UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 2-17039
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
COLORADO 84-0467208
(State of Incorporation) (I.R.S. Employer Identification Number)
850 EAST ANDERSON LANE
AUSTIN, TEXAS 78752-1602 (512) 836-1010
(Address of Principal Executive Offices) (Telephone Number)
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
such filing requirements for the past 90 days:
Yes [ X ] No [ ]
As of August 8, 1997, the number of shares of Registrant's common stock
outstanding was: Class A - 3,291,338 and Class B - 200,000.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997 (Unaudited) and December 31, 1996
Condensed Consolidated Statements of Earnings -
For the Three Months Ended June 30, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Earnings -
For the Six Months Ended June 30, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Stockholders' Equity -
For the Six Months Ended June 30, 1997 and 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1997 and 1996 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11 - Computation of Earnings per Share -
For the Three Months Ended June 30, 1997 and 1996 (Unaudited)
Exhibit 11 - Computation of Earnings per Share -
For the Six Months Ended June 30, 1997 and 1996 (Unaudited)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1997 1996
<S> <C> <C>
Cash and investments:
Securities held to maturity,
at amortized cost $ 1,894,787 1,873,561
Securities available for sale,
at fair value 547,126 527,627
Mortgage loans, net of allowance
for possible
losses ($4,640 and $5,988) 190,705 193,311
Policy loans 137,571 142,077
Other long-term investments 27,770 22,997
Cash and short-term investments 13,925 11,358
Total cash and investments 2,811,884 2,770,931
Accrued investment income 40,290 39,503
Deferred policy acquisition costs 294,026 295,666
Other assets 16,510 13,472
Assets of discontinued operations 1,064 1,257
$ 3,163,774 3,120,829
<FN>
Note: The balance sheet at December 31, 1996 has been taken from the
audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Shares Outstanding)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
LIABILITIES:
Future policy benefits:
Traditional life and annuity products $ 170,511 172,565
Universal life and investment
annuity contracts 2,548,885 2,529,307
Other policyholder liabilities 24,498 24,403
Federal income taxes payable:
Current 3,742 -
Deferred 11,547 11,910
Other liabilities 32,242 28,527
Liabilities of discontinued operations 1,064 1,257
Total liabilities 2,792,489 2,767,969
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock:
Class A - $1 par value; 7,500,000
shares authorized; 3,291,338
shares issued and outstanding in
1997 and 1996 3,291 3,291
Class B - $1 par value; 200,000
shares authorized, issued,
and outstanding in 1997 and 1996 200 200
Additional paid-in capital 24,647 24,647
Net unrealized gains on
investment securities 8,792 9,853
Foreign currency translation adjustment 1,936 -
Retained earnings 332,419 314,869
Total stockholders' equity 371,285 352,860
$ 3,163,774 3,120,829
<FN>
Note: The balance sheet at December 31, 1996 has been taken from the
audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Premiums and other revenue:
Life and annuity premiums $ 4,551 4,319
Universal life and investment
annuity contract revenues 21,250 20,027
Net investment income 54,958 54,028
Other income 88 38
Realized gains on investments 77 1,098
Total premiums and other revenue 80,924 79,510
Benefits and expenses:
Life and other policy benefits 10,310 8,813
Decrease in liabilities for
future policy benefits (1,282) (431)
Amortization of deferred
policy acquisition costs 11,183 7,427
Universal life and investment
annuity contract interest 36,344 39,119
Other insurance operating expenses 6,445 6,438
Total benefits and expenses 63,000 61,366
Earnings before Federal income taxes 17,924 18,144
Provision (benefit) for Federal income taxes:
Current 7,118 6,694
Deferred (992) (390)
Total Federal income taxes 6,126 6,304
Net earnings $ 11,798 11,840
Earnings per share of common stock:
Net earnings $ 3.38 3.40
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Premiums and other revenue:
Life and annuity premiums $ 8,271 8,593
Universal life and investment
annuity contract revenues 40,681 38,843
Net investment income 107,511 104,683
Other income 156 1,139
Realized gains (losses) on investments (2,779) 1,721
Total premiums and other revenue 153,840 154,979
Benefits and expenses:
Life and other policy benefits 20,009 17,491
Decrease in liabilities for
future policy benefits (2,000) (915)
Amortization of deferred
policy acquisition costs 20,885 15,788
Universal life and investment
annuity contract interest 74,064 77,954
Other insurance operating expenses 13,372 12,992
Total benefits and expenses 126,330 123,310
Earnings before Federal income
taxes and discontinued operations 27,510 31,669
Provision (benefit) for Federal
income taxes:
Current 9,795 11,907
Deferred (835) (822)
Total Federal income taxes 8,960 11,085
Earnings from continuing operations 18,550 20,584
Losses from discontinued operations (1,000) -
Net earnings $ 17,550 20,584
Earnings (losses) per share of common stock:
Earnings from continuing operations $ 5.32 5.90
Losses from discontinued operations (0.29) -
Net earnings $ 5.03 5.90
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Common stock shares outstanding:
Shares outstanding at beginning
of year and end of period 3,491 3,491
Common stock:
Balance at beginning of year and
end of period $ 3,491 3,491
Additional paid-in capital:
Balance at beginning of year
and end of period 24,647 24,647
Net unrealized gains (losses) on investment
securities,
net of effects of deferred policy acquisition
costs and taxes:
Balance at beginning of year 9,853 15,195
Change in unrealized gains
(losses) during period (522) (8,141)
Amortization of net unrealized
gains related to transfers of
securities available for sale to
securities held to maturity (539) (616)
Balance at end of period 8,792 6,438
Foreign currency translation adjustment, net of
taxes:
Balance at beginning of year - -
Change in translation adjustment
during period 1,936 -
Balance at end of period 1,936 -
Retained earnings:
Balance at beginning of year 314,869 268,654
Net earnings 17,550 20,584
Balance at end of period 332,419 289,238
Total stockholders' equity $ 371,285 323,814<PAGE>
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 17,550 20,584
Adjustments to reconcile net
earnings to net cash
from operating activities:
Universal life and investment
annuity contract interest 74,064 77,954
Surrender charges and other
policy revenues (21,991) (20,928)
Realized (gains) losses on investments 2,779 (1,721)
Accrual and amortization of
investment income (3,551) (3,474)
Depreciation and amortization 502 356
Increase in insurance receivables
and other assets (325) (13,684)
Increase in accrued investment income (787) (2,112)
Decrease (increase) in deferred
policy acquisition costs 3,145 (4,744)
Decrease in liability for future
policy benefits (2,000) (915)
Increase in other policyholder
liabilities 95 11,796
Increase in Federal income taxes payable 3,066 11,007
Increase in other liabilities 3,715 3,086
Net cash provided by operating activities 76,262 77,205
Cash flows from investing activities:
Proceeds from sales of:
Securities available for sale 33,468 29,318
Other investments 868 1,243
Proceeds from maturities and redemptions of:
Securities held to maturity 66,893 34,159
Securities available for sale 18,457 12,178
Purchases of:
Securities held to maturity (91,068) (161,532)
Securities available for sale (69,800) -
Other investments (3,723) (4,201)
Principal payments on mortgage loans 13,896 7,838
Cost of mortgage loans acquired (14,580) (8,099)
Decrease in policy loans 4,506 213
Decrease in assets of
discontinued operations 193 4,238
Decrease in liabilities
of discontinued operations (193) (4,238)
Other (116) (133)
Net cash used in investing activities (41,199) (89,016)
<FN>
(Continued on next page)
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from financing activities:
Deposits to account balances
for universal life
and investment annuity contracts $ 127,857 158,007
Return of account balances
on universal life
and investment annuity contracts (160,353) (148,720)
Net cash provided by (used in)
financing activities (32,496) 9,287
Net increase (decrease)
in cash and short-term investments 2,567 (2,524)
Cash and short-term investments
at beginning of year 11,358 10,024
Cash and short-term investments
at end of period $ 13,925 7,500
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of National Western Life Insurance Company and its wholly-owned
subsidiaries (the Company), The Westcap Corporation (Westcap), NWL
Investments, Inc., NWL Properties, Inc., NWL 806 Main, Inc., and NWL
Services, Inc. The Westcap Corporation ceased brokerage operations during
1995 and filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in 1996. As a result, The Westcap Corporation is reflected as
discontinued operations in the accompanying financial statements. NWL
Services, Inc. is a newly incorporated subsidiary formed in June, 1997
primarily for investment related activities. All significant intercorporate
transactions and accounts have been eliminated in consolidation.
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of June 30, 1997, and the results of its
operations for the three months and six months ended June 30, 1997 and 1996
and its cash flows for the six months ended June 30, 1997 and 1996. The
results of operations for the three months and six months ended June 30,
1997 and 1996 are not necessarily indicative of the results to be expected
for the full year.
(2) DIVIDENDS
The Company paid no cash dividends on common stock during the six months
ended June 30, 1997 and 1996.
(3) DISCONTINUED BROKERAGE OPERATIONS
As previously reported, National Western Life Insurance Company's brokerage
subsidiary, The Westcap Corporation, is currently in reorganization
bankruptcy. As a result of brokerage losses and the resulting bankruptcy,
National Western Life's investment in Westcap was completely written off
during 1995. However, a $1,000,000 cash infusion was made to Westcap on
March 18, 1997, for operational expenses incurred during its bankruptcy.
This contribution was reflected as a loss from discontinued operations in
the first quarter of 1997. No losses from discontinued brokerage
operations were recorded in 1996.
The Creditors' Committee, the debtor Westcap, and National Western Life are
continuing discussions relating to the possible settlement of all claims by
the creditors against Westcap and the claims of Westcap against National
Western Life. However, no prediction can be made at this time as to the
outcome of such settlement discussions. Any additional losses from
discontinued operations will depend primarily on results of Westcap
bankruptcy proceedings and settlement discussions. Any future settlements
of the Company with Westcap would be reduced by the $1,000,000 contribution
described above.
(4) STOCK AND INCENTIVE PLAN
On April 11, 1997, the Board of Directors approved the issuance of an
additional 21,900 non-qualified stock options to selected officers of the
Company. The options were granted under the National Western Life Insurance
Company 1995 Stock and Incentive Plan (Plan).
The stock options begin to vest following three full years of service to the
Company after date of grant, with 20% of the options to vest at the
beginning of the fourth year of service, and with 20% thereof to vest at the
beginning of each of the next four years of service. The exercise price of
the stock options was set at the fair market value of the common stock on
the date of grant. Total outstanding stock options under the Plan totaled
114,400 at June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investment Philosophy
The Company's investment philosophy is to maintain a diversified portfolio
of investment grade debt and equity securities that provide adequate
liquidity to meet policyholder obligations and other cash needs. The
prevailing strategy within this philosophy is the intent to hold investments
in debt securities to maturity. However, the Company closely manages its
portfolio, which entails monitoring and reacting to all components which
affect changes in the price, value, or credit rating of investments in debt
and equity securities.
Investments in debt and equity securities are classified and reported as
either securities held to maturity or securities available for sale. The
Company does not maintain a portfolio of trading securities. The reporting
category chosen for the Company's securities investments depends on various
factors including the type and quality of the particular security and how it
will be incorporated into the Company's overall asset/liability management
strategy. At June 30, 1997, approximately 22.2% of the Company's total debt
and equity securities, based on fair values, were classified as securities
available for sale. These holdings provide flexibility to the Company to
react to market opportunities and conditions and to practice active
management within the portfolio to provide adequate liquidity to meet
policyholder obligations and other cash needs.
Securities the Company purchases with the intent to hold to maturity are
classified as securities held to maturity. Because the Company has strong
cash flows and matches expected maturities of assets and liabilities, the
Company has the ability to hold the securities, as it would be unlikely that
forced sales of securities would be required prior to maturity to cover
payments of liabilities. As a result, securities held to maturity are
carried at amortized cost less declines in value that are other than
temporary. However, certain situations may change the Company's intent to
hold a particular security to maturity, the most notable of which is a
deterioration in the issuer's creditworthiness. Accordingly, a security may
be sold to avoid a further decline in realizable value when there has been a
significant change in the credit risk of the issuer.
Securities that are not classified as held to maturity are reported as
securities available for sale. These securities may be sold if market or
other measurement factors change unexpectedly after the securities were
acquired. For example, opportunities arise when factors change that allow
the Company to improve the performance and credit quality of the investment
portfolio by replacing an existing security with an alternative security
while still maintaining an appropriate matching of expected maturities of
assets and liabilities. Examples of such improvements are as follows:
improving the yield earned on invested assets, improving the credit quality,
changing the duration of the portfolio, and selling securities in advance of
anticipated calls or other prepayments. Securities available for sale are
reported in the Company's financial statements at fair value. Any unrealized
gains or losses resulting from changes in the fair value of the securities
are reflected as a component of stockholders' equity.
As an integral part of its investment philosophy, the Company performs an
ongoing process of monitoring the creditworthiness of issuers within the
investment portfolio. Review procedures are also performed on securities
that have had significant declines in fair value. The Company's objective in
these circumstances is to determine if the decline in fair value is due to
changing market expectations regarding inflation and general interest rates
or other factors. Additionally, the Company closely monitors financial,
economic, and interest rate conditions to manage prepayment and extension
risks in its mortgage-backed securities portfolio.
The Company's overall conservative investment philosophy is reflected in the
allocation of its investments which is detailed below as of June 30, 1997
and December 31, 1996. The Company emphasizes debt securities, with
smaller holdings in mortgage loans and real estate.
<TABLE>
<CAPTION>
Percent of Investments
June 30, December 31,
1997 1996
<S> <C> <C>
Debt securities 86.3% 86.0%
Mortgage loans 6.8 7.0
Policy loans 4.9 5.1
Equity securities 0.6 0.6
Real estate 0.6 0.6
Other 0.8 0.7
Totals 100.0% 100.0%
</TABLE>
Portfolio Analysis
The Company maintains a diversified debt securities portfolio which consists
of various types of fixed income securities including primarily U.S.
government, public utilities, corporate, and mortgage-backed securities.
Investments in mortgage-backed securities include primarily collateralized
mortgage obligations (CMOs), but also include some U.S. government and
private issue mortgage-backed pass-through securities.
At June 30, 1997, the Company s debt and equity securities were classified
as follows:
<TABLE>
<CAPTION>
Gross
Fair Amortized Unrealized
Value Cost Gains
(In thousands)
<S> <C> <C> <C>
Securities held to maturity:
Debt securities $ 1,913,814 1,894,787 19,027
Securities available for sale:
Debt securities 531,274 514,955 16,319
Equity securities 15,852 12,960 2,892
Totals $ 2,460,940 2,422,702 38,238
</TABLE>
As detailed above, debt securities classified as held to maturity comprise
the majority of the Company's securities portfolio, while equity securities
continue to be a small component of the portfolio. Gross unrealized gains
totaling $38,238,000 on the securities portfolio at June 30, 1997, are a
reflection of market interest rates at quarter-end. The fair values, or
market values, of fixed income debt securities correlate to external market
interest rate conditions. Because the interest rates are fixed on almost
all of the Company's debt securities, market values typically increase when
market interest rates decline, and decrease when market interest rates rise.
An analysis of gross unrealized gains and losses on the Company's securities
portfolio for the quarter ended June 30, 1997 is detailed below:
<TABLE>
<CAPTION>
Change in
Unrealized
Gross Unrealized Gains
Gains (Losses) (Losses)
At At During 2nd
June 30, March 31, Quarter
1997 1997 1997
(In thousands)
<S> <C> <C> <C>
Securities held to maturity:
Debt securities $ 19,027 (9,901) 28,928
Securities available for sale:
Debt securities 16,319 9,527 6,792
Equity securities 2,892 3,013 (121)
Totals $ 38,238 2,639 35,599
</TABLE>
Market interest rates of the ten year U.S. Treasury bond were approximately
40 basis points lower at June 30, 1997, than at March 31, 1997. As
reflected in the table above, such changes in interest rates have a
significant impact on the market values of the Company's debt securities.
The Company would expect similar results in the future from any significant
upward or downward movement in market rates. However, because the majority
of the Company's debt securities are classified as held to maturity, which
are recorded at amortized cost, the changes in market values have relatively
small effects on the Company's financial statements. Also, the Company has
the intent and ability to hold these securities to maturity, and it is
unlikely that sales of such securities would be required which would realize
market gains or losses.
An important aspect of the Company's investment philosophy is managing the
cash flow stability of the portfolio. Because expected maturities of
securities may differ from contractual maturities due to prepayments,
extensions, and calls, the Company takes steps to manage and minimize such
risks. The Company continues to invest primarily in corporate debt
securities, many of which are non-callable, which helps reduce prepayment
and call risks. At June 30, 1997, corporate and public utility securities
represented over 62% of the entire debt securities portfolio.
While mortgage-backed securities are still an important component of the
Company's debt securities portfolio, holdings of these securities have been
reduced significantly over the past several years. This change in the
portfolio mix has provided even more stability in the Company's cash flow
management. Although holdings of mortgage-backed securities are subject to
prepayment and extension risks, both of these risks are addressed by
specific portfolio management strategies. The Company substantially reduces
both prepayment and extension risks of mortgage-backed securities by
investing primarily in collateralized mortgage obligations which have more
predictable cash flow patterns than pass-through securities. These
securities, known as planned amortization class I (PAC I) CMOs, are designed
to amortize in a more predictable manner than other CMO classes or
pass-throughs. Using this strategy, the Company can more effectively manage
and reduce prepayment and extension risks, thereby helping to maintain the
appropriate matching of the Company's assets and liabilities.
As of June 30, 1997, CMOs represent over 90% of the Company's mortgage-
backed securities, and PAC I CMOs account for approximately 90% of this CMO
portfolio. The CMOs that the Company purchases are modeled and subjected to
detailed, comprehensive analysis by the Company's investment staff before
any investment decision is made. The overall structure of the entire CMO is
evaluated, and an average life sensitivity analysis is performed on the
individual tranche being considered for purchase under increasing and
decreasing interest rate scenarios. This analysis provides information used
in selecting securities that fit appropriately within the Company's
investment philosophy and asset/liability management parameters. The
Company's investment mix between mortgage-backed securities and other fixed
income securities helps effectively balance prepayment, extension, and
credit risks.
In addition to managing prepayment, extension, and call risks, the Company
closely manages the credit quality of its investments in debt securities.
The Company continues to follow its conservative investment philosophy by
minimizing its holdings of below investment grade debt securities, as these
securities generally have greater default risk than higher rated corporate
debt. These issuers usually are more sensitive to adverse industry or
economic conditions than are investment grade issuers. The Company's small
holdings of below investment grade debt securities are summarized below.
The increase in below investment grade debt securities from 1995 is
primarily due to investment grade issuers that were downgraded to below
investment grade status.
<TABLE>
<CAPTION>
Below Investment
Grade Debt Securities
% of
Carrying Market Invested
Value Value Assets
(In thousands)
<S> <C> <C> <C>
June 30, 1997 $ 35,548 36,407 1.3%
December 31, 1996 $ 38,696 38,784 1.4%
December 31, 1995 $ 14,244 14,567 0.5%
</TABLE>
The Company's strong credit risk management and commitment to quality has
resulted in minimal defaults in the debt securities portfolio in recent
years. In fact, at June 30, 1997, no securities were in default and on
non-accrual status.
MORTGAGE LOANS AND REAL ESTATE
Investment Philosophy
In general, the Company seeks loans on high quality, income producing
properties such as shopping centers, freestanding retail stores, office
buildings, industrial and sales or service facilities, selected apartment
buildings, motels, and health care facilities. The location of these loans
is typically in growth areas that offer a potential for property value
appreciation. These growth areas are found primarily in major metropolitan
areas, but occasionally in selected smaller communities.
The Company seeks to minimize the credit and default risk in its mortgage
loan portfolio through strict underwriting guidelines and diversification of
underlying property types and geographic locations. In addition to being
secured by the property, mortgage loans with leases on the underlying
property are often guaranteed by the lessee, in which case the Company
approves the loan based on the credit strength of the lessee. This approach
has resulted in higher quality mortgage loans with fewer defaults.
The Company's direct investments in real estate are not a significant
portion of its total investment portfolio, and the majority of real estate
owned was acquired through mortgage loan foreclosures. However, the Company
also participates in several real estate joint ventures and limited
partnerships. The joint ventures and partnerships invest primarily in
income-producing retail properties. While not a significant portion of the
Company's investment portfolio, the investments have produced favorable
returns to date.
Portfolio Analysis
The Company held net investments in mortgage loans totaling $190,705,000 and
$193,311,000, or 6.8% and 7.0% of total invested assets, at June 30, 1997,
and December 31, 1996, respectively. The loans are real estate mortgages,
substantially all of which are related to commercial properties and
developments and have fixed interest rates.
The diversification of the mortgage loan portfolio by geographic regions of
the United States and by property type as of June 30, 1997 and December 31,
1996, was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
West South Central 50.3 % 51.4 %
Mountain 15.6 15.0
South Atlantic 12.2 8.7
Pacific 8.4 11.2
Other 13.5 13.7
Totals 100.0 % 100.0 %
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Retail 68.8 % 64.4 %
Office 13.5 18.9
Hotel/Motel 7.8 7.8
Apartment 4.0 3.9
Other 5.9 5.0
Totals 100.0 % 100.0 %
</TABLE>
During the quarter ended June 30, 1997, the Company added $100,000 to the
allowance for possible losses to increase the balance to an adequate level
based on management s analysis. This addition was recognized as a realized
loss on investments in the accompanying financial statements. There were no
charge-offs against the allowance during the quarter and the allowance for
possible losses on mortgage loans now totals $4,640,000 at June 30, 1997.
Although management believes that the current balance is adequate, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in the West South Central region which includes
Texas, Louisiana, Oklahoma, and Arkansas, as this area contains the highest
concentrations of the Company's mortgage loans.
The Company currently places all loans past due three months or more on
non-accrual status and no interest income is recognized during this period.
Also, the Company will at times restructure mortgage loans under certain
conditions which may involve changes in interest rates, payment terms, or
other modifications. For the three months ended June 30, 1997 and 1996, the
reductions in interest income due to non-accrual and restructured mortgage
loans were not significant.
The Company owns real estate that was acquired through foreclosure and
through direct investment totaling approximately $17,238,000 and $15,209,000
at June 30, 1997, and December 31, 1996, respectively. This small
concentration of properties represents less than one percent of the
Company's entire investment portfolio. The real estate holdings consist
primarily of income-producing properties which are being operated by the
Company. The Company recognized operating gains on these properties of
approximately $76,000 and $253,000 for the three months ended June 30, 1997,
and 1996. The Company does not anticipate significant changes in these
operating results in the near future.
The Company monitors the conditions and market values of these properties on
a regular basis. No significant realized losses were recognized due to
declines in values of properties for the three months ended June 30, 1997
and 1996, respectively. The Company makes repairs and capital improvements
to keep the properties in good condition and will continue this maintenance
as needed.
RESULTS OF OPERATIONS
Summary of Consolidated Operations
A summary of operating results for the three months and six months ended
June 30, 1997 and 1996 is provided below:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
(In thousands except per (In thousands except per
share data) share data)
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues
excluding realized
gains (losses)
on investments $ 80,847 78,412 156,619 153,258
Realized gains
(losses)
on investments 77 1,098 (2,779) 1,721
Total revenues $ 80,924 79,510 153,840 154,979
Earnings:
Earnings from
insurance operations $ 11,748 11,126 20,356 19,465
Losses from
discontinued
brokerage operations - - (1,000) -
Net realized
gains (losses)
on investments 50 714 (1,806) 1,119
Net earnings $ 11,798 11,840 17,550 20,584
Earnings Per Share:
Earnings from
insurance operations $ 3.36 3.19 5.83 5.58
Losses from
discontinued
brokerage operations - - (0.29) -
Net realized gains
(losses)
on investments 0.02 0.21 (0.51) 0.32
Net earnings $ 3.38 3.40 5.03 5.90
</TABLE>
Significant changes and fluctuations in income and expense items between the
three months ended June 30, 1997 and 1996 are described in detail for
insurance operations and discontinued brokerage operations as follows:
Insurance Operations
Insurance Operations Net Earnings: Earnings from insurance operations for
the quarter ended June 30, 1997, were $11,748,000 compared to $11,126,000
for the second quarter of 1996. This reflects an increase of $622,000, or
5.6%, over 1996 second quarter earnings. Increases in insurance revenues
continue to contribute to higher earnings. Insurance revenues, excluding
realized gains on investments, were up $2,435,000, totaling $80,847,000 for
the quarter ended June 30, 1997.
Universal Life and Investment Annuity Contract Revenues: These revenues are
from the Company's non-traditional products which are universal life and
investment annuities. Revenues from these types of products consist of
policy charges for the cost of insurance, surrender charges, policy
administration fees, and other miscellaneous revenues. These revenues
increased from $20,027,000 for the quarter ended June 30, 1996, to
$21,250,000 for the same 1997 period. Increases in cost of insurance and
other revenues resulted in the majority of the increase in these contract
revenues. Although total life and annuity surrenders were up 11.5% when
comparing the second quarters of 1997 and 1996, surrender charge revenues
actually declined slightly in 1997 primarily due to changes in the types of
surrenders. Single-tier annuities accounted for the majority of the
increase in surrenders and these annuities typically have lower surrender
charges than two-tier annuities. Surrenders of two-tier annuities also
declined in the second quarter of 1997 compared to the same 1996 period.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
(In thousands)
<S> <C> <C>
Surrender charges $ 9,727 9,774
Cost of insurance revenues 8,567 8,005
Policy fees and other revenues 2,956 2,248
Totals $ 21,250 20,027
</TABLE>
Actual universal life and investment annuity deposits collected for the
quarters ended June 30, 1997 and 1996, are detailed below. Deposits
collected on these non-traditional products are not reflected as revenues in
the Company's statements of earnings, as they are recorded directly to
policyholder liabilities upon receipt, in accordance with generally accepted
accounting principles.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment annuities:
First year and single premiums $ 51,351 69,038
Renewal premiums 6,516 8,322
Total annuities 57,867 77,360
Universal life insurance:
First year and single premiums 4,075 5,545
Renewal premiums 12,798 12,018
Total universal life insurance 16,873 17,563
Totals $ 74,740 94,923
</TABLE>
Subsequent to discontinuing two-tier annuity sales, the Company developed
new annuity products in 1994 and diversified its distribution system by
contracting new marketing organizations with extensive experience, financial
resources, and success in marketing life and annuity products. The new
products and new marketing organizations resulted in significant increases
in annuity production in 1994 and 1995. However, annuity production slowed
in 1996 and has continued to decrease in the first half of 1997, but sales
still continue to be higher under this more diversified distribution system.
Annuities sold include flexible premium deferred annuities, single premium
deferred annuities, and single premium immediate annuities. These products
can be tax-qualified or non-qualified annuities. In recent years the
majority of annuities sold have been non-qualified single premium deferred
annuities. The Company also continues to collect additional premiums on
existing two-tier annuities, as a large portion of the two-tier block of
business were flexible premium annuities on which renewal premiums continue
to be collected.
The majority of the Company's universal life insurance production is from
the international market, primarily Central and South American countries.
The Company continues to see increased competition in the Central and South
American market which has reduced sales. However, the Company has been
accepting policies from foreign nationals for over thirty years and has
developed strong relationships with carefully selected brokers in the
foreign countries. This experience and strong broker relations have enabled
the Company to meet the challenges of the increased competition. The
Company's strategic plans for the international market include the continued
development of additional life insurance products to complement the
universal life portfolio and acceptance of new broker/agents from existing
agencies in Latin America.
Sales of life insurance have also declined in the U.S. domestic market. In
response to this decline, the Company is committed to allocating additional
resources to increase domestic life insurance sales and to enhancing and
developing new life insurance products. Additional resources include both
personnel additions and increased marketing efforts.
Net Investment Income: Net investment income increased 1.7% from the second
quarter of 1996, due primarily to increases in invested assets for the same
period. The increase in invested assets and related investment income was
primarily from debt securities. A detail of net investment income is
provided below:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment income:
Debt securities $ 46,180 44,206
Mortgage loans 4,845 4,931
Policy loans 2,506 2,668
Other 2,354 2,752
Total investment income 55,885 54,557
Investment expenses 927 529
Net investment income $ 54,958 54,028
</TABLE>
Realized Gains on Investments: The Company recorded realized gains of
$77,000 in 1997 compared to realized gains of $1,098,000 in 1996. The gains
in 1996 were primarily from sales of real estate and debt securities. The
1997 gains are net of an increase in the mortgage loan allowance for losses
totaling $100,000. No significant write-downs on investments were recorded
in 1996.
Life and Other Policy Benefits: Expenses in 1997 and 1996 were $10.3
million and $8.8 million, respectively. The significant increase in
expenses is due to an increase in surrenders of traditional life insurance
products and higher life insurance benefit claims. Mortality claims were
$317,000 higher in the second quarter of 1997 than in 1996. Traditional
life insurance surrenders also increased $1.1 million in 1997 over the
comparable 1996 period. However, much of this increase in surrender expense
is offset by corresponding decreases in liabilities for future policy
benefits.
Amortization of Deferred Policy Acquisition Costs: This expense item
represents the amortization of the costs of acquiring or producing new
business, which consists primarily of agents' commissions. The majority of
such costs are amortized in direct relation to the anticipated future gross
profits of the applicable blocks of business. Amortization is also impacted
by the level and types of policy surrenders. Amortization for 1997 was
$11,183,000 compared to $7,427,000 for 1996. The higher amortization in
1997 was impacted by changes in timing and levels of anticipated future
gross profits for certain blocks of business and increased policy
surrenders.
Significant changes and fluctuations in income and expense items between the
six months ended June 30, 1997 and 1996 are described in detail for
insurance operations and discontinued brokerage operations as follows:
Insurance Operations
Insurance Operations Net Earnings: Earnings from insurance operations
increased $891,000 or $0.25 per share, compared to the first six months of
1996. Earnings for the six months ended June 30, 1997, benefited from
increases in insurance revenues. Also, first quarter 1996 earnings included
nonrecurring income totaling $552,000, net of taxes, from a lawsuit
settlement.
Universal Life and Investment Annuity Contract Revenues: These revenues
increased from $38,843,000 for the six months ended June 30, 1996, to
$40,681,000 for the same 1997 period. Increases in cost of insurance and
other revenues resulted in the majority of the increase in these contract
revenues. Increases in other revenues are primarily from recognition of
deferred revenues relating to immediate annuities. Surrender charge
revenues declined in 1997 primarily due to lower two-tier annuity
surrenders. The Company s two-tier annuities typically have higher
surrender charges compared to other Company annuity and life insurance
products.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
(In thousands)
<S> <C> <C>
Surrender charges $ 17,653 18,328
Cost of insurance revenues 16,998 15,889
Policy fees and other revenues 6,030 4,626
Totals $ 40,681 38,843
</TABLE>
Actual universal life and investment annuity deposits collected for the six
months ended June 30, 1997 and 1996, are detailed below. Deposits collected
on these non-traditional products are not reflected as revenues in the
Company's statements of earnings, as they are recorded directly to
policyholder liabilities upon receipt, in accordance with generally accepted
accounting principles.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment annuities:
First year and single premiums $ 103,346 126,035
Renewal premiums 12,621 16,446
Total annuities 115,967 142,481
Universal life insurance:
First year and single premiums 7,039 9,926
Renewal premiums 23,541 23,515
Total universal life insurance 30,580 33,441
Totals $ 146,547 175,922
</TABLE>
Net Investment Income: Net investment income increased $2,828,000 from
$104,683,000 in 1996 to $107,511,000 in 1997, primarily due to increases in
invested assets, as investment yields have remained relatively stable. The
increase in invested assets and related investment income was primarily from
debt securities. A detail of net investment income is provided below:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
(In thousands)
<S> <C> <C>
Investment income:
Debt securities $ 91,846 87,066
Mortgage loans 9,511 9,829
Policy loans 4,848 5,439
Other 2,863 3,686
Total investment income 109,068 106,020
Investment expenses 1,557 1,337
Net investment income $ 107,511 104,683
</TABLE>
Other Income: Other income totaled only $156,000 in 1997 compared to
$1,139,000 in 1996. The higher income in 1996 was due to proceeds received
from a lawsuit settlement totaling $850,000. The lawsuit related to the
Company's previous investment in a mortgage loan.
Realized Gains and Losses on Investments: The Company recorded realized
losses of $2,779,000 in 1997 compared to realized gains of $1,721,000 in
1996. The losses in 1997 were primarily from net losses on debt securities
totaling $2.0 million. The Company also incurred net losses totaling
$849,000 on mortgage loans primarily relating to a foreclosure during the
first quarter of 1997. The gains in 1996 were primarily from debt
securities that were called and from sales of real estate.
Life and Other Policy Benefits: Expenses in 1997 and 1996 were $20.0
million and $17.5 million, respectively. The significant increase in
expenses is due to higher life insurance benefit claims and higher
traditional life insurance surrenders as previously described for the three
months ended June 30, 1997. Mortality claims experience fluctuates from
period to period and such deviations are not uncommon in the life insurance
industry. Over extended periods of time, higher claims experience tends to
be offset by periods of lower claims experience. Also, the Company utilizes
reinsurance to help minimize its exposure to adverse mortality experience.
The Company's general policy is to reinsure amounts in excess of $200,000 on
the life of any one individual.
Amortization of Deferred Policy Acquisition Costs: Amortization was up
$5,097,000 from $15,788,000 in 1996 to $20,885,000 in 1997 for the same
reasons as previously described for the three months ended June 30, 1997.
Federal Income Taxes: Federal income taxes for 1996 reflect an effective
tax rate of 35% which is the current federal rate. However, the 1997 taxes
reflect a lower effective tax rate of 32.6%. Federal income taxes for the
six months ended June 30, 1997, include a tax benefit of $350,000 resulting
from the Company's subsidiary brokerage operations losses. This tax benefit
was reflected in earnings from continuing operations in accordance with the
Company's tax allocation agreement with its subsidiaries.
Discontinued Brokerage Operations
As more fully described in note 3 to the accompanying financial statements,
National Western Life Insurance Company's brokerage subsidiary, The Westcap
Corporation, is currently in reorganization bankruptcy. A $1,000,000 cash
infusion was made by the Company to Westcap on March 18, 1997, for
operational expenses incurred during its bankruptcy. This contribution was
reflected as losses from discontinued operations in the first quarter of
1997. No losses from discontinued brokerage operations were recorded in
1996. Additional losses from discontinued operations will depend primarily
on results of Westcap bankruptcy proceedings and settlement discussions.
Any future settlements of the Company with Westcap would be reduced by the
$1,000,000 contribution described above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The liquidity requirements of the Company are met primarily by funds
provided from operations. Premium deposits and revenues, investment income,
and investment maturities are the primary sources of funds, while investment
purchases and policy benefits are the primary uses of funds. Primary
sources of liquidity to meet cash needs are the Company's securities
available for sale portfolio, net cash provided by operations, and bank line
of credit. The Company's investments consist primarily of marketable debt
securities that could be readily converted to cash for liquidity needs. The
Company may also borrow up to $60 million on its bank line of credit for
short-term cash needs.
A primary liquidity concern for the Company's life insurance operations is
the risk of early policyholder withdrawals. Consequently, the Company
closely evaluates and manages the risk of early surrenders or withdrawals.
The Company includes provisions within annuity and universal life insurance
policies, such as surrender charges, that help limit early withdrawals. The
Company also prepares cash flow projections and performs cash flow tests
under various market interest rate scenarios to assist in evaluating
liquidity needs and adequacy. The Company currently expects available
liquidity sources and future cash flows to be adequate to meet the demand
for funds.
In the past, cash flows from the Company's insurance operations have been
more than adequate to meet current needs. Cash flows from operating
activities were $76.3 million and $77.2 million for the six months ended
June 30, 1997 and 1996, respectively. Additionally, net cash flows from the
Company's deposit product operations, which includes universal life and
investment annuity products, totaled $9.3 million for the first six months
of 1996, but reflected a net cash outflow totaling $32.5 million for the
same period of 1997. The decrease in cash flows from the deposit product
operations was due to lower universal life insurance and annuity deposits
and higher surrenders.
The Company also has significant cash flows from both scheduled and
unscheduled investment security maturities, redemptions, and prepayments.
These cash flows totaled $85.4 million and $46.3 million for the six months
ended June 30, 1997 and 1996, respectively. The Company expects significant
cash flows to continue from these sources throughout the remainder of 1997.
Capital Resources
The Company relies on stockholders' equity for its capital resources, as
there has been no long-term debt outstanding in 1997 or recent years. The
Company does not anticipate the need for any long-term debt in the near
future. There are also no current or anticipated material commitments for
capital expenditures in 1997.
Stockholders' equity totaled $371.3 million at June 30, 1997, reflecting an
increase of $18.4 million from December 31, 1996. The increase in capital
is primarily from net earnings of $17.6 million and a foreign currency
translation adjustment of $1.9 million, offset by a decline in net
unrealized gains on investment securities totaling $1.1 million during the
first six months of 1997. Book value per share at June 30, 1997, was
$106.34.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 20, 1997, the stockholders voted upon the following matters at the
annual stockholders meeting:
(a) The election of Class A directors to serve one-year terms. The results
of the voting were as follows:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
Robert L. Moody 2,864,940 15,470
Arthur O. Dummer 2,861,589 18,821
Harry L. Edwards 2,861,373 19,037
E. J. Pederson 2,865,456 14,954
</TABLE>
(b) The election of Class B directors to serve one-year terms. The results
of the voting were as follows:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
E. Douglas McLeod 200,000 -
Charles D. Milos, Jr. 200,000 -
Frances A. Moody 200,000 -
Ross R. Moody 200,000 -
Russell S. Moody 200,000 -
Louis E. Pauls, Jr. 200,000 -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(filed on pages __ and __ of this report).
Exhibit 27 - Financial Data Schedule
(filed electronically pursuant to Regulation S-K).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
SIGNATURES
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.
National Western Life Insurance Company
(Registrant)
Date: August 8, 1997 /S/ Ross R. Moody
Ross R. Moody
President,
Chief Operating Officer,
and Director
Date: August 8, 1997 /S/ Robert L. Busby, III
Robert L. Busby, III
Senior Vice President -
Chief Administrative Officer,
Chief Financial Officer
and Treasurer
Date: August 8, 1997 /S/ Vincent L. Kasch
Vincent L. Kasch
Vice President - Controller
and Assistant Treasurer
EXHIBIT 11
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Earnings applicable to common
stock shares:
Net earnings $ 11,798 11,840
Weighted average common
stock shares outstanding 3,491 3,491
Primary and fully diluted earnings
per common stock share:
Net earnings $ 3.38 3.40
</TABLE>
EXHIBIT 11
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Earnings (losses) applicable to
common stock shares:
Earnings from continuing operations $ 18,550 20,584
Losses from discontinued operations (1,000) -
Net earnings $ 17,550 20,584
Weighted average common
stock shares outstanding 3,491 3,491
Primary and fully diluted earnings
(losses) per common stock share:
Earnings from continuing operations $ 5.32 5.90
Losses from discontinued operations (0.29) -
Net earnings $ 5.03 5.90
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
the National Western Life Insurance Company and subsidiaries consolidated
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 531,274
<DEBT-CARRYING-VALUE> 1,894,787
<DEBT-MARKET-VALUE> 1,913,814
<EQUITIES> 15,852
<MORTGAGE> 190,705
<REAL-ESTATE> 17,238
<TOTAL-INVEST> 2,811,884
<CASH> 13,925
<RECOVER-REINSURE> 2,719
<DEFERRED-ACQUISITION> 294,026
<TOTAL-ASSETS> 3,163,774
<POLICY-LOSSES> 2,719,396
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 14,966
<POLICY-HOLDER-FUNDS> 9,532
<NOTES-PAYABLE> 2,682
0
0
<COMMON> 3,491
<OTHER-SE> 367,794
<TOTAL-LIABILITY-AND-EQUITY> 3,163,774
48,952<F1>
<INVESTMENT-INCOME> 107,511
<INVESTMENT-GAINS> (2,779)
<OTHER-INCOME> 156
<BENEFITS> 92,073<F2>
<UNDERWRITING-AMORTIZATION> 20,885
<UNDERWRITING-OTHER> 13,372
<INCOME-PRETAX> 27,510
<INCOME-TAX> 8,960
<INCOME-CONTINUING> 18,550
<DISCONTINUED> (1,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,550
<EPS-PRIMARY> 5.03
<EPS-DILUTED> 5.03
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Consists of $8,271 revenues from traditional contracts subject to FAS 60
accounting treatment and $40,681 revenues from universal life and investment
annuity contracts subject to FAS 97 accounting treatment.
<F2>Consists of $20,009 benefits paid to policyholders, $(2,000) decrease in
reserves on traditional contracts and $74,064 interest on universal life and
investment annuity contracts.
</FN>
</TABLE>
