<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 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 (I.R.S. Employer Identification No.)
incorporation or organization)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(614) 249-7111
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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 MAY 12, 1997.
COMMON STOCK - 3,814,779 SHARES ISSUED AND OUTSTANDING AS OF MAY 12, 1997
(Title of Class)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE
FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Unaudited Consolidated Financial Statements 3
Item 2 Management's Narrative Analysis of the Results of Operations 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURE 15
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in thousands of dollars)
(Unaudited)
March 31, December 31,
Assets 1997 1996
------ ----------- -----------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,462,049 in 1997; $11,970,878 in 1996) $11,578,223 12,304,639
Equity securities (cost $53,025 in 1997; $43,890 in 1996) 67,178 59,131
Mortgage loans on real estate, net 5,354,367 5,272,119
Real estate, net 293,229 265,759
Policy loans 380,457 371,816
Other long-term investments 23,205 28,668
Short-term investments 682,044 4,789
----------- -----------
18,378,703 18,306,921
----------- -----------
Cash 67,899 43,784
Accrued investment income 204,690 210,182
Deferred policy acquisition costs 1,504,257 1,366,509
Investment in subsidiaries classified as discontinued operations -- 485,707
Other assets 383,161 426,441
Assets held in Separate Accounts 28,016,363 26,926,702
----------- -----------
$48,555,073 47,766,246
=========== ===========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $17,309,496 17,179,060
Policyholders' dividend accumulations 363,823 361,401
Other policyholder funds 59,913 60,073
Accrued federal income tax:
Current 52,924 30,170
Deferred 122,783 162,212
----------- -----------
175,707 192,382
----------- -----------
Dividend payable -- 485,707
Other liabilities 537,558 423,047
Liabilities related to Separate Accounts 28,016,363 26,926,702
----------- -----------
46,462,860 45,628,372
----------- -----------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 914,654 527,874
Retained earnings 1,099,321 1,432,593
Unrealized gains on securities available-for-sale, net 74,423 173,592
----------- -----------
2,092,213 2,137,874
----------- -----------
$48,555,073 47,766,246
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(Unaudited)
(in thousands of dollars)
Three Months Ended
March 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $120,449 88,603
Traditional life insurance premiums 55,446 53,788
Net investment income 340,950 329,531
Realized gains on investments 21,042 3,568
Other income 9,834 6,209
-------- --------
547,721 481,699
-------- --------
Benefits and expenses:
Benefits and claims 296,370 289,996
Provision for policyholders' dividends on participating policies 10,646 10,780
Amortization of deferred policy acquisition costs 43,394 36,129
Other operating expenses 93,861 65,680
-------- --------
444,271 402,585
-------- --------
Income from continuing operations before federal income tax expense 103,450 79,114
-------- --------
Federal income tax expense:
Current 22,754 26,025
Deferred 13,968 486
-------- --------
36,722 26,511
-------- --------
Income from continuing operations 66,728 52,603
Income from discontinued operations (less federal income tax expense of
$2,516 in 1996) -- 4,195
-------- --------
Net income $ 66,728 56,798
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(Unaudited)
Three Months Ended March 31, 1997 and 1996
(in thousands of dollars)
<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>
1996:
Balance, January 1, 1996 $ 3,815 657,118 1,583,275 384,304 2,628,512
Net income -- -- 56,798 -- 56,798
Unrealized losses on securities
available-for-sale, net -- -- -- (194,157) (194,157)
---------- ------- --------- ------- ---------
Balance, March 31, 1996 $ 3,815 657,118 1,640,073 190,147 2,491,153
========== ======= ========= ======= =========
1997:
Balance, January 1, 1997 3,815 527,874 1,432,593 173,592 2,137,874
Capital contributions -- 836,780 -- -- 836,780
Dividends to shareholder -- (450,000) (400,000) -- (850,000)
Net income -- -- 66,728 -- 66,728
Unrealized losses on securities
available-for-sale, net -- -- -- (99,169) (99,169)
---------- ------- --------- ------- ---------
Balance, March 31, 1997 $ 3,815 914,654 1,099,321 74,423 2,092,213
========== ======= ========= ======= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, 1997 and 1996
(in thousands of dollars)
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 66,728 56,798
Adjustments to reconcile net income to net cash provided by operating activities:
Capitalization of deferred policy acquisition costs (115,033) (106,334)
Amortization of deferred policy acquisition costs 43,394 36,129
Amortization and depreciation 1,926 8,769
Realized gains on investments, net (21,042) (3,568)
Deferred federal income tax liability 13,968 17,692
Decrease (increase) in accrued investment income 5,492 (11,143)
Decrease (increase) in other assets 43,109 (36,336)
(Decrease) increase in policyholder account balances (1,126) 28,354
Increase in policyholders' dividend accumulations 2,422 3,676
Increase in accrued federal income tax payable 22,754 23,950
Increase in other liabilities 114,511 65,549
Other, net 377 (4,373)
----------- -----------
Net cash provided by operating activities 177,480 79,163
----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 214,193 335,167
Proceeds from sale of securities available-for-sale 195,526 92,520
Proceeds from repayments of mortgage loans on real estate 89,325 73,494
Proceeds from sale of real estate 20,865 1,433
Proceeds from repayments of policy loans and sale of other invested assets 12,930 13,666
Cost of securities available-for-sale acquired (742,217) (473,714)
Cost of mortgage loans on real estate acquired (195,377) (173,242)
Cost of real estate acquired (20,570) (1,628)
Policy loans issued and other invested assets acquired (17,832) (19,501)
Short-term investments, net (678,390) (11,172)
----------- -----------
Net cash used in investing activities (1,121,547) (162,977)
----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions 836,780 --
Increase in investment product and universal life insurance product
account balances 798,468 664,799
Decrease in investment product and universal life insurance product
account balances (667,066) (552,957)
----------- -----------
Net cash provided by financing activities 968,182 111,842
----------- -----------
Net increase in cash 24,115 28,028
Cash, beginning of period 43,784 9,455
----------- -----------
Cash, end of period $ 67,899 37,483
=========== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements
Three Months Ended March 31, 1997
(1) Organization and Basis of Presentation
--------------------------------------
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC)
was a wholly owned subsidiary of Nationwide Corporation (Nationwide
Corp.). On January 27, 1997, Nationwide Corp. contributed the common
stock of NLIC to Nationwide Financial Services, Inc. (NFS). NFS was
formed by Nationwide Corp. in November 1996 as a holding company for
members of the Nationwide Insurance Enterprise that offer or
distribute long-term savings and retirement products. NLIC and its
subsidiaries are collectively referred to as "the Company."
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted
accounting principles, which differ from statutory accounting practices
prescribed or permitted by regulatory authorities, for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial information
included herein reflects all adjustments (all of which are normal and
recurring in nature) which are, in the opinion of management, necessary
for a fair presentation of financial position and results of
operations. Operating results for all periods presented are not
necessarily indicative of the results that may be expected for the full
year. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and related notes for the year ended December 31,
1996 included in the Company's annual report on Form 10-K.
(2) Dividends and Capital Contributions
-----------------------------------
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the common stock of certain subsidiaries
classified as discontinued operations. As of and during the year ended
December 31, 1996, these previously wholly owned subsidiaries of NLIC
were classified as discontinued operations since they do not offer or
distribute long-term savings and retirement products. The dividend was
paid by NLIC on January 1, 1997.
On February 24, 1997, NLIC paid a dividend to NFS, which made an
equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate market value of $850.0 million. NLIC recognized a
gain of $14.4 million on the transfer of securities.
On March 10, 1997 and March 11, 1997, NFS made cash capital
contributions to NLIC totaling $836.8 million.
7
<PAGE> 8
ITEM 2 MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of unaudited consolidated results of
operations of Nationwide Life Insurance Company (NLIC) and its
wholly owned subsidiaries (collectively referred to as "the
Company") should be read in conjunction with the unaudited
consolidated financial statements and related notes included
elsewhere herein.
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. In addition, the Company reports
corporate income and expenses and investments and related
investment income supporting capital not specifically allocated to
its product segments in a Corporate and Other segment.
RESULTS OF OPERATIONS
Policy Charges. Policy charges include asset fees, which are
primarily earned from separate account assets generated from sales
of variable annuities; administration fees, which include fees
charged per contract on a variety of the Company's products and
premium loads on universal life insurance products; surrender
fees, which are charged as a percentage of assets withdrawn during
a specified period (usually the first seven years) of annuity and
certain life insurance contracts; and cost of insurance charges
earned on universal life insurance products. For first quarter
1997, policy charges were $120.4 million, a 36% increase from
$88.6 million in first quarter 1996. The increase in policy
charges is due primarily to increases in separate account assets
and the resulting higher levels of asset fees. Total separate
account assets have increased 35% from $20.81 billion as of March
31, 1996 to $28.02 billion as of March 31, 1997.
Life Insurance Premiums. Life insurance premiums are earned
primarily from traditional life insurance in the Life Insurance
segment, but are also earned from the sale of life-contingent
immediate annuities in the Fixed Annuities segment. Life insurance
premiums were $55.4 million in the first quarter of 1997, a 3%
increase from $53.8 million in the first quarter of 1996. The
increase is attributable to an increase in traditional life
insurance in-force.
Net Investment Income. Net investment income includes the gross
investment income earned on investments supporting fixed annuities
and certain life insurance products as well as the yield on the
Company's general account invested assets which are not allocated
to product segments. Net investment income was $341.0 million in
first quarter 1997 compared to $329.5 million in first quarter
1996. Net investment income has increased as a result of growth in
the Fixed Annuities segment.
Realized Gains on Investments. Realized gains on investments are
not considered by the Company to be a recurring source of
earnings. The Company makes decisions concerning the sale of
invested assets based on a variety of market, business, tax and
other factors. All realized gains and losses are reported in the
Corporate and Other segment. Net realized gains on investments
were $21.0 million in the first quarter of 1997 compared to $3.6
million in first quarter 1996. Realized gains in 1997 include
$14.4 million recognized when securities of $850.0 million were
paid to Nationwide Corporation (Nationwide Corp.) as a dividend on
February 24, 1997. See note 2 to the unaudited consolidated
financial statements.
Other Income. Other income consists of investment management fees
earned by the Company from the management of Nationwide mutual
funds. Net investment management fees earned on Nationwide mutual
fund assets selected as investment options for variable annuity
products and variable life insurance products are reported in the
Variable Annuities segment and Life Insurance segment,
respectively. The Company also sells its mutual fund products
separately, and investment management fees from these assets are
included in the Corporate and Other segment. Other income was $9.8
million in the first quarter of 1997, up from $6.2 million in the
first quarter of 1996.
8
<PAGE> 9
Benefits and Claims. Benefits and claims consist primarily of
interest credited on fixed annuity products and life insurance
benefits in the Life Insurance segment. Benefits and claims
increased 2% to $296.4 million in first quarter 1997 from $290.0
million in first quarter 1996, reflecting increases in both
interest credited on fixed annuities and life insurance benefits.
Policyholder Dividends. Policyholder dividends are paid on certain
participating life insurance policies. Policyholder dividends were
$10.6 million in the first quarter of 1997, a 2% decrease from
first quarter 1996.
Amortization of Deferred Policy Acquisition Costs (DAC).
Amortization of DAC increased 20% from $36.1 million in the first
quarter of 1996 to $43.4 million in first quarter 1997. The
increase is primarily attributable to an increase in variable
annuity policy reserves and gross profit margins.
Operating Expenses. Operating expenses were $93.9 million in first
quarter 1997, a 43% increase from first quarter 1996 operating
expenses of $65.7 million. The increase is primarily due to an
increase in the number of annuity and life insurance contracts
in-force and the related increase in administrative processing
costs. In addition, operating expenses in the Life Insurance
segment have increased due to investments in information
technology discussed below.
Federal Income Tax Expense. Federal income tax expense was $36.7
million and $26.5 million, representing effective tax rates of
35.5% and 33.5% for first quarter 1997 and 1996, respectively. The
lower effective tax rate in 1996 is the result of a greater
benefit from charitable donations of appreciated securities.
Net Operating Income. Net operating income is net income,
excluding realized gains and losses on investments (net of related
federal income tax) and discontinued operations. Net operating
income for the first quarter of 1997 was $52.9 million, an 8%
increase from first quarter 1996 of $49.2 million.
Discontinued Operations. Discontinued operations include the
results of (i) the three NLIC subsidiaries whose outstanding
common stock, on September 24, 1996, was declared as a dividend to
Nationwide Corp. and (ii) 100% of NLIC's accident and health and
group life business which was ceded to affiliates during the third
quarter of 1996. NLIC did not recognize any gain or loss on the
disposal of these subsidiaries or discontinuance of the accident
and health and group life insurance business. Income from
discontinued operations was $4.2 million in first quarter 1996.
There was no income from discontinued operations in first quarter
1997 as a result of the transfer by the Company of the ownership
of the three subsidiaries to Nationwide Corp. on January 1, 1997
and the reinsurance agreements.
EFFECT OF SPECIAL DIVIDENDS AND CASH CAPITAL CONTRIBUTIONS
On December 31, 1996, NLIC paid a $50.0 million dividend (the $50
Million Dividend) to Nationwide Corp. On February 24, 1997, NLIC
paid a dividend to Nationwide Financial Services, Inc. (NFS),
which subsequently made a dividend payment to Nationwide Corp.,
consisting of securities having an aggregate fair value of $850.0
million (the $850 Million Dividend). The $50 Million Dividend and
the $850 Million Dividend are collectively referred to as the
"Special Dividends".
On March 10, 1997 and March 11, 1997, NFS made cash capital
contributions to NLIC totaling $836.8 million.
Because (i) the Special Dividends preceded the cash capital
contributions, and (ii) the cash capital contributions were
invested at lower yields than the yield on the investments used to
fund the $850 Million Dividend, the aggregate effect of the
Special Dividends and the cash capital contributions was
approximately a $4.5 million reduction in net investment income
for first quarter 1997.
9
<PAGE> 10
RESULTS OF OPERATIONS BY SEGMENT
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. In addition, the Company reports
corporate income and expenses and investments and related
investment income supporting capital not specifically allocated to
its product segments in a Corporate and Other segment. All
information set forth below relating to the Company's Variable
Annuities segment excludes the fixed option under the Company's
variable annuity contracts. Such information is included in the
Company's Fixed Annuities segment.
The table below presents summary financial data for the Company by
segment.
<TABLE>
<CAPTION>
As of and for the
three months ended
March 31
-------------------------
(in millions of dollars) 1997 1996
------- --------
<S> <C> <C>
REVENUES:
Variable Annuities $ 86.8 61.9
Fixed Annuities 284.8 270.9
Life Insurance 114.6 105.4
Corporate and Other 40.5 39.9
--------- --------
Total operating revenues 526.7 478.1
Realized gains on investments 21.0 3.6
--------- --------
Total revenues $ 547.7 481.7
========= =========
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAX EXPENSE:
Variable Annuities $ 29.4 18.2
Fixed Annuities 37.6 33.6
Life Insurance 17.0 14.6
Corporate and Other (1.5) 9.1
--------- --------
Total operating income 82.5 75.5
Realized gains on investments 21.0 3.6
--------- --------
Total income from continuing operations
before federal income tax expense $ 103.5 79.1
========= =========
POLICY RESERVES:
Variable Annuities (1) $25,300.6 18,770.2
Fixed Annuities (1) 13,613.9 12,920.6
Life Insurance 3,020.5 2,720.4
Corporate and Other 3,325.9 2,806.0
--------- --------
Total policy reserves (2) $45,260.9 37,217.2
========= =========
<FN>
- --------------
(1) Policy reserves related to the fixed option under the
Company's variable annuity contracts are included in Fixed
Annuities. As of March 31, 1997 and 1996, such policy reserves
totaled $9.41 billion and $8.76 billion, respectively.
(2) Total policy reserves as presented here are net of reinsurance
and therefore differ from the amounts set forth in the
Company's unaudited consolidated financial statements.
</TABLE>
10
<PAGE> 11
Variable Annuities
Revenues. Revenues in the Variable Annuities segment consist of
policy charges and other income. Policy charges consist of asset
fees, which are generally a percentage of separate account assets
deposited for the purchase of variable annuities; administration
fees, which are generally a specific dollar amount per contract;
and surrender fees, which are charged against assets withdrawn
during a specified period (generally the first seven years) of
variable annuity contracts. The separate account assets generated
by the Variable Annuities segment do not contribute to net
investment income of the Company because the customer receives the
investment benefit and bears the investment risk of these assets.
Other income includes net investment management fees earned on
separate account assets held in mutual funds managed by a
subsidiary of the Company.
Revenues were $86.8 million in the first quarter of 1997, a 40%
increase from the first quarter of 1996. Revenues have increased
as a result of growth in policyholder account balances (policy
reserves) related to this segment and the corresponding growth in
asset fees, which were $78.8 million and $56.8 million in the
first quarter of 1997 and 1996, respectively. Total policy
charges, which include asset fees, as a percentage of variable
annuity policy reserves have remained stable during the periods
presented, reflecting no or minimal changes in the levels of
policy charges for most variable annuity products.
Income from Continuing Operations Before Federal Income Tax
Expense. Income from continuing operations before federal income
tax expense was $29.4 million in the first quarter of 1997, a 62%
increase from the first quarter of 1996. The increase is due to
growth in variable annuity policy reserves and the corresponding
increase in policy charges, combined with expense levels which
have decreased as a percentage of revenues. Total expenses were
$56.2 million and $42.5 million, or 59 basis points and 64 basis
points of average variable annuity policy reserves, for the first
quarter of 1997 and 1996, respectively. During the period, the
Company has controlled its operating expenses by taking advantage
of economies of scale and by increasing productivity through
investments in technology.
Policy Reserves. During the first quarter of 1997, variable
annuity policy reserves increased $1.02 billion to $25.30 billion,
while during the first quarter of 1996, variable annuity policy
reserves increased $2.01 billion to $18.77 billion. Deposits were
$1.83 billion and $1.69 billion in the first quarter of 1997 and
1996, respectively. During the first quarter of 1997, variable
annuity policy reserves reflect market depreciation of $160.5
million compared to market appreciation of $608.5 million in the
first quarter of 1996. Withdrawals, surrenders, net transfers and
policy charges resulted in a decrease in policy reserves of $645.9
million and $285.1 million in the first quarter of 1997 and 1996,
respectively. Management does not believe the increase in
withdrawals and surrenders is the start of a trend towards higher
withdrawal and surrender rates.
Statutory Premiums and Deposits. For first quarter 1997, statutory
premiums and deposits were $1.83 billion, an increase of 9% from
$1.69 billion in first quarter 1996. Tax-qualified premiums and
deposits were $1.31 billion for first quarter 1997 compared to
$1.12 billion for first quarter 1996. Growth in premiums and
deposits was strongest in the public sector and pensions markets,
which are tax-qualified. Premiums and deposits through the
investment dealer channel were down 12%. Management believes
volatile market conditions during the first quarter of 1997
contributed to the decrease in deposits. Midway through first
quarter 1997, the Company introduced a 75 basis point commission
enhancement for the investment dealer channel. Management has
extended the enhancement through June 1997.
11
<PAGE> 12
Fixed Annuities
Revenues. Revenues in the Fixed Annuities segment consist mainly
of net investment income, which is earned on invested assets
allocated to support fixed annuity policy reserves and
shareholder's equity allocated to such segment. Total revenues
were $284.8 million and $270.9 million in the first quarter of
1997 and 1996, respectively. Net investment income was $269.5
million and $256.1 million, representing average pre-tax yields on
the assets supporting this segment of 8.17% and 8.15%, in the
first quarter of 1997 and 1996, respectively.
Interest Credited. Interest credited on account balances was
$200.9 million and $199.7 million, representing crediting rates of
6.09% and 6.35%, for the first quarter of 1997 and 1996,
respectively. The differential between net investment income and
interest credited on account balances resulted in spreads of $68.6
million and $56.4 million, or 2.08% and 1.80%, in the first
quarter of 1997 and 1996, respectively. Spreads vary depending on
crediting rates offered by competitors, performance of the
investment portfolio, changes in market interest rates and other
factors. The higher spread in the first quarter of 1997 is
primarily the result of an increase in interest rates during the
quarter after crediting rates had been set for the quarter in
December 1996. The Company does not expect to sustain this level
of spread in future periods.
Income from Continuing Operations Before Federal Income Tax
Expense. Income from continuing operations before federal income
tax expense was $37.6 million in the first quarter of 1997, a 12%
increase from the first quarter of 1996. The increase is due to
the increase in interest spread discussed above, offset by an
increase in expenses, including an increase in amortization of
deferred policy acquisition costs as a result of the increase in
interest spread for the quarter.
Policy Reserves. During the first quarter of 1997, fixed annuity
policy reserves increased $102.1 million to $13.61 billion as of
March 31, 1997, while during the first quarter of 1996, policy
reserves increased $136.6 million to $12.92 billion as of March
31, 1996. Statutory premiums and deposits were $560.4 million and
$441.8 million in the first quarter of 1997 and 1996,
respectively, while interest credited to policyholder account
balances was $200.9 million and $199.7 million, respectively.
Withdrawals, surrenders, benefits and net transfers reduced policy
reserves by $659.2 million and $504.9 million for the first
quarter of 1997 and 1996, respectively. The increase in
withdrawals is primarily attributable to a single, public sector
group annuity contract with reserves of $105.9 million. The loss
of a single large contract can impact the withdrawal rate for any
one period, and management does not expect the withdrawal rate to
continue at the same rate as the first quarter of 1997.
Statutory Premiums and Deposits. For first quarter 1997, statutory
premiums and deposits were $560.4 million, an increase of 27% from
$441.8 million in the first quarter of 1996. Tax-qualified
premiums and deposits increased 20% from $354.9 million in the
first quarter of 1996 to $424.9 million in the first quarter of
1997. Deposits through the financial institutions and public
sector/teachers channels accounted for increases of $69.5 million
and $84.5 million, respectively. The public sector channel
includes a deposit of $106.5 million from the transfer of assets
from Cook County, Illinois. The increase in deposits through the
financial institutions channel is a result of new bank
relationships added late in 1996.
Life Insurance
Revenues. Revenues in the Life Insurance segment consist of the
life insurance premiums and policy charges, as well as net
investment income. Total revenues were $114.6 million and $105.4
million for the first quarter of 1997 and 1996, respectively. The
increase is attributed to increases in life insurance in-force
with the majority of the growth coming from the variable universal
life product.
12
<PAGE> 13
Income from Continuing Operations Before Federal Income Tax
Expense. Income from continuing operations before federal income
tax expense was $17.0 million in the first quarter of 1997, a 16%
increase from $14.6 million in the first quarter of 1996. The
increase is primarily attributable to the increase in variable
universal life insurance and improved mortality experience. Total
revenues from variable universal life increased from $9.5 million
in the first quarter of 1996 to $14.7 million in the first quarter
of 1997. Partially offsetting the increased revenues and lower
benefits was an increase in expenses due to higher selling related
expenses and investments in technology to improve policy
administration.
Life Insurance In-Force. Life insurance in-force was $38.46
billion and $33.67 billion as of March 31, 1997 and 1996,
respectively. Of the growth in in-force from March 31, 1996 to
March 31, 1997, $3.34 billion is attributable to variable
universal life which comprises 23% of total in-force as of March
31, 1997.
Statutory Premiums. For first quarter 1997, statutory premiums
were $137.4 million, an increase of 41% from $97.2 million in the
first quarter of 1996. Premiums from the investment dealer channel
more than doubled to $62.9 million in the first quarter of 1997,
led by sales of bank-owned life insurance and flexible premium
variable universal life insurance products.
Corporate and Other
Revenues. Revenues in the Corporate and Other segment consist of
net investment income on invested assets not allocated to the
three product segments, all realized investment gains and losses,
investment management fees and other revenues earned from
Nationwide mutual funds other than the portion allocated to the
Variable Annuities and Life Insurance segments and net investment
income and policy charges from group annuity contracts issued to
Nationwide Insurance Enterprise employee and agent benefit plans.
Total revenues excluding realized gains were $40.5 million for the
first quarter of 1997 compared to $39.9 million in the first
quarter of 1996. Realized gains on investments were $21.0 million
and $3.6 million in the first quarter of 1997 and 1996,
respectively. Realized gains in 1997 include gains of $14.4
million from the transfer of securities to fund the $850 Million
Dividend.
Income (loss) from Continuing Operations Before Federal Income Tax
Expense. Income (loss) from continuing operations before federal
income tax expense excluding realized gains and losses was $(1.5)
million and $9.1 million for the first quarter of 1997 and 1996,
respectively. The decrease is due to a reduction in net investment
income due to the Special Dividends and lower yields on
investments. See "Effect of Special Dividends and Cash Capital
Contributions."
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is a party to litigation and arbitration proceedings
in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.
In recent years, life insurance companies have been named as
defendants in lawsuits, including class action lawsuits, relating
to life insurance pricing and sales practices. A number of these
lawsuits have resulted in substantial jury awards or settlements.
In October 1996, a policyholder of NLIC filed a complaint in
Alabama state court against NLIC and an agent of the Company
(Wayne M. King v. Nationwide Life Insurance Company and Danny Nix)
related to the sale of a whole life policy on a "vanishing
premium" basis and seeking unspecified compensatory and punitive
damages. In February 1997, NLIC was named as a defendant in a
lawsuit filed in New York Supreme Court also related to the sale
of whole life policies on a "vanishing premium" basis (John H.
Snyder v. Nationwide Mutual Insurance Company, Nationwide Mutual
Insurance Co. and Nationwide Life Insurance Co.). The plaintiff in
such lawsuit seeks to represent a national class of NLIC's
policyholders and claims unspecified compensatory and punitive
damages. This lawsuit is in the early stage and has not been
certified as a class action. On April 22, 1997, a motion to
dismiss the Snyder complaint in its entirety was filed by the
defendants. There can be no assurance that any litigation relating
to pricing and sales practices will not have a material adverse
effect on the Company in the future.
ITEM 2 CHANGES IN SECURITIES
Omitted due to reduced disclosure format.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Omitted due to reduced disclosure format.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted due to reduced disclosure format.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three month
period ended March 31, 1997.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
(Registrant)
Date: March 15, 1997 /s/Mark R. Thresher
----------------------------------------------
Mark R. Thresher, Vice President - Controller
(Chief Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONWIDE
LIFE INSURANCE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 11,578,223
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 67,178
<MORTGAGE> 5,354,367
<REAL-ESTATE> 293,229
<TOTAL-INVEST> 18,378,703
<CASH> 67,899
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,504,257
<TOTAL-ASSETS> 48,555,073
<POLICY-LOSSES> 17,309,496
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 363,823
<POLICY-HOLDER-FUNDS> 59,913
<NOTES-PAYABLE> 0
<COMMON> 3,815
0
0
<OTHER-SE> 2,088,398
<TOTAL-LIABILITY-AND-EQUITY> 48,555,073
55,446
<INVESTMENT-INCOME> 340,950
<INVESTMENT-GAINS> 21,042
<OTHER-INCOME> 9,834
<BENEFITS> 296,370
<UNDERWRITING-AMORTIZATION> 43,394
<UNDERWRITING-OTHER> 93,861
<INCOME-PRETAX> 103,450
<INCOME-TAX> 36,722
<INCOME-CONTINUING> 66,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,728
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
