<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 JUNE 30, 1999 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 August 1, 1999.
COMMON STOCK (par value $1 per share) - 3,814,779 shares issued and
(Title of Class) outstanding as of August 1, 1999
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
<TABLE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
FORM 10-Q
<CAPTION>
INDEX
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements 3
Item 2 Management's Narrative Analysis of the Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in Securities 22
Item 3 Defaults Upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
SIGNATURE 23
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(Unaudited)
(in millions)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------------
1999 1998 1999 1998
------ ------ -------- --------
<S> <C> <C> <C> <C>
REVENUES
Policy charges $218.1 $175.0 $ 424.3 $ 334.0
Life insurance premiums 48.9 52.0 102.4 105.2
Net investment income 372.1 367.0 735.4 731.5
Realized (losses) gains on investments (8.3) 5.0 (13.7) 21.6
Other 20.4 16.8 39.9 31.1
------ ------ -------- --------
651.2 615.8 1,288.3 1,223.4
------ ------ -------- --------
BENEFITS AND EXPENSES
Interest credited to policyholder account
balances 267.4 264.7 531.2 526.6
Other benefits and claims 44.3 40.6 94.8 86.9
Policyholder dividends on participating
policies 11.7 11.5 21.8 22.3
Amortization of deferred policy acquisition
costs 66.8 54.1 127.5 101.8
Other operating expenses 109.0 106.6 213.3 208.7
------ ------ -------- --------
499.2 477.5 988.6 946.3
------ ------ -------- --------
Income before federal income tax expense 152.0 138.3 299.7 277.1
Federal income tax expense 51.9 47.5 100.4 95.2
------ ------ -------- --------
Net income $100.1 $ 90.8 $ 199.3 $ 181.9
====== ====== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
<TABLE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions, except per share amounts)
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
----------- ------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $14,006.9 in
1999; $13,721.3 in 1998) $14,138.0 $14,245.1
Equity securities (cost $102.3 in 1999; $110.4 in
1998) 125.4 127.2
Mortgage loans on real estate, net 5,395.2 5,328.4
Real estate, net 241.4 243.6
Policy loans 492.4 464.3
Other long-term investments 66.5 44.0
Short-term investments 227.8 289.1
--------- ---------
20,686.7 20,741.7
--------- ---------
Cash 1.0 3.4
Accrued investment income 224.0 218.7
Deferred policy acquisition costs 2,310.6 2,022.2
Other assets 460.5 420.3
Assets held in separate accounts 58,147.0 50,935.8
--------- ---------
$81,829.8 $74,342.1
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims $20,099.3 $19,767.1
Other liabilities 812.7 866.1
Liabilities related to separate accounts 58,147.0 50,935.8
--------- ---------
79,059.0 71,569.0
--------- ---------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5.0 million
shares, issued and outstanding 3.8 million shares 3.8 3.8
Additional paid-in capital 914.7 914.7
Retained earnings 1,767.3 1,579.0
Accumulated other comprehensive income 85.0 275.6
--------- ---------
2,770.8 2,773.1
--------- ---------
$81,829.8 $74,342.1
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
<TABLE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(Unaudited)
Six Months Ended June 30, 1999 and 1998
(in millions)
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK CAPITAL EARNINGS INCOME EQUITY
------ ---------- -------- ------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 3.8 $914.7 $1,312.3 $247.1 $2,477.9
Comprehensive income:
Net income -- -- 181.9 -- 181.9
Net unrealized gains on securities
available-for-sale arising
during the period -- -- -- 2.9 2.9
--------
Total comprehensive income 184.8
--------
Dividends to shareholder -- -- (100.0) -- (100.0)
------ ------ -------- ------ --------
BALANCE, JUNE 30, 1998 $ 3.8 $914.7 $1,394.2 $250.0 $2,562.7
====== ====== ======== ====== ========
BALANCE, JANUARY 1, 1999 $ 3.8 $914.7 $1,579.0 $275.6 $2,773.1
Comprehensive income:
Net income -- -- 199.3 -- 199.3
Net unrealized losses on securities
available-for-sale arising
during the period -- -- -- (190.6) (190.6)
--------
Total comprehensive income 8.7
--------
Dividends to shareholder -- -- (11.0) -- (11.0)
------ ------ -------- ------ --------
BALANCE, JUNE 30, 1999 $ 3.8 $914.7 $1,767.3 $ 85.0 $2,770.8
====== ====== ======== ====== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
<TABLE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, 1999 and 1998
(in millions)
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 199.3 $ 181.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to policyholder account balances 531.2 526.6
Capitalization of deferred policy acquisition costs (322.6) (294.6)
Amortization of deferred policy acquisition costs 127.5 101.8
Amortization and depreciation 3.8 (4.4)
Realized losses (gains) on investments, net 13.7 (21.6)
Increase in accrued investment income (5.3) (3.3)
(Increase) decrease in other assets (40.2) 30.4
Decrease in policy liabilities (2.9) (2.3)
Increase (decrease) in other liabilities 49.2 (63.9)
Other, net (2.9) (6.3)
--------- ---------
Net cash provided by operating activities 550.8 444.3
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available-for-sale 1,172.5 761.6
Proceeds from sale of securities available-for-sale 247.7 464.4
Proceeds from repayments of mortgage loans on real estate 227.8 337.5
Proceeds from sale of real estate 5.2 58.7
Proceeds from repayments of policy loans and sale of other
invested assets 10.0 14.1
Cost of securities available-for-sale acquired (1,714.2) (1,637.1)
Cost of mortgage loans on real estate acquired (295.1) (401.1)
Cost of real estate acquired (1.9) (0.3)
Short-term investments, net 61.3 166.3
Other, net (56.9) (33.9)
--------- ---------
Net cash used in investing activities (343.6) (269.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (13.5) (100.0)
Increase in investment product and universal life insurance
product account balances 1,559.7 1,278.5
Decrease in investment product and universal life insurance
product account balances (1,755.8) (1,522.7)
--------- ---------
Net cash used in financing activities (209.6) (344.2)
--------- ---------
Net decrease in cash (2.4) (169.7)
Cash, beginning of period 3.4 175.6
--------- ---------
Cash, end of period $ 1.0 $ 5.9
========= =========
</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
Six Months Ended June 30, 1999
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of
Nationwide Life Insurance Company and subsidiaries (NLIC or
collectively 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,
1998 included in the Company's annual report on Form 10-K.
(2) Recently Issued Accounting Standards
------------------------------------
In March 1998, The American Institute of Certified Public Accountant's
Accounting Standards Executive Committee issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." The SOP, which has been adopted
prospectively as of January 1, 1999, requires the capitalization of
certain costs incurred in connection with developing or obtaining
internal use software. Prior to the adoption of SOP 98-1, the Company
expensed internal use software related costs as incurred. The effect
of adopting the SOP was to increase net income for the quarter ended
June 30, 1999 by $2.4 million and by $3.3 million for the first six
months of 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities.
Contracts that contain embedded derivatives, such as certain insurance
contracts, are also addressed by the Statement. FAS 133 requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. In July 1999 the FASB issued Statement 137 which delayed
the effective date of FAS 133 to fiscal years beginning after June 15,
2000. The Company plans to adopt this Statement in first quarter 2001
and is currently evaluating the impact on results of operations and
financial condition.
7
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements, Continued
(3) Comprehensive Income
--------------------
Comprehensive Income includes net income as well as certain items that
are reported directly within a separate component of shareholder's
equity that bypass net income. Currently, the Company's only component
of Other Comprehensive Income (Loss) is unrealized gains (losses) on
securities available-for-sale. The related before and after federal
income tax amounts are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(in millions) JUNE 30, JUNE 30,
--------------------------------------- -------------------- --------------------
1999 1998 1999 1998
------- ----- ------- -----
<S> <C> <C> <C> <C>
Unrealized (losses) gains on securities
available-for-sale arising during
the period:
Gross $(241.9) $28.9 $(396.3) $ 7.1
Adjustment to deferred policy
acquisition costs 63.8 (6.9) 93.4 0.9
Related federal income tax
benefit (expense) 60.9 (7.6) 102.6 (2.8)
------- ----- ------- -----
Net (117.2) 14.4 (200.3) 5.2
------- ----- ------- -----
Reclassification adjustment for
net losses (gains) on securities
available-for-sale realized during
the period:
Gross 6.5 (0.6) 15.0 (3.5)
Related federal income tax
(benefit) expense (2.3) 0.2 (5.3) 1.2
------- ----- ------- -----
Net 4.2 (0.4) 9.7 (2.3)
------- ----- ------- -----
Total Other Comprehensive (Loss) Income $(113.0) $14.0 $(190.6) $ 2.9
======= ===== ======= =====
</TABLE>
(4) Segment Disclosures
-------------------
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that
generate a return for the customer at a specified interest rate, fixed
for a prescribed period, with returns accumulating on a tax-deferred
basis. Such contracts consist of single premium deferred annuities,
flexible premium deferred annuities and single premium immediate
annuities. The Fixed Annuities segment includes the fixed option under
variable annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenues and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment adviser subsidiary, revenues
and expenses related to group annuity contracts sold to Nationwide
Insurance employee and agent benefit plans and all realized gains and
losses on investments in a Corporate and Other segment.
8
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements, Continued
During first quarter 1999 the Company revised the allocation of net
investment income among its Life Insurance and Corporate and Other
segments. Also, certain amounts previously reported as other income
were reclassified to operating expense. Amounts reported for prior
periods have been restated to reflect these changes.
The following table summarizes the financial results of the Company's
business segments for the three months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
------------------------------------ --------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
1999
Operating revenue (1) $154.8 $286.3 $153.3 $65.1 $659.5
Benefits and expenses 83.8 240.3 124.1 51.0 499.2
------ ------ ------ ----- ------
Operating income before federal
income tax 71.0 46.0 29.2 14.1 160.3
Realized losses on investments -- -- -- (8.3) (8.3)
------ ------ ------ ----- ------
Consolidated income before
federal income tax $ 71.0 $ 46.0 $ 29.2 $ 5.8 $152.0
====== ====== ====== ===== ======
1998
Operating revenue (1) $128.0 $286.2 $134.2 $62.4 $610.8
Benefits and expenses 72.3 243.1 112.7 49.4 477.5
------ ------ ------ ----- ------
Operating income before federal
income tax 55.7 43.1 21.5 13.0 133.3
Realized gains on investments -- -- -- 5.0 5.0
------ ------ ------ ----- ------
Consolidated income before
federal income tax $ 55.7 $ 43.1 $ 21.5 $18.0 $138.3
====== ====== ====== ===== ======
</TABLE>
----------
(1) Excludes realized gains and losses on investments.
9
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's
business segments for the six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
---------------------------------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1999
Operating revenue (1) $ 298.3 $ 573.9 $ 304.4 $ 125.4 $ 1,302.0
Benefits and expenses 161.1 485.1 246.1 96.3 988.6
--------- --------- -------- -------- ---------
Operating income before federal
income tax 137.2 88.8 58.3 29.1 313.4
Realized losses on investments -- -- -- (13.7) (13.7)
--------- --------- -------- -------- ---------
Consolidated income before
federal income tax $ 137.2 $ 88.8 $ 58.3 $ 15.4 $ 299.7
========= ========= ======== ======== =========
Assets as of period end $54,603.7 $15,641.8 $5,790.1 $5,794.2 $81,829.8
========= ========= ======== ======== =========
1998
Operating revenue (1) $ 242.3 $ 575.5 $ 261.4 $ 122.6 $ 1,201.8
Benefits and expenses 137.3 487.4 219.8 101.8 946.3
--------- --------- -------- -------- ---------
Operating income before federal
income tax 105.0 88.1 41.6 20.8 255.5
Realized gains on investments -- -- -- 21.6 21.6
--------- --------- -------- -------- ---------
Consolidated income before
federal income tax $ 105.0 $ 88.1 $ 41.6 $ 42.4 $ 277.1
========= ========= ======== ======== =========
Assets as of period end $43,113.0 $14,549.5 $4,706.0 $5,975.2 $68,343.7
========= ========= ======== ======== =========
</TABLE>
----------
(1) Excludes realized gains and losses on investments.
(5) Contingencies
-------------
On October 29, 1998, the Company was named in a lawsuit filed in Ohio
state court related to the sale of deferred annuity products for use
as investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
On May 3, 1999, the complaint was amended to, among other things, add
Marcus Shore as a second plaintiff. The amended complaint is brought
as a class action on behalf of all persons who purchased individual
deferred annuity contracts or participated in group annuity contracts
sold by the Company and the other named Company affiliates which were
used to fund certain tax-deferred retirement plans. The amended
complaint seeks unspecified compensatory and punitive damages. On June
11, 1999, the Company and the other named defendants filed a motion to
dismiss the amended complaint. The Company intends to defend this
lawsuit vigorously.
(6) Transactions with Affiliates
----------------------------
During second quarter 1999, NLIC entered into a modified coinsurance
arrangement to reinsure the 1999 operating results of Employers Life
Insurance Company of Wausau (ELOW) retroactive to January 1, 1999.
ELOW has the same parent company, Nationwide Corporation, as
Nationwide Financial Services, Inc., NLIC's parent. This transaction
added $1.0 million to net income for the second quarter of 1999.
On August 11, 1999, NLIC's Board of Directors declared a dividend of
$175 million to NFS. NFS anticipates using approximately $125 million
of the proceeds to purchase ELOW and plans to immediately merge ELOW
into NLIC. The purchase and merger are expected to be completed in
third quarter 1999.
10
<PAGE> 11
ITEM 2 MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of unaudited consolidated results of operations
of the Company should be read in conjunction with the unaudited
consolidated financial statements and related notes included elsewhere
herein.
Management's discussion and analysis contains certain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 with respect to the results of operations and
businesses of the Company. These forward-looking statements involve
certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated or projected, forecast,
estimated or budgeted in such forward looking statements include,
among others, the following possibilities: (i) the potential impact on
the Company's reported net income that could result from the adoption
of certain accounting standards issued by the FASB; (ii) tax law
changes impacting the tax treatment of life insurance and investment
products; (iii) heightened competition, including specifically the
intensification of price competition, the entry of new competitors and
the development of new products by new and existing competitors; (iv)
adverse state and federal legislation and regulation, including
limitations on premium levels, increases in minimum capital and
reserves, and other financial viability requirements; (v) failure to
expand distribution channels in order to obtain new customers or
failure to retain existing customers; (vi) inability to carry out
marketing and sales plans, including, among others, changes to certain
products and acceptance of the revised products in the market; (vii)
changes in interest rates and the capital markets causing a reduction
of investment income or asset fees, reduction in the value of the
Company's investment portfolio or a reduction in the demand for the
Company's products; (viii) general economic and business conditions
which are less favorable than expected; (ix) unanticipated changes in
industry trends and ratings assigned by nationally recognized
statistical rating organizations or A.M. Best Company, Inc.; and (x)
inaccuracies in assumptions regarding future persistency, mortality,
morbidity and interest rates used in calculating reserve amounts and
(xi) failure of the Company or its significant business partners and
vendors to identify and correct all non-Year 2000 compliant systems or
to develop and execute adequate contingency plans.
RESULTS OF OPERATIONS
In addition to net income, the Company reports net operating income,
which excludes realized investment gains and losses. Net operating
income is commonly used in the insurance industry as a measure of
on-going earnings performance.
The following table reconciles the Company's reported net income to
net operating income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
(in millions) 1999 1999 1998 1998
-------------------------------------------------- ------ ----- ------ ------
<S> <C> <C> <C> <C>
Net income $100.1 $90.8 $199.3 $181.9
Realized losses (gains) on investments, net of tax 5.4 (3.3) 8.9 (14.1)
------ ----- ------ ------
Net operating income $105.5 $87.5 $208.2 $167.8
====== ===== ====== ======
</TABLE>
11
<PAGE> 12
Revenues
Total operating revenues, which exclude realized gains and losses on
investments, for second quarter 1999 increased to $659.5 million
compared to $610.8 million for the same period in 1998. For the first
six months of 1999 and 1998, total operating revenues were $1.30
billion and $1.20 billion, respectively. Increases in policy charges
and other income were the key drivers to revenue growth, while net
investment income and life insurance premiums were relatively flat.
Policy charges include asset fees, which are primarily earned from
separate account assets generated from sales of variable annuities and
variable life insurance products; cost of insurance charges earned on
universal life insurance products; administration fees, which include
fees charged per contract on a variety of the Company's products and
premium loads on universal life insurance products; and surrender
fees, which are charged as a percentage of premiums withdrawn during a
specified period of annuity and certain life insurance contracts.
Policy charges for the comparable periods of 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
(in millions) 1999 1998 1999 1998
------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Asset fees $152.2 $126.0 $292.6 $239.2
Cost of insurance charges 28.4 21.7 54.3 41.0
Administrative fees 22.0 17.1 47.8 34.0
Surrender fees 15.5 10.2 29.6 19.8
------ ------ ------ ------
Total policy charges $218.1 $175.0 $424.3 $334.0
====== ====== ====== ======
</TABLE>
The growth in asset fees reflects a 27% increase in total separate
account assets which reached $58.15 billion as of June 30, 1999
compared to $45.97 billion a year ago. Continued strong sales of
variable annuity and variable life insurance products as well as
market appreciation have contributed significantly to the increase in
separate account assets.
Cost of insurance charges are assessed as a percentage of the net
amount at risk on universal life insurance policies. The net amount at
risk is equal to a policy's death benefit minus the related
policyholder account value. The increase in cost of insurance charges
is due primarily to growth in the net amount at risk related to
individual variable universal life insurance reflecting expanded
distribution and increased customer demand for variable life insurance
products. The net amount at risk related to individual variable
universal life insurance grew to $17.10 billion as of June 30, 1999
compared to $12.29 billion a year ago.
The growth in administrative fees is attributable to a significant
increase in premiums on individual variable life policies and certain
corporate-owned life policies where the Company collects a premium
load. The increase in surrender charges is primarily attributable to
policyholder withdrawals in the Variable Annuities segment, and
reflects the overall increase in variable annuity policy reserves.
The Company does not consider realized gains and losses on investments
to be recurring components of earnings. The Company makes decisions
concerning the sale of invested assets based on a variety of market,
business, tax and other factors. Net realized (losses) gains on
investments were $(8.3) million and $5.0 million for second quarter
1999 and 1998, respectively. For the first six months of 1999, the
Company reported realized losses on investments of $(13.7) million
compared to $21.6 million of realized gains for the first six months
of 1998. During the first half of 1999 the Company recognized a total
of $19.9 million of realized losses on two fixed maturity security
holdings.
Other income includes fees earned by the Company's investment
management subsidiary. The growth in other income reflects a $2.79
billion increase in this subsidiary's assets under management compared
to a year ago.
12
<PAGE> 13
Benefits and Expenses
Total benefits and expenses were $499.2 million in second quarter
1999, a 5% increase over second quarter 1998, while year to date 1999
benefits and expenses were $988.6 million compared to $946.3 million a
year ago. The increase is due mainly to growth in amortization of
deferred acquisition costs (DAC). Interest credited, other
policyholder benefits and other operating expenses were relatively
flat compared to the year ago second quarter.
The growth in the Variable Annuities segment business and related
revenues is the primary reason for the increase in amortization of DAC
which totaled $66.8 million and $54.1 million in second quarter of
1999 and 1998, respectively. On a year to date basis, DAC amortization
totaled $127.5 million in 1999 compared to $101.8 million in 1998.
Federal income tax expense was $51.9 million and $47.5 million,
representing effective tax rates of 34.1% and 34.3% for second quarter
1999 and 1998, respectively. For the first six months of 1999 and 1998
federal income tax expense was $100.4 million and $95.2 million,
representing effective tax rates of 33.5% and 34.4%, respectively.
Year 2000
The Company has developed and implemented a plan to address issues
related to the Year 2000. The problem relates to many existing
computer systems using only two digits to identify a year in a date
field. These systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected,
many computer systems could fail or create erroneous results when
processing information dated after December 31, 1999. Like many
organizations, the Company is required to renovate or replace many
computer systems so that the systems will function properly after
December 31, 1999.
The Company has completed an inventory and assessment of all computer
systems and has implemented a plan to renovate or replace all
applications that were identified as not Year 2000 compliant. The
Company has renovated all applications that required renovation.
Testing of the renovated programs included running each application in
a Year 2000 environment and was completed as planned during 1998. For
applications being replaced, the Company had all replacement systems
in place and functioning as planned by year-end 1998. The shareholder
services system that supports mutual fund products was fully deployed
during the first quarter 1999. Conversion of existing traditional life
policies to the new compliant system was completed by July 1999.
The Company has completed an inventory and assessment of all vendor
products and has tested and certified that each vendor product is Year
2000 compliant. Any vendor products that could not be certified as
Year 2000 compliant were replaced or eliminated in 1998.
The Company's facilities in Columbus, Ohio have been inventoried,
assessed and tested as being Year 2000 compliant. Mission-critical
systems supporting the Company's infrastructure such as
telecommunications, voice and networks were renovated and brought into
compliance as planned during the second quarter.
The Company has also addressed issues associated with the exchange of
electronic data with external organizations. The Company has completed
an inventory and assessment of all business partners utilizing
electronic interfaces with the Company and processes have been put in
place to allow the Company to accept data regardless of the format.
During third quarter 1999, contingency plans will be finalized for
other interfaces with our critical business partners.
13
<PAGE> 14
In addition to resolving internal Year 2000 readiness issues, the
Company is conducting a due diligence effort with significant external
organizations, including mutual fund organizations, financial
institutions and wholesale producers, to assess if they will be Year
2000 compliant. This involves communication and follow-up with
critical business partners to determine if they will be in a position
to continue doing business in the Year 2000 and beyond. The results
are currently being gathered and analyzed and these efforts will
continue until compliance is assured or until regulatory rulings
indicate actions to be taken related to non-compliant firms.
Contingency plans have been developed for mutual fund organizations,
financial institutions and wholesale producers who may not become
compliant prior to the end of 1999.
As part of its risk management strategy, the Company has identified
risk scenarios including the identification of external risk factors
that could cause business interruptions from Year 2000 related events.
These risk scenarios include increased customer service volume,
increased producer service volume, utility failures, technology
failures and disruptions in business operations, finance and cash
flow. The Company is in the process of developing mitigation and
contingency plans to address these risks that would, except for
complete utility failure, permit uninterrupted service to customers
and producers. Contingency and mitigation plan efforts are expected to
be completed during the third quarter of 1999.
Operating expenses in 1998 and 1997 include approximately $44.7
million and $45.4 million, respectively, for technology projects,
including costs related to Year 2000. The Company anticipates spending
approximately $5 million on Year 2000 activities in 1999 and
expenditures for the first six months of 1999 totaled $4.2 million.
Management does not anticipate that the completion of Year 2000
renovation and replacement activities will result in a reduction in
operating expenses. Rather, personnel and resources currently
allocated to Year 2000 issues will be assigned to other
technology-related projects.
Recently Issued Accounting Standards
See note 2 to the unaudited consolidated financial statements for a
discussion of recently issued accounting standards.
Statutory Premiums and Deposits
The Company sells its products through a broad distribution network.
Unaffiliated entities that sell the Company's products to their own
customer base include independent broker/dealers, national and
regional brokerage firms, pension plan administrators and financial
institutions. Representatives of the Company who market products
directly to a customer base identified by the Company include
Nationwide Retirement Solutions sales representatives and Nationwide
Insurance agents.
Statutory premiums and deposits by distribution channel are summarized
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
JUNE 30, JUNE 30,
------------------------ ------------------------
(in millions) 1999 1998 1999 1998
----------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Independent broker/dealers $1,430.3 $1,358.5 $2,733.3 $2,554.5
National and regional
brokerage firms 245.1 144.8 458.4 304.4
Financial institutions 671.3 656.1 1,209.4 1,121.3
Pension plan administrators 335.7 277.9 673.2 557.3
Nationwide Retirement Solutions
sales representatives 617.5 575.8 1,231.3 1,197.1
Nationwide Insurance agents 235.0 311.7 454.9 504.1
Life specialists 40.4 364.6 227.2 454.5
-------- -------- -------- --------
Total external premiums and
deposits 3,575.3 3,689.4 6,987.7 6,693.2
======== ======== ======== ========
Nationwide Insurance employee and
agent benefit plans 123.7 55.7 190.1 115.5
-------- -------- -------- --------
Total statutory premiums and deposits $3,699.0 $3,745.1 $7,177.8 $6,808.7
======== ======== ======== ========
</TABLE>
14
<PAGE> 15
The 1998 statutory premiums and deposits have been restated to conform
to the 1999 presentation which better reflects multi-product sales
across all distribution channels.
Excluding Nationwide Insurance benefit plan sales, total Company sales
declined slightly in the second quarter of 1999 compared to the second
quarter of 1998, however, sales increased 5% from first quarter 1999.
On a year to date basis, sales increased 4% in 1999 compared to 1998.
Second quarter 1998 sales included $349.9 million in single premium
bank-owned life insurance (BOLI). Excluding these premiums, sales in
second quarter 1999 were up 7% compared to 1998 second quarter sales,
and up 10% on a year to date basis.
Total annuity sales were $3.37 billion for second quarter 1999, up 6%
from a year ago. Through six months total annuity sales were $6.45
billion, up 8%. The growth was attributable to group annuities, with
each channel reporting increased sales from a year ago.
Life insurance sales, excluding BOLI, were $201.9 million for second
quarter 1999, up 33% from a year ago. On a comparable basis, six month
sales increased 54% to $452.4 million.
The Company believes it is on track to achieve its 20 percent growth
objective for 1999, with sales including external statutory premiums
and deposits, except BOLI, during the second half of the year.
The Company's flagship products are marketed under The BEST of
AMERICA(R) brand, and include individual and group variable annuities
and variable life insurance. The BEST of AMERICA(R) products allow
customers to choose from among investment options managed by premier
mutual fund managers. The Company has also developed private label
variable and fixed annuity products in conjunction with other
financial services providers which allow those providers to sell
products to their own customer bases under their own brand name.
The Company also markets group deferred compensation retirement plans
to employees of state and local governments for use under Internal
Revenue Code (IRC) Section 457. The Company utilizes its sponsorship
by the National Association of Counties and The United States
Conference of Mayors when marketing IRC Section 457 products. In
addition, the Company utilizes an exclusive arrangement with the
National Education Association (NEA) to market tax-qualified annuities
under IRC 403(b) to NEA members. Variable annuities developed for the
NEA members are sold under the NEA Valuebuilder brand.
External statutory premiums and deposits by product are summarized as
follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
(in millions) 1999 1998 1999 1998
------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
The BEST of AMERICA(R) products:
Individual variable annuities $1,295.9 $1,378.6 $2,432.7 $2,498.6
Group variable annuities 887.5 672.1 1,789.3 1,374.2
Variable universal life insurance 99.7 74.9 190.2 142.4
Private label annuities 360.8 339.7 665.2 574.9
IRC Section 457 annuities 521.6 499.4 1,052.5 1,048.1
The NEA Valuebuilder annuities 48.8 43.6 85.8 80.9
Bank-owned life insurance -- 349.9 86.7 425.1
Corporate-owned life insurance 40.4 14.7 140.5 29.4
Traditional/Universal life insurance 61.8 62.1 121.8 121.4
Other 258.8 254.4 423.0 398.2
-------- -------- -------- --------
$3,575.3 $3,689.4 $6,987.7 $6,693.2
======== ======== ======== ========
</TABLE>
15
<PAGE> 16
BUSINESS SEGMENTS
The Company reports three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. In addition, the Company reports certain
other revenue and expenses in a Corporate and Other segment. All
information set forth below relating to the Variable Annuities segment
excludes the fixed option under variable annuity contracts. Such
information is included in the Fixed Annuities segment.
The following table summarizes operating income before federal income
tax expense for the Company's business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(in millions) 1999 1999 1998 1998
---------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Variable Annuities $ 71.0 $ 55.7 $137.2 $105.0
Fixed Annuities 46.0 43.1 88.8 88.1
Life Insurance 29.2 21.5 58.3 41.6
Corporate and Other 14.1 13.0 29.1 20.8
------ ------ ------ ------
$160.3 $133.3 $313.4 $255.5
====== ====== ====== ======
</TABLE>
Variable Annuities
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The following table summarizes certain selected financial data for the
Variable Annuities segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
(in millions) 1999 1998 1999 1998
----------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 154.8 $ 128.0 $ 298.3 $ 242.3
Benefits and expenses 83.8 72.3 161.1 137.3
--------- --------- --------- ---------
Operating income before federal
income tax expense $ 71.0 $ 55.7 $ 137.2 $ 105.0
========= ========= ========= =========
OTHER DATA
Statutory premiums and deposits (1) $ 2,624.5 $ 2,726.5 $ 5,082.3 $ 5,015.5
Policy reserves as of period end $53,263.3 $41,962.1 $53,263.3 $41,962.1
Pre-tax operating income to
average policy reserves 0.56% 0.55% 0.56% 0.54%
</TABLE>
---------
(1) Statutory data have been derived from the Quarterly Statements of
the Company's life insurance subsidiaries, as filed with insurance
regulatory authorities and prepared in accordance with statutory
accounting practices.
Variable annuity segment results reflect substantially increased asset
fee revenue partially offset by increases in DAC amortization and
other operating expenses. Asset fees increased to $146.5 million in
the second quarter of 1999, up 20% from $122.2 million in the same
period a year ago. For the first half of 1999, asset fees totaled
$282.1 million up 22% from the first half of 1998. The increase in
asset fees is due to continued growth in variable annuity policy
reserve levels resulting from increased variable annuity sales and
market appreciation on investments underlying reserves.
16
<PAGE> 17
Variable annuity policy reserves grew $4.42 billion during the second
quarter of 1999 reaching $53.26 billion as of June 30, 1999 and have
increased 27% compared to a year ago. During the first six months of
1999 reserves have grown $6.84 billion. Variable annuity sales were
relatively flat compared to 1999 both on a quarterly and year to date
basis; however, second quarter 1999 sales grew 7% compared to first
quarter 1999, reaching $2.62 billion.
Favorable equity market conditions during the first half of 1999 also
contributed significantly to the growth in variable annuity policy
reserves. Variable annuity policy reserves reflect market appreciation
of $4.37 billion during the first six months of 1999. Over the past
twelve months, variable annuity policy reserves have increased $6.62
billion as a result of market appreciation.
Amortization of DAC increased 27% to $38.8 million in second quarter
1999 compared to $30.5 million in second quarter 1998. DAC
amortization for the first half of 1999 increased to $74.2 million
compared to $56.9 million for the first half of 1998. Operating
expenses were $44.3 million in second quarter 1999, an increase of 8%
over second quarter 1998, while year to date 1999 operating expenses
were $85.8 million compared to $78.4 million in 1998. The growth in
DAC amortization and operating expenses reflect the overall growth in
the variable annuity business.
Fixed Annuities
The Fixed Annuities segment consists of annuity contracts that
generate a return for the customer at a specified interest rate, fixed
for a prescribed period, with returns accumulating on a tax-deferred
basis. Such contracts consist of single premium deferred annuities,
flexible premium deferred annuities and single premium immediate
annuities. The Fixed Annuities segment includes the fixed option under
variable annuity contracts.
The following table summarizes certain selected financial data for the
Fixed Annuities segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
(in millions) 1999 1999 1998 1998
--------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net investment income $ 278.1 $ 276.6 $ 553.4 $ 553.8
Other 8.2 9.6 20.5 21.7
--------- --------- --------- ---------
286.3 286.2 573.9 575.5
--------- --------- --------- ---------
Benefits and expenses:
Interest credited to policyholder
account balances 202.5 206.3 404.7 412.2
Other benefits and expenses 37.8 36.8 80.4 75.2
--------- --------- --------- ---------
240.3 243.1 485.1 487.4
--------- --------- --------- ---------
Operating income before federal
income tax expense $ 46.0 $ 43.1 $ 88.8 $ 88.1
========= ========= ========= =========
OTHER DATA
Statutory premiums and deposits (1) $ 748.9 $ 461.2 $ 1,366.3 $ 959.3
Policy reserves as of period end $15,114.3 $14,256.1 $15,114.3 $14,256.1
Pre-tax operating income to
average policy reserves 1.22% 1.21% 1.18% 1.24%
</TABLE>
---------
(1) Statutory data have been derived from the Quarterly Statements of
the Company's life insurance subsidiaries, as filed with insurance
regulatory authorities and prepared in accordance with statutory
accounting practices.
17
<PAGE> 18
Fixed annuity segment results reflect an increase in interest spread
income attributable to growth in fixed annuity policy reserves.
Interest spread is the difference between net investment income and
interest credited to policyholder account balances. Interest spreads
vary and are influenced by various factors including crediting rates
offered by competitors, performance of the investment portfolio,
changes in market interest rates and other factors. The following
table depicts the interest spreads on general account policy reserves
in the Fixed Annuities segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income 7.65% 7.99% 7.64% 8.00%
Interest credited 5.57 5.96 5.59 5.95
---- ---- ---- ----
2.08% 2.03% 2.05% 2.05%
==== ==== ==== ====
</TABLE>
The Company has experienced an increase in mortgage loan and bond
prepayment fees in the first half of 1999 and such income accounted
for approximately 11 basis points and 13 basis points of the interest
spread in the second quarter and first six months of 1999,
respectively. Comparatively, prepayment fees contributed 6 basis
points and 7 basis points of the interest spread during the second
quarter and first half of 1998, respectively. The Company anticipates
that recent increases in interest rates will slow prepayment activity
and expects interest spreads to remain at 190 to 195 basis points,
excluding the impact of mortgage loan and bond prepayment income, and
closer to 200 basis points assuming a normal level of prepayment
activity.
Fixed annuity policy reserves increased to $15.11 billion as of June
30, 1999 compared to $14.90 billion as of the end of 1998 and $14.26
billion a year ago.
Second quarter fixed annuity sales increased to $748.9 million in 1999
compared to $461.2 million in 1998 while sales for the first six
months of 1999 increased to $1.37 billion from $959.3 million in 1998.
Most of the Company's fixed annuity sales are premiums allocated to
the fixed option of variable annuity contracts. Second quarter 1999
fixed annuity sales include $658.2 million in premiums allocated to
the fixed option under a variable annuity contract, compared to $356.4
million in second quarter 1998.
Much of the recent growth in fixed annuity reserves and fixed option
sales is attributable to a sales promotion initiated in first quarter
1999 that offers customers a first year bonus interest rate and
transfers the account balance systematically to variable options over
a twelve month period. At June 30, 1999 nearly $550 million of fixed
reserves relate to this program.
Other benefits and expenses remained relatively flat in second quarter
1999 compared to a year ago.
As a means to expand spread-based product offerings, on July 13, 1999,
the Company launched a $2 billion European Medium Term Note program.
Notes issued under the program will be secured by funding agreements
issued by NLIC. The first series of notes issued under the program are
500 million Swiss Franc-denominated (USD $317 million), five-year
notes, and are expected to close August 16, 1999.
Life Insurance
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
18
<PAGE> 19
The following table summarizes certain selected financial data for the
Life Insurance segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
(in millions) 1999 1998 1999 1998
------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 153.3 $ 134.2 $ 304.4 $ 261.4
Benefits and expenses 124.1 112.7 246.1 219.8
-------- -------- -------- --------
Operating income before federal
income tax expense $ 29.2 $ 21.5 $ 58.3 $ 41.6
======== ======== ======== ========
OTHER DATA
Statutory premiums (1):
Traditional and universal life
insurance $ 61.8 $ 62.1 $ 121.8 $ 121.4
Variable universal life insurance $ 99.7 $ 74.9 $ 190.2 $ 142.4
Corporate-owned life insurance $ 40.4 $ 364.6 $ 227.1 $ 454.5
Policy reserves as of period end:
Traditional and universal life
insurance $2,476.8 $2,404.5 $2,476.8 $2,404.5
Variable universal life insurance $1,517.8 $1,096.4 $1,517.8 $1,096.4
Corporate-owned life insurance $1,156.9 $ 687.4 $1,156.9 $ 687.4
</TABLE>
----------
(1) Statutory data have been derived from the Quarterly Statements of
the Company's life insurance subsidiaries, as filed with insurance
regulatory authorities and prepared in accordance with statutory
accounting practices.
Life Insurance segment results reflect increased revenues driven by
growth in investment life insurance in force and policy reserves,
partially offset by higher policy benefit costs.
The increase in Life Insurance segment earnings is attributable to
strong growth in investment life insurance products, which include
individual variable universal life insurance and corporate-owned life
insurance, where the Company has aggressively expanded its
distribution capabilities. Revenues from investment life products
increased to $51.9 million in second quarter 1999 from $34.6 million
in second quarter 1998. On a year to date basis, investment life
product revenues increased to $103.7 million in 1999 from $61.8
million in 1998.
Sales of individual investment life insurance increased 33% during
second quarter 1999 reaching $99.7 million compared to $74.9 million
in 1998. Excluding the $349.9 million in 1998 single premium BOLI
sales, corporate investment life insurance sales more than doubled
reaching $40.4 million in second quarter 1999 compared to $14.7
million in second quarter 1998. Total investment life insurance in
force reached $21.48 billion at June 30, 1999 representing 43% of all
life insurance in force compared to $14.84 billion and 35% a year ago.
Interest credited to policyholders increased $6.1 million in second
quarter 1999 reaching $33.6 million compared to $27.5 million in the
year ago second quarter. For the first six months of 1999, interest
credited to policyholders increased $11.9 million over 1998. Increased
corporate-owned life insurance business accounted for most of the
increases. Corporate investment fixed life insurance reserves
increased 41% to $931.5 million as of June 30, 1999 compared to $662.0
million a year ago.
Other policy benefits increased $8.2 million and $12.8 million in the
three months and six months, respectively, ended June 30, 1999 over
comparable periods in 1998, reflecting growth in insurance inforce and
favorable mortality experience in the first half of 1998.
19
<PAGE> 20
Corporate and Other
The following table summarizes certain selected financial data for the
Corporate and Other segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
(in millions) 1999 1998 1999 1998
--------------------------------- ----- ----- ------ ------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $65.1 $62.4 $125.4 $122.6
Benefits and expenses 51.0 49.4 96.3 101.8
----- ----- ------ ------
Operating income before federal
income tax expense (1) 14.1 13.0 29.1 20.8
===== ===== ====== ======
</TABLE>
----------
(1) Excludes realized gains and losses on investments.
Revenues in the Corporate and Other segment consist of net investment
income on invested assets not allocated to the three product segments,
investment management fees and other revenues earned from Nationwide
mutual funds and net investment income and policy charges from group
annuity contracts issued to Nationwide Insurance employee and agent
benefit plans.
In addition to the operating revenues previously presented, the
Company also reports realized gains and losses on investments in the
Corporate and Other segment. The Company realized net investment
(losses) gains of $(8.3) million and $5.0 million during the second
quarter of 1999 and 1998, respectively.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted due to reduced disclosure format.
20
<PAGE> 21
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 and annuity pricing and sales practices. A number of
these lawsuits have resulted in substantial jury awards or
settlements.
In November 1997, two plaintiffs, one who was the owner of a variable
life insurance contract and the other who was the owner of a variable
annuity contract, commenced a lawsuit in a federal court in Texas
against Nationwide Life and the American Century group of defendants
(Robert Young and David D. Distad v. Nationwide Life Insurance Company
et al.). In this lawsuit, plaintiffs sought to represent a class of
variable life insurance contract owners and variable annuity contract
owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their
underlying mutual fund option managed by American Century, whose
shares may only be purchased by insurance companies, would track the
performance of a mutual fund, also managed by American Century, whose
shares are publicly traded. The amended complaint seeks unspecified
compensatory and punitive damages. On April 27, 1998, the district
court denied, in part, and granted, in part, motions to dismiss the
complaint filed by NLIC and American Century. The remaining claims
against NLIC allege securities fraud, common law fraud, civil
conspiracy, and breach of contract. The District Court, on December 2,
1998, issued an order denying plaintiffs' motion for class
certification and the appeals court declined to review the order
denying class certification upon interlocutory appeal. On June 11,
1999, the District Court denied the plaintiffs' motion to amend their
complaint and reconsider class certification. NLIC intends to defend
this lawsuit (now limited to the claims of the two named plaintiffs)
vigorously.
On October 29, 1998, the Company was named in a lawsuit filed in Ohio
state court related to the sale of deferred annuity products for use
as investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
On May 3, 1999, the complaint was amended to, among other things, add
Marcus Shore as a second plaintiff. The amended complaint is brought
as a class action on behalf of all persons who purchased individual
deferred annuity contracts or participated in group annuity contracts
sold by the Company and the other named Company affiliates which were
used to fund certain tax-deferred retirement plans. The amended
complaint seeks unspecified compensatory and punitive damages. On June
11, 1999, the Company and the other named defendants filed a motion to
dismiss the amended complaint. The Company intends to defend this
lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or
sales practices will not have a material adverse effect on the Company
in the future.
21
<PAGE> 22
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 June 30, 1999.
22
<PAGE> 23
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: August 16, 1999 /s/ Mark R. Thresher
-----------------------------------------
Mark R. Thresher, Senior Vice President -
Finance - Nationwide Financial
(Chief Accounting Officer)
23
<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
June 30, 1999, and is qualified in its entirety by reference to such unaudited
consolidated financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 14,138
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 125
<MORTGAGE> 5,395
<REAL-ESTATE> 241
<TOTAL-INVEST> 20,687
<CASH> 1
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,311
<TOTAL-ASSETS> 81,830
<POLICY-LOSSES> 20,099
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 4
<OTHER-SE> 2,767
<TOTAL-LIABILITY-AND-EQUITY> 81,830
102
<INVESTMENT-INCOME> 735
<INVESTMENT-GAINS> (14)
<OTHER-INCOME> 40
<BENEFITS> 626
<UNDERWRITING-AMORTIZATION> 128
<UNDERWRITING-OTHER> 213
<INCOME-PRETAX> 300
<INCOME-TAX> 100
<INCOME-CONTINUING> 199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199
<EPS-BASIC> 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>
