|
|
|
2,287
|
|
|
|
8,791
|
|
|
|
15,171
|
|
|
|
-
|
|
|
|
26,249
|
|
Universal
life and investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
annuity
contract interest
|
|
|
2,355
|
|
|
|
2,694
|
|
|
|
21,568
|
|
|
|
-
|
|
|
|
26,617
|
|
Other
operating expenses
|
|
|
2,974
|
|
|
|
3,872
|
|
|
|
3,806
|
|
|
|
2,778
|
|
|
|
13,430
|
|
Federal
income taxes
|
|
|
(12
|
)
|
|
|
1,994
|
|
|
|
5,052
|
|
|
|
421
|
|
|
|
7,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
11,809
|
|
|
|
22,664
|
|
|
|
46,534
|
|
|
|
3,199
|
|
|
|
84,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings (losses)
|
|
$
|
(23
|
)
|
|
|
3,872
|
|
|
|
9,809
|
|
|
|
817
|
|
|
|
14,475
|
|
Selected Segment
Information
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Annuities
|
|
|
Others
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
policy acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
and sales inducements
|
|
$
|
52,491
|
|
|
|
180,409
|
|
|
|
499,369
|
|
|
|
-
|
|
|
|
732,269
|
|
Total
segment assets
|
|
|
388,103
|
|
|
|
723,250
|
|
|
|
5,487,541
|
|
|
|
103,794
|
|
|
|
6,702,688
|
|
Future
policy benefits
|
|
|
316,880
|
|
|
|
509,015
|
|
|
|
4,713,294
|
|
|
|
-
|
|
|
|
5,539,189
|
|
Other
policyholder liabilities
|
|
|
10,812
|
|
|
|
18,605
|
|
|
|
89,205
|
|
|
|
-
|
|
|
|
118,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Income Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
and contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues
|
|
$
|
6,333
|
|
|
|
21,671
|
|
|
|
5,525
|
|
|
|
-
|
|
|
|
33,529
|
|
Net
investment income
|
|
|
4,678
|
|
|
|
5,762
|
|
|
|
65,753
|
|
|
|
833
|
|
|
|
77,026
|
|
Other
income
|
|
|
14
|
|
|
|
45
|
|
|
|
228
|
|
|
|
3,029
|
|
|
|
3,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
11,025
|
|
|
|
27,478
|
|
|
|
71,506
|
|
|
|
3,862
|
|
|
|
113,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
benefits
|
|
|
6,141
|
|
|
|
3,677
|
|
|
|
1,156
|
|
|
|
-
|
|
|
|
10,974
|
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
costs
|
|
|
1,864
|
|
|
|
8,163
|
|
|
|
13,758
|
|
|
|
-
|
|
|
|
23,785
|
|
Universal
life and investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
annuity
contract interest
|
|
|
2,320
|
|
|
|
5,252
|
|
|
|
29,861
|
|
|
|
-
|
|
|
|
37,433
|
|
Other
operating expenses
|
|
|
2,712
|
|
|
|
4,310
|
|
|
|
4,481
|
|
|
|
2,613
|
|
|
|
14,116
|
|
Federal
income taxes
|
|
|
(660
|
)
|
|
|
1,995
|
|
|
|
7,303
|
|
|
|
410
|
|
|
|
9,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
12,377
|
|
|
|
23,397
|
|
|
|
56,559
|
|
|
|
3,023
|
|
|
|
95,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings (losses)
|
|
$
|
(1,352
|
)
|
|
|
4,081
|
|
|
|
14,947
|
|
|
|
839
|
|
|
|
18,515
|
|
Reconciliations
of segment information to the Company's condensed consolidated financial
statements are provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Premiums and Other
Revenue
:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$
|
36,112
|
|
|
|
33,529
|
|
Net
investment income
|
|
|
59,430
|
|
|
|
77,026
|
|
Other
income
|
|
|
3,139
|
|
|
|
3,316
|
|
Realized
gains (losses) on investments
|
|
|
(44
|
)
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated premiums and other revenue
|
|
$
|
98,637
|
|
|
|
114,112
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Federal Income
Taxes
:
|
|
|
|
|
|
|
Total
segment Federal income taxes
|
|
$
|
7,455
|
|
|
|
9,048
|
|
Taxes
on realized gains (losses) on investments
|
|
|
(15
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated Federal income taxes
|
|
$
|
7,440
|
|
|
|
9,132
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Net
Earnings
:
|
|
|
|
|
|
|
Total
segment earnings
|
|
$
|
14,475
|
|
|
|
18,515
|
|
Realized
gains (losses) on investments, net of taxes
|
|
|
(29
|
)
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated net earnings
|
|
$
|
14,446
|
|
|
|
18,672
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Assets
:
|
|
|
|
|
|
|
Total
segment assets
|
|
$
|
6,828,559
|
|
|
|
6,702,688
|
|
Other
unallocated assets
|
|
|
32,515
|
|
|
|
24,790
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated assets
|
|
$
|
6,861,074
|
|
|
|
6,727,478
|
|
(7) SHARE-BASED
PAYMENTS
The
Company has a stock and incentive plan ("Plan") which provides 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;
(4) incentive awards; and (5) performance
awards. The Plan began on April 21, 1995, and was to terminate on
April 20, 2005, unless terminated earlier by the Board of
Directors. The Plan 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 may be issued under the Plan, or as to which
stock appreciation rights or other awards may be granted, may not exceed
300,000. These shares may be authorized and unissued
shares. The Company has only issued nonqualified stock
options.
All of
the employees of the Company and its subsidiaries are eligible to participate in
the Plan. In addition, directors of the Company, other than
Compensation and Stock Option Committee members, are eligible for restricted
stock awards, incentive awards, and performance awards. Company
directors, including members of the Compensation and Stock Option Committee, are
eligible for nondiscretionary stock options. The directors' stock options vest
20% annually following one full year of service to the Company from the date of
grant. The officers' stock options vest 20% annually following three
full years of service to the Company from the date of grant. Options
issued expire after ten years. No awards were issued in the first
quarter of 2008 or during the year 2007.
The
Company adopted and implemented a limited stock buy-back program 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 Plan, however the program necessitated a change in accounting
from the equity classification to the liability
classification. Accordingly, the Company is using the current
fair value method to measure compensation cost. A summary of shares
available for grant and stock option activity is detailed below.
|
|
|
|
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Shares
|
|
|
|
|
|
Average
|
|
|
|
Available
|
|
|
|
|
|
Exercise
|
|
|
|
For
Grant
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
27,668
|
|
|
|
94,984
|
|
|
$
|
128.47
|
|
Stock
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
(15,580
|
)
|
|
|
99.43
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
27,668
|
|
|
|
79,404
|
|
|
$
|
134.16
|
|
The total
intrinsic value of options exercised was $1.6 million and $2.4 million for the
three months ended March 31, 2008 and 2007, respectively. The total
share-based liabilities paid were $1.3 million for the three months ended March
31, 2008. There were no shares vested during the first quarter of
2008.
The
following table summarizes information about stock options outstanding at March
31, 2008.
|
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Options
|
|
|
|
Outstanding
|
|
|
Contractual
Life
|
|
|
Exercisable
|
|
Exercise
prices:
|
|
|
|
|
|
|
|
|
|
$
112.38
|
|
|
3,800
|
|
|
|
0.2
years
|
|
|
|
3,800
|
|
92.13
|
|
|
12,604
|
|
|
|
3.1
years
|
|
|
|
5,736
|
|
95.00
|
|
|
7,000
|
|
|
|
3.2
years
|
|
|
|
7,000
|
|
150.00
|
|
|
56,000
|
|
|
|
6.0
years
|
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
79,404
|
|
|
|
|
|
|
|
29,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
$
|
6,561
|
|
|
|
|
|
|
$
|
2,806
|
|
The
aggregate intrinsic value in the table above is based on the closing stock price
of $216.79 per share on March 31, 2008.
In
estimating the fair value of the options outstanding at March 31, 2008 and 2007,
the Company employed the Black-Scholes option pricing model with assumptions as
detailed below.
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Expected
term of options
|
|
1
to 5 years
|
|
|
2
to 6 years
|
|
Expected
volatility:
|
|
|
|
|
|
|
Range
|
|
21.59%
to 30.17%
|
|
|
15.63%
to 23.72%
|
|
Weighted-average
|
|
|
24.07%
|
|
|
|
19.36%
|
|
Expected
dividends
|
|
|
$0.36
|
|
|
|
-
|
|
Risk-free
rate:
|
|
|
|
|
|
|
|
|
Range
|
|
1.61%
to 3.06%
|
|
|
4.57%
to 4.95%
|
|
Weighted-average
|
|
|
2.31%
|
|
|
|
4.67%
|
|
The
Company reviewed the contractual term relative to the options as well as
perceived future behavior patterns of exercise. Volatility is based
on historical volatility over the expected term.
The
pre-tax compensation cost recognized in the financial statements related to the
Plan was $(58,000) and $1.3 million for the three months ended March 31, 2008
and 2007, respectively. The related tax (benefit) expense recognized
was $(20,000) and $0.4 million for the three months ended March 31, 2008 and
2007, respectively.
As of
March 31, 2008, the total compensation cost related to nonvested options not yet
recognized was $0.9 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.
For the
three months ended March 31, 2008 and 2007, the total cash received from the
exercise of options under the Plan was $0.3 million and $0.1 million,
respectively.
(8) LEGAL
PROCEEDINGS
The
Company is a defendant in three class action lawsuits. The Court has
certified a class consisting of certain California policyholders age 65 and
older alleging violations under California Business and Professions Code section
17200. The Court has additionally certified a subclass of 36
policyholders alleging fraud against their agent, and vicariously, against
National Western Life. Management believes that the Company has good
and meritorious defenses and intends to continue to vigorously defend itself
against these claims. A second class action lawsuit is in discovery
with no class certification motion pending. The third class action
lawsuit was certified as a class by the trial court, but ultimately reversed by
the Texas Supreme Court. Thereupon the plaintiff filed a new motion
for class certification which was denied by the trial court. The
Plaintiff filed a notice of appeal, which has not been perfected.
The
Company is involved or may become involved in various other legal actions, in
the normal course of business, in which claims for alleged economic and punitive
damages have been or may be asserted, some for substantial amounts. Although
there can be no assurances, at the present time, the Company does not anticipate
that the ultimate liability arising from potential, pending, or threatened legal
actions, will have a material adverse effect on the financial condition or
operating results of the Company.
(9) FAIR
VALUE MEASUREMENTS
As
defined in SFAS 157, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price methodology). SFAS 157
establishes a framework for measuring fair value that includes a hierarchy used
to classify inputs used in measuring fair value. The hierarchy prioritizes
inputs to valuation techniques used to measure fair value into three levels
which are either observable or unobservable. Observable inputs reflect market
data obtained from independent sources while unobservable inputs reflect an
entity’s view of market assumptions in the absence of observable market
information. The level in the fair value hierarchy within which the fair value
measurement falls is determined based on the lowest level input that is
significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS 157 are as follows:
Level 1:
Fair value
is based on unadjusted quoted prices in active markets that are accessible to
the Company for identical assets or liabilities. Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and
volume to provide pricing information on an ongoing basis. These generally
provide the most reliable evidence and are used to measure fair value whenever
available. The Company’s Level 1 assets include equity securities that are
traded in an active exchange market. Valuations are obtained from readily
available pricing sources for market transactions involving identical
assets.
Level 2:
Fair value
is based upon significant inputs other than quoted prices in active markets
included in Level 1, which are either directly or indirectly observable for
substantially the full term of the asset or liability through corroboration with
observable market data as of the reporting date. Level 2 inputs include quoted
market prices in active markets for similar assets and liabilities, quoted
market prices in markets that are not active for identical or similar assets or
liabilities, model-derived valuations whose inputs are observable or whose
significant value drivers are observable and other observable inputs.
The Company’s Level 2 assets include fixed maturity debt securities (corporate
and private bonds, government or agency securities, asset-backed and
mortgage-backed securities), preferred stock, certain equity securities, and
over-the-counter derivative contracts. The Company's Level 2 liabilities consist
of certain product-related embedded derivatives. Valuations are generally
obtained from third party pricing services for identical or comparable assets or
determined through use of valuation methodologies using observable market
inputs.
Level 3:
Fair value
is based on significant unobservable inputs which reflect the entity’s or third
party pricing service assumptions about the assumptions market participants
would use in pricing an asset or liability. The Company’s Level 3 assets include
certain equity securities and certain less liquid or private fixed maturity debt
securities where significant valuation inputs cannot be corroborated with market
observable data. The Company's Level 3 liabilities consist of share-based
compensation obligations. Valuations are estimated based on non-binding
broker prices or internally developed valuation models or methodologies,
discounted cash flow models and other similar techniques.
The
following table sets forth the Company’s assets and liabilities that are
measured at fair value on a recurring basis as of the date
indicated:
|
|
March
31, 2008
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities, available for sale
|
|
$
|
1,892,223
|
|
|
|
-
|
|
|
|
1,890,607
|
|
|
|
1,616
|
|
Equity
securities, available for sale
|
|
|
19,360
|
|
|
|
267
|
|
|
|
11,903
|
|
|
|
7,190
|
|
Derivatives
|
|
|
8,069
|
|
|
|
-
|
|
|
|
8,069
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,919,652
|
|
|
|
267
|
|
|
|
1,910,579
|
|
|
|
8,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder
account balances
(a)
|
|
$
|
18,867
|
|
|
|
-
|
|
|
|
18,867
|
|
|
|
-
|
|
Other
liabilities (b)
|
|
|
6,387
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
25,254
|
|
|
|
-
|
|
|
|
18,867
|
|
|
|
6,387
|
|
(a)
Represents the
fair value of certain product-related embedded derivatives that were recorded at
fair value.
(b)
Represents the
liability for share-based compensation.
The
following table provides additional information about fair value measurements
for which significant unobservable (Level 3) inputs were utilized to determine
fair value.
|
|
Debt
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Securities,
|
|
|
Securities,
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
Available
|
|
|
Total
|
|
|
Other
|
|
|
|
For
Sale
|
|
|
For
Sale
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance, January 1, 2008
|
|
$
|
1,618
|
|
|
|
7,147
|
|
|
|
8,765
|
|
|
|
7,712
|
|
Total
realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58
|
)
|
Included
in other comprehensive income (loss)
|
|
|
-
|
|
|
|
43
|
|
|
|
43
|
|
|
|
-
|
|
Purchases,
sales, issuances and settlements, net
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(1,267
|
)
|
Transfers
into (out of) Level 3
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance, March 31, 2008
|
|
$
|
1,616
|
|
|
|
7,190
|
|
|
|
8,806
|
|
|
|
6,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
of total gains (losses) for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income attributable to the change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
unrealized gains (losses) relating to assets still
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
as of March 31, 2008
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58
|
)
|
Realized
gains (losses) on Level 3 assets and liabilities are reported in the
consolidated statements of earnings as net investment gains (losses) while
unrealized gain (losses) are reported as other comprehensive income (loss)
within stockholders’ equity.
The fair
value hierarchy classifications are reviewed each reporting period.
Reclassification of certain financial assets and liabilities may result based on
changes in the observability of valuation attributes. Reclassifications are
reported as transfers into and out of Level 3 at the beginning fair value for
the reporting period in which the changes occur.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking statements. Certain information contained herein or
in other written or oral statements made by or on behalf of National Western
Life Insurance Company or its subsidiaries are or may be viewed as
forward-looking. Although the Company has taken appropriate care in
developing any such information, forward-looking information involves risks and
uncertainties that could significantly impact actual results. These
risks and uncertainties include, but are not limited to, matters described in
the Company’s SEC filings such as exposure to market risks, anticipated cash
flows or operating performance, future capital needs, and statutory or
regulatory related issues. However, National Western, as a matter of
policy, does not make any specific projections as to future earnings, nor does
it endorse any projections regarding future performance that may be made by
others. Whether or not actual results differ materially from
forward-looking statements may depend on numerous foreseeable and unforeseeable
events or developments. Also, the Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future developments, or otherwise.
OVERVIEW
Insurance
Operations - Domestic
The
Company is currently licensed to do business in all states except for New
York. Products marketed are annuities, universal life insurance,
fixed indexed annuities and fixed indexed universal life, and traditional life
insurance, which include both term and whole life products. The
Company’s domestic sales have historically been more heavily weighted toward
annuity products, which include single and flexible premium deferred annuities,
single premium immediate annuities, and fixed indexed annuities. Most
of these annuities can be sold as tax qualified or nonqualified
products. At March 31, 2008, the Company maintained approximately
119,100 annuity policies in force.
National
Western markets and distributes its domestic products primarily through
independent national marketing organizations ("NMOs"). These NMOs assist the
Company in recruiting, contracting, and managing independent agents. The Company
currently has approximately 5,450 independent agents
contracted. Roughly 27% of these contracted agents have submitted
policy applications to the Company in the past twelve months.
Insurance
Operations - International
The
Company's international operations focus on foreign nationals in upper
socioeconomic classes. Insurance products are issued primarily to
residents of countries in Central and South America, the Caribbean, Eastern
Europe, Asia and the Pacific Rim. Issuing policies to residents of countries in
these different regions provides diversification that helps to minimize large
fluctuations that could arise due to various economic, political, and
competitive pressures that may occur from one country to
another. Products issued to international residents are almost
entirely universal life and traditional life insurance
products. However, certain annuity and investment contracts are also
available. At March 31, 2008, the Company had approximately 73,400 international
life insurance policies in force representing approximately $15.0 billion in
face amount of coverage.
International
applications are submitted by independent contractor consultants and
broker-agents. The Company has approximately 5,460 independent international
consultants and brokers currently contracted, 42% of which have submitted policy
applications to the Company in the past twelve months.
There are
some inherent risks of accepting international applications which are not
present within the domestic market that are reduced substantially by the Company
in several ways. As previously described, the Company accepts
applications from foreign nationals in upper socioeconomic classes who have
substantial financial resources. This targeted customer base coupled
with the Company's conservative underwriting practices have historically
resulted in claims experience, due to natural causes, similar to that in the
United States. The Company minimizes exposure to foreign currency
risks by requiring payment of premiums, claims and other benefits almost
entirely in United States dollars. The Company's over forty years of experience
with the international products and its longstanding independent consultant and
broker-agents relationships further serve to minimize risks.
SALES
Life
Insurance
The
following table sets forth information regarding the Company's life insurance
sales activity as measured by annualized first year premiums. While the figures
shown below are in accordance with industry practice and represent the amount of
new business sold during the periods indicated, they are considered a non-GAAP
financial measure. The Company believes sales are a measure of distribution
productivity and are a leading indicator of future revenue trends. However,
revenues are driven by sales in prior periods as well as in the current period
and therefore, a reconciliation of sales to revenues is not meaningful or
determinable.
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
Universal
life
|
|
$
|
3,230
|
|
|
|
1,644
|
|
Traditional
life
|
|
|
1,354
|
|
|
|
1,727
|
|
Fixed-indexed
life
|
|
|
4,107
|
|
|
|
4,727
|
|
|
|
|
8,691
|
|
|
|
8,098
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
Universal
life
|
|
|
899
|
|
|
|
373
|
|
Traditional
life
|
|
|
38
|
|
|
|
75
|
|
Fixed-indexed
life
|
|
|
2,332
|
|
|
|
1,422
|
|
|
|
|
3,269
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
11,960
|
|
|
|
9,968
|
|
Life
insurance sales as measured by annualized first year premiums increased 20% in
the first quarter of 2008 as compared to the first quarter of 2007. Both of the
Company's life insurance lines of business, international and domestic, posted
increases over the comparable results in the first quarter of 2007 with domestic
sales up 75% and international sales 7% greater.
Over the
past three or four years management has placed considerable emphasis on building
domestic life insurance sales as a strategic focus for future growth. This focus
was also in response to comments from outside rating agencies who expressed a
preference for a greater proportion of overall Company earnings to derive from
the life insurance line of business. Domestic operations have generally focused
more heavily on annuity sales than on life insurance sales. The Company spent
the greater part of 2003 and 2004 revamping its domestic life operations by
changing the way it contracts distribution for life business, eliminating
products and distribution that have not contributed significantly to earnings,
and creating new and competitive products. A single premium universal life
("SPUL") product was launched at the end of 2003 beginning a diversification of
the Company's product portfolio away from smaller dollar face amount policies.
The Company released its first fixed equity-indexed universal life ("EIUL")
product for its domestic markets at the end of the third quarter of 2005. This
product accounted for 71% of domestic life insurance sales in the first three
months of 2008. With the introduction of the EIUL and SPUL products and the
discontinued marketing of smaller premium and volume life insurance policies,
the Company has attracted new independent distributors with access to customers
purchasing larger face amounts of insurance per policy. As a result, the Company
has witnessed an increase in the average amount of per policy coverage purchased
in its domestic markets as shown in the following table:
|
|
Average
New Policy Face Amount
|
|
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2003
|
|
$
|
76,100
|
|
|
|
219,600
|
|
Year
ended December 31, 2004
|
|
|
101,700
|
|
|
|
234,500
|
|
Year
ended December 31, 2005
|
|
|
137,900
|
|
|
|
245,900
|
|
Year
ended December 31, 2006
|
|
|
315,800
|
|
|
|
254,700
|
|
Year
ended December 31, 2007
|
|
|
416,800
|
|
|
|
251,000
|
|
Three
months ended March 31, 2008
|
|
|
505,400
|
|
|
|
250,600
|
|
The
Company's international life business consists of applications submitted from
residents in various regions outside of the United States, the volume of which
typically varies based upon changes in the socioeconomic climates of these
regions. Historically, the Company has experienced a simultaneous combination of
rising and declining sales in various countries; however, the appeal of the
Company's dollar-denominated life insurance products overcomes many of the local
and national difficulties. Applications submitted from residents of Latin
America and the Pacific Rim perennially have comprised the majority of the
Company's international life insurance sales. Over the past few years, effort
has been directed toward the sale of a traditional endowment form of life
insurance product for residents of Eastern European and the Commonwealth of
Independent States (former Soviet Union). More recently, the Company's universal
life product offerings have been made available to residents of these
countries.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Percentage
of International Sales:
|
|
|
|
|
|
|
Latin
America
|
|
|
60.1
|
%
|
|
|
60.6
|
%
|
Pacific
Rim
|
|
|
25.3
|
|
|
|
18.6
|
|
Eastern
Europe
|
|
|
14.6
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Year-to-date,
the Company has recorded sales to residents outside of the United States in over
thirty different countries with Brazil (26%), Taiwan (25%), and Kazakhstan (8%)
making up the largest markets.
The table
below sets forth information regarding the Company's life insurance in force for
each date presented.
|
|
Insurance
In Force as of March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($
in thousands)
|
|
Universal
life:
|
|
|
|
|
|
|
Number
of policies
|
|
|
73,140
|
|
|
|
75,550
|
|
Face
amounts
|
|
$
|
8,157,590
|
|
|
|
8,007,830
|
|
|
|
|
|
|
|
|
|
|
Traditional
life:
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
51,230
|
|
|
|
52,880
|
|
Face
amounts
|
|
$
|
1,856,520
|
|
|
|
1,756,000
|
|
|
|
|
|
|
|
|
|
|
Fixed-indexed
life:
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
25,520
|
|
|
|
20,630
|
|
Face
amounts
|
|
$
|
5,828,780
|
|
|
|
4,519,930
|
|
|
|
|
|
|
|
|
|
|
Rider
face amounts
|
|
$
|
2,088,800
|
|
|
|
1,817,290
|
|
|
|
|
|
|
|
|
|
|
Total
life insurance:
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
149,890
|
|
|
|
149,060
|
|
Face
amounts
|
|
$
|
17,931,690
|
|
|
|
16,101,050
|
|
Annuities
The
following table sets forth information regarding the Company's annuity sales
activity as measured by single and annualized first year premiums. Similar to
life insurance sales, these figures are considered a non-GAAP financial measure
but are shown in accordance with industry practice and depict the Company's
sales productivity.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
$
|
73,008
|
|
|
|
68,684
|
|
Other
deferred annuities
|
|
|
25,822
|
|
|
|
27,657
|
|
Immediate
annuities
|
|
|
1,728
|
|
|
|
1,722
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,558
|
|
|
|
98,063
|
|
Annuity
sales for the first quarter of 2008 were 3% higher than the comparable period in
2007 reversing a declining trend of the past several years. Since 2003 when the
Company achieved nearly $1.2 billion in sales, annuity sales have trended lower
due to a combination of declining interest rates, investors returning to
alternative investment vehicles and the Company managing its targeted levels of
risk and statutory capital and surplus. During the past several years the
interest rate yield curve has either been inverted (shorter term rates higher
than longer term rates) or relatively flat. In such an interest rate
environment, consumers tend toward short term investment vehicles such as bank
certificates of deposits rather than longer term choices which include fixed
rate annuities.
The
Company's mix of annuity sales has shifted the past few years. With a stronger
performance in the equity market, sales of fixed indexed annuity products have
been more prevalent since 2004. Over the past several years, sales of fixed
indexed products have consistently accounted for more than one-half of all
annuity sales and were 73% during the first three months of 2008. For all fixed
indexed products, the Company purchases over the counter options to hedge the
equity return feature. The options are purchased relative to the issuance of the
annuity contracts in such a manner to minimize timing risk. Generally, the index
return during the indexing period (if the underlying index increases), becomes a
component in a formula (set forth in the annuity), the result of which is
credited as interest to contract holders electing the index formula crediting
method at the beginning of the indexing period. The formula result can never be
less than zero with these products. The Company does not deliberately mismatch
or under hedge for the equity feature of the products.
The level
of annuity sales volume the past several years has required a greater level of
asset/liability analysis. The Company monitors its asset/liability matching
within the self-constraints of desired capital levels and risk tolerance.
Despite the amounts of new business, the company's capital level remains
substantially above industry averages and regulator targets.
The
following table sets forth information regarding annuities in force for each
date presented.
|
|
Annuities
In Force as of March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
|
|
|
|
|
Number
of policies
|
|
|
32,380
|
|
|
|
31,000
|
|
GAAP
annuity reserves
|
|
$
|
1,959,740
|
|
|
|
1,834,094
|
|
|
|
|
|
|
|
|
|
|
Other
deferred annuities
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
73,230
|
|
|
|
79,020
|
|
GAAP
annuity reserves
|
|
$
|
2,451,216
|
|
|
|
2,627,803
|
|
|
|
|
|
|
|
|
|
|
Immediate
annuities
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
13,510
|
|
|
|
12,990
|
|
GAAP
annuity reserves
|
|
$
|
262,237
|
|
|
|
248,420
|
|
|
|
|
|
|
|
|
|
|
Total
annuities
|
|
|
|
|
|
|
|
|
Number
of policies
|
|
|
119,120
|
|
|
|
123,010
|
|
GAAP
annuity reserves
|
|
$
|
4,673,193
|
|
|
|
4,710,317
|
|
Critical
Accounting Estimates
Accounting
policies discussed below are those considered critical to an understanding of
the Company’s financial statements.
Impairment of Investment
Securities.
The Company’s accounting policy requires that a
decline in the value of a security below its amortized cost basis be evaluated
to determine if the decline is other-than-temporary. The primary
factors considered in evaluating whether a decline in value for fixed income and
equity securities is other-than-temporary include: (a) the length of time and
the extent to which the fair value has been less than cost, (b) the financial
conditions and near-term prospects of the issuer, (c) whether the debtor is
current on contractually obligated principal and interest payments, and (d) the
intent and ability of the Company to retain the investment for a period of time
sufficient to allow for any anticipated recovery. In addition,
certain securitized financial assets with contractual cash flows are evaluated
periodically by the Company to update the estimated cash flows over the life of
the security. If the Company determines that the fair value of the
securitized financial asset is less than its carrying amount and there has been
a decrease in the present value of the estimated cash flows since the previous
estimate, then an other-than-temporary impairment charge is
recognized. When a security is deemed to be impaired a charge is
recorded as net realized losses equal to the difference between the fair value
and amortized cost basis of the security. Once an impairment charge
has been recorded, the fair value of the impaired investment becomes its new
cost basis and the Company continues to review the other-than-temporarily
impaired security for appropriate valuation on an ongoing
basis. Under U.S. generally accepted accounting principles, the
Company is not permitted to increase the basis of impaired securities for
subsequent recoveries in value.
Deferred Acquisition Costs
(“DAC”).
The Company is required to defer certain policy
acquisition costs and amortize them over future periods. These costs
include commissions and certain other expenses that vary with and are primarily
associated with acquiring new business. The deferred costs are
recorded as an asset commonly referred to as deferred policy acquisition costs.
The DAC asset balance is subsequently charged to income over the lives of the
underlying contracts in relation to the anticipated emergence of revenue or
profits. Actual revenue or profits can vary from Company estimates
resulting in increases or decreases in the rate of amortization. The
Company regularly evaluates to determine if actual experience or other evidence
suggests that earlier estimates should be revised. Assumptions considered
significant include surrender and lapse rates, mortality, expense levels,
investment performance, and estimated interest spread. Should actual
experience dictate that the Company change its assumptions regarding the
emergence of future revenues or profits (commonly referred to as “unlocking”),
the Company would record a charge or credit to bring its DAC balance to the
level it would have been if using the new assumptions from the inception date of
each policy.
DAC is
also subject to periodic recoverability and loss recognition
testing. These tests ensure that the present value of future
contract-related cash flows will support the capitalized DAC balance to be
amortized in the future. The present value of these cash flows, less
the benefit reserve, is compared with the unamortized DAC balance and if the DAC
balance is greater, the deficiency is charged to expense as a component of
amortization and the asset balance is reduced to the recoverable
amount.
Deferred Sales
Inducements.
Costs related to sales inducements offered on
sales to new customers, principally on investment type contracts and primarily
in the form of additional credits to the customer’s account value or
enhancements to interest credited for a specified period, which are beyond
amounts currently being credited to existing contracts, are deferred and
recorded as other assets. All other sales inducements are expensed as
incurred and included in interest credited to contract holders’
funds. Deferred sales inducements are amortized to income using the
same methodology and assumptions as DAC, and are included in interest credited
to contract holders’ funds. Deferred sales inducements are
periodically reviewed for recoverability. See the discussion of the
adoption of Statement of Position (“SOP”) 05-1,
Accounting by Insurance Enterprises
for Deferred Acquisition Costs in Connection with Modifications or Exchanges of
Insurance Contracts
on page 10 of this report.
Future Policy
Benefits.
Because of the long-term nature of insurance
contracts, the Company is liable for policy benefit payments many years into the
future. The liability for future policy benefits represents estimates
of the present value of the Company’s expected benefit payments, net of the
related present value of future net premium collections. For
traditional life insurance contracts, this is determined by standard actuarial
procedures, using assumptions as to mortality (life expectancy), morbidity
(health expectancy), persistency, and interest rates, which are based on the
Company’s experience with similar products. The assumptions used are
those considered to be appropriate at the time the policies are
issued. An additional provision is made on most products to allow for
possible adverse deviation from the assumptions assumed. For
universal life and annuity products, the Company’s liability is the amount of
the contract’s account balance. Account balances are also subject to
minimum liability calculations as a result of minimum guaranteed interest rates
in the policies. While management and Company actuaries have used their best
judgment in determining the assumptions and in calculating the liability for
future policy benefits, there is no assurance that the estimate of the
liabilities reflected in the financial statements represents the Company’s
ultimate obligation. In addition, significantly different assumptions could
result in materially different reported amounts.
Revenue
Recognition.
Premium income for the Company’s traditional life
insurance contracts is generally recognized as the premium becomes due from
policyholders. For annuity and universal life contracts, the amounts
collected from policyholders are considered deposits and are not included in
revenue. For these contracts, fee income consists of policy charges for policy
administration, cost of insurance charges and surrender charges assessed against
policyholders’ account balances which are recognized in the period the services
are provided.
Investment
activities of the Company are integral to its insurance operations. Since life
insurance benefits may not be paid until many years into the future, the
accumulation of cash flows from premium receipts are invested with income
reported as revenue when earned. Anticipated yields on investments are reflected
in premium rates, contract liabilities, and other product contract
features. These anticipated yields are implied in the interest
required on the Company’s net insurance liabilities (future policy benefits less
deferred acquisition costs) and contractual interest obligations in its
insurance and annuity products. The Company benefits to the extent
actual net investment income exceeds the required interest on net insurance
liabilities and manages the rates it credits on its products to maintain the
targeted excess or “spread” of investment earnings over interest credited. The
Company will continue to be required to provide for future contractual
obligations in the event of a decline in investment yield. For more information
concerning revenue recognition, investment accounting, and interest sensitivity,
please refer to Note 1, Summary of Significant Accounting Policies, and Note 3,
Investments, in the Notes to Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and
the discussions under Investments in Item 2 of this report.
Pension Plans and Other
Postretirement Benefits.
The Company sponsors a qualified
defined benefit pension plan, which was frozen effective December 31, 2007,
covering substantially all employees and three nonqualified defined benefit
plans covering certain senior officers. In addition, the Company also
has postretirement health care benefits for certain senior
officers. In accordance with prescribed accounting standards, the
Company annually reviews plan assumptions.
The
Company annually reviews its pension benefit plan assumptions which include the
discount rate, the expected long-term rate of return on plan assets, and the
compensation increase rate. The assumed discount rate is set based on
the rates of return on high quality long-term fixed income investments currently
available and expected to be available during the period to maturity of the
pension benefits. The assumed long-term rate of return on plan assets
is generally set at the rate expected to be earned based on long-term investment
policy of the plans and the various classes of the invested funds, based on the
input of the plan’s investment advisors and consulting actuary and the plan’s
historic rate of return. The compensation rate increase assumption is
generally set at a rate consistent with current and expected long-term
compensation and salary policy, including inflation. The freeze
ceased future benefit accruals to all participants and closed the Plan to any
new participants. In addition, all participants immediately 100% vested in their
accrued benefits as of that date.
Other
postretirement benefit assumptions include future events affecting retirement
age, mortality, dependency status, per capita claims costs by age, health care
trend rates, and discount rates. Per capita claims cost by age is the
current cost of providing postretirement health care benefits for one year at
each age from the youngest age to the oldest age at which plan participants are
expected to receive benefits under the plan. Health care trend rates
involve assumptions about the annual rate(s) of change in the cost of health
care benefits currently provided by the plan, due to factors other than changes
in the composition of the plan population by age and dependency
status. These rates implicitly consider estimates of health care
inflation, changes in utilization, technological advances and changes in health
status of the participants. These assumptions involve uncertainties
and judgment, and therefore actual performance may not be reflective of the
assumptions.
Share-Based
Payments.
Liability awards under a share-based payment
arrangement have been measured based on the award's fair value at the reporting
date. The Black-Scholes valuation method has been used to estimate
the fair value of the options. This fair value calculation of the
options include assumptions relative to the following:
Ÿ
|
expected
term based on contractual term and perceived future behavior relative to
exercise
|
Ÿ
|
risk-free
interest rates
|
These
assumptions are continually reviewed by the Company and adjustments may be made
based upon current facts and circumstances.
Other
significant accounting policies, although not involving the same level of
measurement uncertainties as those discussed above but nonetheless important to
an understanding of the financial statements, are described in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007.
RESULTS
OF OPERATIONS
The
Company's consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). In addition, the Company
regularly evaluates operating performance using non-GAAP financial measures
which exclude or segregate derivatives and realized investment gains and losses
from operating revenues and earnings. Similar measures are commonly used in the
insurance industry in order to assess profitability and results from ongoing
operations. The Company believes that the presentation of these non-GAAP
financial measures enhances the understanding of the Company's results of
operations by highlighting the results from ongoing operations and the
underlying profitability factors of the Company's business. The Company excludes
or segregates derivatives and realized investment gains and losses because such
items are often the result of events which may or may not be at the Company's
discretion and the fluctuating effects of these items could distort trends in
the underlying profitability of the Company's business. Therefore, in the
following sections discussing consolidated operations and segment operations,
appropriate reconciliations have been included to report information management
considers useful in enhancing an understanding of the Company's operations to
reportable GAAP balances reflected in the consolidated financial
statements.
Consolidated
Operations
Revenues.
The
following details Company revenues.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Traditional
life and annuity premiums
|
|
$
|
3,894
|
|
|
|
4,733
|
|
Universal
life and annuity contract revenues
|
|
|
32,218
|
|
|
|
28,796
|
|
Net
investment income (excluding derivatives)
|
|
|
83,987
|
|
|
|
81,621
|
|
Other
income
|
|
|
3,139
|
|
|
|
3,316
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
123,238
|
|
|
|
118,466
|
|
Derivative
loss
|
|
|
(24,557
|
)
|
|
|
(4,595
|
)
|
Realized
gains (losses) on investments
|
|
|
(44
|
)
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
98,637
|
|
|
|
114,112
|
|
Traditional life and annuity
premiums
- Traditional life and annuity premiums decreased 17.7% in the
first three months of 2008 compared to the same period in
2007. Traditional life insurance premiums for products such as whole
life and term life are recognized as revenues over the premium-paying period.
These are products that the Company has de-emphasized in favor of universal life
products, particularly equity-indexed universal life products.
Universal life and annuity
contract revenues
- Revenues for universal life and annuity contract
revenues increased 11.9% for the three months in 2008 compared to 2007 and
consist of policy charges for the cost of insurance, administration charges, and
surrender charges assessed against policyholder account
balances. Revenues in the form of cost of insurance charges were
$20.0 million in the first quarter of 2008 compared to $17.9 million for the
quarter ended March 31, 2007, reflecting the growing block of life insurance in
force. Surrender charges assessed against policyholder account
balances upon withdrawal increased to $9.0 million in the first quarter of 2008
versus $7.6 million in 2007 indicative of a slightly higher incidence of policy
withdrawals and terminations.
Net investment income
- A detail of net investment income is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Gross
investment income:
|
|
|
|
|
|
|
Debt
securities
|
|
$
|
78,693
|
|
|
|
76,316
|
|
Mortgage
loans
|
|
|
1,959
|
|
|
|
2,208
|
|
Policy
loans
|
|
|
1,520
|
|
|
|
1,645
|
|
Short-term
investments
|
|
|
1,163
|
|
|
|
1,886
|
|
Other
invested assets
|
|
|
1,308
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
Total
investment income
|
|
|
84,643
|
|
|
|
82,290
|
|
Investment
expenses
|
|
|
656
|
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
|
|
(excluding
derivatives)
|
|
|
83,987
|
|
|
|
81,621
|
|
Derivative
loss
|
|
|
(24,557
|
)
|
|
|
(4,595
|
)
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
59,430
|
|
|
|
77,026
|
|
Short
term investment income declined $0.7 million in the first quarter of 2008 from
the prior year first quarter as the Company reduced its short-term holdings in
response to a reshaping of the yield curve. During the early part of 2007, the
shape of the yield curve was inverted or flat offering value at the short end of
the maturity range. With the decline in short-term rates as a result of Federal
Reserve Board reductions, the yield curve steepened eliminating some of the
value of the shorter maturities. Income from other invested assets for the three
months ended March 31, 2008 includes a settlement payment of $0.9 million from a
previously impaired and sold security. Derivative income and losses
are recorded as a component of investment income but may fluctuate substantially
from period to period based on the performance of the S&P 500
®
Composite Stock Price Index ("S&P 500 Index
®
"). See
the discussion that follows this section relating to index options and
derivatives.
To ensure
the Company will be able to pay future commitments to policyholders and provide
a financial return, the funds received as premium payments and deposits are
invested in high quality investments, primarily fixed maturity debt
securities. The income from these investments is closely monitored by
the Company due to its significant impact on the business.
Net
investment income performance is summarized as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Excluding
derivatives:
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
83,987
|
|
|
|
81,621
|
|
Average
invested assets, at amortized cost
|
|
$
|
5,820,135
|
|
|
|
5,673,090
|
|
Annual
yield on average invested assets
|
|
|
5.77
|
%
|
|
|
5.75
|
%
|
|
|
|
|
|
|
|
|
|
Including
derivatives:
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
59,430
|
|
|
|
77,026
|
|
Average
invested assets, at amortized cost
|
|
$
|
5,886,236
|
|
|
|
5,750,193
|
|
Annual
yield on average invested assets
|
|
|
4.04
|
%
|
|
|
5.36
|
%
|
The yield
on average invested assets increased from 5.75% in 2007 to 5.77% in 2008,
excluding derivatives. The higher yield in 2008 compared to 2007 is
due to the additional income recognized from the other invested assets as well
as a modest shift in the portfolio from short-term investment holdings to
long-term debt securities. Although long-term interest rate levels were lower in
the first quarter of 2008 compared to the first quarter of 2007, the increase in
corporate spreads over treasury rates substantially offset the lower interest
rate level such that long-term investment yields remained largely the
same. Net investment income performance is analyzed excluding the
derivative income which is a common practice in the insurance industry in order
to assess underlying profitability and results from ongoing
operations.
Other income
- Other
income primarily pertains to the Company's operations involving a nursing home
in Reno, Nevada. Revenues associated with this operation were $3.1
million and $3.0 million for the three months ended March 31, 2008 and 2007,
respectively.
Derivative income
(loss)
- Index options are derivative financial instruments used to hedge
the equity return component of the Company's fixed-indexed products. Index
options are intended to act as hedges to match closely the returns on the
S&P 500 Index
®
. With
an increase or decline in this index, the index option values likewise increase
or decline. Any income or loss from the sale or expiration of the
options, as well as period-to-period changes in fair values, are reflected as a
component of net investment income. However, increases or decreases in income
from these options are substantially offset by corresponding increases or
decreases in amounts credited to fixed-indexed annuity and life
policyholders.
Derivative
components included in net investment income and the corresponding contract
interest amounts are detailed below for each date presented.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
Unrealized
loss
|
|
$
|
(20,480
|
)
|
|
|
(8,590
|
)
|
Realized
income (loss)
|
|
|
(4,077
|
)
|
|
|
3,995
|
|
|
|
|
|
|
|
|
|
|
Total
loss included in net investment income
|
|
$
|
(24,557
|
)
|
|
|
(4,595
|
)
|
|
|
|
|
|
|
|
|
|
Total
contract interest
|
|
$
|
26,617
|
|
|
|
37,433
|
|
Benefits and
Expenses.
The following details benefits and
expenses.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
$
|
10,455
|
|
|
|
10,974
|
|
Amortization
of deferred acquisition costs
|
|
|
26,249
|
|
|
|
23,785
|
|
Universal
life and annuity contract interest
|
|
|
26,617
|
|
|
|
37,433
|
|
Other
operating expenses
|
|
|
13,430
|
|
|
|
14,116
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
76,751
|
|
|
|
86,308
|
|
Life and other policy
benefits
- Death claim benefits increased from $7.7 million during the
first quarter of 2007 to $8.0 million for the quarter ended March 31,
2008. While death claim amounts are subject to variation from period
to period, the Company's mortality experience has generally been consistent with
or better than its product pricing assumptions.
Amortization of deferred
acquisition costs
- Life insurance companies are required to defer
certain expenses associated with acquiring new business. The majority
of these acquisition expenses consist of commissions paid to agents,
underwriting costs, and certain marketing expenses and sales
inducements. The Company defers sales inducements in the form of
first year interest bonuses on annuity and universal life products that are
directly related to the production of new business. These charges are
deferred and amortized using the same methodology and assumptions used to
amortize other capitalized acquisition costs and the amortization is included in
contract interest. Recognition of these deferred policy acquisition
costs in the financial statements occurs over future periods in relation to the
emergence of profits priced into the products sold. This emergence of
profits is based upon assumptions regarding premium payment patterns, mortality,
persistency, investment performance, and expense patterns. Companies
are required to review these assumptions periodically to ascertain whether
actual experience has deviated significantly from that assumed. If it is
determined that a significant deviation has occurred, the emergence of profits
pattern is to be "unlocked" and reset based upon the actual
experience. While the Company is required to evaluate its emergence
of profits continually, management believes that the current amortization
patterns of deferred policy acquisition costs are reflective of actual
experience.
Amortization
of deferred policy acquisition costs increased $2.5 million in the first quarter
of 2008 compared to 2007. The increase was largely due to additional
amortization in the current quarter due to compression on the Company’s
investment spreads given a sustained lower interest rate environment relative to
the Company’s minimum interest rate guarantees in its products. In
addition, the introduction of SOP 05-1 in 2007 requires that unamortized
deferred acquisition costs, unearned revenue liabilities and deferred sales
inducement assets related to annuitizations and certain internal replacements of
contracts be written off. This activity was higher in the first quarter of 2008
relative to the first quarter of 2007.
Universal life and annuity
contract interest
- The Company closely monitors its credited interest
rates on interest sensitive policies, taking into consideration such factors as
profitability goals, policyholder benefits, product marketability, and economic
market conditions. As long term interest rates change, the Company's
credited interest rates are often adjusted accordingly, taking into
consideration the factors as described above. The difference between yields
earned over policy credited rates is often referred to as the "interest
spread". As noted above, the Company is experiencing a compression on
its investment spreads currently.
The
Company's approximated average credited rates are as follows:
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Excluding
derivative products)
|
|
|
(Including
derivative products)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity
|
|
|
2.79
|
%
|
|
|
3.30
|
%
|
|
|
1.84
|
%
|
|
|
2.53
|
%
|
Interest
sensitive life
|
|
|
3.41
|
%
|
|
|
3.42
|
%
|
|
|
2.71
|
%
|
|
|
4.43
|
%
|
Contract
interest also includes the performance of the equity-indexed component of the
Company's derivative products as noted which resulted in losses of $24.6 million
and $4.6 million in the first three months of 2008 and 2007, respectively. As
previously noted, the market performance of these equity-index features is
largely included in contract interest expense while also impacting the Company's
investment income given the hedge nature of the options purchased for these
products.
Other operating
expenses
- Other operating expenses consist of general administrative
expenses, licenses and fees, and commissions not subject to
deferral. Like revenues from other income, nursing home operation
expenses are included in other operating expenses and were $2.8 million and $2.6
million for the first quarter of 2008 and 2007, respectively. Other
operating expenses include compensation costs under SFAS 123(R) for the
Company's stock option plan pertaining to the current charge related to
outstanding vested and unvested options. Compensation costs recorded
in the first quarter of 2008 and 2007 were ($0.1) and $1.3 million,
respectively.
Federal Income
Taxes.
Federal income taxes on earnings from continuing
operations reflect effective tax rates of 34.0% and 32.8% for the first quarter
of 2008 and 2007, respectively, which are lower than the expected Federal rate
of 35%. The effective tax rate is lower than the Federal rate of 35%
primarily due to tax-exempt investment income related to municipal securities
and dividends-received deductions on income from stocks.
Segment
Operations
Summary
of Segment Earnings
A summary
of segment earnings (losses) for the quarters ended March 31, 2008 and 2007 is
provided below. The segment earnings exclude realized gains and
losses on investments, net of taxes.
|
|
Domestic
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Life
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Annuities
|
|
|
Others
|
|
|
Totals
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
$
|
(23
|
)
|
|
|
3,872
|
|
|
|
9,809
|
|
|
|
817
|
|
|
|
14,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
$
|
(1,352
|
)
|
|
|
4,081
|
|
|
|
14,947
|
|
|
|
839
|
|
|
|
18,515
|
|
Domestic
Life Insurance Operations
A
comparative analysis of results of operations for the Company's domestic life
insurance segment is detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$
|
6,619
|
|
|
|
6,333
|
|
Net
investment income
|
|
|
5,161
|
|
|
|
4,678
|
|
Other
income
|
|
|
6
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
11,786
|
|
|
|
11,025
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
4,205
|
|
|
|
6,141
|
|
Amortization
of deferred policy acquisition costs
|
|
|
2,287
|
|
|
|
1,864
|
|
Universal
life insurance contract interest
|
|
|
2,355
|
|
|
|
2,320
|
|
Other
operating expenses
|
|
|
2,974
|
|
|
|
2,712
|
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
11,821
|
|
|
|
13,037
|
|
|
|
|
|
|
|
|
|
|
Segment
losses before Federal income taxes
|
|
|
(35
|
)
|
|
|
(2,012
|
)
|
|
|
|
|
|
|
|
|
|
Benefit
for Federal income taxes
|
|
|
(12
|
)
|
|
|
(660
|
)
|
|
|
|
|
|
|
|
|
|
Segment
losses
|
|
$
|
(23
|
)
|
|
|
(1,352
|
)
|
Revenues
from domestic life insurance operations include life insurance premiums on
traditional type products and revenues from universal life
insurance. Revenues from traditional products are simply premiums
collected, while revenues from universal life insurance consist of policy
charges for the cost of insurance, policy administration fees, and surrender
charges assessed during the period. A comparative detail of premiums
and contract revenues is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Universal
life insurance revenues
|
|
$
|
6,045
|
|
|
|
5,190
|
|
Traditional
life insurance premiums
|
|
|
1,622
|
|
|
|
1,712
|
|
Reinsurance
premiums
|
|
|
(1,048
|
)
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
6,619
|
|
|
|
6,333
|
|
The
Company's U.S. operations have typically emphasized annuity product sales over
life product sales but efforts over the past several years have been made to
attract new independent agents and to promote life products to improve domestic
sales. Consequently, the increased sales levels noted earlier in this
report have translated to the increase in insurance revenues.
Premiums
collected on universal life products are not reflected as revenues in the
Company's statements of earnings in accordance with GAAP. Actual
universal life premiums collected are detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Universal
life insurance:
|
|
|
|
|
|
|
First
year and single premiums
|
|
$
|
4,330
|
|
|
|
2,841
|
|
Renewal
premiums
|
|
|
4,728
|
|
|
|
4,177
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
9,058
|
|
|
|
7,018
|
|
Along
with the increased revenues from higher sales levels, earnings for the domestic
life insurance segment improved due to more favorable mortality experience in
the first quarter of 2008 compared to the first quarter of 2007. This favorable
experience caused benefits and expenses to decrease by $1.2
million.
International
Life Insurance Operations
A
comparative analysis of results of operations for the Company's international
life insurance segment is detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$
|
23,485
|
|
|
|
21,671
|
|
Net
investment income
|
|
|
3,039
|
|
|
|
5,762
|
|
Other
income
|
|
|
12
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
26,536
|
|
|
|
27,478
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
5,313
|
|
|
|
3,677
|
|
Amortization
of deferred policy acquisition costs
|
|
|
8,791
|
|
|
|
8,163
|
|
Universal
life insurance contract interest
|
|
|
2,694
|
|
|
|
5,252
|
|
Other
operating expenses
|
|
|
3,872
|
|
|
|
4,310
|
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
20,670
|
|
|
|
21,402
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings before Federal income taxes
|
|
|
5,866
|
|
|
|
6,076
|
|
|
|
|
|
|
|
|
|
|
Provision
for Federal income taxes
|
|
|
1,994
|
|
|
|
1,995
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings
|
|
$
|
3,872
|
|
|
|
4,081
|
|
As with
domestic operations, revenues from the international life insurance segment
include both premiums on traditional type products and revenues from universal
life insurance. A comparative detail of premiums and contract revenues is
provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Universal
life insurance revenues
|
|
$
|
23,952
|
|
|
|
20,687
|
|
Traditional
life insurance premiums
|
|
|
3,041
|
|
|
|
3,577
|
|
Reinsurance
premiums
|
|
|
(3,508
|
)
|
|
|
(2,593
|
)
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
23,485
|
|
|
|
21,671
|
|
Premiums
collected on universal life products are not reflected as revenues in the
Company's statements of earnings in accordance with GAAP. Actual
universal life premiums collected are detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Universal
life insurance:
|
|
|
|
|
|
|
First
year and single premiums
|
|
$
|
9,386
|
|
|
|
8,929
|
|
Renewal
premiums
|
|
|
22,556
|
|
|
|
20,503
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
31,942
|
|
|
|
29,432
|
|
The
Company reported increased premiums for fixed-indexed universal life products
with approximately $18.3 million and $16.0 million for the first quarter of 2008
and 2007, respectively. Contract revenues have similarly increased as
the amount of international life insurance in force has grown from $13.4 billion
at March 31, 2007, to $15.0 billion at March 31, 2008.
As
previously noted, net investment income and contract interest include
period-to-period changes in fair values pertaining to options purchased that are
tied to the performance of the S&P 500 Index
®
. The
largest selling product in the international life insurance segment for the past
five years has been an equity-indexed universal life policy with the equity
component linked in part to the S&P 500 Index
®
. With
the growth in this block of business, the period-to-period changes in fair
values of the underlying options have had an increasingly greater impact on net
investment and contract interest. A detail of net investment income for
international life insurance operations is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
(excluding
derivatives)
|
|
$
|
7,067
|
|
|
|
6,286
|
|
Derivative
loss
|
|
|
(4,028
|
)
|
|
|
(524
|
)
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
3,039
|
|
|
|
5,762
|
|
Amortization
of deferred policy acquisition costs increased approximately 8% comparing the
first three months of 2008 to the same period in 2007. A portion of this
increase is due to the application of SOP 05-1 as previously
discussed. In addition, amortization expense further increased due to
the compression of interest spreads noted earlier.
Annuity
Operations
The
Company's annuity operations are almost exclusively in the United
States. Although some of the Company's investment contracts are
available to international residents, current sales are small relative to total
annuity sales. A comparative analysis of results of operations for
the Company's annuity segment is detailed below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Premiums
and other revenue:
|
|
|
|
|
|
|
Premiums
and contract revenues
|
|
$
|
6,008
|
|
|
|
5,525
|
|
Net
investment income
|
|
|
50,297
|
|
|
|
65,753
|
|
Other
income
|
|
|
38
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Total
premiums and other revenue
|
|
|
56,343
|
|
|
|
71,506
|
|
|
|
|
|
|
|
|
|
|
Benefits
and expenses:
|
|
|
|
|
|
|
|
|
Life
and other policy benefits
|
|
|
937
|
|
|
|
1,156
|
|
Amortization
of deferred policy acquisition costs
|
|
|
15,171
|
|
|
|
13,758
|
|
Annuity
contract interest
|
|
|
21,568
|
|
|
|
29,861
|
|
Other
operating expenses
|
|
|
3,806
|
|
|
|
4,481
|
|
|
|
|
|
|
|
|
|
|
Total
benefits and expenses
|
|
|
41,482
|
|
|
|
49,256
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings before Federal income taxes
|
|
|
14,861
|
|
|
|
22,250
|
|
|
|
|
|
|
|
|
|
|
Provision
for Federal income taxes
|
|
|
5,052
|
|
|
|
7,303
|
|
|
|
|
|
|
|
|
|
|
Segment
earnings
|
|
$
|
9,809
|
|
|
|
14,947
|
|
Revenues
from annuity operations primarily include surrender charges and recognition of
deferred revenues relating to immediate or payout annuities. A
comparative detail of the components of premiums and annuity contract revenues
is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Surrender
charges
|
|
$
|
4,795
|
|
|
|
4,392
|
|
Payout
annuity and other revenues
|
|
|
1,207
|
|
|
|
1,126
|
|
Traditional
annuity premiums
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
6,008
|
|
|
|
5,525
|
|
The
Company's earnings are dependent upon annuity contracts persisting or remaining
in force. While premium and contract revenues decline with a
reduction in surrender charges, the Company's investment earnings benefit as
more policies remain in force.
Deposits
collected on annuity contracts are not reflected as revenues in the Company's
statements of earnings in accordance with GAAP. Actual annuity deposits
collected for the three months ended March 31, 2008 and 2007 are detailed
below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
$
|
69,024
|
|
|
|
63,453
|
|
Other
deferred annuities
|
|
|
29,728
|
|
|
|
32,686
|
|
Immediate
annuities
|
|
|
1,649
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
100,401
|
|
|
|
97,913
|
|
Fixed-indexed
product sales typically follow the stock market in that sales are higher when
confidence is high in the stock market and low if the stock market is showing
poor performance. However, in a low interest environment the
Company’s experience has shown a higher proportion of fixed-indexed annuity
sales relative to other deferred annuity products which have a fixed interest
rate of interest credited to the policy.
Other
deferred annuity product sales have been trending lower over the past few years
due to low interest rates and investor preferences. As a selling
inducement, many of the deferred products, as well as the fixed-indexed annuity
products, include a first year interest bonus in addition to a base interest
rate. These bonus rates are deferred in conjunction with other
capitalized policy acquisition costs. The amount deferred and
amortized over future periods amounted to approximately $4.5 million and $4.2
million during the first quarter of 2008 and 2007, respectively.
A detail
of net investment income for annuity operations is provided below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
|
|
|
|
(excluding
derivatives)
|
|
$
|
70,826
|
|
|
|
69,824
|
|
Derivative
loss
|
|
|
(20,529
|
)
|
|
|
(4,071
|
)
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
50,297
|
|
|
|
65,753
|
|
As noted
previously, derivative income and loss fluctuate from period to period based on
the S&P 500 Index
®
performance.
Annuity
contract interest includes the equity component return associated with the
Company's fixed-indexed annuities. The detail of fixed-indexed
annuity contract interest compared to contract interest for all other annuities
is as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Fixed-indexed
annuities
|
|
$
|
4,917
|
|
|
|
7,841
|
|
All
other annuities
|
|
|
18,350
|
|
|
|
23,857
|
|
|
|
|
|
|
|
|
|
|
Gross
contract interest
|
|
|
23,267
|
|
|
|
31,698
|
|
Bonus
interest deferred and capitalized
|
|
|
(4,484
|
)
|
|
|
(4,165
|
)
|
Bonus
interest amortization
|
|
|
2,785
|
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
|
Total
contract interest
|
|
$
|
21,568
|
|
|
|
29,861
|
|
Contract
interest reflects a decrease due to the S&P 500 Index
®
performance relative to fixed-indexed products.
Similar
to the international life insurance segment, amortization of deferred policy
acquisition costs increased approximately 10% comparing the first three months
of 2008 to the same period in 2007. A portion of this increase is due to the
application of SOP 05-1 as well as additional amortization expense due to the
compression of interest spreads noted earlier.
Other
Operations
National
Western's primary business encompasses its domestic and international life
insurance operations and its annuity operations. However, National
Western also has small real estate, nursing home, and other investment
operations through its wholly-owned subsidiaries. Nursing home
operations generated $0.3 million and $0.4 million of operating earnings in the
first quarters of 2008 and 2007, respectively.
INVESTMENTS
General
The
Company's investment philosophy emphasizes the prudent handling of policyowners'
and stockholders' funds to achieve security of principal, to obtain the maximum
possible yield while maintaining security of principal, and to maintain
liquidity in a measure consistent with current and long-term requirements of the
Company.
The
Company's overall conservative investment philosophy is reflected in the
allocation of its investments, which is detailed below as of March 31, 2008 and
December 31, 2007. The Company emphasizes investment grade debt
securities, with smaller holdings in mortgage loans and policy
loans.
|
|
Composition
of Investments
|
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(In
thousands)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$
|
5,658,385
|
|
|
|
96.2
|
|
|
$
|
5,659,604
|
|
|
|
95.9
|
|
Mortgage
loans
|
|
|
98,530
|
|
|
|
1.7
|
|
|
|
99,033
|
|
|
|
1.7
|
|
Policy
loans
|
|
|
82,032
|
|
|
|
1.4
|
|
|
|
83,772
|
|
|
|
1.4
|
|
Derivatives
|
|
|
8,069
|
|
|
|
0.1
|
|
|
|
25,907
|
|
|
|
0.4
|
|
Equity
securities
|
|
|
19,360
|
|
|
|
0.3
|
|
|
|
19,713
|
|
|
|
0.3
|
|
Real
estate
|
|
|
11,925
|
|
|
|
0.2
|
|
|
|
11,994
|
|
|
|
0.2
|
|
Other
|
|
|
4,289
|
|
|
|
0.1
|
|
|
|
4,568
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
5,882,590
|
|
|
|
100.0
|
|
|
$
|
5,904,591
|
|
|
|
100.0
|
|
Debt
and Equity Securities
The
Company maintains a diversified portfolio which consists primarily of corporate,
mortgage-backed, and public utilities fixed income securities. Investments in
mortgage-backed securities primarily include U.S. government agency pass-through
securities and collateralized mortgage obligations ("CMO"). As of March 31, 2008
and December 31, 2007, the Company's debt securities portfolio consisted of the
following:
|
|
Composition
of Debt Securities
|
|
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(In
thousands)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
2,462,296
|
|
|
|
43.5
|
|
|
$
|
2,429,753
|
|
|
|
43.0
|
|
Mortgage-backed
securities
|
|
|
1,995,612
|
|
|
|
35.3
|
|
|
|
1,909,405
|
|
|
|
33.7
|
|
Public
utilities
|
|
|
711,337
|
|
|
|
12.6
|
|
|
|
689,447
|
|
|
|
12.2
|
|
U.S.
government/agencies
|
|
|
285,692
|
|
|
|
5.0
|
|
|
|
431,303
|
|
|
|
7.6
|
|
Asset-backed
securities
|
|
|
101,956
|
|
|
|
1.8
|
|
|
|
107,019
|
|
|
|
1.9
|
|
States
& political subdivisions
|
|
|
80,489
|
|
|
|
1.4
|
|
|
|
61,794
|
|
|
|
1.1
|
|
Foreign
governments
|
|
|
21,003
|
|
|
|
0.4
|
|
|
|
30,883
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
5,658,385
|
|
|
|
100.0
|
|
|
$
|
5,659,604
|
|
|
|
100.0
|
|
Because
the Company's holdings of mortgage-backed securities are subject to prepayment
and extension risk, the Company has substantially reduced these risks by
investing primarily in collateralized mortgage obligations, which have more
predictable cash flow patterns than pass-through securities. These
securities, known as planned amortization class I ("PAC I") and sequential
tranches are designed to amortize in a more predictable manner than other CMO
classes or pass-throughs. Using this strategy, the Company can more
effectively manage and reduce prepayment and extension risks, thereby helping to
maintain the appropriate matching of the Company's assets and
liabilities.
Due to
recent negative news relative to the mortgage industry and in particular
subprime mortgages the Company has included detailed information below related
to the exposure at March 31, 2008 and December 31, 2007 in the debt securities
portfolio. The Company holds approximately $102.0 million in
asset-backed securities at March 31, 2008. This portfolio includes
$50.2 million of manufactured housing bonds and $51.8 million of home equity
loans (also referred to as subprime securities). The Company does not have any
holdings in collaterized bond obligations (CBOs), collateralized debt
obligations (CDOs), or collateralized loan obligations (CLOs). Principal risks
in holding asset-backed securities are structural, credit, and capital market
risks. Structural risks include the securities’ priority in the issuer’s capital
structure, the adequacy of and ability to realize proceeds from collateral and
the potential for prepayments. Credit risks include corporate credit risks or
consumer credit risks for financing such as subprime mortgages. Capital market
risks include the general level of interest rates and the liquidity for these
securities in the marketplace.
The
mortgage-backed portfolio includes one Alt-A security with a carrying value of
$4.2 million. The Alt-A sector is a sub-sector of the jumbo prime MBS
sector. The average FICO for an Alt-A borrower is approximately 715 compared to
a score of 730 for a jumbo prime borrower. The Company’s exposure to
the Alt-A and subprime sectors is limited to investments in the senior tranches
of structured securities collateralized by Alt-A or subprime residential
mortgage loans. The asset-backed portfolio includes thirteen subprime
securities, totaling $51.8 million. The subprime sector is generally
categorized under the asset-backed sector. This sector lends to borrowers who do
not qualify for prime interest rates due to poor or insufficient credit history.
Subprime borrowers generally have FICO scores of 660 or below. The slowing
housing market, rising interest rates, and relaxed underwriting standards for
loans originated after 2005 resulted in higher delinquency rates and losses in
2007. These events caused illiquidity in the market and volatility in the market
prices of subprime securities. All of the loans classified as Alt-A
or subprime in the Company’s portfolio as of March 31, 2008 were underwritten
prior to 2005 as noted in the table below.
Investment
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
Origination
Year
|
|
Carrying
Value
|
|
|
Market
Value
|
|
|
Carrying
Value
|
|
|
Market
Value
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime:
|
|
|
|
|
|
|
|
|
|
|
|
|
1998
|
|
$
|
13,485
|
|
|
|
11,786
|
|
|
|
14,026
|
|
|
|
14,045
|
|
2002
|
|
|
1,251
|
|
|
|
1,211
|
|
|
|
1,312
|
|
|
|
1,290
|
|
2003
|
|
|
7,483
|
|
|
|
6,307
|
|
|
|
7,761
|
|
|
|
7,232
|
|
2004
|
|
|
29,628
|
|
|
|
24,792
|
|
|
|
31,186
|
|
|
|
30,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
subprime
|
|
$
|
51,847
|
|
|
|
44,096
|
|
|
|
54,285
|
|
|
|
52,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt
A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
$
|
4,224
|
|
|
|
4,224
|
|
|
|
4,665
|
|
|
|
4,665
|
|
As of
March 31, 2008, all of the subprime securities had investment grade ratings with
only one rated below AAA. Seven of the thirteen subprime securities owned by the
Company were wrapped by bond insurers in order to provide additional credit
enhancement. These insurers were AMBAC Assurance Corporation, MBIA Insurance
Corporation, and Financial Guaranty Insurance Company ("FGIC").
In
addition to diversification, an important aspect of the Company's investment
approach is managing the credit quality of its investments in debt
securities. As of March 31, 2008, 98.3% of the Company's debt
securities were investment grade quality using ratings by Standard and Poor’s
("S&P
®
"). Thorough
credit analysis is performed on potential corporate investments including
examination of a company's credit and industry outlook, financial ratios and
trends, and event risks. This emphasis is reflected in the high
average credit rating of the Company's portfolio. In the table below,
investments in debt securities are classified according to credit ratings
S&P
®
, or
other nationally recognized statistical rating organizations if securities were
not rated by S&P
®
.
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(In
thousands)
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
and U.S. government
|
|
$
|
2,487,550
|
|
|
|
44.0
|
|
|
$
|
2,564,975
|
|
|
|
45.3
|
|
AA
|
|
|
249,287
|
|
|
|
4.4
|
|
|
|
301,469
|
|
|
|
5.3
|
|
A
|
|
|
1,433,052
|
|
|
|
25.3
|
|
|
|
1,399,581
|
|
|
|
24.7
|
|
BBB
|
|
|
1,392,327
|
|
|
|
24.6
|
|
|
|
1,293,358
|
|
|
|
22.9
|
|
BB
and other below investment grade
|
|
|
96,169
|
|
|
|
1.7
|
|
|
|
100,221
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
5,658,385
|
|
|
|
100.0
|
|
|
$
|
5,659,604
|
|
|
|
100.0
|
|
The
Company does not purchase below investment grade
securities. Investments held in debt securities below investment
grade are the result of subsequent downgrades of the
securities. During the first quarter of 2008, the Company's
percentage of below investment grade securities decreased primarily as a result
of the maturity of one security in this category. The Company's
holdings of below investment grade securities as a percentage of total invested
assets are relatively small compared to industry averages. These
holdings are summarized below.
|
|
Below
Investment Grade Debt Securities
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
%
of
|
|
|
|
Amortized
|
|
|
Carrying
|
|
|
Fair
|
|
|
Invested
|
|
|
|
Cost
|
|
|
Value
|
|
|
Value
|
|
|
Assets
|
|
|
|
(In
thousands except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
$
|
102,511
|
|
|
|
96,169
|
|
|
|
93,461
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$
|
105,067
|
|
|
|
100,221
|
|
|
|
97,618
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
$
|
145,858
|
|
|
|
146,581
|
|
|
|
146,170
|
|
|
|
2.5
|
%
|
The
Company closely monitors its other below investment grade holdings by reviewing
investment performance indicators including information such as issuer operating
performance, debt ratings, analyst reports and other economic factors that may
affect these specific investments. While additional losses are not
currently anticipated based on the existing status and condition of these
securities, continued credit deterioration of some securities is possible, which
may result in further writedowns. Holdings in below investment grade
securities by category are summarized below.
|
|
Below
Investment Grade Debt Securities
|
|
|
|
Amortized
|
|
|
Carrying
|
|
|
Fair
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
17,971
|
|
|
|
17,323
|
|
|
|
17,315
|
|
|
|
17,639
|
|
Utilities/Energy
|
|
|
12,408
|
|
|
|
12,693
|
|
|
|
13,028
|
|
|
|
12,332
|
|
Telecommunication
|
|
|
19,999
|
|
|
|
16,675
|
|
|
|
16,675
|
|
|
|
17,244
|
|
Asset-backed
|
|
|
10,699
|
|
|
|
10,699
|
|
|
|
9,757
|
|
|
|
10,008
|
|
Transportation
|
|
|
2,288
|
|
|
|
2,528
|
|
|
|
2,528
|
|
|
|
2,739
|
|
Manufacturing
|
|
|
7,520
|
|
|
|
7,327
|
|
|
|
7,396
|
|
|
|
7,438
|
|
Auto
finance
|
|
|
6,139
|
|
|
|
6,139
|
|
|
|
4,642
|
|
|
|
5,144
|
|
Medical
|
|
|
13,000
|
|
|
|
12,593
|
|
|
|
11,928
|
|
|
|
11,960
|
|
Other
|
|
|
12,487
|
|
|
|
10,192
|
|
|
|
10,192
|
|
|
|
10,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
102,511
|
|
|
|
96,169
|
|
|
|
93,461
|
|
|
|
95,186
|
|
The
Company is required to classify its investments in debt and equity securities
into one of three categories: (a) trading securities, (b) securities
available for sale, or (c) securities held to maturity. The Company
purchases securities with the intent to hold to maturity and accordingly does
not maintain a portfolio of trading securities. Of the remaining two
categories, available for sale and held to maturity, the Company makes a
determination based on various factors including the type and quality of the
particular security and how it will be incorporated into the Company's overall
asset/liability management strategy. As shown in the table below, at March 31,
2008, approximately 33% of the Company's total debt and equity securities, based
on fair values, were classified as securities available for sale.
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
(Losses)
|
|
|
|
(In
thousands)
|
|
Securities
held to maturity:
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$
|
3,804,626
|
|
|
|
3,766,162
|
|
|
|
38,464
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
|
1,892,223
|
|
|
|
1,898,523
|
|
|
|
(6,300
|
)
|
Equity
securities
|
|
|
19,360
|
|
|
|
12,302
|
|
|
|
7,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
5,716,209
|
|
|
|
5,676,987
|
|
|
|
39,222
|
|
In
accordance with SFAS No. 115,
Accounting for Certain Debt and
Equity Securities,
during the first quarter of 2007 one security was sold
from the held to maturity portfolio due to significant credit deterioration with
an amortized cost of $5.2 million resulting in a minimal realized
gain. No securities were transferred from the held to maturity portfolio to the
available for sale portfolio during the first quarter of 2008 or
2007.
Proceeds
from sales of securities available for sale totaled $0.1 million and $0.2
million during the first quarter of 2008 and 2007, respectively, which resulted
in realized gains of $0.1 million for both periods.
Market
Risk
Market
risk is the risk of change in market values of financial instruments due to
changes in interest rates, currency exchange rates, commodity prices, or equity
prices. The most significant market risk exposure for National
Western is interest rate risk. The fair values of fixed income debt securities
correlate to external market interest rate conditions. Because
interest rates are fixed on almost all of the Company's debt securities, market
values typically increase when market interest rates decline, and decrease when
market interest rates rise. However, market values may fluctuate for
other reasons, such as changing economic conditions or increasing event-risk
concerns.
The
correlation between fair values and interest rates for debt securities is
reflected in the tables below.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands except percentages)
|
|
|
|
|
|
|
|
|
Debt
securities - fair value
|
|
$
|
5,696,849
|
|
|
|
5,655,194
|
|
Debt
securities - amortized cost
|
|
$
|
5,664,685
|
|
|
|
5,670,827
|
|
Fair
value as a percentage of amortized cost
|
|
|
100.57
|
%
|
|
|
99.72
|
%
|
Unrealized
gain (loss) balance
|
|
$
|
32,164
|
|
|
|
(15,633
|
)
|
Ten-year
U.S. Treasury bond - decrease
|
|
|
|
|
|
|
|
|
in
yield for the quarter
|
|
|
(0.61
|
)
%
|
|
|
(0.68
|
)
%
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain (Loss) Balance
|
|
|
|
|
|
|
At
|
|
|
At
|
|
|
Change
in
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
Unrealized
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities held to maturity
|
|
$
|
38,464
|
|
|
|
(4,410
|
)
|
|
|
42,874
|
|
Debt
securities available for sale
|
|
|
(6,300
|
)
|
|
|
(11,223
|
)
|
|
|
4,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
32,164
|
|
|
|
(15,633
|
)
|
|
|
47,797
|
|
Changes
in interest rates typically have a sizable affect on the fair values of the
Company's debt securities. Market interest rates of the ten-year U.S. Treasury
bond decreased approximately sixty basis points from year-end 2007 causing a
unrealized gain of $47.8 million during the quarter on a portfolio of
approximately $5.7 billion. The Company would expect similar results
in the future from any significant upward or downward movement in market
rates. However, since the majority of the Company's debt securities
are classified as held to maturity, which are recorded at amortized cost,
changes in fair values have relatively small effects on the Company's
consolidated balance sheet.
The
Company manages interest rate risk through on-going cash flow testing required
for insurance regulatory purposes. Computer models are used to perform cash flow
testing under various commonly used stress test interest rate scenarios to
determine if existing assets would be sufficient to meet projected liability
outflows. Sensitivity analysis allows the Company to measure the
potential gain or loss in fair value of its interest-sensitive instruments and
to protect its economic value and achieve a predictable spread between what is
earned on invested assets and what is paid on liabilities. The
Company seeks to minimize the impact of interest risk through surrender charges
that are imposed to discourage policy surrenders. Interest rate
changes can be anticipated in the computer models and the corresponding risk
addressed by management actions affecting asset and liability
instruments. However, potential changes in the values of financial
instruments indicated by hypothetical interest rate changes will likely be
different from actual changes experienced, and the differences could be
significant.
The
Company performed detailed sensitivity analysis as of December 31, 2007, for its
interest rate-sensitive assets and liabilities. The changes in market
values of the Company's debt securities in the first quarter of 2008 were
reasonable given the expected range of results of this analysis.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Liquidity
requirements are met primarily by funds provided from operations. Premium
deposits and revenues, investment income, and investment maturities are the
primary sources of funds while investment purchases, policy benefits, and
operating expenses are the primary uses of funds. The Company
historically has not been put in the position of liquidating invested assets to
provide cash flow. However, investments consist primarily of
marketable debt securities that could be readily converted to cash for liquidity
needs. The Company may also borrow up to $40 million on its bank line
of credit for short-term cash needs.
A primary
liquidity concern for life insurers is the risk of an extraordinary level of
early policyholder withdrawals. The Company includes provisions
within its annuity and universal life insurance policies, such as surrender
charges, that help limit and discourage early withdrawals.
The
actual amounts paid by product line in connection with surrenders and
withdrawals for the quarters ended March 31 are noted in the table
below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Product
Line:
|
|
|
|
|
|
|
Traditional
Life
|
|
$
|
1,072
|
|
|
|
990
|
|
Universal
Life
|
|
|
9,450
|
|
|
|
8,047
|
|
Annuities
|
|
|
99,847
|
|
|
|
91,979
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110,369
|
|
|
|
101,016
|
|
The above
contractual withdrawals, as well as the level of surrenders experienced, were
generally consistent with the Company's assumptions in asset/liability
management, and the associated cash outflows did not have an adverse impact on
overall liquidity. Individual life insurance policies are less susceptible to
withdrawal than annuity reserves and deposit liabilities because policyholders
may incur surrender charges and undergo a new underwriting process in order to
obtain a new insurance policy. Cash flow projections and tests under various
market interest rate scenarios are also performed to assist in evaluating
liquidity needs and adequacy. The Company currently expects available
liquidity sources and future cash flows to be more than adequate to meet the
demand for funds.
In the
past, cash flows from the Company's insurance operations have been sufficient to
meet current needs. Cash flows from operating activities were $66.9
million and $62.6 million for the three months ended March 31, 2008 and 2007,
respectively. The Company also has significant cash flows from both scheduled
and unscheduled investment security maturities, redemptions, and
prepayments. These cash flows totaled $335.7 million and $115.7
million for the three months ended March 31, 2008 and 2007,
respectively. These cash flow items could be reduced if interest
rates rise. Net cash outflows from the Company's universal life and
investment annuity deposit product operations totaled $37.1 million and $25.7
million during the three months ended March 31, 2008 and 2007,
respectively.
Capital
Resources
The
Company relies on stockholders' equity for its capital resources as there is no
long-term debt outstanding and the Company does not anticipate the need for any
long-term debt in the near future. As of March 31, 2008, the Company
had commitments of approximately $6.2 million which were approved by the
Company's Board of Directors for the construction of a nursing home facility in
Central Texas. The construction of the new facility began in 2007 and
is expected to be completed in the third or fourth quarter of 2008.
OFF-BALANCE
SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
It is not
Company practice to enter into off-balance sheet arrangements nor is it Company
policy to issue guarantees to third parties, other than in the normal course of
issuing insurance contracts. Commitments related to insurance
products sold are reflected as liabilities for future policy
benefits. Insurance contracts guarantee certain performances by the
Company.
Insurance
reserves are the means by which life insurance companies determine the
liabilities that must be established to assure that future policy benefits are
provided for and can be paid. These reserves are required by law and
based upon standard actuarial methodologies to ensure fulfillment of commitments
guaranteed to policyholders and their beneficiaries, even though the obligations
may not be due for many years. Refer to Note (1) in the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2007 for a discussion of reserving
methods.
The table
below summarizes future estimated cash payments under existing contractual
obligations.
|
|
Payment
Due by Period
|
|
|
|
|
|
|
Less
Than
|
|
|
1 -
3
|
|
|
3 -
5
|
|
|
More
Than
|
|
|
|
Total
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations (1)
|
|
$
|
2,023
|
|
|
|
846
|
|
|
|
1,177
|
|
|
|
-
|
|
|
|
-
|
|
Construction
commitments
|
|
|
6,232
|
|
|
|
6,232
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Life
claims payable (2)
|
|
|
57,804
|
|
|
|
57,804
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
long-term reserve liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reflected
on the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
GAAP (3)
|
|
|
6,910,276
|
|
|
|
649,040
|
|
|
|
1,105,566
|
|
|
|
1,342,661
|
|
|
|
3,813,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,976,335
|
|
|
|
713,922
|
|
|
|
1,106,743
|
|
|
|
1,342,661
|
|
|
|
3,813,009
|
|
(1) Refer
to Note 9 in the Notes to Consolidated Financial Statements relating to leases
in the Company’s Annual Report on Form 10-K.
(2) Life
claims payable include benefit and claim liabilities for which the Company
believes the amount and timing of the payment is essentially fixed and
determinable. Such amounts generally relate to incurred and reported
death and critical illness claims including an estimate of claims incurred but
not reported.
(3) Other
long-term liabilities include estimated life and annuity obligations related to
death claims, policy surrenders, policy withdrawals, maturities and annuity
payments based on mortality, lapse, annuitization, and withdrawal assumptions
consistent with the Company’s historical experience. These estimated life and
annuity obligations are undiscounted projected cash outflows that assume
interest crediting and market growth consistent with assumptions used in
amortizing deferred acquisition costs. They do not include any offsets for
future premiums or deposits. Other long-term liabilities also include
determinable payout patterns related to immediate annuities. In contrast to this
table, the majority of the Company’s liabilities for future obligations recorded
on the consolidated balance sheet do not incorporate future credited interest
and market growth. Therefore, the estimated life and annuity obligations
presented in this table significantly exceed the life and annuity liabilities
recorded in the reserves for future life and annuity obligations. Due to the
significance of the assumptions used, the actual cash outflows will differ both
in amount and timing, possibly materially, from these estimates.
CHANGES
IN ACCOUNTING PRINCIPLES AND CRITICAL ACCOUNTING POLICIES
Changes
in Accounting Principles
Refer to
Note 2 and Note 9 of the Notes to Condensed Consolidated Financial
Statements.
REGULATORY
AND OTHER ISSUES
Statutory
Accounting Practices
Regulations
that affect the Company and the insurance industry are often the result of
efforts by the National Association of Insurance Commissioners
("NAIC"). The NAIC routinely publishes new regulations as model acts
or laws which states subsequently adopt as part of their insurance
regulations. Currently, the Company is not aware of any NAIC
regulatory matter material to its operations or reporting of financial
results.
Risk-Based
Capital Requirements
The NAIC
established risk-based capital ("RBC") requirements to help state regulators
monitor the financial strength and stability of life insurers by identifying
those companies that may be inadequately capitalized. Under the
NAIC's requirements, each insurer must maintain its total capital above a
calculated threshold or take corrective measures to achieve the
threshold. The threshold of adequate capital is based on a formula
that takes into account the amount of risk each company faces on its products
and investments. The RBC formula takes into consideration four major
areas of risk which are: (i) asset risk which primarily focuses on
the quality of investments; (ii) insurance risk which encompasses mortality and
morbidity risk; (iii) interest rate risk which involves asset/liability matching
issues; and (iv) other business risks. Statutory laws prohibit public
dissemination of certain RBC information. However, the Company's
current statutory capital and surplus is significantly in excess of the
threshold RBC requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES
ABOUT
MARKET RISK
This
information is included in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Investments in Debt and
Equity Securities section.
ITEM 4. CONTROLS AND PROCEDURES
The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Finanical Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing, and reporting,
on a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
There
have been no changes in the Company's internal controls over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
quarter ended March 31, 2008 that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to
Note 8 "Legal Proceedings" of the accompanying financial statements included in
this Form 10-Q.
ITEM 1A. RISK FACTORS
There
have been no changes relative to the risk factors disclosed in the Company's
Annual Report on Form 10-K for the year ended December 31,
2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Effective
March 10, 2006, the Company adopted and implemented a limited stock buy-back
program associated with the Company's 1995 Stock Option and Incentive Plan
("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.
During
the month ended March, 2008, the Company purchased 12,450 shares from option
holders at an average price of $199.72. These purchased shares are
reported in the Company's condensed consolidated financial statements as
authorized and unissued.
ITEM 6. EXHIBITS
(a)
Exhibits
Exhibit
31(a)
|
-
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Exhibit
31(b)
|
-
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Exhibit
32(a)
|
-
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
SIGNATURES
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
|
NATIONAL
WESTERN LIFE INSURANCE COMPANY
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 9, 2008
|
|
|
/S/
Ross R. Moody
|
|
|
|
|
|
Ross
R. Moody
|
|
|
|
|
|
President,
Chief Operating Officer,
|
|
|
|
|
|
and
Director
|
|
|
|
|
|
(Authorized
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
May 9, 2008
|
|
|
/S/
Brian M. Pribyl
|
|
|
|
|
|
Brian
M. Pribyl
|
|
|
|
|
|
Senior
Vice President,
|
|
|
|
|
|
Chief
Financial & Administrative
|
|
|
|
|
|
Officer
and Treasurer
|
|
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
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