<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, 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 (I.R.S. Employer Identification No.)
of 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, 2000.
COMMON STOCK (par value $1 per share) - 3,814,779 shares issued and
outstanding as of August 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> <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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Policy charges $ 266.1 $ 218.1 $ 538.7 $ 424.3
Life insurance premiums 62.1 48.9 129.0 102.4
Net investment income 409.4 372.1 817.0 735.4
Net realized losses on investments (10.7) (8.3) (13.8) (13.7)
Other 4.0 20.4 9.2 39.9
---------- ---------- ---------- ----------
730.9 651.2 1,480.1 1,288.3
---------- ---------- ---------- ----------
BENEFITS AND EXPENSES
Interest credited to policyholder account balances 290.3 267.4 584.5 531.2
Other benefits and claims 61.7 44.3 129.0 94.8
Policyholder dividends on participating policies 11.5 11.7 23.5 21.8
Amortization of deferred policy acquisition costs 86.2 66.8 172.1 127.5
Other operating expenses 118.4 109.0 240.5 213.3
---------- ---------- ---------- ----------
568.1 499.2 1,149.6 988.6
---------- ---------- ---------- ----------
Income before federal income tax expense 162.8 152.0 330.5 299.7
Federal income tax expense 51.9 51.9 106.3 100.4
---------- ---------- ---------- ----------
Net income $ 110.9 $ 100.1 $ 224.2 $ 199.3
========== ========== ========== ==========
</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)
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
--------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $14,708.3 in 2000; $15,377.3 in 1999) $ 14,599.5 $ 15,294.0
Equity securities (cost $103.3 in 2000; $84.9 in 1999) 119.5 92.9
Mortgage loans on real estate, net 5,923.5 5,786.3
Real estate, net 281.2 254.8
Policy loans 553.5 519.6
Other long-term investments 78.8 73.8
Short-term investments 406.9 416.0
--------------- ---------------
21,962.9 22,437.4
--------------- ---------------
Cash 23.6 4.8
Accrued investment income 232.4 238.6
Deferred policy acquisition costs 2,791.6 2,554.1
Other assets 420.5 305.9
Assets held in separate accounts 70,569.1 67,135.1
--------------- ---------------
$ 96,000.1 $ 92,675.9
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims $ 21,566.1 $ 21,861.6
Other liabilities 971.0 914.2
Liabilities related to separate accounts 70,569.1 67,135.1
--------------- ---------------
93,106.2 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 2,145.2 2,011.0
Accumulated other comprehensive loss (21.2) (15.9)
--------------- ---------------
2,893.9 2,765.0
--------------- ---------------
$ 96,000.1 $ 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)
Six Months Ended June 30, 2000 and 1999
(in millions)
<TABLE>
<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, 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 - - - (190.6) (190.6)
period
-----------------
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
=========== ============= =============== ================= ==================
BALANCE, JANUARY 1, 2000 $ 3.8 $ 766.1 $ 2,011.0 $ (15.9) $ 2,765.0
Comprehensive income:
Net income - - 224.2 - 224.2
Net unrealized losses on securities
available-for-sale arising during the - - - (5.3) (5.3)
period
-----------------
Total comprehensive income 218.9
-----------------
Dividends to shareholder - - (90.0) - (90.0)
----------- ------------- --------------- ----------------- ------------------
BALANCE, JUNE 30, 2000 $ 3.8 $ 766.1 $ 2,145.2 $ (21.2) $ 2,893.9
=========== ============= =============== ================= ==================
</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)
Six Months Ended June 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 224.2 $ 199.3
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to policyholder account balances 584.5 531.2
Capitalization of deferred policy acquisition costs (400.5) (322.6)
Amortization of deferred policy acquisition costs 172.1 127.5
Amortization and depreciation (3.3) 3.8
Realized losses on investments, net 13.8 13.7
Decrease (increase) in accrued investment income 6.2 (5.3)
Increase in other assets (114.6) (40.2)
Increase (decrease) in policy liabilities 44.2 (2.9)
Increase in other liabilities 69.7 49.2
Other, net (8.1) (2.9)
------------ ------------
Net cash provided by operating activities 588.2 550.8
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available-for-sale 1,912.9 1,172.5
Proceeds from sale of securities available-for-sale 67.5 247.7
Proceeds from repayments of mortgage loans on real estate 325.0 227.8
Proceeds from sale of real estate 2.6 5.2
Proceeds from repayments of policy loans and sale of other invested assets 12.8 10.0
Cost of securities available-for-sale acquired (1,315.5) (1,714.2)
Cost of mortgage loans on real estate acquired (474.4) (295.1)
Cost of real estate acquired (2.9) (1.9)
Short-term investments, net 9.1 61.3
Other, net (82.3) (56.9)
------------ ------------
Net cash provided by (used in) investing activities 454.8 (343.6)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (100.0) (13.5)
Increase in investment product and universal life insurance product account balances 2,305.2 1,559.7
Decrease in investment product and universal life insurance product account balances (3,229.4) (1,755.8)
------------ ------------
Net cash used in financing activities (1,024.2) (209.6)
------------ ------------
Net increase (decrease) in cash 18.8 (2.4)
Cash, beginning of period 4.8 3.4
------------ ------------
Cash, end of period $ 23.6 $ 1.0
============ ============
</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, 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) 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.
(3) 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 SIX MONTHS ENDED
(in millions) JUNE 30, JUNE 30,
----------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------ ------- ------- -------
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities available-
for-sale arising during the period:
Gross $ 3.4 $(241.9) $ (9.4) $(396.3)
Adjustment to deferred policy acquisition costs (11.5) 63.8 9.1 93.4
Related federal income tax benefit 2.8 60.9 7.1 102.6
------ ------- ------- -------
Net (5.3) (117.2) (13.2) (200.3)
------ ------- ------- -------
Reclassification adjustment for net losses on securities
available-for-sale realized during the period:
Gross 11.2 6.5 12.1 15.0
Related federal income tax benefit (3.9) (2.3) (4.2) (5.3)
------ ------- ------- -------
Net 7.3 4.2 7.9 9.7
------ ------- ------- -------
Total Other Comprehensive Income (Loss) $ 2.0 $(113.0) $ (5.3) $(190.6)
====== ======= ======= =======
</TABLE>
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 June 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) $ 186.3 $ 322.7 $ 182.6 $ 50.0 $ 741.6
Benefits and expenses 101.1 275.7 146.1 45.2 568.1
--------------- --------------- --------------- ------------- ----------------
Operating income before federal
income tax expense 85.2 47.0 36.5 4.8 173.5
Net realized losses on investments - - - (10.7) (10.7)
--------------- --------------- --------------- ------------- ----------------
Consolidated income (loss) before
federal income tax expense $ 85.2 $ 47.0 $ 36.5 $ (5.9) $ 162.8
=============== =============== =============== ============= ================
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 expense 71.0 46.0 29.2 14.1 160.3
Net realized losses on investments - - - (8.3) (8.3)
--------------- --------------- --------------- ------------- ----------------
Consolidated income before
federal income tax expense $ 71.0 $ 46.0 $ 29.2 $ 5.8 $ 152.0
=============== =============== =============== ============= ================
</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 as of and for the
six months ended June 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) $ 375.5 $ 649.8 $ 362.2 $ 106.4 $ 1,493.9
Benefits and expenses 206.0 557.4 292.4 93.8 1,149.6
--------------- --------------- --------------- ------------- ----------------
Operating income before federal
income tax expense 169.5 92.4 69.8 12.6 344.3
Net realized losses on investments - - - (13.8) (13.8)
--------------- --------------- --------------- ------------- ----------------
Consolidated income (loss) before
federal income tax expense $ 169.5 $ 92.4 $ 69.8 $ (1.2) $ 330.5
=============== =============== =============== ============= ================
Assets as of period end $ 65,514.0 $ 16,898.9 $ 7,555.3 $ 6,031.9 $ 96,000.1
=============== =============== =============== ============= ================
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 expense 137.2 88.8 58.3 29.1 313.4
Net realized losses on investments - - - (13.7) (13.7)
--------------- --------------- --------------- ------------- ----------------
Consolidated income before
federal income tax expense $ 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
=============== =============== =============== ============= ================
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------
(in millions) 2000 1999 2000 1999
------------------------------------------------------ ----------- ------------------------ -----------
<S> <C> <C> <C> <C>
Net income $ 110.9 $ 100.1 $ 224.2 $ 199.3
Net realized losses on investments, net of tax 7.0 5.4 9.0 8.9
----------- ------------------------ -----------
Net operating income $ 117.9 $ 105.5 $ 233.2 $ 208.2
=========== ======================== ===========
</TABLE>
Revenues
Total operating revenues, which exclude net realized gains and
losses on investments, for second quarter 2000 increased to $741.6
million compared to $659.5 million for the same period in 1999.
For the first six months of 2000 and 1999, total operating
revenues were $1.49 billion and $1.30 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Asset fees $ 180.0 $ 152.2 $ 355.9 $ 292.6
Cost of insurance charges 37.0 28.4 72.1 54.3
Administrative fees 27.2 22.0 63.9 47.8
Surrender fees 21.9 15.5 46.8 29.6
------------- ------------- ------------- -------------
Total policy charges $ 266.1 $ 218.1 $ 538.7 $ 424.3
============= ============= ============= =============
</TABLE>
The growth in asset fees reflects a 21% increase in total separate
account assets which reached $70.57 billion as of June 30, 2000
compared to $58.15 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 investment life insurance grew to $21.61 billion as of
June 30, 2000 compared to $17.10 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
half 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 $372.1 million in the
second quarter of 1999 to $409.4 million in the second quarter of
2000 and from $735.4 million in the first half of 1999 to $817.0
million in the first half 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
$1.23 billion to $16.34 billion as of the end of second quarter
2000 compared to $15.11 billion a year ago.
Other income totaled $4.0 million in second quarter 2000, a
decrease of $16.4 million from second quarter 1999. For the first
half of 2000, other income totaled $9.2 million compared to $39.9
million in the first half 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 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 on investments were $10.7 million and $8.3 million for
second quarter 2000 and 1999, respectively. For the first six
months of 2000, the Company reported net realized losses on
investments of $13.8 million compared to $13.7 million of net
realized losses for the first six months of 1999. During the first
half of 2000 the Company recognized a total of $10.5 million of
realized losses on two fixed maturity security holdings compared
to a total of $19.9 million of realized losses on two fixed
maturity security holdings for the same period in 1999.
Benefits and Expenses
Total benefits and expenses were $568.1 million in second quarter
2000, a 14% increase over second quarter 1999, while year-to-date
2000 benefits and expenses were $1.15 billion compared to $988.6
million 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 17% compared to the year
ago second quarter and up 20% compared to the six-month period a
year ago.
The significant growth in the Variable Annuities segment business
is the primary reason for the increase in amortization of DAC
which totaled $86.2 million and $66.8 million in second quarter of
2000 and 1999, respectively. On a year-to-date basis, DAC
amortization totaled $172.1 million in 2000 compared to $127.5
million in 1999.
Consistent with the growth in fixed annuity business and higher
crediting rates, interest credited increased to $290.3 million for
the second quarter of 2000 compared to $267.4 million a year ago.
For the first half of 2000, interest credited increased $53.3
million to $584.5 million as compared to 1999.
Federal income tax expense was $51.9 million in both second
quarters, representing effective tax rates of 31.9% and 34.1% for
second quarter 2000 and 1999, respectively. For the first six
months of 2000 and 1999, federal income tax expense was $106.3
million and $100.4 million, representing effective tax rates of
32.2% and 33.5%, respectively. An increase in tax exempt income
and investment tax credits resulted in the decrease in effective
rates.
Recently Issued Accounting Standards
See note 2 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Variable annuity deposits $ 3,281.3 $ 2,624.5 $ 6,556.5 $ 5,082.3
Fixed annuity deposits 844.1 748.9 1,586.3 1,366.3
Life insurance premiums 296.6 201.9 707.3 452.4
------------- ------------- ------------- -------------
Total core premiums and deposits 4,422.0 3,575.3 8,850.1 6,901.0
Internal replacements (516.6) (158.2) (893.5) (255.6)
------------- ------------- ------------- -------------
Total core sales 3,905.4 3,417.1 7,956.6 6,645.4
------------- ------------- ------------- -------------
Bank-owned life insurance (BOLI) 309.7 - 328.7 86.7
Institutional products 162.8 - 324.5 -
Nationwide employee and agent benefit plans 77.6 123.7 135.9 190.1
------------- ------------- ------------- -------------
Total sales $ 4,455.5 $ 3,540.8 $ 8,745.7 $ 6,922.2
============= ============= ============= =============
</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 the second
quarter 2000 include $300.0 million from an affiliate. The Company
also excludes internal replacements from its targeted core sales.
Total core sales reached $3.91 billion in the second quarter of
2000, an increase of 14% over 1999, while year-to-date core sales
increased 20% over 1999. Total annuity sales, net of internal
replacements, contributed $3.61 billion and $3.22 billion in the
second quarter of 2000 and 1999, respectively. Core life insurance
sales for second quarter 2000 were up 47% to $296.6 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
---------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Independent broker/dealers $ 1,593.4 $ 1,360.5 $ 3,144.0 $ 2,621.0
Brokerage firms 300.3 237.1 608.3 448.4
Financial institutions 760.0 641.0 1,404.4 1,170.9
Pension plan administrators 258.8 335.7 590.9 673.2
Nationwide Retirement Solutions
sales representatives 671.7 606.2 1,446.5 1,207.9
Nationwide agents 223.6 196.2 434.9 383.5
Life insurance specialists 97.6 40.4 327.6 140.5
------------- ------------- ------------- -------------
Total core sales $ 3,905.4 $ 3,417.1 $ 7,956.6 $ 6,645.4
============= ============= ============= =============
</TABLE>
Sales through independent broker/dealers increased 17% and 20% for
the three months and six months ended June 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
BEST of AMERICA(R)products $ 1,622.5 $ 1,295.9 $ 2,941.6 $ 2,432.7
Private label annuities 274.8 360.8 548.7 665.2
Other 137.1 101.7 278.3 194.6
------------- ------------- ------------- --------------
Total individual annuities 2,034.4 1,758.4 3,768.6 3,292.5
------------- ------------- ------------- --------------
BEST of AMERICA(R)group pension series 950.5 887.5 2,149.1 1,789.3
IRC Section 457 annuities 613.7 521.6 1,305.3 1,052.5
Other 10.2 47.7 26.3 58.7
------------- ------------- ------------- --------------
Total group annuities 1,574.4 1,456.8 3,480.7 2,900.5
------------- ------------- ------------- --------------
Traditional/Universal life insurance 63.7 61.8 120.6 121.8
BEST of AMERICA(R)variable life series 138.1 99.7 263.4 190.2
Corporate-owned life insurance 94.8 40.4 323.3 140.5
------------- ------------- ------------- --------------
Total life insurance 296.6 201.9 707.3 452.4
------------- ------------- ------------- --------------
Total core sales $ 3,905.4 $ 3,417.1 $ 7,956.6 $ 6,645.4
============= ============= ============= ==============
</TABLE>
BUSINESS SEGMENTS
The Company has 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 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
(in millions) 2000 1999 2000 1999
------------------------------------ ------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Variable Annuities $ 85.2 $ 71.0 $ 169.5 $ 137.2
Fixed Annuities 47.0 46.0 92.4 88.8
Life Insurance 36.5 29.2 69.8 58.3
Corporate and Other 4.8 14.1 12.6 29.1
------------- ------------- ----------- ----------------
$ 173.5 $ 160.3 $ 344.3 $ 313.4
============= ============= =========== ================
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 186.3 $ 154.8 $ 375.5 $ 298.3
Benefits and expenses 101.1 83.8 206.0 161.1
------------- ------------- ------------- --------------
Operating income before federal income tax expense $ 85.2 $ 71.0 $ 169.5 $ 137.2
============= ============= ============= ==============
OTHER DATA
Statutory premiums and deposits (1) $ 3,281.3 $ 2,624.5 $ 6,556.5 $ 5,082.3
Policy reserves as of period end:
Individual $ 38,911.2 $ 32,884.4
Group 25,115.1 20,378.9
------------- -------------
Total $ 64,026.3 $ 53,263.3
============= =============
Pre-tax operating income to average policy reserves 0.54% 0.56% 0.54% 0.56%
</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, 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
$174.7 million in the second quarter of 2000, up 19% from $146.5
million in the same period a year ago. For the first half of 2000,
asset fees totaled $345.3 million up 22% from the first half 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
$1.21 billion during second quarter 2000 and totaled $64.03
billion as of June 30, 2000. During the first six months of 2000
reserves have increased $2.83 billion and are up 20% compared to a
year ago
Variable annuity deposits increased 25% for the second quarter
2000, reaching $3.28 billion compared to $2.62 billion in the year
ago quarter. Compared to first quarter 2000, variable annuity
deposits were flat. Variable annuity deposits grew 29% in 2000
compared to the first half of 1999, reaching $6.56 billion. Nearly
all channels contributed to the growth in 2000.
Less favorable equity market conditions during the first half of
2000 has slowed the growth in variable annuity policy reserves.
Variable annuity policy reserves reflect market appreciation of
$634.8 billion during the first six months of 2000. Over the past
twelve months, variable annuity policy reserves have increased
$6.81 billion as a result of market appreciation, due mainly to
$8.70 billion of market appreciation in the fourth quarter of
1999.
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 second quarter 2000, compared to 10% in second
quarter 1999. The surrender rate in the first half of 2000 was
14%, annualized, as compared to 11% for the first half 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 second quarter 2000 declined
200 basis points to an annualized rate of 13% from the first
quarter 2000 rate of 15%.
15
<PAGE> 16
Amortization of DAC increased 44% to $56.0 million in second
quarter 2000 compared to $38.8 million in second quarter 1999. DAC
amortization for the first half of 2000 increased to $112.0
million compared to $74.2 million for the first half of 1999.
Operating expenses of $44.0 million in second quarter 2000 were
flat compared to second quarter 1999, while year-to-date 2000
operating expenses were $92.3 million compared to $85.8 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 Company's Fixed Annuities segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net investment income $ 304.2 $ 278.1 $ 608.4 $ 553.4
Other 18.5 8.2 41.4 20.5
------------- ------------- ------------- --------------
322.7 286.3 649.8 573.9
------------- ------------- ------------- --------------
Benefits and expenses:
Interest credited to policyholder account balances 222.2 202.5 447.6 404.7
Other benefits and expenses 53.5 37.8 109.8 80.4
------------- ------------- ------------- --------------
275.7 240.3 557.4 485.1
------------- ------------- ------------- --------------
Operating income before federal income tax expense $ 47.0 $ 46.0 $ 92.4 $ 88.8
============= ============= ============= ==============
OTHER DATA
Statutory premiums and deposits (1) $ 1,006.9 $ 748.9 $ 1,910.8 $ 1,366.3
Policy reserves as of period end:
Individual $ 7,608.2 $ 7,115.5
Group 7,855.0 7,998.8
Institutional 873.6 -
------------- -------------
Total $ 16,336.8 $ 15,114.3
============= =============
Pre-tax operating income to average policy reserves 1.15% 1.22% 1.13% 1.18%
</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, 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.
16
<PAGE> 17
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,
--------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net investment income 7.82% 7.64% 7.76% 7.64%
Interest credited 5.72 5.57 5.71 5.59
------------- ------------- ------------- -------------
2.10% 2.07% 2.05% 2.05%
============= ============= ============= =============
</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 195 and
200 basis points, excluding the impact of mortgage loan and bond
prepayment income.
Fixed annuity policy reserves increased to $16.34 billion as of
June 30, 2000 compared to $16.59 billion as of the end of 1999 and
$15.11 billion a year ago.
Second quarter fixed annuity premiums and deposits increased to
$1.01 billion in 2000 compared to $748.9 million in 1999 while
sales for the first six months of 2000 increased to $1.91 billion
from $1.37 billion in 1999. Sales of institutional products were
$162.8 million and $324.5 million during second quarter 2000 and
the first six months of 2000, respectively, compared to no sales
in the first six months of 1999. Most of the Company's fixed
annuity sales are premiums and deposits allocated to the fixed
option of variable annuity contracts. Second quarter 2000 fixed
annuity sales include $707.2 million in premiums allocated to the
fixed option under a variable annuity contract, compared to $658.2
million in second 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 coupled
with a $49.0 million increase in the fixed option of variable
annuity contract deposits in the second quarter of 2000 as
compared to the second quarter of 1999. The later increase was
driven by the Company's enhanced dollar cost averaging (DCA)
program that offers customers a first year bonus interest rate and
transfers the account balance systematically to variable options
over a six or twelve month period.
Other benefits and expenses increased 42% to $53.5 million in
second quarter 2000 compared to a year ago. For the first half of
2000, other benefits and expenses totaled $109.8 million, up 37%
from the first half of 1999. The increase primarily reflects an
increase in immediate annuity benefits due to growth in 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ---------------------------
(in millions) 2000 1999 2000 1999
------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 182.6 $ 153.3 $ 362.2 $ 304.4
Benefits and expenses 146.1 124.1 292.4 246.1
-------- -------- -------- --------
Operating income before federal income tax expense $ 36.5 $ 29.2 $ 69.8 $ 58.3
======== ======== ======== ========
OTHER DATA
Statutory premiums (1):
Traditional and universal life insurance $ 63.7 $ 61.8 $ 120.6 $ 121.8
Individual investment life insurance 138.1 99.7 263.4 190.2
Corporate investment life insurance 404.5 40.4 652.0 227.1
-------- -------- -------- --------
Total $ 606.3 $ 201.9 $1,036.0 $ 539.1
======== ======== ======== ========
Policy reserves as of period end:
Traditional and universal life insurance $2,568.9 $2,476.8
Individual investment life insurance 2,044.2 1,517.8
Corporate investment life insurance 2,153.1 1,156.9
-------- --------
Total $6,766.2 $5,151.5
======== ========
</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, 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 $76.9 million in second quarter 2000
from $51.9 million in second quarter 1999 as a result of the sales
growth and high persistency. On a year-to-date basis, investment
life product revenues increased to $149.0 million in 2000 from
$103.7 million in 1999.
Individual investment life insurance statutory premiums increased
39% during second quarter 2000 reaching $138.1 million compared to
$99.7 million in 1999. Excluding the $309.7 million in 2000 single
premium BOLI sales, which includes $300.0 million sold to an
affiliate, corporate investment life insurance statutory premiums
more than doubled reaching $94.8 million in second quarter 2000
compared to $40.4 million in second quarter 1999. Total investment
life insurance in force reached $28.86 billion at June 30, 2000
representing 47% of all life insurance in force compared to $21.48
billion and 43% a year ago.
Interest credited to policyholders increased $7.6 million in
second quarter 2000 reaching $41.2 million compared to $33.6
million in the year ago second quarter. For the first six months
of 2000, interest credited to policyholders increased $10.4
million over 1999. Increased corporate investment life insurance
business accounted for most of the increases. Corporate investment
fixed life insurance reserves increased 45% to $1.35 billion as of
June 30, 2000 compared to $931.5 million a year ago.
Other policy benefits increased $5.0 million and $14.2 million in
the three and six months, respectively, ended June 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 Company's Corporate and Other segment for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 50.0 $ 65.1 $ 106.4 $ 125.4
Benefits and expenses 45.2 51.0 93.8 96.3
---------- ---------- ---------- -----------
Operating income before federal income tax expense (1) $ 4.8 $ 14.1 $ 12.6 $ 29.1
============= ============= ============= =============
</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.
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 of $10.7 million and $8.3
million during the second 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
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
On May 22, 2000, the Board of Directors of NLIC held a Special
Meeting (the "Special Meeting"). At the Special Meeting, the Board
of Directors recommended to the sole shareholder of NLIC to adopt
amendments and restate the Amended and Restated Code of
Regulations in order to change the references from "Chairman and
Chief Executive Officer" to "Chairman or Chief Executive Officer"
and to make certain changes to the Officer and Officer Duties
Articles of the Amended and Restated Code of Regulations to
facilitate the election of a Chief Executive Officer.
On May 22, 2000, the Board of Directors elected William G. "Jerry"
Jurgensen as a Director of NLIC and as a member of the Executive
and Investment Committees. At that time, Mr. Jurgensen was also
elected as Chief Executive Officer - Elect of NLIC.
On July 26, 2000, the sole shareholder of NLIC held a Special
Meeting of the Shareholder and approved the recommended amendments
and restatement of the Amended and Restated Code of Regulations.
Effective on August 1, 2000, Mr. Jurgensen's title was changed to
Chief Executive Officer. Also effective on August 1, 2000, the
Board of Directors changed the title of Dimon R. McFerson from
Chairman and Chief Executive Officer to Chairman. Mr. McFerson's
retirement as a Director of NLIC, as a member and Chairman of the
Investment Committee, as a member of the Executive Committee and
as Chairman of NLIC will be effective on or before December 31,
2000.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.2 Form of Amended and Restated Code of Regulations
of Nationwide Life Insurance Company
10.18 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and John Cook (filed as exhibit 10.24 to Form 10-Q,
Commission File Number 1-12785, filed August 14,
2000)
10.19 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and Patricia Hatler (filed as exhibit 10.25 to Form
10-Q, Commission File Number 1-12785, filed August
14, 2000)
10.20 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and Richard Headley (filed as exhibit 10.26 to Form
10-Q, Commission File Number 1-12785, filed August
14, 2000)
10.21 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and Donna James (filed as exhibit 10.27 to Form
10-Q, Commission File Number 1-12785, filed August
14, 2000)
10.22 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and Greg Lashutka (filed as exhibit 10.28 to Form
10-Q, Commission File Number 1-12785, filed August
14, 2000)
10.23 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and Robert Oakley (filed as exhibit 10.29 to Form
10-Q, Commission File Number 1-12785, filed August
14, 2000)
10.24 Form of Employment Agreement, dated January 1,
2000, between Nationwide Mutual Insurance Company
and Robert Woodward (filed as exhibit 10.30 to Form
10-Q, Commission File Number 1-12785, filed August
14, 2000)
10.25 Form of Employment Agreement, dated August 11,
2000, between Nationwide Mutual Insurance Company
and Michael Helfer (filed as exhibit 10.31 to Form
10-Q, Commission File Number 1-12785, filed August
14, 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 June 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: August 14, 2000 /s/ Mark R. Thresher
-----------------------------------------
Mark R. Thresher
Senior Vice President - Finance -
Nationwide Financial
(Chief Accounting Officer)
22
