<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 SEPTEMBER 30, 2000 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 November 1, 2000.
COMMON STOCK (par value $1 per share) - 3,814,779 shares issued and outstanding
as of November 1, 2000 (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>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements 3
Item 2 Management's Narrative Analysis of the Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 20
Item 3 Defaults Upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURE 22
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------------
2000 1999 2000 1999
------ ------ -------- --------
<S> <C> <C> <C> <C>
REVENUES
Policy charges $ 284.8 $ 231.7 $ 823.5 $ 656.0
Life insurance premiums 51.7 51.5 180.7 153.9
Net investment income 412.6 379.2 1,229.6 1,114.6
Net realized (losses) gains on investments (2.1) 6.2 (15.9) (7.5)
Other 3.6 26.6 12.8 66.5
------ ------ -------- --------
750.6 695.2 2,230.7 1,983.5
------ ------ -------- --------
BENEFITS AND EXPENSES
Interest credited to policyholder account balances 292.4 272.4 876.9 803.6
Other benefits and claims 56.2 51.7 185.2 146.5
Policyholder dividends on participating policies 8.3 8.7 31.8 30.5
Amortization of deferred policy acquisition costs 91.6 68.6 263.7 196.1
Other operating expenses 125.2 120.2 365.7 333.5
------ ------ -------- --------
573.7 521.6 1,723.3 1,510.2
------ ------ -------- --------
Income before federal income tax expense 176.9 173.6 507.4 473.3
Federal income tax expense 50.9 58.4 157.2 158.8
------ ------ -------- --------
Net income $ 126.0 $ 115.2 $ 350.2 $ 314.5
====== ====== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions, except per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
--------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $14,805.1 in 2000; $15,377.3 in 1999) $ 14,809.8 $ 15,294.0
Equity securities (cost $113.3 in 2000; $84.9 in 1999) 129.1 92.9
Mortgage loans on real estate, net 6,113.0 5,786.3
Real estate, net 285.6 254.8
Policy loans 578.7 519.6
Other long-term investments 84.5 73.8
Short-term investments 613.3 416.0
--------- ---------
22,614.0 22,437.4
--------- ---------
Cash 2.0 4.8
Accrued investment income 247.8 238.6
Deferred policy acquisition costs 2,811.6 2,554.1
Other assets 358.1 305.9
Assets held in separate accounts 71,653.7 67,135.1
--------- ---------
$ 97,687.2 $ 92,675.9
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims $ 21,804.4 $ 21,861.6
Other liabilities 1,158.4 914.2
Liabilities related to separate accounts 71,653.7 67,135.1
--------- ---------
94,616.5 89,910.9
--------- ---------
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 766.1 766.1
Retained earnings 2,271.2 2,011.0
Accumulated other comprehensive income (loss) 29.6 (15.9)
--------- ---------
3,070.7 2,765.0
--------- ---------
$ 97,687.2 $ 92,675.9
========= =========
</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)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
--------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 3.8 $ 914.7 $ 1,579.0 $ 275.6 $ 2,773.1
Comprehensive income:
Net income -- -- 314.5 -- 314.5
Net unrealized losses on securities
available-for-sale arising during the
period -- -- -- (238.2) (238.2)
--------
Total comprehensive income 76.3
--------
Capital contribution -- 26.4 87.9 23.5 137.8
Dividends to shareholder -- (175.0) (11.0) -- (186.0)
---- ------- -------- -------- --------
BALANCE, SEPTEMBER 30, 1999 $ 3.8 $ 766.1 $ 1,970.4 $ 60.9 $ 2,801.2
==== ======= ======== ======== ========
BALANCE, JANUARY 1, 2000 $ 3.8 $ 766.1 $ 2,011.0 $ (15.9) $ 2,765.0
Comprehensive income:
Net income -- -- 350.2 -- 350.2
Net unrealized gains on securities
available-for-sale arising during the
period -- -- -- 45.5 45.5
--------
Total comprehensive income 395.7
--------
Dividends to shareholder -- -- (90.0) -- (90.0)
---- ------- -------- -------- --------
BALANCE, SEPTEMBER 30, 2000 $ 3.8 $ 766.1 $ 2,271.2 $ 29.6 $ 3,070.7
==== ======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 350.2 $ 314.5
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to policyholder account balances 876.9 803.6
Capitalization of deferred policy acquisition costs (586.8) (481.6)
Amortization of deferred policy acquisition costs 263.7 196.1
Amortization and depreciation (7.4) 3.3
Realized losses on investments, net 15.9 7.5
Increase in accrued investment income (9.2) (17.6)
(Increase) decrease in other assets (53.3) 38.6
Increase (decrease) in policy liabilities 0.5 (17.1)
Increase in other liabilities 269.7 39.1
Other, net 27.4 (0.6)
--------- ---------
Net cash provided by operating activities 1,147.6 885.8
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available-for-sale 2,479.2 1,681.9
Proceeds from sale of securities available-for-sale 432.3 336.1
Proceeds from repayments of mortgage loans on real estate 609.4 350.0
Proceeds from sale of real estate 2.2 5.7
Proceeds from repayments of policy loans and sale of other invested assets 17.2 23.7
Cost of securities available-for-sale acquired (2,345.8) (2,479.9)
Cost of mortgage loans on real estate acquired (950.1) (452.2)
Cost of real estate acquired (6.1) (11.1)
Short-term investments, net (197.3) (20.5)
Other, net (116.8) (84.3)
--------- ---------
Net cash used in investing activities (75.8) (650.6)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (140.0) (188.5)
Increase in investment product and universal life insurance product account balances 3,609.4 2,690.9
Decrease in investment product and universal life insurance product account balances (4,544.0) (2,719.7)
--------- ---------
Net cash used in financing activities (1,074.6) (217.3)
--------- ---------
Net (decrease) increase in cash (2.8) 17.9
Cash, beginning of period 4.8 3.4
--------- ---------
Cash, end of period $ 2.0 $ 21.3
========= =========
</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
Nine Months Ended September 30, 2000
(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,
1999 included in the Company's annual report on Form 10-K.
(2) Comprehensive Income
--------------------
Comprehensive Income (Loss) 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 NINE MONTHS ENDED
(in millions) SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------- ----------------------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities
Available-for-sale arising during the period:
Gross $ 116.0 $ (91.6) $ 86.6 $ (487.9)
Adjustment to deferred policy acquisition costs (34.9) 15.3 (25.8) 108.7
Related federal income tax (expense) benefit (28.4) 29.9 (21.3) 132.5
------ ------ ------ -------
Net 52.7 (46.4) 39.5 (246.7)
------ ------ ------ -------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized during
the period:
Gross (2.9) (2.0) 9.2 13.0
Related federal income tax expense (benefit) 1.0 0.8 (3.2) (4.5)
------ ------ ------ -------
Net (1.9) (1.2) 6.0 8.5
------ ------ ------ -------
Total Other Comprehensive Income (Loss) $ 50.8 $ (47.6) $ 45.5 $ (238.2)
====== ====== ====== =======
</TABLE>
(3) Recently Issued Accounting Standards
------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133, as amended by Statement Nos. 137 and
138, is effective for fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Statement also addresses
contracts that contain embedded derivatives, such as certain insurance
contracts. 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. 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
(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 access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of
an untimely death and flexible payout options including lump-sum,
systematic withdrawal or a stream of payments for life. 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, tax-deferred accumulation of savings and flexible
payout options including lump-sum, systematic withdrawal or a stream of
payments for life. 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, which 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,
certain revenues and expenses of its investment advisor and
broker/dealer subsidiary, revenues and expenses related to group
annuity contracts sold to Nationwide employee and agent benefit plans
and all realized gains and losses on investments in a Corporate and
Other segment.
The following table summarizes the financial results of the Company's
business segments for the three months ended September 30, 2000 and
1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
------------------------------------ ---------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 193.5 $ 325.7 $ 187.5 $ 46.0 $ 752.7
Benefits and expenses 105.5 276.4 148.4 43.4 573.7
------ ------- ------ ------ -------
Operating income before federal
income tax expense 88.0 49.3 39.1 2.6 179.0
Net realized losses on investments -- -- -- (2.1) (2.1)
------ ------- ------ ------ -------
Consolidated income before
federal income tax expense $ 88.0 $ 49.3 $ 39.1 $ 0.5 $ 176.9
====== ======= ======= ====== =======
1999
Operating revenue (1) $ 159.4 $ 292.1 $ 162.5 $ 75.0 $ 689.0
Benefits and expenses 86.3 248.1 130.7 56.5 521.6
------ ------- ------ ------ -------
Operating income before federal
income tax expense 73.1 44.0 31.8 18.5 167.4
Net realized gains on investments -- -- -- 6.2 6.2
------ ------- ------ ------ -------
Consolidated income before
federal income tax expense $ 73.1 $ 44.0 $ 31.8 $ 24.7 $ 173.6
====== ======= ======= ====== =======
</TABLE>
----------
(1) Excludes net realized gains and losses on investments.
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
The following table summarizes the allocation of assets to and the
financial results of the Company's business segments for the nine
months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND OTHER TOTAL
------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 569.0 $ 975.5 $ 549.7 $ 152.4 $ 2,246.6
Benefits and expenses 311.5 833.8 440.8 137.2 1,723.3
--------- --------- -------- -------- ---------
Operating income before federal
income taxes 257.5 141.7 108.9 15.2 523.3
Net realized losses on investments -- -- -- (15.9) (15.9)
--------- --------- -------- -------- ---------
Income (loss) before federal
income taxes $ 257.5 $ 141.7 $ 108.9 $ (0.7) $ 507.4
========= ========= ======== ======== =========
Assets as of period end $66,214.3 $17,226.3 $7,936.0 $6,310.6 $97,687.2
========= ========= ======== ======== =========
1999
Operating revenue (1) $ 457.7 $ 866.0 $ 466.9 $ 200.4 $ 1,991.0
Benefits and expenses 247.4 733.2 376.8 152.8 1,510.2
--------- --------- -------- -------- ---------
Operating income before federal
income taxes 210.3 132.8 90.1 47.6 480.8
Net realized losses on investments -- -- -- (7.5) (7.5)
--------- --------- -------- -------- ---------
Income before federal
income taxes $ 210.3 $ 132.8 $ 90.1 $ 40.1 $ 473.3
========= ========= ======== ======== =========
Assets as of period end $53,475.8 $16,682.4 $6,018.2 $6,126.3 $82,302.7
========= ========= ======== ======== =========
</TABLE>
----------
(1) Excludes net 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. No class
has been certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On March 8,
2000, the court denied the motion to dismiss the amended complaint
filed by the Company and other named defendants. The Company intends to
defend this lawsuit vigorously.
9
<PAGE> 10
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.
RESULTS OF OPERATIONS
In addition to net income, the Company reports net operating income,
which excludes net 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
(in millions) 2000 1999 2000 1999
------------------------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $126.0 $115.2 $350.2 $314.5
Net realized losses (gains) on investments, net of tax 1.3 (4.0) 10.3 4.9
------ ------ ------ ------
Net operating income $127.3 $111.2 $360.5 $319.4
====== ====== ====== ======
</TABLE>
Revenues
Total operating revenues, which exclude net realized gains and losses
on investments, for third quarter 2000 increased to $752.7 million
compared to $689.0 million for the same period in 1999. For the first
nine months of 2000 and 1999, total operating revenues were $2.25
billion and $1.99 billion, respectively. Increases in policy charges
and net investment income were the key drivers to revenue growth.
10
<PAGE> 11
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 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
(in millions) 2000 1999 2000 1999
------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Asset fees $185.6 $159.1 $541.5 $451.7
Cost of insurance charges 40.4 30.5 112.5 84.8
Administrative fees 35.7 28.0 99.6 75.8
Surrender fees 23.1 14.1 69.9 43.7
------ ------ ------ ------
Total policy charges $284.8 $231.7 $823.5 $656.0
====== ====== ====== ======
</TABLE>
The growth in asset fees reflects a 25% increase in total separate
account assets which reached $71.65 billion as of September 30, 2000
compared to $57.25 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 investment 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 $23.05 billion as of September 30, 2000 compared to
$18.38 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 and
an increase in surrender rates in the first nine months of 2000.
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 grew from $379.2 million in the third quarter of 1999 to $412.6
million in the third quarter of 2000 and from $1.11 billion in the
first nine months of 1999 to $1.23 billion in the first nine months of
2000. The increases were primarily due to increased invested assets to
support growth in fixed annuity policy reserves coupled with an
increase in average yield on the investment portfolio. Fixed annuity
policy reserves, which include the fixed option of variable annuity
contracts, increased $460.5 million to $16.61 billion as of the end of
third quarter 2000 compared to $16.15 billion a year ago.
Other income totaled $3.6 million in third quarter 2000, a decrease of
$23.0 million from third quarter 1999. For the first nine months of
2000, other income totaled $12.8 million compared to $66.5 million in
the first nine months of 1999. The decrease is due to the assignment of
the Company's investment advisory and related agreements associated
with Nationwide mutual funds to an affiliate.
11
<PAGE> 12
The Company does not consider net 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 $(2.1) million and $6.2 million for third quarter 2000
and 1999, respectively. The Company reported net realized losses on
investments of $15.9 million and $7.5 million for the first nine months
of 2000 and 1999, respectively. During the first nine months of 2000
the Company recognized a total of $10.5 million of realized losses on
two fixed maturity security holdings.
Benefits and Expenses
Total benefits and expenses were $573.7 million in third quarter 2000,
a 10% increase over third quarter 1999, while year-to-date 2000
benefits and expenses were $1.72 billion compared to $1.51 billion a
year ago. The increase is due mainly to growth in amortization of
deferred acquisition costs (DAC) and interest credited. Additionally,
other policyholder benefits and other operating expenses were up
approximately 6% compared to the year ago third quarter and up 15%
compared to the nine-month period a year ago.
The significant growth in the Variable Annuities segment business
coupled with an increase in lapse rates, which resulted in additional
surrender fee income, are the primary reasons for the increase in
amortization of DAC, which totaled $91.6 million and $68.6 million in
third quarter 2000 and 1999, respectively. On a year-to-date basis,
amortization of DAC totaled $263.7 million in 2000 compared to $196.1
million in 1999.
Consistent with the growth in fixed annuity business and higher
crediting rates, interest credited increased to $292.4 million for the
third quarter of 2000 compared to $272.4 million a year ago. For the
first nine months of 2000, interest credited increased $73.3 million to
$876.9 million as compared to 1999.
Federal income tax expense was $50.9 million in third quarter 2000
compared to $58.4 million in third quarter 1999, representing effective
tax rates of 28.8% and 33.6% for third quarter 2000 and 1999
respectively. For the first nine months of 2000 and 1999 federal income
tax expense was $157.2 million and $158.8 million, representing
effective tax rates of 31.0% and 33.6%, respectively. An increase in
tax exempt income and investment tax credits resulted in the decrease
in effective rates.
Recently Issued Accounting Standards
See note 3 to the unaudited consolidated financial statements for a
discussion of recently issued accounting standards.
Sales Information
The following table summarizes total Company sales, excluding internal
replacements, by business segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Variable annuity deposits $ 2,801.0 $ 2,470.2 $ 9,357.5 $ 7,552.5
Fixed annuity deposits 785.8 756.2 2,372.1 2,122.5
Life insurance premiums 367.9 311.0 1,075.2 763.4
--------- --------- --------- ---------
Total core premiums and deposits 3,954.7 3,537.4 12,804.8 10,438.4
Internal replacements (451.3) (169.7) (1,344.8) (425.3)
--------- --------- --------- ---------
Total core sales 3,503.4 3,367.7 11,460.0 10,013.1
--------- --------- --------- ---------
Bank-owned life insurance (BOLI) -- -- 328.7 86.7
Institutional products 484.2 316.9 808.7 316.9
Nationwide employee and agent benefit plans 103.8 92.1 239.7 282.2
--------- --------- --------- ---------
Total sales $ 4,091.4 $ 3,776.7 $12,837.1 $10,698.9
========= ========= ========= =========
</TABLE>
12
<PAGE> 13
Total core sales represent amounts that are recurring and are the sales
figures management uses to set and evaluate the Company's sales goals.
The Company reports statutory premiums and deposits related to life
insurance and annuity products as core sales.
Sales of institutional products represent sales of funding agreements
that secure notes issued to foreign investors through a third party
trust under the Company's $2 billion medium-term note program. The
program was launched in July 1999 as a means to expand spread based
product offerings. The Company excludes institutional products and BOLI
sales as well as deposits into Nationwide employee and agent benefit
plans from its targeted core sales. Although funding agreements and
BOLI contribute to asset and earnings growth, they do not produce
steady production flow that lends itself to meaningful comparisons.
BOLI sales in 2000 include $300.0 million from an affiliate. Also,
included in the third quarter and nine-month sales in 2000 is $70.0
million of corporate-owned life insurance from an affiliate, which is
reported in the Nationwide employee and agent benefit plans. The
Company also excludes internal replacements from core sales.
Total core sales reached $3.50 billion in the third quarter of 2000, an
increase of 4% over 1999, while year-to-date core sales increased 14%
over 1999. Total annuity sales, net of internal replacements,
contributed $3.14 billion and $3.06 billion in the third quarter of
2000 and 1999, respectively. Core life insurance sales for third
quarter 2000 were up 18% to $367.9 million with individual variable
universal life and corporate-owned life products leading the growth.
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, brokerage firms,
pension plan administrators, life insurance specialists and financial
institutions. Representatives of the Company or its affiliates who
market products directly to a customer base identified by the Company
include Nationwide Retirement Solutions sales representatives and
Nationwide agents.
Core sales by distribution channel are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
(in millions) 2000 1999 2000 1999
---------------------------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Independent broker/dealers $1,449.2 $1,331.6 $ 4,593.2 $ 3,952.6
Brokerage firms 294.5 207.3 902.8 655.7
Financial institutions 743.6 609.4 2,148.0 1,780.3
Pension plan administrators 228.7 261.2 819.6 934.4
Nationwide Retirement Solution sales
representatives 447.9 623.0 1,894.4 1,830.9
Nationwide agents 184.6 189.5 619.5 573.0
Life specialists 154.9 145.7 482.5 286.2
-------- -------- --------- ---------
Total core sales $3,503.4 $3,367.7 $11,460.0 $10,013.1
======== ======== ========= =========
</TABLE>
Sales through independent broker/dealers increased 9% and 16% for the
three months and nine months ended September 30, 2000, respectively.
The hiring of additional wholesalers and certain product enhancements
have contributed to the growth. Sales through financial institutions
increased as we continue to add banks which sell our products.
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 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.
13
<PAGE> 14
Core sales by product are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------------
(in millions) 2000 1999 2000 1999
------------------------------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
BEST of AMERICA(R) products $1,430.2 $1,176.4 $ 4,371.8 $ 3,609.1
Private label annuities 235.6 321.8 784.3 987.0
Other 133.6 106.5 411.9 301.1
-------- -------- --------- ---------
Total individual annuities 1,799.4 1,604.7 5,568.0 4,897.2
-------- -------- --------- ---------
BEST of AMERICA(R) group pension series 897.3 891.7 3,046.4 2,681.0
IRC Section 457 annuities 427.7 550.9 1,733.0 1,603.4
Other 11.1 9.4 37.4 68.1
-------- -------- --------- ---------
Total group annuities 1,336.1 1,452.0 4,816.8 4,352.5
-------- -------- --------- ---------
BEST of AMERICA(R) variable life series 155.8 107.8 419.2 297.9
Corporate-owned life insurance 152.9 145.7 476.2 286.2
Traditional/Universal life insurance 59.2 57.5 179.8 179.3
-------- -------- --------- ---------
Total life insurance 367.9 311.0 1,075.2 763.4
-------- -------- --------- ---------
Total core sales $3,503.4 $3,367.7 $11,460.0 $10,013.1
======== ======== ========= =========
</TABLE>
BUSINESS SEGMENTS
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. In addition, the Company reports certain
other revenues and expenses 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 following table summarizes operating income before federal income
tax expense for the Company's business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
(in millions) 2000 1999 2000 1999
---------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Variable Annuities $ 88.0 $ 73.1 $257.5 $210.3
Fixed Annuities 49.3 44.0 141.7 132.8
Life Insurance 39.1 31.8 108.9 90.1
Corporate and Other 2.6 18.5 15.2 47.6
------ ------ ------ ------
$179.0 $167.4 $523.3 $480.8
====== ====== ====== ======
</TABLE>
Variable Annuities
The Variable Annuities segment consists of annuity contracts that
provide the customer with access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of
an untimely death and flexible payout options including lump-sum,
systematic withdrawal or a stream of payments for life. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
14
<PAGE> 15
The following table summarizes certain selected financial data for the
Company's Variable Annuities segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------
(in millions) 2000 1999 2000 1999
------------------------------------------------------- --------- --------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 193.5 $ 159.4 $ 569.0 $ 457.7
Benefits and expenses 105.5 86.3 311.5 247.4
--------- --------- -------- --------
Operating income before federal income tax expense $ 88.0 $ 73.1 $ 257.5 $ 210.3
========= ========= ======== ========
OTHER DATA
Statutory premiums and deposits (1) $ 2,801.0 $ 2,470.2 $9,357.5 $7,552.5
Policy reserves as of period end:
Individual $38,781.2 $32,106.0
Group 25,145.2 19,993.0
--------- ---------
Total $63,926.4 $52,099.0
========= =========
Pre-tax operating income to average policy reserves 0.55% 0.56% 0.55% 0.56%
</TABLE>
----------
(1) Statutory amounts 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 which differ
from Generally Accepted Accounting Principles.
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 $179.6 million in the third
quarter of 2000, up 16% from $154.6 million in the same period a year
ago. For the first nine months of 2000, asset fees totaled $524.9
million up 20% from the first nine months of 1999. 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. Variable
annuity policy reserves declined $99.9 million during third quarter
2000 and totaled $63.93 billion as of September 30, 2000 due to $803.8
million of policy reserves reinsured during the quarter. However,
during the first nine months of 2000 reserves have increased $2.73
billion and are up 23% compared to a year ago.
Variable annuity deposits increased 13% for the third quarter 2000,
reaching $2.80 billion compared to $2.47 billion in the year ago
quarter. Variable annuity deposits grew 24% in 2000 compared to the
first nine months of 1999, reaching $9.36 billion. Nearly all channels
contributed to the growth in 2000.
Less favorable equity market conditions during the first nine months of
2000 have slowed the growth in variable annuity policy reserves.
Variable annuity policy reserves reflect market appreciation of $739.5
million during the first nine months of 2000. Over the past twelve
months, variable annuity policy reserves have increased $9.44 billion
as a result of market appreciation, due mainly to $8.70 billion of
market appreciation in the fourth quarter of 1999.
15
<PAGE> 16
Offsetting the growth in policy reserves attributable to an increase in
deposits and market appreciation was an increase in policyholder
surrender activity. Excluding the impact of internal replacements and
transfers to the assets managed and administered segment, surrenders as
a percentage of average reserves were 13%, annualized, in third quarter
2000, compared to 10% in third quarter 1999. The surrender rate in the
first nine months of 2000 was 14%, annualized, as compared to 10% for
the first nine months of 1999. The increase in surrender activity is
attributable to an increase in competition in the individual variable
annuity market which has increased transfers to competitor products and
the overall aging of the Company's book of business. The Company
introduced new products, new product features and new retention
strategies during first quarter 2000 in an effort to decrease the rate
of surrenders. The rate of surrenders in third quarter 2000 remains
unchanged from second quarter 2000. However, the rate of surrenders has
declined 200 basis points to an annualized rate of 13% from the first
quarter 2000 rate of 15%.
Amortization of DAC increased 47% to $60.2 million in third quarter
2000 compared to $40.9 million in third quarter 1999. DAC amortization
for the first nine months of 2000 increased to $172.2 million compared
to $115.1 million for the first nine months of 1999. Operating expenses
of $44.0 million in third quarter 2000 were flat compared to third
quarter 1999, while year-to-date 2000 operating expenses were $136.3
million compared to $130.7 million in 1999. The growth in DAC
amortization and operating expenses reflect the overall growth in the
variable annuity business. The increase in DAC amortization also
reflects the increase in policyholder surrenders.
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, tax-deferred accumulation of savings and flexible
payout options including lump-sum, systematic withdrawal or a stream of
payments for life. 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 the Company's 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------
(in millions) 2000 1999 2000 1999
-------------------------------------------------------- --------- --------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net investment income $ 310.8 $ 281.5 $ 919.2 $ 834.9
Other 14.9 10.6 56.3 31.1
--------- --------- -------- --------
325.7 292.1 975.5 866.0
--------- --------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 227.0 208.9 674.6 613.6
Other benefits and expenses 49.4 39.2 159.2 119.6
--------- --------- -------- --------
276.4 248.1 833.8 733.2
--------- --------- -------- --------
Operating income before federal income tax expense $ 49.3 $ 44.0 $ 141.7 $ 132.8
========= ========= ======== ========
OTHER DATA
Statutory premiums and deposits (1) $ 1,270.0 $ 1,073.1 $3,180.8 $2,439.4
Policy reserves as of period end:
Individual $ 7,507.2 $ 7,765.1
Group 7,818.5 8,048.3
Institutional 1,287.2 336.4
--------- ---------
Total $16,612.9 $16,149.8
========= =========
Pre-tax operating income to average policy reserves 1.20% 1.13% 1.15% 1.16%
</TABLE>
16
<PAGE> 17
----------
(1) Statutory amounts 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, which differ from Generally
Accepted Accounting Principles.
Fixed annuity segment results reflect an increase in interest spread
income attributable to growth in fixed annuity policy reserves.
Interest spread is the differential between net investment income and
interest credited to policyholder account balances. Interest spreads
vary depending on crediting rates offered by competitors, performance
of the investment portfolio, including the rate of prepayments, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income 7.91% 7.48% 7.79% 7.57%
Interest credited 5.78 5.55 5.72 5.57
---- ---- ---- ----
2.13% 1.93% 2.07% 2.00%
==== ==== ==== ====
</TABLE>
Recent increases in interest rates have slowed mortgage loan and bond
prepayment activity and the Company anticipates interest spreads over
the next several quarters to range between 200 and 210 basis points,
excluding the impact of mortgage loan and bond prepayment income.
Fixed annuity policy reserves increased to $16.61 billion as of
September 30, 2000 compared to $16.59 billion as of the end of 1999 and
$16.15 billion a year ago.
Third quarter fixed annuity premiums and deposits increased to $1.27
billion in 2000 compared to $1.07 billion in 1999 while sales for the
first nine months of 2000 increased to $3.18 billion from $2.44 billion
in 1999. Sales of institutional products were $484.2 million and $808.7
million during third quarter 2000 and the first nine months of 2000,
respectively, compared to $316.9 in the third quarter and first nine
months of 1999. Most of the Company's fixed annuity sales are premiums
and deposits allocated to the fixed option of variable annuity
contracts. Third quarter 2000 fixed annuity sales include $626.1
million in premiums allocated to the fixed option under a variable
annuity contract, compared to $658.3 million in third quarter 1999. The
increase in fixed annuity premiums and deposits is primarily
attributable to sales of institutional products in the form of funding
agreements issued in connection with the Company's medium-term note
program partially offset by a decrease in the fixed option of variable
annuity contract deposits in the third quarter of 2000 as compared to
the third quarter of 1999.
Other benefits and expenses increased 26% to $49.4 million in third
quarter 2000 compared to a year ago. For the first nine months of 2000,
other benefits and expenses totaled $159.2 million, up 33% from the
first nine months of 1999. The increase primarily reflects an increase
in immediate annuity benefits due to growth in new sales and contracts
in force.
Life Insurance
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, which provide a death benefit and may also allow the customer
to build cash value on a tax-advantaged basis.
17
<PAGE> 18
The following table summarizes certain selected financial data for the
Company's Life Insurance segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------
(in millions) 2000 1999 2000 1999
------------------------------------------------------ -------- -------- -------- ------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 187.5 $ 162.5 $ 549.7 $466.9
Benefits and expenses 148.4 130.7 440.8 376.8
-------- -------- -------- ------
Operating income before federal income tax expense $ 39.1 $ 31.8 $ 108.9 $ 90.1
======== ======== ======== ======
OTHER DATA
Statutory premiums (1):
Traditional and universal life insurance $ 59.2 $ 57.5 $ 179.8 $179.3
Individual investment life insurance 155.8 107.8 419.2 298.0
Corporate investment life insurance 222.9 145.7 874.9 372.8
-------- -------- -------- ------
Total $ 437.9 $ 311.0 $1,473.9 $850.1
======== ======== ======== ======
Policy reserves as of period end:
Traditional and universal life insurance $2,577.7 $2,525.5
Individual investment life insurance 2,152.1 1,532.9
Corporate investment life insurance 2,378.8 1,288.1
-------- --------
Total $7,108.6 $5,346.5
======== ========
</TABLE>
----------
(1) Statutory amounts 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, which differ from Generally
Accepted Accounting Principles.
Life Insurance segment results reflect increased revenues driven by
growth in investment life insurance in force and policy reserves,
partially offset by higher benefits and expense levels.
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 investment
life insurance, where the Company has aggressively expanded its
distribution capabilities. Revenues from investment life products
increased to $83.9 million in third quarter 2000 from $61.9 million in
third quarter 1999 as a result of the sales growth and high
persistency. On a year-to-date basis, investment life product revenues
increased to $232.9 million in 2000 from $165.6 million in 1999.
Individual investment life insurance statutory premiums increased 45%
for the third quarter 2000 reaching $155.8 million compared to $107.8
million in third quarter 1999. Corporate investment life insurance
statutory premiums reflected strong growth reaching $222.9 million in
third quarter 2000, including $70 million in sales to an affiliate,
compared to $145.7 million in third quarter 1999. Total investment life
insurance in force reached $30.83 billion at September 30, 2000
representing 49% of all life insurance in force compared to $23.62
billion and 45% a year ago.
Interest credited to policyholders increased $7.8 million in third
quarter 2000 reaching $40.0 million compared to $32.2 million in the
year ago third quarter. For the first nine months of 2000, interest
credited to policyholders totaled $114.6 million, an increase of $18.2
million over 1999. Increased corporate investment life insurance
business accounted for most of the increases. Corporate investment
fixed life insurance reserves increased 47% to $1.38 billion as of
September 30, 2000 compared to $939.5 million a year ago.
Other policy benefits increased $3.2 million and $17.4 million,
respectively, in the three and nine months ended September 30, 2000
over comparable periods in 1999, reflecting growth in insurance in
force and an increase in claims.
18
<PAGE> 19
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- -----------------
(in millions) 2000 1999 2000 1999
---------------------------------------------------------- ----- ----- ------ ------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $46.0 $75.0 $152.4 $200.4
Benefits and expenses 43.4 56.5 137.2 152.8
----- ----- ------ ------
Operating income before federal income tax expense (1) $ 2.6 $18.5 $ 15.2 $ 47.6
===== ===== ====== ======
</TABLE>
----------
(1) Excludes net 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,
certain revenues and expenses of the Company's investment advisory and
broker/dealer subsidiary, and net investment income and policy charges
from group annuity contracts issued to Nationwide employee and agent
benefit plans. During the third quarter 1999, the Company assigned its
investment advisory and related agreements associated with Nationwide
mutual funds to an affiliate. The decrease in revenues reflects an
increase in net investment income offset by a decrease in investment
advisory and related fees. The decrease in benefits and expenses is
attributable to elimination costs associated with investment advisory
activities effective third quarter 1999.
In addition to the operating revenues previously presented, the Company
also reports net realized gains and losses on investments in the
Corporate and Other segment. The Company realized net investment
(losses) gains of $(2.1) million and $6.2 million during the third
quarter of 2000 and 1999, respectively.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted due to reduced disclosure format.
19
<PAGE> 20
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.
As was previously disclosed in the Company's Form 10-Q for the
quarterly period ended March 31, 2000, the Robert Young and David D.
Distad v. Nationwide Life Insurance Company et al lawsuit was dismissed
by the court with prejudice on February 9, 2000.
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. No class
has been certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On March 8,
2000, the court denied the motion to dismiss the amended complaint
filed by the Company and other named defendants. 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.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
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.
20
<PAGE> 21
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.26 Form of Employment Agreement, dated May 26,
2000, between Nationwide Mutual Insurance
Company and W.G. Jurgensen (filed as exhibit
10.32 to Form 10-Q, Commission File Number
1-12785, filed November 13, 2000)
10.27 Form of Employment Agreement, dated July 1,
2000, between Nationwide Financial Services,
Inc. and Joseph Gasper (filed as exhibit
10.33 to Form 10-Q, Commission File Number
1-12785, filed November 13, 2000)
10.28 Form of Retention Agreement, dated July 1,
2000, between Nationwide Financial Services,
Inc. and Joseph Gasper (filed as exhibit
10.34 to Form 10-Q, Commission File Number
1-12785, filed November 13, 2000)
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 September 30, 2000.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
(Registrant)
Date: November 13, 2000 /s/Mark R. Thresher
----------------------------------
Mark R. Thresher
Senior Vice President - Finance -
Nationwide Financial
(Chief Accounting Officer)
22
