<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File No. 2-28596
NATIONWIDE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-4156830
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 249-7111
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 February 29, 1996.
COMMON STOCK - 3,814,779 shares issued and outstanding as
of December 31, 1995
----------------------------------------------------------
(Title of Class)
<PAGE> 2
PART I
ITEM 1. Business.
- ------- ---------
(a) Nationwide Life Insurance Company (the Company) was
incorporated in 1929 and is an Ohio stock legal reserve
life insurance company. The Company offers a variety of
forms of ordinary life, universal life, variable universal
life, term and endowment, group life, individual and group
annuities, and individual and group accident and health
coverage on a participating and a non-participating basis.
On December 30, 1993, the Company became a wholly owned
subsidiary of Nationwide Corporation when Nationwide Mutual
Insurance Company and Nationwide Mutual Fire Insurance
Company sold their shares of the Company to Nationwide
Corporation for newly issued shares of Nationwide
Corporation. Nationwide Corporation is owned by Nationwide
Mutual Insurance Company and Nationwide Mutual Fire
Insurance Company.
On April 7, 1988, the Company obtained ownership of the
stock of Nationwide Life and Annuity Insurance Company
(formerly Financial Horizons Life Insurance Company) from
Nationwide Mutual Insurance Company as part of a capital
contribution. Nationwide Life and Annuity Insurance Company
currently offers universal life, variable universal life
and individual annuity contracts on a non-participating
basis. On December 31, 1993, Nationwide Corporation
contributed all of the outstanding capital shares of West
Coast Life Insurance Company, National Casualty Company and
Nationwide Financial Services, Inc. to the Company. West
Coast Life Insurance Company currently offers individual
life, group life, individual annuity and group accident and
health coverage on a participating and a non-participating
basis. National Casualty Company underwrites individual
and group accident and health insurance as well as various
property and casualty coverages. Nationwide Financial
Services, Inc., a non-insurance industry subsidiary, is a
registered broker-dealer providing investment management
and administration services. On December 31, 1994, the
Company purchased all of the outstanding shares of
Employers Life Insurance Company of Wausau. Employers Life
Insurance Company of Wausau primarily offers group annuity
contracts and, through its wholly owned subsidiary Wausau
Preferred Health Insurance Company, group accident and
health insurance and group life insurance coverages. On
March 1, 1995, Nationwide Corporation contributed all of
the outstanding shares of Farmland Life Insurance Company
to the Company. Effective June 30, 1995, the Company merged
the operations of Farmland Life Insurance Company into West
Coast Life Insurance Company.
(b) The Company and its subsidiaries operate in the long-term
savings, life insurance and accident and health insurance
lines of business in the life insurance and property and
casualty insurance industries. Long-term savings operations
include both qualified and non-qualified annuity contracts
issued to both individuals and groups. Life insurance
operations include whole life, universal life, variable
universal life and endowment and term life insurance issued
to individuals and groups. Accident and health operations
also provide coverage to individuals and groups. Corporate
primarily includes investments, and the related investment
income, which are not specifically allocated to one of the
three operating segments.
During 1995, the Company and its subsidiaries changed their
reporting segments to better reflect the way the businesses
are managed. Operating segment data is presented in note 16
to the consolidated financial statements and Schedule III.
2
<PAGE> 3
(c)(1)(i) Nationwide Life Insurance Company is licensed to
do business in all 50 states as well as the District
of Columbia, Puerto Rico and the Virgin Islands.
The Company distributes its long-term savings
products through Nationwide Insurance Enterprise
career agents, brokers, financial institutions,
pension plan administrators and the following
affiliated sales companies; Public Employees Benefit
Services Corporation, Nationwide Financial
Institution Distributors Agency, Inc. (formerly
Financial Horizons Distributors Agency, Inc.) and
NEA Valuebuilder Investor Services, Inc. Life
insurance policies are sold through Nationwide
Insurance Enterprise career agents, brokers and
financial institutions. Accident and health
insurance policies are sold through Nationwide
Insurance Enterprise career agents, brokers and
third party administrators.
(c)(1)(ii) Not applicable.
(c)(1)(iii) Not applicable.
(c)(1)(iv) The Company, in common with other insurance
companies, is subject to regulation and supervision
by the regulatory authorities of the states in which
it is licensed to do business. A license from the
state insurance department is a prerequisite to the
issuance of insurance contracts in that state. In
general, all states have statutory administrative
powers. Such regulation relates to, among other
things, licensing of insurers and their agents, the
approval of policy forms, the methods of computing
reserves, the form and content of financial
statements, the amount of policyholders' and
stockholder's dividends, and the type and
distribution of investments permitted.
(c)(1)(v) Not applicable.
(c)(1)(vi) Not applicable.
(c)(1)(vii) Not applicable.
(c)(1)(viii) Not applicable.
(c)(1)(ix) Not applicable.
(c)(1)(x) The Company operates in the highly competitive life
insurance industry. There are approximately 2,000
stock, mutual and other types of insurers in the
life insurance business in the United States, and a
large number of them compete with the Company in the
sale of insurance policies. In addition to
competition from other life insurers, the Company
faces competition from other financial services
providers such as banks, mutual fund houses and
brokerage firms.
According to A.M. Best Company's statistical study
released in the December 19, 1995 edition of
BestWeek (an insurance industry trade publication),
Nationwide Life Insurance Company ranked 14th among
all life insurance companies in the United States
and Canada based on reported statutory admitted
assets as of September 30, 1995.
3
<PAGE> 4
(c)(1)(xi) Not applicable.
(c)(1)(xii) Not applicable.
(c)(1)(xiii) As is customary in insurance company groups,
employees are shared with other insurance companies
in the group. The Company shares approximately 835
employees with Nationwide Mutual Insurance Company
and Nationwide Mutual Fire Insurance Company. The
Company does have 2,831 direct salaried employees.
(d) Substantially all of the Company's premiums, operating
profits and assets are attributable to the United States of
America, its territories and possessions. Approximately
.004% of premiums are attributable to non-domestic
geographic areas.
ITEM 2. Properties.
- ------- -----------
The Company leases all space used in conducting its operations.
The Company shares home office space and other facilities with
affiliates in a building owned by Nationwide Mutual Insurance
Company. The Company also leases various other branch offices.
The terms of these leases are not material to the consolidated
financial statements.
ITEM 3. Legal Proceedings.
- ------- ------------------
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company and its subsidiaries are a party, or of which any of
its property is the subject.
ITEM 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
None.
4
<PAGE> 5
PART II
ITEM 5. Market for Registrant's Common Equity and Related Shareholder
- ------- -------------------------------------------------------------
Matters.
--------
(a) There is no established public trading market for the
Company's capital shares.
(b) As of December 31, 1995, none of the 3,814,779 shares
issued and outstanding was held by public shareholders.
Nationwide Corporation is the sole shareholder the
Company.
(c) The Company paid dividends of $7,450,000 to Nationwide
Corporation during 1995. The Company made no dividend
payments during 1994.
Reference is made to Item 7 and note 12 to the consolidated
financial statements herein for information regarding
dividend restrictions.
ITEM 6. Selected Financial Data.
- ------- ------------------------
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(000's omitted)
1995 1994 1993 1992 1991
--------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,576,107 2,046,200 2,034,526 1,933,318 1,799,042
Benefits and claims 1,656,287 1,279,763 1,236,906 1,319,735 1,262,317
Income tax expense 107,254 89,504 106,758 33,742 36,595
Cumulative effect of changes
in accounting principles -0- -0- 5,365 -0- -0-
Net income 212,478 183,726 211,508 96,817 73,732
Total assets $40,614,111 31,112,133 25,406,361 20,954,338 17,426,046
</TABLE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations.
----------------------
Consolidated Results of Operations
For purposes of this discussion, Nationwide Life Insurance
Company and its wholly owned insurance subsidiaries, Nationwide
Life and Annuity Insurance Company, West Coast Life Insurance
Company, Employers Life Insurance Company of Wausau and National
Casualty Company, are referred to as "the Company."
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
(000's omitted) 1995 1994 1993
--------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C> <C>
Revenues $2,576,107 2,046,200 2,034,526
Benefits, claims and policyholder dividends 1,704,361 1,325,824 1,290,095
Operating costs and expenses 552,014 447,146 431,530
------------------ ---------------- ---------------
Operating earnings $ 319,732 273,230 312,901
================== ================ ===============
Net income $ 212,478 183,726 211,508
================== ================ ===============
</TABLE>
5
<PAGE> 6
For purposes of this discussion, operating earnings refers to
income before Federal income tax expense and cumulative effect of
changes in accounting principles. During 1993, the Company
adopted Statements of Financial Accounting Standards (SFAS) No.
106 - Employers' Accounting for Postretirement Benefits Other
Than Pensions, and SFAS No. 109 - Accounting for Income Taxes.
The impact of adopting these accounting standards was a $5.4
million after-tax benefit in 1993.
Also during 1993, the Company sold substantially all of its
equity securities to Nationwide Mutual Insurance Company, the
majority owner of Nationwide Life Insurance Company's parent,
Nationwide Corporation. The Company realized a $123 million gain
($80 million after tax) on the transaction.
For a discussion of Federal income tax expense, see note 7 to the
consolidated financial statements.
During 1995, the Company's reportable segments have been changed
to better reflect the way the businesses are managed. Prior year
segment results have been restated to reflect these changes. The
following is a discussion of each segment's operating
performance.
Long-Term Savings
-----------------
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
(000's omitted) 1995 1994 1993
-------------------------------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C>
Revenues $ 1,406,241 1,125,013 1,048,045
Benefits, claims and policyholder dividends 1,009,858 806,768 800,694
Operating costs and expenses 266,908 222,715 199,385
------------------ ---------------- ---------------
Operating earnings $ 129,475 95,530 47,966
================== ================ ===============
Total premiums and deposits (1) $ 6,644,791 5,280,795 3,921,919
================== ================ ===============
Assets under management (2) $33,325,510 25,299,930 20,221,388
================== ================ ===============
<FN>
(1) Under SFAS No. 97 - Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the
Sales of Investments, certain deposits are not
recorded as revenues.
(2) Excludes unrealized gains and losses under SFAS No.
115 - Accounting for Certain Investments in Debt and
Equity Securities.
</TABLE>
The long-term savings segment includes both qualified and
non-qualified annuity contracts issued to individuals and groups.
Products are sold through Nationwide Insurance Enterprise career
agents, brokers, financial institutions, pension plan
administrators and three affiliated sales companies as described
in note 13 to the consolidated financial statements.
Operating earnings in 1995 increased 36% to $129 million,
primarily due to a 32% increase in assets under management.
Growth in assets under management is attributable to the
continued growth in premiums and deposits received by the
Company. In addition, the strong performance of both the stock
and bond markets during 1995 had a significant impact on the
growth of assets held in separate accounts, which are reported at
fair value. Assets fees assessed against policyholder account
balances increased 44% over 1994. During 1995, interest margins,
the difference between what the Company earns on its general
account investments and what policyholders are credited, remained
comparable to 1994. Total operating expenses increased 20% in
1995 due to the increased volume of business.
6
<PAGE> 7
Operating earnings for 1994 were up 99% over 1993. The increase
is primarily attributable to growth in assets under management.
During 1994, asset fees and interest margins increased 42% and
18%, respectively, from 1993. Management's efforts to control
expenses resulted in operating costs and expenses increasing 12%
despite greater growth in assets under management and premiums
and deposits.
Outlook: Management anticipates continued growth in the long-term
savings segment, although growth may be at a slower pace than the
past three years. Increased competition from a variety of
financial services providers could impact the segment's growth
and profitability. In addition, annuities are interest sensitive
and changes in interest rates could impact future sales as well
as the retention and profitability of in-force contracts.
Fluctuations in the bond and stock markets can also impact future
sales and profitability in the long-term savings segment.
Life Insurance
--------------
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
(000's omitted) 1995 1994 1993
---------------------------------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C>
Revenues $ 502,885 452,795 432,343
Benefits, claims and policyholder dividends 311,130 282,748 271,244
Operating costs and expenses 128,586 123,928 124,716
------------------ ---------------- ---------------
Operating earnings $ 63,169 46,119 36,383
================== ================ ===============
Total premiums and deposits (1) $ 470,926 418,437 361,494
================== ================ ===============
Life insurance in-force $52,355,567 47,082,394 39,597,855
================== ================ ===============
<FN>
(1) Under SFAS 97, certain premiums and deposits are not
recorded as revenues.
</TABLE>
The life insurance segment includes whole life, universal life,
variable universal life and endowment and term life insurance
issued to individuals and groups. Life insurance is sold by
Nationwide Insurance Enterprise career agents, brokers and
financial institutions.
Operating earnings in 1995 were $63 million, up 37% from 1994 due
to an increase in life insurance in-force and offset by minimal
increases in operating expenses. At the end of 1995, life
insurance in-force was $52.4 billion, an increase of $5.3 billion
from 1994. Total premiums and deposits in 1995 were $471 million,
a $52 million increase over 1994. A significant portion of this
increase is attributable to sales of variable universal life
policies. The minimal increase in expenses (4%) during 1995
reflects the Company's commitment to increasing operating
efficiencies.
Operating earnings in 1994 were $46 million, an increase of 27%
from 1993. An increase in life insurance in-force combined with a
decrease in operating expenses accounted for the increase. Of the
$7.4 billion increase in life insurance in-force, $3.1 billion is
attributable to Employers Life Insurance Company of Wausau, which
Nationwide Life Insurance Company acquired effective December 31,
1994.
Outlook: Although life insurance is a more mature business
segment than long-term savings, management anticipates growth in
the life insurance segment, particularly with the variable
universal life products. Increasing operating efficiencies and
controlling expenses will continue to be a focus.
7
<PAGE> 8
Accident and Health Insurance
-----------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
(000's omitted) 1995 1994 1993
------------------------------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $532,383 345,545 339,764
Benefits, claims and policyholder dividends 383,373 236,308 218,157
Operating costs and expenses 161,531 96,016 106,566
----------------- ---------------- ----------------
Operating (loss) earnings $ (12,521) 13,221 15,041
================= ================ ================
</TABLE>
The accident and health insurance segment sells policies to both
individuals and groups. Individual policies include major
medical, disability income and medicare supplement. Group
policies include major medical, dental and disability income.
Accident and health insurance policies are sold by Nationwide
Insurance Enterprise career agents, brokers and third party
administrators.
The accident and health insurance segment reported an operating
loss of $13 million in 1995 compared to operating earnings of $13
million in 1994. The loss is attributable to higher claims costs
on group business and operating expenses. The 1995 results
include Employers Life Insurance Company of Wausau. Employers
Life Insurance Company of Wausau reported 1995 accident and
health insurance revenues of $198 million, including $151 million
of premiums assumed from Employers Insurance of Wausau A Mutual
Company, an affiliate.
Operating earnings for 1994 of $13 million were down from $15
million in 1993, primarily due to higher claims costs which were
partially offset by a decrease in operating expenses.
Outlook: Management does not anticipate significant growth in
group accident and health insurance premiums and could
potentially experience a decline. Individual accident and health
insurance premiums will likely decrease due to declining sales of
major medical policies. Management is evaluating the
profitability of the group business and will increase premiums,
when appropriate, for cases with adverse claims experience. In
addition, management is evaluating the policyholder service
functions at Nationwide Life Insurance Company and Employers Life
Insurance Company of Wausau and will combine functions where
appropriate to increase efficiencies and reduce costs.
Corporate
---------
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
(000's omitted) 1995 1994 1993
-------------------------------------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C>
Revenues $134,598 122,847 214,374
================== ================ ===============
Operating earnings $139,609 118,360 213,511
================== ================ ===============
Realized gains (losses) on investments
included in revenues above $ 836 (16,384) 113,673
================== ================ ===============
</TABLE>
Corporate primarily includes investments, and the related
investment income, which are not specifically allocated to one of
the three operating segments. In addition, realized gains and
losses on all general account investments are reported as a
component of the Corporate segment.
8
<PAGE> 9
Operating earnings for 1995 were $140 million, up from $118
million in 1994. The increase is primarily due to realized
losses on investments of $16 million in 1994 compared to
realized gains of $1 million in 1995.
Operating earnings in 1994 of $118 million were down from $214
million in 1993 primarily due to $114 million of realized gains
on investments in 1993 compared to $16 million of realized losses
in 1994.
The realized gains in 1993 are principally related to the sale of
substantially all equity securities to Nationwide Mutual
Insurance Company. In 1994, the corporate segment benefited from
the earnings on a $200 million capital contribution Nationwide
Life Insurance Company received in February, 1994.
General Account Investments
---------------------------
Fixed Maturity Securities: The Company does not invest in
lower-quality, higher-risk fixed maturity securities.
Non-investment grade securities, all of which are the result of
down grading since the time of purchase by the Company, were 2.4%
of total fixed maturity securities as of December 31, 1995.
Private placement fixed maturity securities provide certain
advantages over public issues and are purchased when possible. As
of December 31, 1995, private placement fixed maturity securities
were 30% of total fixed maturity securities. While private
placement securities are less liquid than public issues, they
generally offer higher yields, better call provisions, greater
takeover protection, enhanced protective covenants and the
potential of specific collateral.
Collateralized mortgage obligations comprise 29% of fixed
maturity securities as of December 31, 1995. Of the total
collateralized mortgage obligation portfolio as of December 31,
1995, 98.7% was invested in sequential pay, planned amortization
and targeted amortization classes.
Mortgage Loans on Real Estate: The Company's mortgage loans on
real estate portfolio consists of first mortgages on existing
income-producing properties. The Company does not make second
mortgages, construction loans, participating or convertible
mortgages and land development loans.
Realized losses on mortgage loans on real estate were $7.3
million, $20.5 million, and $28.2 million for 1995, 1994 and
1993, respectively. As of December 31, 1995, mortgage loans on
real estate considered impaired under SFAS No. 114 - Accounting
by Creditors for Impairment of a Loan (as amended by SFAS No. 118
- Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure) were $45 million. Total valuation
allowances on mortgage loans on real estate were $50.7 million,
or 1.0% of the portfolio, as of December 31, 1995, compared to
$47.9 million, or 1.1% of the portfolio, as of December 31, 1994.
See note 9 to the consolidated financial statements for
disclosures of concentrations of risk by geographic area and
borrower.
The Company does not invest in swaps, forwards, futures, option
contracts or other financial instruments with similar
characteristics.
9
<PAGE> 10
Capital Resources and Liquidity
-------------------------------
Capital Resources: Total consolidated shareholder's equity
increased to $2,669 million as of December 31, 1995 from $1,908
million as of December 31, 1994 ($1,651 million as of December
31, 1993).
During 1994, the Company adopted SFAS No. 115 - Accounting for
Certain Investments in Debt and Equity Securities, which resulted
in certain debt securities being recorded at fair value with
unrealized gains or losses, net of certain adjustments to
deferred policy acquisition costs and deferred Federal income
taxes, reported as a component of consolidated shareholder's
equity. As permitted by the Financial Accounting Standards
Board's (FASB) Special Report - A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities, issued in November 1995, the Company
transferred all of its fixed maturity securities previously
classified as held-to-maturity to available-for-sale. The
transfer resulted in a gross unrealized gain of $172 million.
While classifying all fixed maturity securities as
available-for-sale will result in greater fluctuations in total
consolidated shareholder's equity, such classification does allow
the Company maximum flexibility for asset and liability
management. See notes 2(b), 3 and 5 to the consolidated financial
statements for additional disclosures regarding SFAS No. 115.
Excluding unrealized investment gains and losses, consolidated
shareholder's equity increased $256 million (13%) to $2,284
million as of December 31, 1995, from $2,028 million as of
December 31, 1994 ($1,644 million as of December 31, 1993).
The increases in consolidated shareholder's equity are
attributable to the Company's consolidated net income and capital
contributions from Nationwide Corporation. On March 1, 1995,
Nationwide Corporation contributed all of the outstanding shares
of Farmland Life Insurance Company to the Company, which then
merged Farmland Life Insurance Company into West Coast Life
Insurance Company effective June 30, 1995. The contribution
resulted in a direct increase to consolidated shareholder's
equity of $47 million. In addition, during 1994 and 1993, the
Company received capital contributions of $200 million and $111
million, respectively, from Nationwide Corporation to support the
Company's growth in operations.
The Company does not currently have a formal dividend policy.
During 1995 and 1993, the Company paid dividends of $7.5 million
and $17.8 million, respectively, to Nationwide Corporation. There
were no dividend payments in 1994. Management of the Company has
not determined if there will be any dividend payments in 1996.
Effective December 31, 1994, the Company purchased all of the
outstanding shares of Employers Life Insurance Company of Wausau
from Wausau Service Corporation for $155 million. Wausau Service
Corporation is a wholly-owned subsidiary of Employers Insurance
of Wausau A Mutual Company, which is affiliated with Nationwide
Mutual Insurance Company. Nationwide Life Insurance Company
transferred fixed maturity securities and cash with a fair value
of $155 million to Wausau Service Corporation, which resulted in
a realized loss of $19.2 million on the disposition of the
securities. The purchase price approximated both the historical
cost basis and fair value of net assets of Employers Life
Insurance Company of Wausau.
With the contribution of Farmland Life Insurance Company and the
purchase of Employers Life Insurance Company of Wausau, all life
insurance companies of the Nationwide Insurance Enterprise are
subsidiaries of Nationwide Life Insurance Company.
10
<PAGE> 11
Each insurance company's state of domicile imposes minimum
risk-based capital requirements that were developed by the
National Association of Insurance Commissioners (NAIC).
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. Regulatory compliance is determined based on a ratio of
a company's regulatory total adjusted capital, as defined by the
NAIC, to its authorized control level risk-based capital, as
defined by the NAIC. Companies with a ratio below 200% (or below
250% with negative trends) are required to take corrective action
steps. As of December 31, 1995, Nationwide Life Insurance
Company's risk-based capital ratio was 750%. All insurance
subsidiaries of Nationwide Life Insurance Company exceed the
minimum risk-based capital requirements.
Liquidity: The Company's operations have historically provided
substantial positive cash flow. The significant growth in
premiums and deposits and the resulting increase in investments
have provided the Company with sufficient cash resources to meet
all current obligations for policyholder benefits, withdrawals,
surrenders, policy loans and operating expenses.
As a member of the Nationwide Insurance Enterprise, the Company
also has access to available capital infusions and borrowings
from affiliates in the event of extreme unexpected withdrawals.
The Company also participates in intercompany repurchase
agreements with affiliates to satisfy short-term cash needs.
Transactions under the agreements were not material in 1995 and
1994.
In addition, Nationwide Life Insurance Company has $120 million
of confirmed but unused bank lines of credit which support a $100
million commercial paper borrowing authorization. During 1993,
the Company temporarily increased available bank lines of credit
to $365 million and borrowed $125 million. In addition, $175
million of short-term securities were issued as repurchase
agreements. All amounts were repaid in 1993, with interest
expense totaling $1.6 million.
The Company purchases investments with durations to match the
expected durations of the liabilities they support. To the extent
liabilities become due more quickly than anticipated, the Company
may need to borrow funds or sell investments prior to maturity
and potentially recognize a gain or loss.
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. As of
December 31, 1995, 9% of the Company's annuity contracts were
subject to withdrawal without a surrender charge or market value
adjustment. In addition, liabilities related to separate
accounts, where the investment risk is transferred to the
policyholder, comprise 50% of policyholder-related liabilities as
of December 31, 1995, compared to 42% as of December 31, 1994.
As described in note 12 to the consolidated financial statements,
Nationwide Life Insurance Company's insurance subsidiaries are
limited by law in the amount of dividends they can pay. That
condition poses no liquidity concerns due to Nationwide Life
Insurance Company's significant cash flow from operations and
extensive holdings of liquid investments.
11
<PAGE> 12
Effects of accounting standards to be adopted
---------------------------------------------
The FASB issued SFAS No. 121 - Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This statement requires impairment losses be recorded on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets'
carrying amount. The statement also addresses the accounting for
long-lived assets that are expected to be disposed of. The
Company will adopt this statement in 1996 and the impact on the
consolidated financial statements is not expected to be material.
ITEM 8. Consolidated Financial Statements and Supplementary Data.
---------------------------------------------------------
The consolidated financial statements of Nationwide Life
Insurance Company and subsidiaries are submitted in a separate
section of this report which is indexed in Item 14.
Semi-annual and annual reports are sent to contract owners of the
variable contracts issued through registered Separate Accounts of
the Company.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
12
<PAGE> 13
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
(a) Identification of Directors
<TABLE>
<CAPTION>
Term
Expires
Director Annual
Name Age Since Meeting Business Experience
------------------------------------------------ ----------- ------------------------------------------------
<S> <C> <C>
Lewis J. Alphin 47 1993 1997 Farm Owner and Operator (1)
Willard J. Engel 56 1994 1997 General Manager, Lyon County Cooperative Oil
Company (1)
Fred C. Finney * 49 1992 1998 Farm Owner and Operator (1)
Peter F. Frenzer 61 1991 1996 Executive Vice President - Nationwide
Insurance Companies (1); President and Chief
Operating Officer, Nationwide Life Insurance
Company and Nationwide Life and Annuity
Insurance Company (2), (4)
Charles L. Fuellgraf, Jr. * 64 1969 1996 Chief Executive Officer, Fuellgraf Electric
Company, Electrical Construction and
Engineering Services (1)
Henry S. Holloway * 63 1986 1998 Farm Owner and Operator (1)
D. Richard McFerson 58 1988 1996 President and Chief Executive Officer,
Nationwide Mutual Insurance Company,
Nationwide Mutual Fire Insurance Company ,
Nationwide General Insurance Company and
Nationwide Property and Casualty Insurance
Company (12/92 to present); President and
Chief Executive Officer - Nationwide Insurance
Enterprise, Nationwide Life Insurance Company
and Nationwide Life and Annuity Insurance
Company (12/93 to present) (3)
David O. Miller * 57 1985 1997 President, Owen Potato Farm, Inc.; Partner,
M&M Enterprises (1)
C. Ray Noecker 49 1994 1997 Farm Owner and Operator (1)
James F. Patterson 53 1989 1998 President, Patterson Farms, Inc.; Vice
President, Pattersons, Inc. (1)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Term
Expires
Director Annual
Name Age Since Meeting Business Experience
------------------------------------------------ ----------- ------------------------------------------------
<S> <C> <C> <C> <C>
Robert H. Rickel * 66 1984 1996 Rancher (1), (4)
Arden L. Shisler 54 1984 1996 President and Chief Executive Officer, K&B
Transport, Inc. (1)
Robert L. Stewart 59 1989 1998 Farm owner and operator; Owner, Sunnydale
Mining (1)
Nancy C. Thomas * 61 1986 1998 Farm Owner and Operator (1)
Harold W. Weihl 63 1990 1996 Farm Owner and Operator (1)
</TABLE>
<TABLE>
<CAPTION>
Term Begins Term
Nominees Age Expires Business Experience
------------------------------------------------ ----------- ------------------------------------------------
<S> <C> <C> <C> <C>
Keith W. Eckel 49 1996 1999 Partner, Fred W. Eckel Sons (1), (5)
Joseph J. Gasper 52 1996 1997 Executive Vice President - Property/ Casualty
Operations (5), (6)
<FN>
* Served as a member of the Salary and Compensation
Committee during 1995.
(1) Principal occupation for the last five years.
(2) Held this position since April, 1991.
(3) President and Chief Operating Officer, Nationwide
Mutual, Nationwide Mutual Fire, Nationwide General,
Nationwide Property and Casualty Insurance Companies
(04/91 to 12/92); President and General Manager
(04/88 to 04/91); Chief Executive Officer,
Nationwide Life and Nationwide Life and Annuity
Insurance Companies (12/92 to 12/93).
(4) The following directors will retire at the April 4,
1996 annual meeting: Peter F. Frenzer and Robert H.
Rickel.
(5) Mr. Eckel and Mr. Gasper have been nominated to
become directors at the 1996 annual meeting.
(6) Executive Vice President - Property/Casualty
Operations (04/95 to present); Senior Vice President
- Property/Casualty Operations (09/93 to 04/95);
Senior Vice President - Agency Operations (08/92 to
09/93); Vice President - Agency Operations (02/89 to
08/92), Nationwide Insurance Companies.
</TABLE>
14
<PAGE> 15
(b) Identification of Executive Officers
<TABLE>
<CAPTION>
Held
Position
Name Age Since Position
------------------------------------------------ -----------------------------------------------------------
<S> <C> <C> <C>
Peter F. Frenzer 61 1991 President and Chief Operating Officer
Gordon E. McCutchan 60 1994 Executive Vice President - Law and Corporate Services and
Secretary
D. Richard McFerson 58 1993 President and Chief Executive Officer - Nationwide
Insurance Enterprise (12/93 to present); Chief Executive
Officer prior to 12/93
Galen R. Barnes 48 1989 Senior Vice President
James E. Brock 48 1990 Senior Vice President - Investment Product Operations
Richard D. Crabtree 54 1995 Executive Vice President - Property/Casualty Operations
Thomas L. Crumrine 53 1995 Senior Vice President - Claims
W. Sidney Druen 53 1994 Senior Vice President and General Counsel and Assistant
Secretary
Mark E. Fiebrink 44 1993 Senior Vice President - Chief Actuary - Property and
Casualty
Harvey S. Galloway, Jr. 61 1993 Senior Vice President and Chief Actuary - Life, Health
and Annuities
Joseph J. Gasper 52 1995 Executive Vice President - Property/Casualty Operations
Richard A. Karas 53 1993 Senior Vice President - Sales - Financial Services
Robert A. Oakley 49 1995 Executive Vice President - Chief Financial Officer
Carl J. Santillo 46 1993 Senior Vice President - Life and Health Operations
Susan A. Wolken 45 1995 Senior Vice President - Human Resources
Robert J. Woodward, Jr. 54 1995 Executive Vice President - Chief Investment Officer
Mark A. Folk 47 1993 Vice President and Treasurer
</TABLE>
15
<PAGE> 16
The above listed officers hold office until the date of the
next regular annual meeting of the Board of Directors and
until their respective successors are elected or appointed
and qualified; however, any officer may be removed from
office with or without cause by vote of two-thirds of the
entire Board of Directors.
Peter F. Frenzer, President and Chief Operating Officer,
has elected early retirement effective April 6, 1996, the
date of the next regular annual meeting. Joseph J. Gasper
has been selected to succeed Mr. Frenzer.
Each of the executive officers listed above serves in the
capacities listed* for the following Nationwide Insurance
Enterprise companies; Nationwide Mutual Insurance Company,
Nationwide Mutual Fire Insurance Company, Nationwide
General Insurance Company, Nationwide Property and Casualty
Insurance Company, Nationwide Life Insurance Company and
Nationwide Life and Annuity Insurance Company.
* Mr. Frenzer serves as President of Nationwide
Corporation and Nationwide Life and Annuity
Insurance Company and as Executive Vice President
of Nationwide Mutual Insurance Company, Nationwide
Mutual Fire Insurance Company, Nationwide General
Insurance Company and Nationwide Property and
Casualty Insurance Company.
Each of the executive officers listed above also serve in
various capacities as executive officers in numerous
other affiliated companies.
(c) Not applicable.
(d) Not applicable.
(e) In addition to the business experience of each of the
directors given in (a) above, Messrs. Frenzer, Fuellgraf,
McFerson, Rickel, Weihl and Mrs. Thomas are trustees of
Nationwide Investing Foundation, a registered
investment company. Mr. Frenzer and Mr. McFerson are
also trustees of Financial Horizons Investment Trust,
Nationwide Investing Foundation II and Nationwide Separate
Account Trust, registered investment companies.
Each of the executive officers listed in (b) above, with
the exception of Mr. Fiebrink, Mr. Santillo and Mr. Folk,
has been associated with the registrant for the past five
years. Previous to their present assignments, the
following officers served the registrant in this
capacity: Mr. Barnes, Vice President; Mr. Brock, Vice
President; Mr. Crabtree, Senior Vice President; Mr.
Crumrine, Vice President; Mr. Druen, Vice President -
Deputy General Counsel and Assistant Secretary; Mr.
Fiebrink, Senior Vice President, Employers Insurance of
Wausau A Mutual Company and Wausau Service Corporation;
Mr. Folk, Partner - KPMG Peat Marwick LLP; Mr. Frenzer,
Executive Vice President; Mr. Galloway, Senior Vice
President - Chief Actuary; Mr. Gasper, Senior Vice
President; Mr. Karas, Vice President; Mr. McCutchan,
Executive Vice President and General Counsel and Secretary;
Mr. Oakley, Senior Vice President - Chief Financial
Officer; Mr. Santillo, Executive Vice President,
Employers Insurance of Wausau A Mutual Company and Wausau
Service Corporation; Ms. Wolken, Vice President; and Mr.
Woodward, Senior Vice President - Fixed Income Investments.
(f) Not applicable.
(g) Not applicable.
16
<PAGE> 17
ITEM 11. Executive Compensation.
The following information is given with respect to the Chief
Executive Officer and each of the four most highly compensated
executive officers of the Company as of December 31, 1995.
<TABLE>
<CAPTION>
Summary Compensation Table (1)
--------------------------------------------------------------------------------------------------------
Long-term
Annual compensation compensation (2)
--------------------------------------------------------------------
(a) (b) (c) (d) (e) (h)
Name and Other annual LTIP
principal position Year Salary Bonus compensation payouts
--------------------------- --------- --------------- ------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
D. R. McFerson 1995 $122,072 79,914 5,692 87,566
Chief Executive 1994 127,568 111,671 5,575 -
Officer 1993 113,991 55,852 5,422 19,102
P. F. Frenzer 1995 381,630 244,916 15,762 191,673
President and Chief 1994 370,726 237,575 17,733 -
Operating Officer 1993 381,571 165,419 10,820 62,386
R. J. Woodward, Jr. 1995 174,717 92,461 6,758 54,917
Senior Vice 1994 172,172 101,540 9,146 -
President 1993 144,951 68,358 7,233 -
R. A. Karas 1995 121,625 62,798 7,839 19,224
Senior Vice 1994 167,308 86,456 9,678 -
President 1993 146,538 79,122 11,407 -
C. J. Santillo 1995 127,601 11,981 17,347 68,547
Senior Vice 1994 237,400 14,707 23,650 -
President 1993 160,731 - 4,638 -
</TABLE>
(1) The listed executive officers and other executive
officers of the Company not listed also serve as
executive officers or otherwise serve one or more of
Nationwide Mutual Insurance Company, Nationwide
Mutual Fire Insurance Company, Nationwide General
Insurance Company, Nationwide Property and Casualty
Insurance Company, Nationwide Indemnity Company,
Nationwide Corporation, Scottsdale Indemnity
Company, and Nationwide Life and Annuity Insurance
Company, which together with the Company make up the
Nationwide Group of Insurance Companies. The
amounts shown above relate only to the Company.
(2) Certain executive officers of the Company
participate in a long term sustained performance
incentive plan. The plan provides the opportunity
for participants to earn an award for achieving
predetermined goals during a four-year performance
period. The performance measures include:
profitability goals, growth in selected product
lines and geographic areas and strategic goals in
key competitive aspects of the business operations.
The performance periods overlap, such that awards
are determined every two years, with the most recent
performance period ending December 31, 1994. Payout
of awards occurs in the year immediately following
the end of a performance period. The award may range
from 0% to 20% of the sum of the base salaries for
the final two calendar years of the performance
period.
17
<PAGE> 18
Included in the Summary Compensation Table shown above are
contributions made to the Company's Employee Incentive Savings
Plan. Pursuant to the Plan, the Company contributes on behalf of
all eligible employees. Company contributions are included in
column (e). Employee contributions are included in column (c).
Since contributions under the Plan may be invested in a fixed
income security fund, a common stock fund, a guaranteed interest
fund, a short-term interest fund or shares of Nationwide
Investing Foundation (Nationwide Growth Fund), it is not possible
to estimate the annual benefits therefrom upon retirement.
The Company participates in the Nationwide Insurance Companies'
management incentive plans. These plans provide for incentive
compensation based upon achieving or exceeding operating gain
objectives and upon the achievement and betterment of planned
expense levels and/or ratios. Additional incentive compensation
is paid, subject to achievement of the operating gain objective,
for achievement of premium and/or revenue objectives. Incentive
penalties are assessed for exceeding planned expense levels
and/or ratios. Directors do not participate in the plan. Payments
under the plan are included in the Summary Compensation Table as
LTIP payouts.
Nationwide Life Insurance Company, together with other affiliated
companies, participates in the Nationwide Insurance Enterprise
Retirement Plan. This pension plan was formed, effective December
31, 1995, as the Nationwide Insurance Companies' and Affiliates'
1976 Restated Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau
Insurance Companies Pension Plan. This pension plan is a defined
benefit plan designed to qualify under applicable provisions of
the Internal Revenue Code. Reference is made to note 10 to the
consolidated financial statements herein for additional
information regarding the pension plan. The following table
represents annual benefits payable in the event of retirement on
or after age 65.
<TABLE>
<CAPTION>
Pension Plan Table (1)
----------------------------------------------------------------------------------
Average of Last
Three Years' Years of Service
------------------------------------------------------------------
Compensation 15 20 25 30 35
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 30,869 41,158 51,448 61,737 72,027
150,000 42,084 56,112 70,140 84,168 98,196
175,000 49,584 66,112 82,640 99,168 115,696
200,000 57,084 76,112 95,140 114,168 133,196
225,000 65,584 86,112 107,640 129,168 150,696
250,000 72,084 96,112 120,140 144,268 168,196
300,000 87,084 116,112 145,140 174,168 203,196
400,000 117,084 156,112 195,140 234,168 273,196
450,000 132,084 176,112 220,140 364,168 308,196
500,000 147,084 196,112 245,140 294,168 343,196
</TABLE>
(1) The amounts shown are based on compensation amounts
as reported on the W-2 form for that year adjusted
to exclude severance pay, reimbursement of
relocation expenses and the value of a company car
and to include pre-tax employee contributions to any
savings plan, any group insurance plan or any
medical and dependent care reimbursement plans
established by the employer and workers compensation
or state disability income. Such amount for named
executive officers are included in columns (c), (d)
and (e) of the Summary Compensation Table.
18
<PAGE> 19
(2) As of December 31, 1995, the named individuals
had the following respective years of service
under the pension plan: D. R. McFerson, 15 years;
P. F. Frenzer, 22 years; R. J. Woodward, Jr., 31
years; R. A. Karas, 32 years; C. J. Santillo, 2
years.
(3) The amounts shown represent annual benefits upon
retirement at age 65 for the years of service
indicated for retirement in 1995. Amounts for
retirement after 1995 will differ due to changes in
social security covered compensation, as well as
changes in the plan's benefit formula for service
earned after December 31, 1995.
Each director of the registrant also serves as a director on the
boards of various other Nationwide Insurance Enterprise
companies. Compensation for services as a director consists of a
base annual rate for each director plus varying amounts for
fringe benefits and reimbursement of out-of-pocket expenses.
Directors who are also officers are excluded from this
arrangement. The following table represents total compensation
payments made to the directors, who are not also officers, from
the registrant during 1995.
<TABLE>
<CAPTION>
Director Compensation
----------------------------- ------------------
<S> <C>
Lewis J. Alphin $10,678
Willard J. Engel 10,729
Fred C. Finney 11,929
Charles L. Fuellgraf, Jr. 11,097
Henry S. Holloway 12,969
David O. Miller 15,296
C. Ray Noecker 11,730
James F. Patterson 9,092
Robert H. Rickel 13,691
Arden L. Shisler 11,578
Robert L. Stewart 14,224
Nancy C. Thomas 10,975
Harold W. Weihl 11,116
</TABLE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
Security Ownership of Certain Beneficial Owners as of December
31, 1995.
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership of Class
------------- ------------------------------- ---------------------------- -------------
<S> <C> <C> <C> <C>
Common Nationwide Corporation 3,814,779 Shares of 100%
Stock One Nationwide Plaza record and
Columbus, Ohio 43216 beneficially*
<FN>
* Sole voting and investment power
</TABLE>
19
<PAGE> 20
ITEM 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
In 1995, the Company and its subsidiaries paid to the law firm of
Druen, Rath & Dietrich approximately $1,860,000 for legal
services rendered to the Company. W. Sidney Druen, Senior Vice
President and General Counsel and Assistant Secretary; Joseph P.
Rath, Vice President - Associate General Counsel; and Thomas W.
Dietrich, Vice President - Associate General Counsel, are all
partners in that firm, and all members of the firm are employees
of Nationwide Mutual Insurance Company.
The Company leases space in a building owned by Nationwide Mutual
Insurance Company. Nationwide Mutual Insurance Company acts as
disbursing agent for many of the expenses incurred by the
Company. Nationwide Mutual Insurance Company also provides some
operational and administrative functions at cost, such as sales,
advertising, personnel and general management services. For the
year 1995, reimbursements by the Company for its funds disbursed
by Nationwide Mutual Insurance Company and the costs of services
provided approximated $305,316,000.
For the year 1995, the Company received approximately $678,000 of
expense reimbursements from Nationwide Corporation for providing
administrative services.
The Company participates in a common employee benefit program
with Nationwide Mutual Insurance Company and its subsidiaries.
Included in this program are accident and health insurance,
disability income and life insurance benefits and a retirement
plan. The retirement plan is funded in the Company's Separate
Accounts and its general account, earning a guaranteed rate of
return. Contributions to the retirement plan by the
participating companies approximated $53,866,000 in 1995.
The Company also participates in a life and health care defined
benefit plan for qualifying retirees with Nationwide Mutual
Insurance Company and its subsidiaries. The plan is funded in
amounts determined at the discretion of management. Contributions
to the plan by the participating companies are primarily invested
in group annuity contracts of the Company and approximated
$10,309,000 in 1995.
Reference is made to note 13 to the consolidated financial
statements herein for additional information regarding
transactions with affiliates.
20
<PAGE> 21
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) (1) Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1995 and
1994
Consolidated Statements of Income, years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholder's Equity,
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows, years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Schedule I Summary of Investments - Other Than
Investments in Related Parties,
December 31, 1995
Schedule III Supplementary Insurance Information,
December 31, 1995, 1994 and 1993
Schedule IV Reinsurance, years ended December 31,
1995, 1994 and 1993
Schedule V Valuation and Qualifying Accounts,
years ended December 31, 1995, 1994
and 1993
All other schedules to the consolidated financial
statements referenced by Article 7 of Regulation S-X
are not required under the related instructions or
are inapplicable and therefore have been omitted.
(3) Exhibit Index:
Exhibit 3 (i) Articles of Incorporation of
Nationwide Life Insurance Company
Incorporated by reference to
Exhibit A to Form S-1 File
Number 33-58997, filed May 2, 1995
Exhibit 3 (ii) Code of Regulations of Nationwide
Life Insurance Company Incorporated
by reference to Exhibit B to
Form S-1 File Number 33-58997,
filed May 2, 1995
Exhibit 21 Subsidiaries of the Registrant
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) There have been no reports filed on Form 8-K during the
year ended December 31, 1995 by the registrant.
21
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
--------------------------------------------
Consolidated Financial Statements
December 31, 1995, 1994 and 1993
For Inclusion in Form 10-K
To Securities and Exchange Commission
22
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the consolidated financial statements of Nationwide Life
Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Participating insurance and the related surplus are discussed in note 12. The
Company and its counsel are of the opinion that the ultimate ownership of the
participating surplus in excess of the contemplated equitable policyholder
dividends belongs to the shareholder. The accompanying consolidated financial
statements are presented on such basis.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for
Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions.
KPMG Peat Marwick LLP
Columbus, Ohio
February 26, 1996
23
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Balance Sheets
December 31, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $13,438,630 in 1995; $8,318,865 in 1994) $ 14,167,377 8,045,906
Equity securities (cost $27,362 in 1995; $18,372 in 1994) 33,718 24,713
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310 in 1994) - 3,688,787
Mortgage loans on real estate 4,786,599 4,222,284
Real estate 239,089 252,681
Policy loans 370,908 340,491
Other long-term investments 67,280 63,914
Short-term investments (note 13) 45,732 131,643
----------- -----------
19,710,703 16,770,419
----------- -----------
Cash 10,485 7,436
Accrued investment income 239,881 220,540
Deferred policy acquisition costs 1,094,195 1,064,159
Deferred Federal income tax -- 36,515
Other assets 795,169 790,603
Assets held in Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
$40,614,111 31,112,133
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims (notes 6 and 8) 18,200,128 16,321,461
Policyholders' dividend accumulations 353,554 338,058
Other policyholder funds 71,155 72,770
Accrued Federal income tax (note 7):
Current 34,064 13,126
Deferred 238,877 -
----------- -----------
272,941 13,126
----------- -----------
Other liabilities 284,143 235,778
Liabilities related to Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
37,945,599 29,203,654
----------- -----------
Shareholder's equity (notes 3, 4, 5, 7, 12 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Additional paid-in capital 673,782 622,753
Retained earnings 1,606,607 1,401,579
Unrealized gains (losses) on securities available-for-sale, net 384,308 (119,668)
----------- -----------
2,668,512 1,908,479
----------- -----------
Commitments and contingencies (notes 9 and 15)
$40,614,111 31,112,133
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
24
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Traditional life insurance premiums $ 274,957 209,538 215,715
Accident and health insurance premiums 509,658 324,524 312,655
Universal life and investment product policy charges 307,676 239,021 188,057
Net investment income (note 5) 1,482,980 1,289,501 1,204,426
Realized gains (losses) on investments (notes 5 and 13) 836 (16,384) 113,673
---------- ---------- ----------
2,576,107 2,046,200 2,034,526
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,656,287 1,279,763 1,236,906
Provision for policyholders' dividends on participating policies (note 12) 48,074 46,061 53,189
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Other operating costs and expenses 458,970 352,402 329,396
---------- ---------- ----------
2,256,375 1,772,970 1,721,625
---------- ---------- ----------
Income before Federal income tax expense and cumulative effect of
changes in accounting principles 319,732 273,230 312,901
---------- ---------- ----------
Federal income tax expense (note 7):
Current 103,464 79,847 75,124
Deferred 3,790 9,657 31,634
---------- ---------- ----------
107,254 89,504 106,758
---------- ---------- ----------
Income before cumulative effect of changes in accounting principles 212,478 183,726 206,143
Cumulative effect of changes in accounting principles, net (note 3) -- -- 5,365
---------- ---------- ----------
Net income $ 212,478 183,726 211,508
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
25
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ----------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1993:
Balance, beginning of year $ 3,815 311,753 1,024,150 90,524 1,430,242
Capital contributions -- 111,000 -- -- 111,000
Dividends paid to shareholder -- -- (17,805) -- (17,805)
Net income -- -- 211,508 -- 211,508
Unrealized losses on equity securities, net -- -- -- (83,777) (83,777)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 422,753 1,217,853 6,747 1,651,168
========== ========== ========= ========== ==========
1994:
Balance, beginning of year 3,815 422,753 1,217,853 6,747 1,651,168
Capital contribution -- 200,000 -- -- 200,000
Net income -- -- 183,726 -- 183,726
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 3) -- -- -- 216,915 216,915
Unrealized losses on securities available-
for-sale, net -- -- -- (343,330) (343,330)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 622,753 1,401,579 (119,668) 1,908,479
========== ========== ========== ========== ==========
1995:
Balance, beginning of year 3,815 622,753 1,401,579 (119,668) 1,908,479
Capital contribution (note 13) -- 51,029 -- (4,111) 46,918
Dividends paid to shareholder -- -- (7,450) -- (7,450)
Net income -- -- 212,478 -- 212,478
Unrealized gains on securities available-
for-sale, net -- -- -- 508,087 508,087
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 673,782 1,606,607 384,308 2,668,512
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
26
<PAGE> 27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 212,478 183,726 211,508
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (349,456) (264,434) (191,994)
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Amortization and depreciation 10,319 6,207 11,156
Realized losses (gains) on invested assets, net 717 15,949 (113,648)
Deferred Federal income tax expense (benefit) 4,023 (2,166) (6,006)
Increase in accrued investment income (19,341) (29,654) (4,218)
Increase in other assets (3,227) (112,566) (549,277)
Increase in policy liabilities 198,200 1,038,641 509,370
Increase in policyholders' dividend accumulations 15,496 15,372 17,316
Increase in accrued Federal income tax payable 20,938 832 16,838
Increase in other liabilities 48,365 17,826 26,958
Other, net (20,556) (19,303) (11,745)
----------- ----------- ------------
Net cash provided by operating activities 211,000 945,174 18,392
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 706,442 579,067 --
Proceeds from sale of securities available-for-sale 131,420 247,876 247,502
Proceeds from maturity of fixed maturities held-to-maturity 633,173 516,003 1,192,093
Proceeds from sale of fixed maturities -- -- 33,959
Proceeds from repayments of mortgage loans on real estate 215,134 220,744 146,047
Proceeds from sale of real estate 48,477 46,713 23,587
Proceeds from repayments of policy loans and sale of other invested assets 79,620 134,998 59,643
Cost of securities available-for-sale acquired (2,232,047) (2,569,672) (12,550)
Cost of fixed maturities held-to-maturity acquired (669,449) (675,835) (2,016,831)
Cost of mortgage loans on real estate acquired (821,078) (627,025) (475,336)
Cost of real estate acquired (10,970) (15,962) (8,827)
Policy loans issued and other invested assets acquired (92,904) (118,012) (76,491)
----------- ----------- ------------
Net cash used in investing activities (2,012,182) (2,261,105) (887,204)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions 46,918 200,000 111,000
Dividends paid to shareholder (7,450) -- (17,805)
Increase in universal life and investment product account balances 3,202,135 3,640,958 2,249,740
Decrease in universal life and investment product account balances (1,523,283) (2,449,580) (1,458,504)
----------- ----------- -----------
Net cash provided by financing activities 1,718,320 1,391,378 884,431
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (82,862) 75,447 15,619
Cash and cash equivalents, beginning of year 139,079 63,632 48,013
----------- ----------- -----------
Cash and cash equivalents, end of year $ 56,217 139,079 63,632
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
27
<PAGE> 28
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(000's omitted)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary of
Nationwide Corporation (Corp.). Wholly-owned subsidiaries of NLIC include
Nationwide Life and Annuity Insurance Company (NLAIC) (formerly known as
Financial Horizons Life Insurance Company), West Coast Life Insurance
Company (WCLIC), Employers Life Insurance Company of Wausau and
subsidiaries (ELICW), National Casualty Company (NCC) and Nationwide
Financial Services, Inc. (NFS). NLIC and its subsidiaries are
collectively referred to as "the Company."
NLIC, NLAIC, WCLIC and ELICW are life and accident and health insurers
and NCC is a property and casualty insurer. The Company is licensed in
all 50 states, the District of Columbia, the Virgin Islands and Puerto
Rico. The Company offers a full range of life insurance, health insurance
and annuity products through exclusive agents, brokers and other
distribution channels and is subject to competition from other insurers
throughout the United States. The Company is subject to regulation by the
Insurance Departments of states in which it is licensed, and undergoes
periodic examinations by those departments.
The following is a description of the most significant risks facing
life and health insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce insurer
profits, new legal theories or insurance company insolvencies through
guaranty fund assessments may create costs for the insurer beyond
those currently recorded in the consolidated financial statements. The
Company mitigates this risk by offering a wide range of products and
by operating throughout the United States, thus reducing its exposure
to any single product or jurisdiction, and also by employing
underwriting practices which identify and minimize the adverse impact
of this risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes this
risk by adhering to a conservative investment strategy, by maintaining
sound reinsurance and credit and collection policies and by
providing for any amounts deemed uncollectible.
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This change
in rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent
that liabilities come due more quickly than assets mature, an insurer
would have to borrow funds or sell assets prior to maturity and
potentially recognize a gain or loss.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. See note 4.
28
<PAGE> 29
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy benefits
and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
(a) CONSOLIDATION POLICY
The December 31, 1995 consolidated financial statements include the
accounts of NLIC and its wholly owned subsidiaries NLAIC, WCLIC, ELICW, NCC
and NFS. The December 31, 1994 and 1993 consolidated financial statements
include the accounts of NLIC, NLAIC, WCLIC, NCC and NFS. The December 31,
1994 consolidated balance sheet also includes the accounts of ELICW, which
was acquired by NLIC effective December 31, 1994. See Note 13. All
significant intercompany balances and transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity and are stated at amortized cost. Fixed maturity securities not
classified as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the unrealized gains
and losses, net of adjustments to deferred policy acquisition costs and
deferred Federal income tax, reported as a separate component of
shareholder's equity. The adjustment to deferred policy acquisition costs
represents the change in amortization of deferred policy acquisition costs
that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed maturity
securities classified as held-to-maturity or trading as of
December 31, 1995.
Mortgage loans on real estate are carried at the unpaid principal balance
less valuation allowances. The Company provides valuation allowances for
impairments of mortgage loans on real estate based on a review by portfolio
managers. The measurement of impaired loans is based on the present value
of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the fair value of the collateral, if
the loan is collateral dependent. Loans in foreclosure and loans considered
to be impaired are placed on non-accrual status. Interest received on
non-accrual status mortgage loans on real estate are included in interest
income in the period received.
Real estate is carried at cost less accumulated depreciation and valuation
allowances. Other long-term investments are carried on the equity basis,
adjusted for valuation allowances.
Realized gains and losses on the sale of investments are determined on the
basis of specific security identification. Estimates for valuation
allowances and other than temporary declines are included in realized gains
and losses on investments.
In March, 1995, the Financial Accounting Standards Board (FASB) 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
(SFAS 121). SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be disposed of.
The statement is effective for fiscal years beginning after December 15,
1995 and earlier application is permitted. Previously issued consolidated
financial statements shall not be restated. The Company will adopt SFAS 121
in 1996 and the impact on the consolidated financial statements is not
expected to be material.
29
<PAGE> 30
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums and
benefits and consist primarily of whole life, limited-payment life, term
life and certain annuities with life contingencies. Premiums for
traditional life insurance products are recognized as revenue when due.
Benefits and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This association
is accomplished by the provision for future policy benefits and the
deferral and amortization of policy acquisition costs.
UNIVERSAL LIFE AND INVESTMENT PRODUCTS: Universal life products include
universal life, variable universal life and other interest-sensitive life
insurance policies. Investment products consist primarily of individual and
group deferred annuities, annuities without life contingencies and
guaranteed investment contracts. Revenues for universal life and investment
products consist of asset fees, cost of insurance, policy administration
and surrender charges that have been earned and assessed against policy
account balances during the period. Policy benefits and claims that are
charged to expense include benefits and claims incurred in the period in
excess of related policy account balances and interest credited to policy
account balances.
ACCIDENT AND HEALTH INSURANCE: Accident and health insurance premiums
are recognized as revenue over the terms of the policies. Policy claims are
charged to expense in the period that the claims are incurred.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain
variable agency expenses have been deferred. For traditional life and
individual health insurance products, these deferred policy acquisition
costs are predominantly being amortized with interest over the premium
paying period of the related policies in proportion to the ratio of actual
annual premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same assumptions as
were used for computing liabilities for future policy benefits. For
universal life and investment products, deferred policy acquisition costs
are being amortized with interest over the lives of the policies in
relation to the present value of estimated future gross profits from
projected interest margins, asset fees, cost of insurance, policy
administration and surrender charges. For years in which gross profits are
negative, deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs are
adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 2(b).
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific investment
objectives. The investment income and gains or losses of these accounts
accrue directly to the contractholders. The activity of the Separate
Accounts is not reflected in the consolidated statements of income and cash
flows except for the fees the Company receives for administrative services
and risks assumed.
(f) FUTURE POLICY BENEFITS
Future policy benefits for traditional life and individual health
insurance policies have been calculated using a net level premium method
based on estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the time the
policies were issued, rather than the assumptions prescribed by state
regulatory authorities. See note 6.
Future policy benefits for annuity policies in the accumulation phase,
universal life and variable universal life policies have been calculated
based on participants' contributions plus interest credited less applicable
contract charges.
30
<PAGE> 31
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Future policy benefits and claims for collectively renewable long-term
disability policies (primarily discounted at 5.2%) and group long-term
disability policies (primarily discounted at 5.5%) are the present value of
amounts not yet due on reported claims and an estimate of amounts to be
paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other
group health insurance policies are not discounted.
(g) PARTICIPATING BUSINESS
Participating business represents approximately 45% (45% in 1994 and
48% in 1993) of the Company's ordinary life insurance in force, 72% (72% in
1994 and 1993) of the number of policies in force, and 39% (41% in 1994 and
45% in 1993) of life insurance premiums. The provision for policyholder
dividends is based on current dividend scales. Future dividends are
provided for ratably in future policy benefits based on dividend scales in
effect at the time the policies were issued. Dividend scales are approved
by the Board of Directors.
Income attributable to participating policies in excess of policyholder
dividends is accounted for as belonging to the shareholder. See note 12.
(h) FEDERAL INCOME TAX
NLIC, NLAIC, WCLIC and NCC file a consolidated Federal income tax
return with Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Corp. Through 1994, ELICW filed a consolidated Federal
income tax return with Employers Insurance of Wausau A Mutual Company.
Beginning in 1995, ELICW files a separate Federal income tax return.
In 1993, the Company adopted STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES, which required a change
from the deferred method of accounting for income tax of APB Opinion 11 to
the asset and liability method of accounting for income tax. Under the
asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under this method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to
reduce the deferred tax assets to the amounts expected to be realized.
The Company has reported the cumulative effect of the change in method
of accounting for income tax in the 1993 consolidated statement of income.
See note 3.
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits and
claims incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are reported
on a gross basis.
(j) CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all short-term investments with original maturities of three
months or less to be cash equivalents.
31
<PAGE> 32
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(k) RECLASSIFICATION
Certain items in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995
presentation.
(3) CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities in
connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,593,844
and $7,024,736, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded
at amortized cost. The effect as of January 1, 1994 has been recorded
as a direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 430,892
Adjustment to deferred policy acquisition costs (97,177)
Deferred Federal income tax (116,800)
---------
$ 216,915
=========
During 1993, the Company adopted accounting principles in connection
with the issuance of two accounting standards by the FASB. The effect
as of January 1, 1993, the date of adoption, has been recognized in
the 1993 consolidated statement of income as the cumulative effect of
changes in accounting principles, as follows:
Asset/liability method of recognizing income tax (note 2(h)) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296) (note 11) (20,979)
--------
$ 5,365
========
</TABLE>
(4) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with GAAP. Annual Statements for NLIC and NLAIC, WCLIC, ELICW and NCC,
filed with the Department of Insurance of the State of Ohio (the
Department), California Department of Insurance, Wisconsin Insurance
Department and Michigan Bureau of Insurance, respectively, are prepared
on the basis of accounting practices prescribed or permitted by such
regulatory authorities. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
The statutory capital shares and surplus of NLIC as reported to
regulatory authorities as of December 31, 1995, 1994 and 1993 was
$1,363,031, $1,262,861 and $992,631, respectively. The statutory net
income of NLIC as reported to regulatory authorities for the years
ended December 31, 1995, 1994 and 1993 was $86,529, $76,532 and
$185,943, respectively.
32
<PAGE> 33
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(5) INVESTMENTS
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 772,589 674,346 --
Equity securities 1,436 550 7,230
Fixed maturities held-to-maturity 232,692 193,009 800,255
Mortgage loans on real estate 410,965 376,783 364,810
Real estate 39,222 40,280 39,684
Short-term investments 12,249 6,990 5,080
Other 61,701 42,831 33,832
---------- ---------- ----------
Total investment income 1,530,854 1,334,789 1,250,891
Less investment expenses 47,874 45,288 46,465
---------- ---------- ----------
Net investment income $1,482,980 1,289,501 1,204,426
========== ========== ==========
</TABLE>
An analysis of realized gains (losses) on investments, net of
valuation allowances, by investment type follows for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 6,792 (7,120) --
Equity securities 3,435 1,427 129,728
Fixed maturities -- -- 20,225
Mortgage loans on real estate (7,312) (20,462) (28,241)
Real estate and other (2,079) 9,771 (8,039)
-------- -------- --------
$ 836 (16,384) 113,673
======== ======== ========
</TABLE>
The components of unrealized gains (losses) on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- -------------
<S> <C> <C>
Gross unrealized gains (losses) $ 735,103 (266,618)
Adjustment to deferred policy acquisition costs (143,851) 82,525
Deferred Federal income tax (206,944) 64,425
--------- ---------
$ 384,308 (119,668)
========= =========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities held-to-maturity
follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ------------- -------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 1,001,706 (703,851) --
Equity securities 15 (1,990) (128,837)
Fixed maturities held-to-maturity 86,477 (421,427) 223,392
----------- ----------- -----------
$ 1,088,198 (1,127,268) 94,555
=========== =========== ===========
</TABLE>
33
<PAGE> 34
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities available-for-sale
were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 438,109 36,714 (53) 474,770
Obligations of states and political subdivisions 9,742 1,252 (1) 10,993
Debt securities issued by foreign governments 162,442 9,641 (66) 172,017
Corporate securities 8,902,494 524,796 (30,561) 9,396,729
Mortgage-backed securities 3,925,843 196,645 (9,620) 4,112,868
--------- ----------- ----------- -----------
Total fixed maturities 13,438,630 769,048 (40,301) 14,167,377
Equity securities 27,362 6,441 (85) 33,718
---------- ----------- ----------- -----------
$13,465,992 775,489 (40,386) 14,201,095
=========== =========== ============ ===========
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale
and fixed maturities held-to-maturity were as follows as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 393,156 1,794 (18,941) 376,009
Obligations of states and political subdivisions 2,202 55 (21) 2,236
Debt securities issued by foreign governments 177,910 872 (9,205) 169,577
Corporate securities 4,201,738 50,405 (128,698) 4,123,445
Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639
---------- ---------- ---------- ---------
Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906
Equity securities 18,372 6,637 (296) 24,713
---------- ---------- ---------- ---------
$8,337,237 77,888 (344,506) 8,070,619
========== ========= ========== =========
FIXED MATURITY SECURITIES HELD-TO-MATURITY
Obligations of states and political subdivisions $ 11,613 92 (255) 11,450
Debt securities issued by foreign governments 16,131 111 (39) 16,203
Corporate securities 3,661,043 34,180 (120,566) 3,574,657
---------- ---------- ---------- ---------
$3,688,787 34,383 (120,860) 3,602,310
========== ========== ========== =========
</TABLE>
34
<PAGE> 35
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1995, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
----------- ------------
<S> <C> <C>
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
- --------------------------------------------
Due in one year or less $ 641,490 647,639
Due after one year through five years 5,365,703 5,623,126
Due after five years through ten years 2,477,457 2,609,262
Due after ten years 1,028,137 1,174,482
----------- -----------
9,512,787 10,054,509
Mortgage-backed securities 3,925,843 4,112,868
----------- -----------
$13,438,630 14,167,377
=========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $131,420 and $247,876, respectively, while proceeds from sales of
investments in fixed maturity securities during 1993 were $33,959. Gross gains
of $7,197 ($3,406 in 1994 and $2,413 in 1993) and gross losses of $2,309
($21,866 in 1994 and $39 in 1993) were realized on those sales.
During 1995, the Company transferred fixed maturity securities classified as
held-to-maturity with amortized cost of $27,929 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted in
a gross unrealized loss of $4,285.
As permitted by the FASB's Special Report, A GUIDE TO IMPLEMENTATION OF
STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, issued in November, 1995, the Company transferred all of its fixed
maturity securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the fixed
maturity securities had amortized cost of $3,705,644, resulting in a gross
unrealized gain of $171,531.
Investments that were non-income producing for the twelve month period
preceding December 31, 1995 amounted to $28,958 ($11,513 for 1994) and
consisted of $8,228 (none in 1994) in fixed maturity securities, $14,740
($11,111 in 1994) in real estate and $5,990 ($402 in 1994) in other long-term
investments.
Real estate is presented at cost less accumulated depreciation of $30,931 in
1995 ($29,275 in 1994) and valuation allowances of $26,250 in 1995 ($27,330 in
1994).
Other long-term investments are presented net of valuation allowances of $457
as of December 31, 1995. There were no such valuation allowances as of December
31, 1994.
As of December 31, 1995, the recorded investment of mortgage loans on real
estate considered to be impaired (under STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as amended
by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 118, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURE) was $44,995,
which includes $23,975 of impaired mortgage loans on real estate for which the
related valuation allowance was $5,276 and $21,020 of impaired mortgage loans
on real estate for which there was no valuation allowance. During 1995, the
average recorded investment in impaired mortgage loans on real estate was
approximately $22,621 and interest income recognized on those loans was $416,
which is equal to interest income recognized using a cash-basis method of
income recognition.
35
<PAGE> 36
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Allowance, beginning year $ 47,892
Additions charged to operations 7,653
Direct write-downs charged against the allowance (4,850)
--------
Allowance, end of year $ 50,695
========
</TABLE>
Foresclosures of mortgage loans on real estate were $37,187 in 1994 and
mortgage loans on real estate in process of foreclosure or in-substance
foreclosed as of December 31, 1994 totaled $19,878, which approximated fair
value.
Fixed maturity securities with an amortized cost of $13,982 and $11,137 as
of December 31, 1995 and 1994, respectively, were on deposit with various
regulatory agencies as required by law.
(6) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts represents
approximately 82% and 81% of the total liability for future policy benefits
as of December 31, 1995 and 1994, respectively. The average interest rate
credited on investment product policies was approximately 6.5%, 6.5% and
7.0% for the years ended December 31, 1995, 1994 and 1993, respectively.
The liability for future policy benefits for traditional life insurance and
individual health insurance policies has been established based upon the
following assumptions:
INTEREST RATES: Interest rates vary as follows:
<TABLE>
<CAPTION>
Health
Year of issue Life Insurance insurance
-------------- ------------------------------------------------------------ ---------------
<S> <C> <C>
1995 7.6%, not graded - permanent contracts with loan provisions 4.5%
7.7%, not graded - all other contracts
1984-1994 6.0% to 10.5%, not graded 5.0% to 6.0%
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6% 3.5% to 6.0%
1965 and prior generally lower than post 1965 issues 3.5% to 4.0%
</TABLE>
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published tables,
modified for the Company's actual experience.
36
<PAGE> 37
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the liability for unpaid claims and claim adjustment expenses is
summarized for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 637,998 592,180 760,209
Less reinsurance recoverables 438,761 430,720 547,683
--------- --------- ---------
Net balance, beginning of year 199,237 161,460 212,526
--------- --------- ---------
Incurred related to:
Current year 425,907 273,299 309,721
Prior years (17,203) (26,156) (26,248)
--------- --------- ---------
Total incurred 408,704 247,143 283,473
--------- --------- ---------
Paid related to:
Current year 290,605 175,700 208,978
Prior years 111,353 73,889 125,561
--------- --------- ---------
Total paid 401,958 249,589 334,539
--------- --------- ---------
Unpaid claims of acquired companies 2,542 40,223 --
--------- --------- ---------
Net balance, end of year 208,525 199,237 161,460
Plus reinsurance recoverables 491,321 438,761 430,720
--------- --------- ---------
Balance, end of year $ 699,846 637,998 592,180
========= ========= =========
</TABLE>
Reinsurance recoverables include amounts from affiliates, as discussed in
note 13, of $477,912, $430,936, $430,278 and $534,983 as of December 31,
1995, 1994, 1993 and 1992, respectively.
The provision for claims and claim adjustment expenses for prior years
decreased in each of the three years ended December 31, 1995 due to
lower-than-anticipated costs to settle accident and health insurance claims.
(7) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 179,916 124,044
Fixed maturity securities available-for-sale -- 95,536
Liabilities in Separate Accounts 129,120 94,783
Mortgage loans on real estate and real estate 26,062 25,632
Other policyholder funds 7,752 7,137
Other assets and other liabilities 47,215 57,528
--------- ---------
Total gross deferred tax assets 390,065 404,660
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 312,616 317,224
Fixed maturity securities available-for-sale 266,184 --
Equity securities available-for-sale and other
long-term investments 3,431 3,620
Other 46,711 47,301
--------- ---------
Total gross deferred tax liabilities 628,942 368,145
--------- ---------
$(238,877) 36,515
========= =========
</TABLE>
37
<PAGE> 38
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company has determined that valuation allowances are not necessary as
of December 31, 1995, 1994 and 1993 based on its analysis of future
deductible amounts. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
of the total gross deferred tax assets will not be realized. All future
deductible amounts can be offset by future taxable amounts or recovery of
Federal income tax paid within the statutory carryback period. In
addition, for future deductible amounts for securities available-for-sale,
affiliates of the Company which are included in the same consolidated
Federal income tax return hold investments that could be sold for capital
gains that could offset capital losses realized by the Company should
securities available-for-sale be sold at a loss.
<TABLE>
Total Federal income tax expense for the years ended December 31, 1995,
1994 and 1993 differs from the amount computed by applying the U.S.
Federal income tax rate to income before tax as follows:
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
--------------- ----- -------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 111,906 35.0 $ 95,631 35.0 $ 109,515 35.0
Tax exempt interest and dividends
received deduction (137) (0.1) (194) (0.1) (2,322) (0.7)
Current year increase in U.S. Federal
income tax rate -- -- -- -- 1,704 0.5
Other, net (4,515) (1.4) (5,933) (2.1) (2,139) (0.7)
--------- ---- --------- ---- --------- ----
Total (effective rate of each year) $ 107,254 33.5 $ 89,504 32.8 $ 106,758 34.1
========= ==== ========= ==== ========= ====
</TABLE>
Total Federal income tax paid was $75,309, $87,576 and $58,286 during the
years ended December 31, 1995, 1994 and 1993, respectively.
Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the deferral
from taxation of a portion of statutory income under certain
circumstances. In these situations, the deferred income was accumulated in
the Policyholders' Surplus Account (PSA). Management considers the
likelihood of distributions from the PSA to be remote; therefore, no
Federal income tax has been provided for such distributions in the
consolidated financial statements. The DRA eliminated any additional
deferrals to the PSA. Any distributions from the PSA, however, will
continue to be taxable at the then current tax rate. The balance of the
PSA was approximately $35,344 as of December 31, 1995.
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 - DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of fair
value information about existing on and off-balance sheet financial
instruments. SFAS 107 defines the fair value of a financial instrument as
the amount at which the financial instrument could be exchanged in a
current transaction between willing parties. In cases where quoted market
prices are not available, fair value is based on estimates using present
value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and,in many cases, could not be realized in the immediate settlement of
the instruments. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
38
<PAGE> 39
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts are provided to make the fair value disclosures
more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying
amount reported in the consolidated balance sheets for these
instruments approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where available.
For fixed maturity securities not actively traded, fair value is
estimated using values obtained from independent pricing services or,
in the case of private placements, is estimated by discounting
expected future cash flows using a current market rate applicable to
the yield, credit quality and maturity of the investments. The fair
value for equity securities is based on quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of
assets held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand.
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage
loans on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations. Fair
value for mortgages in default is the estimated fair value of the
underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For
investment contracts without defined maturities, fair value is the
amount payable on demand. For investment contracts with known or
determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used are similar to currently offered
contracts with maturities consistent with those remaining for the
contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures
for individual life, universal life and supplementary contracts with
life contingencies for which the estimated fair value is the amount
payable on demand. Also included are disclosures for the Company's
limited payment policies, which the Company has used discounted cash
flow analyses similar to those used for investment contracts with
known maturities to estimate fair value.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS:
The carrying amount reported in the consolidated balance sheets for
these instruments approximates their fair value.
39
<PAGE> 40
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts were
as follow as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments:
Securities available-for-sale:
Fixed maturities $14,167,377 14,167,377 8,045,906 8,045,906
Equity securities 33,718 33,718 24,713 24,713
Fixed maturities held-to-maturity -- -- 3,688,787 3,602,310
Mortgage loans on real estate 4,786,599 5,169,805 4,222,284 4,173,284
Policy loans 370,908 370,908 340,491 340,491
Short-term investments 45,732 45,732 131,643 131,643
Cash 10,485 10,485 7,436 7,436
Assets held in Separate Accounts 18,763,678 18,763,678 12,222,461 12,222,461
LIABILITIES
- -----------
Investment contracts 13,561,943 13,221,724 12,189,894 11,657,556
Policy reserves on life insurance contacts 3,695,814 3,659,074 3,170,085 2,934,384
Policyholders' dividend accumulations 353,554 353,554 338,058 338,058
Other policyholder funds 71,155 71,155 72,770 72,770
Liabilities related to Separate Accounts 18,763,678 18,224,933 12,222,461 11,807,331
</TABLE>
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party
to financial instruments with off-balance-sheet risk in the normal
course of business through management of its investment portfolio. These
financial instruments include commitments to extend credit in the form of
loans. These instruments involve, to varying degrees, elements of credit
risk in excess of amounts recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are agreements
to lend to a borrower, and are subject to conditions established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a deposit. Commitments
extended by the Company are based on management's case-by-case credit
evaluation of the borrower and the borrower's loan collateral. The
underlying mortgage property represents the collateral if the commitment is
funded. The Company's policy for new mortgage loans on real estate is to
lend no more than 80% of collateral value. Should the commitment be funded,
the Company's exposure to credit loss in the event of nonperformance by the
borrower is represented by the contractual amounts of these commitments less
the net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments. Commitments on
mortgage loans on real estate of $361,974 extending into 1996 were
outstanding as of December 31, 1995.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the United
States. The Company has a diversified portfolio with no more than 20% (22%
in 1994) in any geographic area and no more than 2% (2% in 1994) with any
one borrower.
40
<PAGE> 41
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The summary below depicts loans by remaining principal balance as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995:
East North Central $ 140,732 110,361 534,814 184,201 970,108
East South Central 23,978 15,653 183,790 84,588 308,009
Mountain -- 18,940 144,156 48,727 211,823
Middle Atlantic 124,079 72,201 183,562 18,383 398,225
New England 9,594 39,526 153,644 1 202,765
Pacific 190,628 239,687 395,914 107,650 933,879
South Atlantic 101,904 74,731 458,355 279,692 914,682
West North Central 134,866 14,205 81,521 37,586 268,178
West South Central 69,143 99,618 194,717 272,323 635,801
--------- --------- --------- --------- ---------
$ 794,924 684,922 2,330,473 1,033,151 4,843,470
========= ========= ========= =========
Less valuation allowances and unamortized discount 56,871
---------
Total mortgage loans on real estate, net $4,786,599
=========
</TABLE>
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1994:
East North Central $ 109,233 103,499 540,686 191,489 944,907
East South Central 24,298 10,803 127,845 76,897 239,843
Mountain 3,150 13,770 140,358 39,682 196,960
Middle Atlantic 61,299 53,285 140,847 30,111 285,542
New England 10,536 43,282 139,131 4 192,953
Pacific 195,393 210,930 397,911 68,768 873,002
South Atlantic 87,150 81,576 424,150 210,354 803,230
West North Central 127,760 11,766 80,854 4,738 225,118
West South Central 51,013 84,796 184,923 194,788 515,520
--------- --------- --------- --------- ---------
$ 669,832 613,707 2,176,705 816,831 4,277,075
========= ========= ========= =========
Less valuation allowances and unamortized discount 54,791
---------
Total mortgage loans on real estate, net $4,222,284
=========
</TABLE>
(10) PENSION PLAN
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
41
<PAGE> 42
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement
Plan. Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments had
no significant impact on the accumulated benefit obligation or projected
benefit obligation as of December 31, 1995.
Pension costs charged to operations by the Company during the years ended
December 31, 1995, 1994 and 1993 were $14,105, $10,451 and $6,702,
respectively.
The Company's net accrued pension expense as of December 31, 1995 and
1994 was $1,376 and $1,836, respectively.
The net periodic pension cost for the Nationwide Insurance Companies and
Affiliates Retirement Plan as a whole for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 64,524 64,740 47,694
Interest cost on projected benefit obligation 95,283 73,951 70,543
Actual return on plan assets (249,294) (21,495) (105,002)
Net amortization and deferral 143,353 (62,150) 20,832
--------- --------- ---------
$ 53,866 55,046 34,067
========= ========= =========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 5.75% 6.75%
Rate of increase in future compensation levels 6.25% 4.50% 4.75%
Expected long-term rate of return on plan assets 8.75% 7.00% 7.50%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1995
(post-merger) and the Nationwide Insurance Companies and Affiliates
Retirement Plan as of December 31, 1995 (pre-merger) and 1994 follows:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 1,236,730 1,002,079 914,850
Nonvested 26,503 8,998 7,570
----------- ----------- -----------
$ 1,263,233 1,011,077 922,420
=========== =========== ===========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date $ 1,780,616 1,447,522 1,305,547
Plan assets at fair value 1,738,004 1,508,781 1,241,771
----------- ----------- -----------
Plan assets (less than) in excess of projected
benefit obligation (42,612) 61,259 (63,776)
Unrecognized prior service cost 42,845 42,850 46,201
Unrecognized net (gains) losses (63,130) (86,195) 39,408
Unrecognized net obligation (asset) at transition 41,305 (19,841) (21,994)
----------- ----------- -----------
$ (21,592) (1,927) (161)
=========== =========== ===========
</TABLE>
42
<PAGE> 43
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighed average discount rate 6.00% 6.00% 7.50%
Rate of increase in future compensation levels 4.25% 4.25% 6.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and ELICW. Prior to the merger, the
assets of the Nationwide Insurance Companies and Affiliates Retirement
Plan were invested in a group annuity contract of NLIC.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years of
service with the Company after reaching age 40. Postretirement health
care benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. In addition, there are caps
on the Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not more than
three percent. The Company's policy is to fund the cost of health care
benefits in amounts determined at the discretion of management. Plan
assets are invested primarily in group annuity contracts of NLIC.
Effective January 1, 1993, the Company adopted the provisions of STATEMENT
OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106), which requires the
accrual method of accounting for postretirement life and health care
insurance benefits based on actuarially determined costs to be recognized
over the period from the date of hire to the full eligibility date of
employees who are expected to qualify for such benefits.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation as of January 1, 1993. Accordingly, a
noncash charge of $32,275 ($20,979 net of related income tax benefit) was
recorded in the 1993 consolidated statement of income as a cumulative
effect of a change in accounting principle. See note 3. The adoption of
SFAS 106, including the cumulative effect of the change in accounting
principle, increased the expense for postretirement benefits by $35,277
to $36,544 in 1993. Certain affiliated companies elected to amortize their
initial transition obligation over periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of
December 31, 1995 and 1994 was $51,490 and $36,001, respectively, and the
net periodic postretirement benefit cost (NPPBC) for 1995 and 1994 was
$8,269 and $4,627, respectively.
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits attributed to employee service during the year $ 6,235 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,151 14,011 13,928
Actual return on plan assets (2,657) (1,622) --
Amortization of unrecognized transition obligation of affiliates 2,966 568 568
Net amortization and deferral (1,619) 1,622 --
-------- -------- --------
$ 19,076 23,165 21,586
======== ======== ========
</TABLE>
43
<PAGE> 44
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the plan as a whole as of
December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 88,680 76,677
Fully eligible, active plan participants 28,793 22,013
Other active plan participants 90,375 59,089
--------- ---------
Accumulated postretirement benefit obligation (APBO) 207,848 157,779
Plan assets at fair value 54,325 49,012
--------- ---------
Plan assets less than accumulated postretirement benefit obligation (153,523) (108,767)
Unrecognized transition obligation of affiliates 1,827 6,577
Unrecognized net gains (1,038) (41,497)
--------- ---------
$(152,734) (143,687)
========= =========
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1995 and 1994 and the NPPBC for 1995, 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1995 1995 1994 1994 1993
APBO NPPBC APBO NPPBC NPPBC
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Discount rate 6.75% 8% 8% 7% 8%
Assumed health care cost trend rate:
Initial rate 11% 10% 11% 12% 14%
Ultimate rate 6% 6% 6% 6% 6%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1995 by $641 and the NPPBC for the year ended December 31,
1995 by $107.
(12) REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND
RESTRICTIONS
-------------------------------------------------------------
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and each of its
insurance subsidiaries exceed the minimum risk-based capital
requirements.
In accordance with the requirements of the New York statutes, the
Company has agreed with the Superintendent of Insurance of that state
that so long as participating policies and contracts are held by
residents of New York, no profits on participating policies and
contracts in excess of the larger of (a) ten percent of such profits or
(b) fifty cents per year per thousand dollars of participating life
insurance in force, exclusive of group term, as of the year-end shall
inure to the benefit of the shareholder. Such New York statutes
further provide that so long as such agreement is in effect, such
excess of profits shall be exhibited as "participating policyholders'
surplus" in annual statements filed with the Superintendent and shall
be used only for the payment or apportionment of dividends to
participating policyholders at least to the extent required by statute
or for the purpose of making up any loss on participating policies.
44
<PAGE> 45
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
In the opinion of counsel for the Company, the ultimate ownership of the
entire surplus, however classified, of the Company resides with the
shareholder, subject to the usual requirements under state laws and
regulations that certain deposits, reserves and minimum surplus be
maintained for the protection of the policyholders until all policy
contracts are discharged.
Based on the opinion of counsel with respect to the ownership of its
surplus, the Company is of the opinion that the earnings attributable to
participating policies in excess of the amounts paid as dividends to
policyholders belong to the shareholder rather than the policyholders,
and such earnings are so treated by the Company.
The amount of shareholder's equity other than capital shares was
$2,664,697, $1,904,664 and $1,647,353 as of December 31, 1995, 1994 and
1993, respectively. The amount thereof not presently available for
dividends to the shareholder due to the New York restrictions was
$1,503,241, $929,934 and $954,037 as of December 31, 1995, 1994 and 1993,
respectively.
Ohio law limits the payment of dividends to shareholders. The maximum
dividend that may be paid by the Company without prior approval of the
Director of the Department is limited to the greater of statutory gain
from operations of the preceding calendar year or 10% of statutory
shareholder's surplus as of the prior December 31. Therefore, $2,468,687
of shareholder's equity, as presented in the accompanying consolidated
financial statements, is so restricted as to dividend payments in 1996.
Each of NLIC's insurance company subsidiaries are limited in their
payment of dividends by the state insurance department of their
respective state of domicile. As of December 31, 1995, the maximum amount
of shareholder's equity available for dividend payment to NLIC in 1996 by
its insurance company subsidiaries without prior approval are:
<TABLE>
<S> <C>
Nationwide Life and Annuity Insurance Company $10,143
West Coast Life Insurance Company 13,153
Employers Life Insurance Company of Wausau 10,132
National Casualty Company --
-------
$33,428
=======
</TABLE>
(13) TRANSACTIONS WITH AFFILIATES
----------------------------
On March 1, 1995, Corp. contributed all of the outstanding shares of
Farmland Life Insurance Company (Farmland) to NLIC, which then merged
Farmland into WCLIC effective June 30, 1995. The contribution resulted in
a direct increase to consolidated 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 the impact of Farmland being immaterial.
Effective December 31, 1994, NLIC purchased all of the outstanding shares
of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of
$155,000 to WSC on December 28, 1994, which resulted in a realized loss
of $19,239 on the disposition of the securities. The purchase price
approximated both the historical cost basis and fair value of net assets
of ELICW. ELICW has and will continue to share home office, other
facilities, equipment and common management and administrative services
with WSC.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Corp. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1995 were
$57,969, $50,470 and $44,577, respectively.
45
<PAGE> 46
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company shares home office, other facilities, equipment and common
management and administrative services with affiliates.
The Company participates in intercompany repurchase agreements with
affiliates whereby the seller will transfer securities to the buyer at a
stated value. Upon demand or a stated period, the securities will be
repurchased by the seller at the original sales price plus a price
differential. Transactions under the agreements during 1995 and
1994 were not material.
During 1993, the Company sold equity securities with a market value
$194,515 to NMIC, resulting in a realized gain of $122,823. With the
proceeds, the Company purchased securities with a market value of
$194,139 and cash of $376 from NMIC.
Intercompany reinsurance contracts exist between NLIC and NMIC, NLIC and
WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and ELICW as of December
31, 1995. These contracts are immaterial to the consolidated financial
statements.
NCC participates in several 100% quota share reinsurance agreements with
NMIC and Nationwide Mutual Fire Insurance Company, the minority
shareholder of Corp. As a result of these agreements, the following
assets and (liabilities) are included in the consolidated financial
statements as of December 31, 1995 and 1994 for reinsurance ceded:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Reinsurance recoverable $ 590,379 541,289
Unearned premium reserves (112,467) (110,353)
Liability for unpaid claims and claim adjustment expense (477,912) (430,936)
</TABLE>
The ceding of reinsurance does not discharge the original insurer from
primary liability to its policyholder. The insurer which assumes the
coverage assumes the related liability and it is the practice of insurers
to treat insured risks, to the extent of reinsurance ceded, as though
they were risks for which the original insurer is not liable. Management
believes the financial strength of NMIC reduces to an acceptable level
any risk to NCC under these intercompany reinsurance agreements.
ELICW assumes certain accident and health insurance business from
Employers Insurance of Wausau A Mutual Company, an affiliate. During
1995, total premiums assumed by ELICW under the reinsurance
agreement were $150,622.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash Management
Company (CCMC), both affiliates, under which NCMC and CCMC act as common
agents in handling the purchase and sale of short-term securities for the
respective accounts of the participants. Amounts on deposit with NCMC and
CCMC were $21,644 and $92,531 as of December 31, 1995 and 1994,
respectively, and are included in short-term investments on the
accompanying consolidated balance sheets.
(14) BANK LINES OF CREDIT
--------------------
As of December 31, 1995 and 1994, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization.
(15) CONTINGENCIES
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to be
material to the Company's financial position or results of operations.
46
<PAGE> 47
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(16) SEGMENT INFORMATION
-------------------
The Company operates in the long-term savings, life insurance and
accident and health insurance lines of business in the life insurance and
property and casualty insurance industries. Long-term savings operations
include both qualified and non-qualified annuity contracts issued to both
individuals and groups. Life insurance operations include whole life,
universal life, variable universal life and endowment and term life
insurance issued to individuals and groups. Accident and health insurance
operations also provide coverage to individuals and groups. Corporate
primarily includes investments, and the related investment income, which
are not specifically allocated to one of the three operating segments. In
addition, realized gains and losses on all general account investments
are reported as a component of the corporate segment.
During 1995, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
Federal income tax expense and cumulative effect of changes in accounting
principles for the years ended December 31, 1995, 1994 and 1993 and
assets as of December 31, 1995, 1994 and 1993, by business segment.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Long-term savings $ 1,406,241 1,125,013 1,048,045
Life insurance 502,885 452,795 432,343
Accident and health insurance 532,383 345,545 339,764
Corporate 134,598 122,847 214,374
------------ ------------ ------------
$ 2,576,107 2,046,200 2,034,526
============ ============ ============
Income (loss) before Federal income tax expense and
cumulative effect of changes in accounting principles:
Long-term savings 129,475 95,530 47,966
Life insurance 63,169 46,119 36,383
Accident and health insurance (12,521) 13,221 15,041
Corporate 139,609 118,360 213,511
------------ ------------ ------------
$ 319,732 273,230 312,901
============ ============ ============
Assets:
Long-term savings 34,634,892 25,815,273 20,695,598
Life insurance 3,675,581 3,231,651 2,897,574
Accident and health insurance 307,643 291,296 297,200
Corporate 1,995,995 1,773,913 1,515,989
------------ ------------ ------------
$ 40,614,111 31,112,133 25,406,361
============ ============ ============
</TABLE>
47
<PAGE> 48
Schedule I
-----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Summary of Investments - Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
----------------- --------------- ------------------
Column B Column C Column D
----------------- --------------- ---------------
Amount at which
shown in the
consolidated
Cost Market value balance sheet
----------------- ---------------- -------------------
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Bonds and notes:
U.S. Government and government agencies and authorities $ 3,913,961 4,116,744 4,116,744
States, municipalities and political subdivisions 9,742 10,993 10,993
Foreign governments 162,442 172,016 172,016
Public utilities 2,053,701 2,146,000 2,146,000
All other corporate 7,298,784 7,721,624 7,721,624
----------------- ---------------- -------------------
Total fixed maturities available-for-sale 13,438,630 14,167,377 14,167,377
----------------- ---------------- -------------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 26,037 32,474 32,474
Non-redeemable preferred stock 1,325 1,244 1,244
----------------- ---------------- -------------------
Total equity securities available-for-sale 27,362 33,718 33,718
----------------- ---------------- -------------------
Mortgage loans on real estate 4,838,432 4,786,599*
Real estate:
Investment properties 213,340 171,739*
Acquired in satisfaction of debt 82,930 67,350*
Policy loans 370,908 370,908
Other long-term investments 73,190 67,280#
Short-term investments 45,732 45,732
----------------- -------------------
Total investments $19,090,524 19,710,703
================= ===================
</TABLE>
* Difference from Column B is primarily due to accumulated depreciation
and valuation allowances due to impairments on real estate and
valuation allowances due to impairments on mortgage loans on real
estate. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and note 5 to the consolidated
financial statements.
# Difference from Column B is primarily due to operating losses of
investments in limited partnerships.
See accompanying independent auditors' report.
48
<PAGE> 49
Schedule III
------------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplementary Insurance Information
December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Deferred Future policy Other policy
policy benefits, losses, claims and
Segment acquisition claims and Unearned premiums benefits payable Premium
costs loss expenses (1) (2) revenue
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
1995: Long-term savings $ 668,784 14,847,449 455 -
Life insurance 416,209 2,494,344 408,990 274,957
Accident and health
insurance 9,202 858,335 15,264 509,658
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $1,094,195 18,200,128 424,709 784,615
============== ===================== ================== ===============
1994: Long-term savings 663,696 13,300,015 240 -
Life insurance 387,486 2,245,375 397,174 209,538
Accident and health
insurance 12,977 776,071 13,414 324,524
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $1,064,159 16,321,461 410,828 534,062
============== ===================== ================== ===============
1993: Long-term savings 506,243 11,308,024 1,262 -
Life insurance 291,683 2,047,844 378,788 215,715
Accident and health
insurance 14,018 736,387 14,595 312,655
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $ 811,944 14,092,255 394,645 528,370
============== ===================== ================== ===============
- ----------------------------------- -------------- -------------------- ------------------ ----------------- --------------
Column A Column G Column H Column I Column J Column K
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Net Amortization Other
investment Benefits, claims, of deferred operating
Segment income losses and policy expenses Premiums
(3) settlement expenses acquisition costs (3) written
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
1995: Long-term savings $1,124,207 1,009,632 51,998 210,525
Life insurance 202,285 267,123 34,124 94,461
Accident and health
insurance 22,725 379,532 6,922 153,984 473,513
Corporate 133,763 - - -
-------------- -------------------- ------------------- ------------------
Total $1,482,980 1,656,287 93,044 458,970
============== ==================== =================== ==================
1994: Long-term savings 945,318 807,756 56,236 171,038
Life insurance 183,933 237,125 33,394 90,535
Accident and health
insurance 21,020 234,882 5,114 90,829 315,688
Corporate 139,230 - - -
-------------- -------------------- ------------------- ------------------
Total $1,289,501 1,279,763 94,744 352,402
============== ==================== =================== ==================
1993: Long-term savings 897,639 800,385 43,291 157,046
Life insurance 178,978 227,786 35,220 89,496
Accident and health
insurance 27,108 208,735 23,623 82,854 263,117
Corporate 100,701 - - -
-------------- -------------------- ------------------- ------------------
Total $1,204,426 1,236,906 102,134 329,396
============== ==================== =================== ==================
<FN>
(1) Unearned premiums are included in Column C amounts. (3) Allocations of net investment income and certain general
(2) Column E agrees to the sum of the consolidated balance expenses are based on a number of assumptions and
sheet captions, "Policyholders' dividend estimates, and reported operating results would
accumulations" and "Other policyholder funds". change by segment if different methods were applied.
</TABLE>
See accompanying independent auditors' report.
49
<PAGE> 50
Schedule IV
-----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
------------------- ------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1995:
Life insurance in force $51,613,116 6,865,011 742,451 45,490,556 1.6%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 281,687 12,817 6,087 274,957 2.2%
Accident and health
insurance 427,943 73,131 154,846 509,658 30.4%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 709,630 85,948 160,933 784,615 20.5%
=================== ================== ================= ================== ===============
1994:
Life insurance in force $46,262,595 5,289,259 819,799 41,793,135 2.0%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 209,918 7,551 7,171 209,538 3.4%
Accident and health
insurance 389,573 69,095 4,046 324,524 1.2%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 599,491 76,646 11,217 534,062 2.1%
=================== ================== ================= ================== ===============
1993:
Life insurance in force $39,417,116 4,352,071 180,739 35,245,784 0.5%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 218,764 6,161 3,112 215,715 1.4%
Accident and health
insurance 398,289 88,506 2,872 312,655 0.9%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 617,053 94,667 5,984 528,370 1.1%
=================== ================== ================= ================== ===============
</TABLE>
See accompanying independent auditors' report.
50
<PAGE> 51
Schedule V
----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------------- ----------------------------- ------------- -------------
Column A Column B Column C Column D Column E
- ------------------------------------------------- ---------------- ----------------------------- ------------- -------------
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts (1) period
- ------------------------------------------------- ---------------------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1995:
Valuation allowances - fixed maturity securities $ - 10,153 - 10,153 -
Valuation allowances - mortgage loans on real
estate 47,892 7,653 - 4,850 50,695
Valuation allowances - real estate 27,330 (1,080) - - 26,250
Valuation allowances - other long-term
investments - 457 - - 457
1994:
Valuation allowances - fixed maturity securities 6,680 (6,680) - - -
Valuation allowances - mortgage loans on real
estate 42,350 21,672 - 16,130 47,892
Valuation allowances - real estate 31,357 (4,027) - - 27,330
1993:
Valuation allowances - fixed maturity securities 5,746 934 - - 6,680
Valuation allowances - mortgage loans on real
estate 31,872 28,241 - 17,763 42,350
Valuation allowances - real estate 35,471 (4,114) - - 31,357
Valuation allowances - other long-term
investments 700 (700) - - -
<FN>
(1) Amounts represent direct write-downs charged against the valuation
allowance.
</TABLE>
See accompanying independent auditors' report.
51
<PAGE> 1
Exhibit 21
----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant
December 31, 1995
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation
----------------------------------------------------------- ------------------
<S> <C>
Nationwide Life and Annuity Insurance Company Ohio
West Coast Life Insurance Company California
Employers Life Insurance Company of Wausau Wisconsin
National Casualty Company Michigan
Nationwide Financial Services, Inc. Ohio
</TABLE>
All business operations of Nationwide Life Insurance Company
and all of its subsidiaries are conducted using each company's
legally registered name.
52
<PAGE> 2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By D. Richard McFerson
-----------------------------------------------------
D. Richard McFerson, President and Chief Executive
Officer - Nationwide Insurance Enterprise
Date: March 6, 1996
53
<PAGE> 3
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 6, 1996.
<TABLE>
<CAPTION>
D. Richard McFerson Peter F. Frenzer
- ------------------------------------------------------------- -----------------------------------------------------------
D. Richard McFerson, President and Chief Executive Peter F. Frenzer, President and Chief Operating
Officer - Nationwide Insurance Enterprise and Director Officer and Director
<S> <C>
Lewis J. Alphin Willard J. Engel
- ------------------------------------------------------------- -----------------------------------------------------------
Lewis J. Alphin, Director Willard J. Engel, Director
Frederick C. Finney Charles L. Fuellgraf, Jr.
- ------------------------------------------------------------- -----------------------------------------------------------
Frederick C. Finney, Director Charles L. Fuellgraf, Jr., Director
Henry S. Holloway David O. Miller
- ------------------------------------------------------------- -----------------------------------------------------------
Henry S. Holloway, Director David O. Miller, Director
C. Ray Noecker James F. Patterson
- ------------------------------------------------------------- -----------------------------------------------------------
C. Ray Noecker, Director James F. Patterson, Director
Robert H. Rickel Arden L. Shisler
- ------------------------------------------------------------- -----------------------------------------------------------
Robert H. Rickel, Director Arden L. Shisler, Director
Robert L. Stewart Nancy C. Thomas
- ------------------------------------------------------------- -----------------------------------------------------------
Robert L. Stewart, Director Nancy C. Thomas, Director
Harold W. Weihl Robert A. Oakley
- ------------------------------------------------------------- -----------------------------------------------------------
Harold W. Weihl, Director Robert A. Oakley, Executive Vice President - Chief
Financial Officer
David A. Diamond
- -------------------------------------------------------------
David A. Diamond, Vice President - Controller
</TABLE>
54
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE NATIONWIDE LIFE
INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 14,167,377
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 33,718
<MORTGAGE> 4,786,599
<REAL-ESTATE> 239,089
<TOTAL-INVEST> 19,710,703
<CASH> 56,217
<RECOVER-REINSURE> 621,951
<DEFERRED-ACQUISITION> 1,094,195
<TOTAL-ASSETS> 40,614,111
<POLICY-LOSSES> 18,200,128
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 353,554
<POLICY-HOLDER-FUNDS> 71,155
<NOTES-PAYABLE> 0
<COMMON> 3,815
0
0
<OTHER-SE> 2,664,697
<TOTAL-LIABILITY-AND-EQUITY> 40,614,111
784,615
<INVESTMENT-INCOME> 1,482,980
<INVESTMENT-GAINS> 836
<OTHER-INCOME> 0
<BENEFITS> 1,656,287
<UNDERWRITING-AMORTIZATION> 93,044
<UNDERWRITING-OTHER> 458,970
<INCOME-PRETAX> 319,732
<INCOME-TAX> 107,254
<INCOME-CONTINUING> 212,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,478
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 199,237
<PROVISION-CURRENT> 425,907
<PROVISION-PRIOR> (17,203)
<PAYMENTS-CURRENT> 290,605
<PAYMENTS-PRIOR> 111,353
<RESERVE-CLOSE> 208,525
<CUMULATIVE-DEFICIENCY> 0
<FN>
The amounts presented above related to the liability for unpaid claims and
claim adjustment expenses represent amounts for Nationwide Life Insurance
Company and its insurance subsidiaries as included in note 6 to the
consolidated financial statements in accordance with the American Institute of
Certified Public Accountants Statement of Position 94-5, Disclosures of Certain
Matters in the Financial Statements of Insurance Enterprises.
</TABLE>
