<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File No. 2-28596
September 30, 1995
NATIONWIDE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-4156830
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
- ------------------------------------ -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (614) 249-7111
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 the filing requirements for at least the past 90 days.
Yes X No
----- -----
All voting stock was held by affiliates of the registrant on
October 31, 1995.
COMMON STOCK - 3,814,779 shares issued and outstanding as of
October 31, 1995
(Title of Class)
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
PART II. OTHER INFORMATION............................................... 11
SIGNATURE................................................................ 12
2
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Balance Sheets
(000's omitted)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
Assets 1995 1994
------ ------------- -----------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (cost $9,501,272 in 1995; $8,318,865 in 1994) $ 9,831,405 $ 8,045,906
Equity securities (cost $22,036 in 1995; $18,372 in 1994) 27,484 24,713
Fixed maturities held-to-maturity, at amortized cost
(fair value $3,821,662 in 1995; $3,602,310 in 1994) 3,711,638 3,688,787
Mortgage loans on real estate 4,538,773 4,222,284
Real estate 239,925 252,681
Policy loans 364,792 340,491
Other long-term investments 65,131 63,914
Short-term investments 73,071 131,643
----------- -----------
18,852,219 16,770,419
----------- -----------
Cash 30,345 7,436
Accrued investment income 250,352 220,540
Deferred policy acquisition costs 1,079,964 1,064,159
Deferred Federal income tax - 36,515
Other assets 802,319 790,603
Assets held in Separate Accounts 17,201,210 12,222,461
----------- -----------
$38,216,409 $31,112,133
=========== ===========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims 17,751,969 16,321,461
Policyholders' dividend accumulations 350,015 338,058
Other policyholder funds 75,151 72,770
Accrued Federal income tax:
Current 6,955 13,126
Deferred 127,276 -
----------- -----------
134,231 13,126
----------- -----------
Other liabilities 288,474 235,778
Liabilities related to Separate Accounts 17,201,210 12,222,461
----------- -----------
35,801,050 29,203,654
----------- -----------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5,000 shares,
issued and outstanding 3,815 shares 3,815 3,815
Paid-in additional capital 673,782 622,753
Unrealized gains (losses) on securities available-for-sale,
net of adjustment to decrease deferred policy acquisition
costs of $66,334 ($82,525 increase in 1994) and
net of deferred Federal income tax liability of $92,652
($64,425 benefit in 1994) 176,595 (119,668)
Retained earnings 1,561,167 1,401,579
----------- -----------
2,415,359 1,908,479
----------- -----------
$38,216,409 $31,112,133
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 62,609 $ 50,872 $ 206,343 $ 159,685
Accident and health insurance premiums 127,903 80,742 387,389 243,818
Universal life and investment product
policy charges 81,808 54,184 243,925 171,903
Net investment income 375,068 322,388 1,093,820 950,734
Realized gains (losses) on investments (2,815) (2,475) 6,859 10,240
-------- -------- ---------- ----------
644,573 505,711 1,938,336 1,536,380
-------- -------- ---------- ----------
Benefits and expenses:
Benefits and claims 416,739 305,845 1,250,187 943,358
Provision for policyholders' dividends
on participating policies 11,054 12,027 36,485 39,110
Amortization of deferred policy
acquisition costs 22,361 31,239 78,066 85,231
Other operating costs and expenses 106,561 93,544 325,527 265,284
-------- -------- ---------- ----------
556,715 442,655 1,690,265 1,332,983
-------- -------- ---------- ----------
Income before Federal income tax 87,858 63,056 248,071 203,397
-------- -------- ---------- ----------
Federal income tax:
Current expense 26,166 22,855 74,553 68,765
Deferred expense (benefit) 842 (2,467) 6,480 (3,511)
-------- -------- ---------- ---------
27,008 20,388 81,033 65,254
-------- -------- ---------- --------
Net income $ 60,850 $ 42,668 $ 167,038 $ 138,143
======== ======== ========== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Paid-in on securities Total
Capital additional available-for- Retained shareholder's
shares capital sale, net earnings equity
------- ---------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, January 1, 1994 $3,815 $422,753 $ 6,747 $1,217,853 $1,651,168
Capital contribution - 200,000 - - 200,000
Net income - - - 138,143 138,143
Adjustment for change in accounting
for certain investments in debt
and equity securities, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax - - 216,915 - 216,915
Unrealized losses on securities
available-for-sale, net of
adjustments to deferred policy
acquisition costs and deferred
Federal income tax - - (308,498) - (308,498)
------ -------- --------- ---------- ----------
Balance, September 30, 1994 $3,815 $622,753 $ (84,836) $1,355,996 $1,897,728
====== ======== ========= ========== ==========
1995:
Balance, January 1, 1995 3,815 622,753 (119,668) 1,401,579 1,908,479
Capital contribution (note 2) - 51,029 (4,111) - 46,918
Dividends paid to shareholder - - - (7,450) (7,450)
Net income - - - 167,038 167,038
Unrealized gains on securities
available-for-sale, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax - - 300,374 - 300,374
------ -------- --------- ---------- ----------
Balance, September 30, 1995 $3,815 $673,782 $ 176,595 $1,561,167 $2,415,359
====== ======== ========= ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 167,038 $ 138,143
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Capitalization of deferred policy acquisition costs (242,730) (200,292)
Amortization of deferred policy acquisition costs 78,066 85,231
Amortization and depreciation 10,220 14,377
Realized gains on invested assets, net (5,327) (5,058)
Deferred Federal income tax liability (benefit) 6,714 (3,872)
Increase in accrued investment income (29,812) (22,746)
Increase in other assets (3,113) (88,136)
Increase (decrease) in policyholder account balances 138,977 (16,073)
Increase in policyholders' dividend accumulations 11,957 11,806
(Decrease) increase in accrued Federal income tax payable (6,171) 127
Increase in other liabilities 52,696 65,871
Other, net (13,218) (16,172)
----------- -----------
Net cash provided by (used in) operating activities 165,297 (36,794)
----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 421,503 440,433
Proceeds from sale of securities available-for-sale 116,685 46,816
Proceeds from maturity of fixed maturities held-to-maturity 471,981 445,746
Proceeds from repayments of mortgage loans on real estate 137,909 158,279
Proceeds from sale of real estate 39,834 40,790
Proceeds from repayments of policy loans and
sale of other invested assets 52,346 83,179
Cost of securities available-for-sale acquired (1,701,912) (1,577,356)
Cost of fixed maturities held-to-maturity acquired (509,223) (236,652)
Cost of mortgage loans on real estate acquired (480,281) (377,694)
Cost of real estate acquired (10,790) (3,820)
Policy loans issued and other invested assets acquired (72,392) (89,333)
----------- -----------
Net cash used in investing activities (1,534,340) (1,069,612)
----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions 46,918 200,000
Dividends paid to shareholder (7,450) -
Increase in universal life and investment product account balances 1,903,669 1,765,659
Decrease in universal life and investment product account balances (609,757) (744,066)
----------- -----------
Net cash provided by financing activities 1,333,380 1,221,593
----------- -----------
Net (decrease) increase in cash and cash equivalents (35,663) 115,187
Cash and cash equivalents, beginning of period 139,079 63,632
----------- -----------
Cash and cash equivalents, end of period $ 103,416 $ 178,819
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
(Unaudited)
Nine Months Ended September 30, 1995
(000's omitted)
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements.
The accompanying unaudited consolidated financial statements
should be read in conjunction with the December 31, 1994 audited
consolidated financial statements included in Nationwide Life
Insurance Company's annual report on Form 10-K.
The financial information included herein reflects all adjustments
(all of which are normal and recurring in nature) which are, in
the opinion of management, necessary for a fair presentation of
financial position and results of operations.
Operating results for all periods presented are not necessarily indicative
of the results that may be expected for the full year.
(2) Capital Contribution
--------------------
On March 1, 1995, Nationwide Corporation (the parent company of Nationwide
Life Insurance Company) contributed all of the outstanding shares
of Farmland Life Insurance Company (Farmland) to Nationwide Life
Insurance Company, which then merged Farmland into West Coast Life
Insurance Company (a wholly-owned subsidiary of Nationwide Life Insurance
Company) effective June 30, 1995. The contribution resulted in a direct
increase to shareholder's equity of $46,918. The contribution of Farmland
has been accounted for in a manner similar to a pooling of interests and
accordingly, Farmland's results are included in the consolidated
statements of income beginning January 1, 1995. However, prior period
consolidated financial statements have not been restated due to
immateriality.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Consolidated net income for Nationwide Life Insurance Company and its
subsidiaries (the Company) was $61 million and $167 million for the
three and nine months ended September 30, 1995, respectively. This
represents increases of 43% and 21% from the same periods in 1994. Individual
and group annuity products accounted for the majority of the increases
primarily due to increased asset fees on separate account assets.
REVENUES: The Company's total revenues increased $139 million and $402
million for the three and nine months ended September 30, 1995 which
represents increases of 27% and 26%, respectively, from the 1994
amounts. Accident and health insurance premiums increased $47 million
and $144 million from the comparable periods of 1994. Employers Life Insurance
Company of Wausau (Employers Life) accounted for nearly all of the increases.
Universal life and investment product (primarily individual and group
annuities) policy charges increased $28 million and $72 million from
the comparable periods of 1994 due to the significant increase in the
number and amount of investment product and universal life policies
outstanding. Total universal life and investment product considerations
received were $1,711 million and $4,754 million for the three and nine
month periods in 1995 compared to $1,374 million and $4,151 million for
the corresponding periods of 1994 and $955 million and $2,773 million
for 1993. Management anticipates continued growth in universal life
and investment product revenues, although the growth could likely be at
a slower pace than the past three years.
A portion of the group annuity business is sold to public employees and
educators by two affiliated marketing companies, which are also wholly-
owned subsidiaries of Nationwide Corporation. Total considerations
received through those distribution channels were $252 million and $757
million for the three and nine months ended September 30, 1995,
compared to $229 million and $671 million for the comparable periods
for 1994. Another portion of the group annuity business is a result of
a joint venture with another affiliated marketing company to sell
individual annuity products and life insurance to the customers of
banks and other financial institutions. Total considerations received
through this distribution channel were $135 million and $368 million
for the three and nine months ended September 30, 1995, compared to
$101 million and $253 million for the comparable periods for 1994.
Traditional life insurance premiums increased $12 million and $47
million in 1995 for the three and nine months ended September 30, 1995
from the comparable periods of 1994. The majority of the increases is
due to Employers Life which offers both single premium
policies and group life.
A significant growth in invested assets, primarily in individual and
group annuity products, resulted in increases in net investment income
of $53 million and $143 million for the three and nine months ended
September 30, 1995 over the 1994 periods.
BENEFITS AND EXPENSES: Total benefits and expenses increased $114
million and $357 million for the three and nine month ended September
30, 1995, which represent increases of 26% and 27% from 1994. Of the
total increases, $77 million and $236 million is attributable to Employers
Life. The remainder of the increases is primarily in the individual and
group annuity lines, consistent with the increases in revenues discussed above.
8
<PAGE> 9
Other operating costs and expenses increased $13 million and $60
million for the three and nine months ended September 30, 1995 over 1994, with
Employers Life accounting for the majority of the increases. The individual and
group pension lines of business reported increases in expenses to support the
growth in considerations and assets for these lines. The traditional and
universal life lines reported lower operating expenses, despite increases in
revenue, due to increased operating efficiencies.
EFFECTS OF ACCOUNTING STANDARDS TO BE ADOPTED: The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, which specifies when
assets should be reviewed for impairment, how to determine whether
assets are impaired, and how to measure an impairment loss. The
statement, which is not expected to have a material impact on the
Company's consolidated financial statements, is effective for fiscal years
beginning after December 15, 1995.
INVESTMENT PORTFOLIO: Net realized investment gains (losses) were
($2.9) million and $6.9 million for the three and nine months ended
September 30, 1995, compared to ($2.4) million and $10.2 million for
1994. Realized losses on mortgage loans on real estate were $3.1
million and $3.7 million for the first three and nine months of 1995.
Comparable amounts for 1994 were $4.0 million and $12.4 million. The
losses on mortgage loans on real estate were offset by gains from the sales
of fixed maturity and equity securities.
As of September 30, 1995, valuation allowances on mortgage loans on
real estate were $48.1 million, or 1.1% of the mortgage loan portfolio,
compared to $47.9 million, or 1.1% of the mortgage loan portfolio, at
December 31, 1994.
The Company does not invest in swaps, forwards, futures, option
contracts or other financial instruments with similar characteristics.
Capital Resources and Liquidity
- -------------------------------
CAPITAL RESOURCES: Total shareholder's equity increased to $2,415
million at September 30, 1995 from $1,908 million at December 31, 1994.
Excluding unrealized investment gains and losses, shareholder's equity
increased $211 million (10%) to $2,239 million at September 30, 1995,
from $2,028 million at December 31, 1994. The increases in
shareholder's equity are attributable to the Company's net income and a
contribution from its parent, Nationwide Corporation. On March 1,
1995, Nationwide Corporation contributed all of the outstanding shares
of Farmland Life Insurance Company (Farmland) to Nationwide Life
Insurance Company, which then merged Farmland into West Coast Life
Insurance Company effective June 30, 1995. The contribution resulted
in a direct increase to shareholder's equity of $46.9 million. During
the nine months ended September 30, 1995, the Company paid dividends to
Nationwide Corporation of $7.45 million. No significant capital
contributions from, or dividend payments to, Nationwide Corporation are
anticipated for the remainder of 1995 or 1996.
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the National Association of
Insurance Commissioners. Risk-based capital evaluates the adequacy of
an insurer's statutory capital and surplus in relation to the risks
inherent in the insurer's business related to asset quality, asset and
liability matching, mortality and morbidity, and other business
factors. Nationwide Life Insurance Company and all of its insurance
subsidiaries exceed the minimum risk-based capital requirements.
9
<PAGE> 10
LIQUIDITY: The Company's operations have historically provided
substantial positive cash flow. The significant growth in new business
and the resulting increase in investments have provided the Company
with sufficient cash resources to meet all current obligations for
policyholder benefits, withdrawals, surrenders and policy loans. As a
member of the Nationwide Insurance Enterprise, the Company also has
access to available capital infusions and to liquid and readily
marketable invested assets in the event of extreme unexpected
withdrawals. The Company also participates in intercompany repurchase
agreements with affiliates to satisfy short-term cash needs.
To mitigate the risks that actual withdrawals may exceed anticipated
amounts or that rising interest rates may cause a decline in the value
of the Company's fixed maturity investments, the Company imposes market
value adjustments or surrender charges on the majority of its products
and offers products where the investment risk is transferred to the
contract holder. Liabilities related to separate accounts, where the
investment risk is transferred to the contract holder, comprise 49% of
policyholder-related liabilities at September 30, 1995, compared to 42%
at December 31, 1994.
Nationwide Life Insurance Company and its insurance subsidiaries are limited
by law in the amount of dividends they can pay. That condition poses
no liquidity concerns to the Company due to Nationwide Life Insurance
Company's significant cash flow from operations and extensive holdings
of liquid investments.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to
which Nationwide Life Insurance Company and its subsidiaries
are party or of which any of its property is subject.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 6, 1995, Nationwide Life Insurance Company held its
annual shareholder meeting. At the annual meeting, the
shareholder re-elected as Directors the five nominees of the
Board of Directors by the following vote:
<TABLE>
<CAPTION>
Nominee Shares For Shares Withheld
------- ---------- ---------------
<S> <C> <C>
Fred C. Finney 3,814,779 -0-
Henry S. Holloway 3,814,779 -0-
James F. Patterson 3,814,779 -0-
Robert L. Stewart 3,814,779 -0-
Nancy C. Thomas 3,814,779 -0-
</TABLE>
The term of office of the Directors, Lewis J. Alphin, Willard
J. Engel, Peter F. Frenzer, Charles L. Fuellgraf, Jr.,
D. Richard McFerson, David O. Miller, C. Ray Noecker, Robert H.
Rickel, Arden L. Shisler and Harold W. Weihl, continued after
the meeting.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
All other exhibits referenced by Item 601 of Regulation S-K
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(b) Reports on Form 8-K:
Not applicable.
11
<PAGE> 12
SIGNATURE
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.
NATIONWIDE LIFE INSURANCE COMPANY
(Registrant)
Date: November 14, 1995 /s/ DAVID A. DIAMOND
--------------------------
David A. Diamond,
Vice President - Controller
12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This Schedule contains summary financial information extracted from the
Nationwide Life Insurance Company and Subsidiaries unaudited consolidated
financial statements and is qualified in its entirety by reference to such
unaudited consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 9,831,405
<DEBT-CARRYING-VALUE> 3,711,638
<DEBT-MARKET-VALUE> 3,821,662
<EQUITIES> 27,484
<MORTGAGE> 4,538,773
<REAL-ESTATE> 239,925
<TOTAL-INVEST> 18,852,219
<CASH> 30,345
<RECOVER-REINSURE> 588,693
<DEFERRED-ACQUISITION> 1,079,964
<TOTAL-ASSETS> 38,216,409
<POLICY-LOSSES> 17,751,969
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 350,015
<POLICY-HOLDER-FUNDS> 75,151
<NOTES-PAYABLE> 0
<COMMON> 3,815
0
0
<OTHER-SE> 2,411,544
<TOTAL-LIABILITY-AND-EQUITY> 38,216,409
593,732
<INVESTMENT-INCOME> 1,093,820
<INVESTMENT-GAINS> 6,859
<OTHER-INCOME> 0
<BENEFITS> 1,250,187
<UNDERWRITING-AMORTIZATION> 78,066
<UNDERWRITING-OTHER> 325,527
<INCOME-PRETAX> 248,071
<INCOME-TAX> 81,033
<INCOME-CONTINUING> 167,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,038
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
