Texas Bankruptcy Laws Cash Value Life Insurance by sck21204

VIEWS: 50 PAGES: 42

More Info
									Association Financial Examination   National Western Life
                                                                                     1
Report as of 12-31-97                Insurance Company




                             COLORADO DIVISION OF INSURANCE



                                       REPORT OF
                           ASSOCIATION FINANCIAL EXAMINATION
                                           OF

                      NATIONAL WESTERN LIFE INSURANCE COMPANY
                               850 EAST ANDERSON LANE
                               AUSTIN, TEXAS 78752-1602


                                            AS OF


                                     DECEMBER 31, 1997




                                                            States Participating
                                                            Colorado, Western Zone
 Association Financial Examination                   National Western Life
                                                                                                                                            2
 Report as of 12-31-97                                Insurance Company

                                                      TABLE OF CONTENTS
                                                                                                                                       Page

SALUTATION ......................................................................................................................... 3
SCOPE OF EXAMINATION ..................................................................................................... 4
   HISTORY AND CAPITAL................................................................................................... 4
       History........................................................................................................................ 4
       Capital ........................................................................................................................ 4
       Dividends to Stockholders............................................................................................. 5
   AFFILIATED COMPANIES ................................................................................................ 5
       Parent, Subsidiaries, and Affiliates.................................................................................. 5
       Holding Company Filings .............................................................................................. 8
       Organizational Chart ..................................................................................................... 9
   MANAGEMENT AND CONTROL ..................................................................................... 10
       Shareholder Meetings ................................................................................................. 10
       Board of Directors ..................................................................................................... 10
       Officers .................................................................................................................... 11
       Committees ............................................................................................................... 12
       Conflict of Interest..................................................................................................... 13
       Service and Other Agreements..................................................................................... 13
   CORPORATE RECORDS.................................................................................................. 15
   FIDELITY BOND AND OTHER INSURANCE .................................................................... 15
   EMPLOYEES’ AND AGENTS’ WELFARE AND PENSION PLANS ..................................... 16
   TERRITORY AND PLAN OF OPERATON......................................................................... 18
       Territory ................................................................................................................... 18
       Plan of Operation ....................................................................................................... 18
   MARKET CONDUCT ACTIVITIES ................................................................................... 19
       Policy Forms............................................................................................................. 19
       Treatment of Policyholders ......................................................................................... 20
   GROWTH OF COMPANY................................................................................................. 21
   BUSINESS IN FORCE BY STATE..................................................................................... 22
   MORTALITY AND LOSS EXPERIENCE ........................................................................... 23
   REINSURANCE ............................................................................................................... 24
   STATUTORY AND SPECIAL DEPOSITS .......................................................................... 26
   ACCOUNTS AND RECORDS............................................................................................ 27
FINANCIAL STATEMENTS................................................................................................... 29
       Statement of Assets, Liabilities, Surplus and Other Funds ............................................... 30
       Summary of Operations .............................................................................................. 33
       Capital and Surplus Account........................................................................................ 34
       Reconciliation of Capital and Surplus ............................................................................ 35
       Analysis of Examination Changes ................................................................................. 36
       Comparative Statement of Assets, Liabilities, Surplus and Other Funds ............................ 37
NOTES TO FINANCIAL STATEMENTS................................................................................. 39
SUMMARY............................................................................................................................ 40
RECOMMENDATIONS.......................................................................................................... 41
CONCLUSION....................................................................................................................... 42
 Association Financial Examination       National Western Life
                                                                                                        3
 Report as of 12-31-97                    Insurance Company

                                                                                        Austin, Texas
                                                                                          June 30, 1999

Honorable Marianne K. Burke, Director
Chairman, Financial Condition (Ex 4) Subcommittee
Director of Alaska Division of Insurance
Department of Commerce and Economic Development
PO Box 110805
Juneau, AK 99811-0805

Honorable Chuck Cohen, Director
Secretary, Western Zone
Director of Arizona Department of Insurance
2910 N. 44th Street
Phoenix AZ, 85018-7256

Honorable William J. Kirven III, Commissioner
Division of Insurance
State of Colorado
1560 Broadway, Suite 850
Denver, Colorado 80202

Directors/Commissioner:

Pursuant to your respective instructions and in compliance with Section 10-1-201, et seq. C.R.S., an
Association Financial Examination has been made of the books, records and financial condition of:

                        NATIONAL WESTERN LIFE INSURANCE COMPANY
                                    Statutory Home Office:
                                  633 17th Street, Suite 3000
                                   Denver, Colorado 80202

                                 Primary Location of Books and Records:
                                        850 East Anderson Lane
                                       Austin, Texas 78752-1602

and the report thereon is respectfully submitted.

National Western Life Insurance Company, hereinafter referred to as “the Company”, was last examined
under the Association Plan of Examination as promulgated by the National Association of Insurance
Commissioners (NAIC) as of December 31, 1992. That examination was conducted by the Colorado
Division of Insurance with participating examiners from the State of Delaware, representing the
Northeastern Zone. The current examination which covered the intervening period through December 31,
1997, was conducted by the Colorado Division of Insurance without participation from any other states.
The examination was conducted at the Company's executive offices in Austin, Texas.

The issues which resulted in the recommendations included in the last examination report were not noted
during the course of the current examination, with the exception of those issues which resulted in the two
recommendations included in this report.
 Association Financial Examination       National Western Life
                                                                                                          4
 Report as of 12-31-97                    Insurance Company

                                       SCOPE OF EXAMINATION

This examination covers the five year period from January 1, 1993 through December 31, 1997. During
the examination, assets were verified and valued and all known liabilities were established as of December
31, 1997. The work performed was in accordance with statutory requirements and procedures
recommended in the Colorado Examiners Handbook and the NAIC Examiners Handbook. The extent of
review on any given account or activity was based upon its relationship and importance to the total
operation. A general review was also made of the Company's operations, including market conduct
activities and statutory compliance. Consideration was also given to the use of audit work performed by
the Company's independent accounting firm and, where appropriate, has been utilized herein.

All phases of the examination were conducted to determine compliance with the insurance laws and
regulations of the State of Colorado. Specific details pertaining to the various phases of the examination
are set forth under the appropriate caption in subsequent sections of this report.

HISTORY AND CAPITAL

History

The Company was incorporated as a stock life insurance company on July 16, 1956, under the laws of
the State of Colorado and commenced business on June 28, 1957. The Articles of Incorporation state
that the objectives and purposes for which the Company was organized are to make insurance and
reinsurance upon the lives of persons and every insurance appertaining thereto or connected therewith,
including health and accident insurance, and to grant, purchase or dispose of annuities and do all things
authorized by statute for a company so organized and licensed.

The Company is conducting business in 43 states and the District of Columbia. In addition, the Company
also writes policies to residents of various countries in Central and South America, the Caribbean and the
Pacific Rim.

Capital

The aggregate number of shares which the Company is authorized to issue is 7,500,000 shares of Class A
common stock with a par value of $1.00 per share, and 200,000 shares of Class B common stock with a
par value of $1.00 per share.

Changes in the authorized capital since organization are summarized as follows:

            Amendment Date           Authorized Capital       Authorized Shares         Par Value
          At organization                     $2,000,000               2,000,000              $1.00
          May 27, 1960                            800,000              2,000,000                .40
          November 14, 1963                       650,000              6,500,000                .10
          March 16, 1965                        1,000,000             10,000,000                .10
          July 7, 1965:
          Class A                               7,500,000                7,500,000              1.00
          Class B                                 200,000                  200,000              1.00

The Class A common stock shall have the exclusive right to elect one-third of the total number of
directors constituting the whole Board of Directors, treating any fraction thereof as an additional director.
The Class B common stock shall have the exclusive right to elect the remaining directors. Cash
 Association Financial Examination     National Western Life
                                                                                                      5
 Report as of 12-31-97                  Insurance Company

or in-kind dividends to be paid on each share of the Class B common stock per annum shall be one-half of
the cash or in-kind dividends to be paid on each share of the Class A common stock per annum.

Stock issued and outstanding at December 31, 1997 totaled 3,491,738 shares which were held by 6,273
shareholders. The aggregate shares are classified as follows:

                           Type              Shares                     Shareholders

                   Class A Common              3,291,738                       6,273
                   Class B Common                200,000                           2
                   Total                       3,491,738

As of December 31, 1997, Robert L. Moody of Galveston, Texas, was the record or beneficial owner,
directly or indirectly of 1,160,896 shares (35.27%) of Class A common stock, and 198,074 shares
(99.04%) of Class B common stock. Ownership of the remaining issued and outstanding shares of Class
A common stock is widely held. Ownership of the remaining issued and outstanding shares of Class B
stock is held by the Three R Trust, which consists of equal shares for Ross Moody, Russell Moody,
Frances Moody, and Robert Moody, Jr.

Changes in capital stock and paid in and contributed surplus since December 31, 1992 are shown in the
following schedule:

                                             Number of                                 Paid In and
                                              Shares           Par       Capital       Contributed
     Year              Description            Issued          Value     Paid-Up         Surplus
   12-31-92     Beginning Balance             3,477,842       $ 1.00   $3,477,842      $26,376,168
   05-08-93     Issuance of Class A shares
                under stock bonus plan                3,382   $ 1.00        3,382           140,353
   12-31-93     Issuance of Class A shares
                under stock bonus plan                3,448   $ 1.00        3,448           149,988
   12-31-94     Issuance of Class A shares
                under stock bonus plan                3,520   $ 1.00        3,520           118,800
   10-01-95     Issuance of Class A shares
                under stock bonus plan                  12    $ 1.00           12               552
   12-31-95     Issuance of Class A shares
                under stock bonus plan                3,134   $ 1.00        3,134           172,370
   12-31-97     Class A shares exercised
                under stock option plan              400      $ 1.00          400            14,850
   12-31-97     Ending Balance                 3,491,738               $3,491,738       $26,973,081

Dividends to Stockholders

No dividends were declared by the Board of Directors during the examination period.

AFFILIATED COMPANIES

Parent, Subsidiaries and Affiliates

As of December 31, 1997, the Company wholly owned six non-insurance subsidiaries, NWL Financial,
Inc. (Nevada Corporation), NWL Services, Inc. (Nevada Corporation), The Westcap Corporation
    Association Financial Examination     National Western Life
                                                                                                          6
    Report as of 12-31-97                  Insurance Company

(Delaware Corporation), NWL Investments, Inc. (Texas Corporation), NWL Properties, Inc. (Texas
Corporation) and NWL 806 Main, Inc. (Texas Corporation). Also, refer to the organizational chart
located on page 9.

The business activity of each subsidiary is summarized below:

•     NWL Financial, Inc., a Nevada Corporation, is a wholly owned subsidiary located in Austin, Texas,
      which invests in various stocks and bonds. Its annual statement value as of December 31, 1997 was
      $2,688,019.

•     NWL Services, Inc., a Nevada Corporation, is a wholly owned subsidiary located in Reno, Nevada,
      that invests primarily in stocks and bonds. Its annual statement value as of December 31, 1997 was
      $19,679,434.

•     NWL Investments, Inc., a Texas Corporation, is a holding company formed to facilitate the
      operations of NWL Investments I, L. P. Its annual statement value as of December 31, 1997 was
      $69,651. NWL Investments I, L.P. is a Texas limited partnership that invests in joint ventures, real
      estate holdings and other partnership interests. NWL Investments, Inc. was formed in 1994. At this
      same time, NWL Investments I, L.P., was formed with NWL Investments, Inc. acquiring a 1%
      general partner interest in the partnership. Commercial Adjusters, Inc., acquired a 99% limited
      partner interest by contributing to the partnership its ownership interest in various real estate joint
      ventures. Commercial Adjusters, Inc., was subsequently dissolved on October 12, 1994 and its 99%
      limited partner interest, along with other assets and liabilities, was transferred to the Company.

•     NWL Properties, Inc., a Texas Corporation, was formed to invest in bonds and real estate properties.
      To date, NWL Properties, Inc. has not invested any funds in real estate. Its annual statement value as
      of December 31, 1997 was $238,690.

•     NWL 806 Main, Inc., a Texas Corporation, invests and holds properties in the state of Texas. Its
      annual statement value as of December 31, 1997 was $235,366.

•     The Westcap Corporation, a Delaware Corporation, was a brokerage firm located in Houston, Texas.
      On April 12, 1996, The Westcap Corporation and Westcap Enterprises, Inc., separately filed
      voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United
      States Bankruptcy Court, Southern District of Texas, Houston Division. The bankruptcy
      reorganization was completed in January 1999, with the Company retaining a 100% continuing
      interest in The Westcap Corporation. This subsidiary is now operating as a real estate management
      company.

      The Westcap Corporation Bankruptcy:

      Effective July 17, 1995, The Westcap Corporation (Westcap), a wholly owned brokerage subsidiary
      of the Company, discontinued all sales and trading activities in its Houston, Texas, office. At that
      time Westcap continued its corporate operations and small sales operations in its New Jersey office.
      However, in September 1995, Westcap approved a plan to close the remaining sales office in New
      Jersey and to cease all brokerage operations.

      On April 12, 1996, Westcap and its wholly owned subsidiary, Westcap Enterprises, Inc., separately
      filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
      United States Bankruptcy Court, Southern District of Texas, Houston Division. Westcap Enterprises,
      Inc. is the successor by merger to Westcap Securities Investment, Inc., Westcap
Association Financial Examination      National Western Life
                                                                                                         7
Report as of 12-31-97                   Insurance Company

  Securities Management, Inc., and Westcap Securities, L.P., which prior to such merger were
  subsidiaries or affiliates of Westcap.

  By order dated August 28, 1998, the United States Bankruptcy Court, Southern District of Texas,
  Houston Division, confirmed and approved the Third Amended Joint Consensual Plan of
  Reorganization (the Plan) of Westcap and its wholly owned subsidiary Westcap Enterprises, Inc.
  (jointly Westcap). Pursuant to the Plan, the Company received credit for $1,000,000 previously
  contributed to Westcap in bankruptcy in March 1997, and paid an additional $14,125,000 to
  compromise and settle (i) all claims of Westcap against the Company, and (ii) all claims and litigation
  of certain settling creditors of Westcap who have alleged federal or state securities law “control
  person” violations by the Company relating to Westcap’s brokerage business, in exchange for full and
  complete releases from all of such claims, litigation and alleged violations. Of the $14,125,000,
  amounts totaling $7,284,000 were paid and transmitted to a Disbursing Trust Committee on behalf of
  Westcap for payment to holders of allowed claims against the Westcap debtors, and the Company
  paid $6,841,000 to settle with Westcap creditors with allowed claims against the Westcap debtors
  who also settled and released the Company from alleged federal or state securities law “control
  person” violations relating to Westcap.

  Pursuant to the Plan, the Company retained 100% continuing ownership of the reorganized Westcap.
  Westcap will no longer engage in brokerage operations, but will operate as a real estate management
  company.

  Community College District No. 508, County of Cook and State of Illinois (The City Colleges) was
  excluded from the compromise and settlement by the Company with the settling creditors but
  participated with all creditors in the distribution from Westcap. In addition to the amounts described
  above, included in the distribution to the Disbursing Trust were $48,000 of Westcap assets. The City
  Colleges previously obtained a bankruptcy court judgment for approximately $56 million against the
  Westcap debtors. Under the Plan, The City Colleges participated in the $7,332,000 creditor
  distribution relating to an allowed $30 million claim, with any distribution relating to the remaining $26
  million claim in dispute pending an appeal by Westcap of the $56 million judgment. Should Westcap
  prevail in the appeal, the Company will be entitled to recover 23.1% of the reduced amount of The
  City Colleges judgment, but not to exceed $600,000. Should Westcap lose the appeal, The City
  Colleges will receive a higher prorata percentage of the $7,332,000 creditor distribution. However,
  pursuant to the Plan, the Company will have no additional liability for settlement payments in excess
  of the $14,125,000 as described above. Under the Plan, the Company will pay all of the attorneys’
  fees and court costs incurred by Westcap in the appeal of The City Colleges’ judgment.

  The $14,125,000 was paid by the Company on January 13, 1999. However, the settlement payment
  has been reflected in the 1998 statutory financial statements as follows: (1) $6,047,000 was recorded
  as an unrealized loss on subsidiary common stock and (2) $8,078,000 was recorded as a direct
  reduction to surplus. The $1,000,000 previously contributed to Westcap in bankruptcy was reflected
  as an unrealized loss on subsidiary common stock in 1997. Any additional losses will depend on the
  results of The City Colleges lawsuit filed against the Company on March 28, 1994 for alleged federal
  or state securities law “control person” violations relating to Westcap, and which is pending in the
  United States District Court, Western District of Texas. The Company believes it has reasonable and
  adequate defenses to this suit and, accordingly, no amounts have been accrued in the Company’s
  financial statements for potential losses relating to such suit.
 Association Financial Examination     National Western Life
                                                                                                       8
 Report as of 12-31-97                  Insurance Company

   Westcap Related Litigation:

   On March 28, 1994, the Community College District No. 508, County of Cook and State of Illinois
   (The City Colleges) filed a complaint in the United States District Court for the Northern District of
   Illinois, Eastern Division, against the Company and subsidiaries of Westcap. The suit sought
   rescission of securities purchase transactions by The City Colleges from Westcap between September
   9, 1993 and November 3, 1993, alleged compensatory damages, punitive damages, injunctive relief,
   declaratory relief, fees and costs. The Company was named as a “controlling person” of the Westcap
   defendants. Westcap filed Chapter 11 bankruptcy, and The City Colleges filed a claim in the
   bankruptcy court against Westcap. The claim was tried before the bankruptcy court, and in
   September 1997, a $56,173,000 judgment was entered against Westcap favorable to The City
   Colleges. Westcap appealed this decision to the United States District Court for the Southern District
   of Texas (Houston Division). On July 24, 1998, the United States District Court affirmed the orders
   of the bankruptcy court with respect to their underlying conclusion that Westcap is liable to The City
   Colleges under the Texas Securities Act, but the Court vacated the orders and remanded them to the
   bankruptcy court to determine the correct amount of damages in a manner consistent with the
   Court’s opinion and the Texas Securities Act. The bankruptcy court on November 16, 1998, entered
   an order allowing a claim of The City Colleges against the Westcap estate of $51,738,868. Westcap
   will appeal the bankruptcy court’s and District Court’s judgment to the Fifth Circuit Court of
   Appeals.

   While Westcap is a wholly owned subsidiary of the Company, the Company is not a party to the
   bankruptcy or the judgment against Westcap by the bankruptcy court or the United States District
   Court. The lawsuit against the Company was stayed in September 1994, pending resolution of The
   City Colleges’ claim against Westcap. Following the judgment against Westcap in the bankruptcy
   court, on December 2, 1997, the stay was lifted by the United States District Court in Illinois, and
   The City Colleges filed an amended complaint seeking to hold the Company liable for the claim
   allowed in the bankruptcy court against Westcap under the “control person” provision of the Texas
   Securities Act. The suit seeks approximately $56 million plus fees and costs. The Company filed
   jurisdictional and venue motions to have the case transferred to the United States District Court for
   the Western District of Texas, which motions were agreed to by the Plaintiff, and the case is pending
   in the United States District Court for the Western District of Texas, where the parties are engaged in
   discovery activities. The Company management believes the Company has reasonable and adequate
   defenses to the suit. Although the alleged damages, if sustained, would be material to the Company’s
   financial statements, Company management believes a reasonable estimate of any actual losses which
   may result from the suit cannot be made. Accordingly, no provision for any liability that may result
   from this suit are recognized in the Company’s financial statements.

Holding Company Filings

The Company is a member of an insurance holding company system as defined pursuant to Section 10-3-
801(4), C.R.S. During the period under examination, all Holding Company Form B filings have been
made to the Colorado Division of Insurance in accordance with Section 10-3-804, C.R.S. and Colorado
Insurance Regulation 3-4-1.
 Association Financial Examination      National Western Life
                                                                                                9
 Report as of 12-31-97                   Insurance Company

Organization Chart

The following chart depicts the organizational structure of the Company at December 31, 1997:

                                  ROBERT L. MOODY
                        an individual person, of Galveston, Texas
                                          owns
                       1,160,896 (35.27%) of NWL Class A Direct
                        198,074 (99.04%) of NWL Class B Direct


                  National Western Life Insurance Company (NWL)
                                (Colorado Corporation)
                                         owns
                 619,379 (100%) shares of preferred stock of Westcap
                   500 (100%) shares of common stock of Westcap
                    1,000 (100%) shares of NWL Investments, Inc.
                      100 (100%) shares of NWL Properties, Inc.
                       100 (100%) shares of NWL 806 Main, Inc.
                     10,000 (100%) shares of NWL Financial, Inc.
                      10,000 (100%) shares of NWL Services, Inc.
                           99% of NWL Investments I, L.P.

                  NWL Financial, Inc.                NWL 806 Main, Inc.
                 (Nevada Corporation)                (Texas Corporation)



                  NWL Services, Inc.                NWL Properties, Inc.
                 (Nevada Corporation)               (Texas Corporation)



               The Westcap Corporation                NWL Investments,
                (Delaware Corporation)                       Inc.
                         owns                        (Texas Corporation)
                1,000 (100%) shares of                Owns 1% of NWL
               Westcap Enterprises, Inc.              Investments I, L.P.

                                                      NWL Investments I,
               Westcap Enterprises, Inc.                    L.P.
                (Texas Corporation)
                                                        (Texas L.P.)
 Association Financial Examination       National Western Life
                                                                                                        10
 Report as of 12-31-97                    Insurance Company

MANAGEMENT AND CONTROL

The Articles of Incorporation provide that the affairs and management of the Company shall be under the
control of a Board of Directors consisting of not less than seven nor more than 27 persons who shall be
shareholders of the Company.

Shareholders Meetings

Pursuant to the Bylaws, the annual meeting of shareholders shall be held after March 31 but not later than
July 31 of each calendar year, at a date, time and place, either within or outside the State of Colorado, as
determined by the Board of Directors.

Special meetings may be called by the Chairman of the Board of Directors, the President, the Board of
Directors, or the holders of not less than one-fourth of all the shares entitled to vote at the meeting.

Written or printed notice stating the place, day and hour of the meeting, and in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than
40 days before the date of the meeting to each shareholder of record entitled to vote.

Pursuant to the Articles of Incorporation, one-half of the shares entitled to vote, represented in person or
by proxy, constitutes a quorum for the transaction of business. Each share represented is entitled to one
vote.

During the period under review, the shareholders held five regular meetings. Review of the minutes
revealed that meetings were well attended and held in compliance with the Bylaws. No special meetings
were held by the shareholders during the period under examination.

Board of Directors

Pursuant to the Bylaws, the Directors shall be elected at the annual meeting of shareholders to serve a
term of one year and shall hold office until a successor is elected and qualified.

Directors duly elected and serving at December 31, 1997, together with their city and state of residence
and business affiliations, are as follows:

Class A Common Stock
Director                         Business Affiliation

Robert L. Moody                  Chairman of the Board and Chief Executive
Galveston, Texas                 Officer, National Western Life Insurance Company,
                                 Chairman of the Board, American National Insurance Company
                                 Director and President, Moody Bancshares, Inc.

Arthur O. Dummer                 President
Salt Lake City, Utah             The Donner Company

E. J. Pederson                   Executive Vice President,
Galveston, Texas                 The University of Texas Medical Branch

Harry L. Edwards                 Retired, Former President of
Austin, Texas                    National Western Life Insurance Company
 Association Financial Examination      National Western Life
                                                                                                      11
 Report as of 12-31-97                   Insurance Company

Class B Common Stock
Director                        Business Affiliation

Ross R. Moody                           President and Chief Operating Officer,
Austin, Texas                   National Western Life Insurance Company

E. Douglas McLeod               Director of Development,
Galveston, Texas                The Moody Foundation

Charles D. Milos, Jr.           Senior Vice President - Investment Analyst
Galveston, Texas                National Western Life Insurance Company

Frances A. Moody                Executive Director
Dallas, Texas                   The Moody Foundation

Russell S. Moody                Investments
Austin, Texas

Louis E. Pauls, Jr.             President, Louis Pauls & Company
Galveston, Texas

The above directors were serving as of the date of this report.

Directors are elected by plurality vote, with cumulative voting not permitted. The first meeting of the
newly-elected Board shall be held immediately following the annual meeting of shareholders. Regular
meetings may be held without notice at such time and place as shall from time to time be determined by
the Board, either within or outside the State of Colorado.

Special meetings may be called by the Chairman of the Board, President or Secretary on three days notice
to each Director. A majority of the Directors shall be necessary and sufficient to constitute a quorum at
all meetings.

The Board of Directors held 30 regular meetings and five special meetings during the period under
examination. Review of the minutes revealed that meetings were well attended and held in compliance
with the Bylaws.

Officers

The operations of the Company and the general supervision of its affairs are under the direction of its
corporate officers who are elected annually by the Board of Directors. In accordance with the Bylaws,
those officers duly elected and serving and their respective offices held at December 31, 1997 are as
follows:

Name                    Position
Robert L. Moody         Chairman of the Board and Chief Executive Officer
Ross R. Moody                    President and Chief Operating Officer
Robert L. Busby III     Senior Vice President - Chief Administrative Officer
                        Chief Financial Officer - Treasurer
Charles P. Baley        Senior Vice President - Information Services
Richard M. Edwards      Senior Vice President - International Marketing
Paul D. Facey           Senior Vice President - Chief Actuary
 Association Financial Examination      National Western Life
                                                                                                       12
 Report as of 12-31-97                   Insurance Company

Name                    Position
Charles D. Milos, Jr.   Senior Vice President - Investment Analyst
Arthur W. Pickering     Senior Vice President - Domestic Marketing
Patricia L. Scheuer     Senior Vice President - Chief Investment Officer
Robert J. Antonowich    Vice President - Marketing
Robert B. Carlton       Vice President - Marketing
Carol Jackson           Vice President - Human Resources
Vincent L. Kasch        Vice President - Controller and Assistant Treasurer
James A. Kincl          Vice President - Salary Savings
Doris Kruse             Vice President - Policy Benefits
James R. Naiser         Vice President - Systems Development
James P. Payne                   Vice President - Secretary
Al R. Steger            Vice President - Risk Selection
B. Ben Taylor           Vice President - Actuarial Services
Larry D. White          Vice President - Policyowner Services
Scott E. Arendale       Assistant Vice President - International Sales Development
Larry E. Carson                  Assistant Vice President - Assistant Controller
Robin R. Hulsey         Assistant Vice President -Administrative Services
Jo Nell Morris          Assistant Vice President - Policyowner Services
Ellen C. Otte           Assistant Secretary
John R. Patton          Assistant Vice President - Staff Counsel
Donna L. Richardson     Assistant Vice President -Agent Contracting & Licensing
Lura L. Rogers          Assistant Vice President -Domestic Marketing
Margaret M. Simpson     Assistant Vice President -Assistant Secretary

The above officers were serving as of the date of this report, with the exception of James A. Kincl and
Robert B. Carlton.

Committees

Pursuant to the Bylaws, the Board of Directors may, by resolution passed by a majority of the Board,
designate an Executive Committee consisting of Directors of the Company, one of whom shall be either
the Chairman of the Board or the Company's President. The Executive Committee shall have and may
exercise all the authority of the Board of Directors in the management of the business and affairs of the
Company, except where action of a majority of all members is required. Regular meetings of the
Executive Committee are not provided for in the Bylaws, however, the Committee shall keep regular
minutes of its proceedings and report the same to the Board when required.

As of December 31, 1997, the Executive Committee was comprised of the following members:

Robert L. Moody, Chairman
Arthur O. Dummer
Charles D. Milos, Jr.
Ross R. Moody
Will D. Davis, ex officio

The Bylaws provide that the Board may name and appoint such other special committees composed of
directors, officers or employees of the Company as it deems necessary and important to the affairs of the
Company and may vest in such committees such authority as it deems appropriate to the function of the
Company. Investment, Audit, Pension and Compensation and Stock Option Committees were in
existence during the examination period.
 Association Financial Examination       National Western Life
                                                                                                         13
 Report as of 12-31-97                    Insurance Company

As of December 31, 1997, the Investment, Audit, Pension and Compensation and Stock Option
Committees were comprised of the following members:

Investment                                         Pension
Robert L. Moody, Chairman                          Ross R. Moody, Chairman
Arthur O. Dummer                                   Robert L. Busby III
Charles D. Milos, Jr.                              Paul D. Facey
Patricia L. Scheuer                                Vincent L. Kasch
Ross R. Moody                                      James P. Payne
Will D. Davis, ex officio                          Carol Jackson, ex officio

Audit                                              Compensation and Stock Option
Louis E. Pauls, Jr., Chairman                      Harry L. Edwards, Chairman
E. J. Pederson                                     Arthur O. Dummer
Arthur O. Dummer                                   E. J. Pederson
Robert L. Busby III, ex officio
Ross R. Moody, ex officio

The minutes of the above committee meetings indicate that the meetings were well attended and held in
compliance with the Bylaws.

Conflict of Interest

The Company furnishes a comprehensive questionnaire, annually, to all directors, officers and responsible
employees. The format of the conflict of interest questionnaire adequately discloses information
necessary to meet the intent indicated by the general interrogatories of the annual statement. The forms
were properly completed during the examination period.

Service and Other Agreements

At December 31, 1997 the Company had the following agreements in place:

Service Agreements with Affiliates:

Effective January 1, 1996, the Company entered into a service agreement with its wholly owned
subsidiary, NWL 806 Main, Inc., of Austin, Texas. The Company provides insurance and non-insurance
services to the affiliate through its experienced staff. These services include, but are not limited to:
investment management, general bookkeeping, tax reporting and financial reporting. The fee for
providing these services is $1,825 per month. Under the terms of the agreement, the Company received
$21,900 during 1997.

Effective October 17, 1997, the Company entered into a service agreement with its wholly owned
subsidiary, NWL Financial, Inc., of Austin, Texas. The Company provides insurance and non-insurance
services to the affiliate through its experienced staff. These services include, but are not limited to:
investment management, general bookkeeping, tax reporting and financial reporting. The fee for
providing these services is $1,250 per month. Under the terms of the agreement, the Company received
$2,500 during 1997.

Effective January 1, 1996, the Company entered into a service agreement with its wholly owned
subsidiary, NWL Investments, Inc., of Austin, Texas. The Company provides insurance and non-
insurance services to the affiliate through its experienced staff. These services include, but are not
 Association Financial Examination      National Western Life
                                                                                                       14
 Report as of 12-31-97                   Insurance Company

limited to: investment management, general bookkeeping, tax reporting and financial reporting. The fee
for providing this service is $425 per month. Under the terms of this agreement, the Company received
$5,100 during 1997.

Effective January 1, 1996, the Company entered into a service agreement with its wholly owned
subsidiary, NWL Properties, Inc., of Austin, Texas. The Company provides insurance and non-insurance
services to the affiliate through its experienced staff. These services include, but are not limited to:
investment management, general bookkeeping, tax reporting and financial reporting. The fee for the
Company’s services to the affiliate was $1,225 per month. Under the terms of this agreement, the
Company received $14,700 during 1997.

Revolving Credit Line Agreement:

Effective December 6, 1991, the Company entered into a revolving loan agreement with Bank One,
Texas. The line of credit is utilized for cash management purposes to facilitate investment transactions.
The borrowing limit under the terms of this agreement is $60,000,000. To draw upon this credit line the
Company is required to maintain, in trust, collateral of securities at a market value of not less than 120%
of borrowed funds. Borrowings have 30 day maturities and interest rates are no more than the Federal
funds rate. The Company had no outstanding liabilities or collateral security deposits with the bank at
December 31, 1997, 1996, 1995, 1994, and 1993. The weighted average interest rates on borrowings for
the years ended December 31, 1997, 1996, 1994 and 1993 were 6.42%, 6.91%, 4.45% and 4.36%,
respectively. The Company had no borrowings on the line of credit during 1995. The borrowing on this
line of credit were $ 26,000,000, $ 18,000,000, $ 50,000,000 and $ 74,500,000 for the years ended
December 31, 1997, 1996, 1994, and 1993, respectively.

The safekeeping measures of this agreement did not provide for Bank One's indemnification of the
Company against losses arising from theft of its securities while held in trust except for the bank's own
negligence; however, the agreement was amended on June 1, 1998, to bring it into compliance with
Colorado Insurance Regulation 3-1-6(IV)(B)(10).

Line of Credit with Affiliates:

Effective November 27, 1996, the Company entered into an agreement with its wholly owned subsidiary,
NWL 806 Main, Inc., to provide a line of credit in the amount of $500,000. NWL 806 Main, Inc., will
repay all advances and any unpaid interest in full on or before 120 days subsequent to the transfer of the
funds. Interest calculations shall be based on a 360-day year and are due and payable upon repayment of
principal. The rate used was equal the prime rate on the date of transfer. During the period under review,
$48,377 was advanced and repaid under the terms of this agreement.

Effective October 17, 1997, the Company entered into an agreement with its wholly owned subsidiary,
NWL Financial, Inc., to provide a line of credit in the amount of $1,000,000. NWL Financial, Inc., will
repay all advances and any unpaid interest in full on or before 120 days subsequent to the transfer of
funds. Interest calculations are based on a 360-day year and are due and payable upon repayment of
principal. The rate used was equal the prime rate on the date of transfer. This line of credit was not
utilized during the period under review.

Effective November 27, 1996, the Company entered into an agreement with its wholly owned subsidiary,
NWL Investments, Inc., to provide a line of credit in the amount of $500,000. NWL Investments, Inc.,
will repay all advances and any unpaid interest in full on or before 120 days subsequent to the transfer of
funds. Interest calculations are based on a 360 day year and are due and payable upon repayment of
 Association Financial Examination       National Western Life
                                                                                                       15
 Report as of 12-31-97                    Insurance Company

principal. The rate used was equal the prime rate on the date of transfer. During the period under review,
$22,800 was advanced and repaid under the terms of this agreement.

Effective November 27, 1996, the Company entered into an agreement with its wholly owned subsidiary,
NWL Properties, Inc., to provide a line of credit in the amount of $500,000. NWL Properties, Inc., will
repay all advances and any unpaid interest in full on or before 120 days subsequent to the transfer of
funds. Interest calculations are based on a 360 day year and are due and payable upon repayment of
principal. The rate used was equal the prime rate on the date of transfer. During the period under
review, $250,038 was advanced and repaid under the terms of this agreement.

None of the line of credit arrangements referred to above was “material” as defined in Section 10-3-805,
C.R.S.

CORPORATE RECORDS

The Articles of Incorporation, Bylaws and all amendments thereto, along with the minutes of the meetings
of shareholders, Board of Directors, Executive Committee, Audit Committee and Investment Committee,
were reviewed in detail for the period covered by this examination. The minutes of the various meetings
indicate that meetings were held in accordance with the Articles of Incorporation and Bylaws, were
generally well attended and that the operation of the Company is consistent with the provisions of both
documents.

The Company's Investment Committee of the Board of Directors has the responsibility of establishing and
reviewing the Company's investment guidelines. Those guidelines require prior approval of investments
by the Board of Directors, or the Investment Committee appointed by the Board, or by an officer
approved by the Investment Committee. This procedure is consistent with the requirements of Section
10-3-234 C.R.S., and are being followed by the Company as indicated in the corporate minutes.

FIDELITY BOND AND OTHER INSURANCE

The fidelity coverage maintained by the Company is summarized below:

Financial Institution Bond:                      Limit of Liability:
Provides indemnity for loss through              $2,000,000 subject to
any dishonest or fraudulent act of any           $50,000 deductible
officer or employee.

Other coverages include indemnity for            $500,000 subject to
computer system losses                                  $50,000 deductible

Pursuant to Colorado Insurance Regulation 3-1-1, the fidelity bond has been filed with the Colorado
Division of Insurance and contained the “Colorado Rider” regarding definition of employees and provides
that, in the event of termination, 30 days prior written notice by registered mail must be forwarded to the
Colorado Commissioner of Insurance. The limits of liability for fidelity insurance protection are within
prescribed guidelines of the regulation.

The Company is also the named beneficiary on other policies which provide protection in connection with
its business activities and affairs. These coverages include worker's compensation, business personal
property, mortgagee's errors and omissions, comprehensive general liability, automobiles and umbrella
liability.
 Association Financial Examination      National Western Life
                                                                                                        16
 Report as of 12-31-97                   Insurance Company

EMPLOYEES' AND AGENTS' WELFARE AND PENSION PLANS

At December 31, 1997 the Company had the following employee welfare and pension plans in place:

Employee Benefit Plan:

All qualified full-time employees are provided with group life insurance, accidental death and
dismemberment, long-term disability and comprehensive medical expense coverages. Vision care and
dental coverages for all employees and all dependent coverages are optional and are on a contributory
basis.

Agent Benefit Plan:

The Company provides a group life and major medical package, for which it pays the premium on behalf
of international general agents and agents meeting specific requirements for eligibility. Dependent
coverages are optional and are on a contributory basis.

401(k) Plan:

On January 1, 1991, the Company established a 401(k) plan for its qualified employees. The plan's trustee
is Moody National Bank. Eligible employees may contribute up to 15% of their salary on a pre-tax basis.
A matching contribution is made by the Company in the amount of 100% of eligible contributions not to
exceed 2% of the participant's annual salary. An additional non-matching contribution is made by the
Company in the amount of 2% of each eligible employee's annual salary. Participants make an investment
election among qualified investments administered by the trustee. The savings plan allows for participant
loans which are secured by the participant's account and are charged interest at the prime lending rate as
determined by Moody National Bank.

Qualified Defined Benefit Plan:

The trustee for the Company's defined benefit plan is Moody National Bank. Funds are contributed by the
Company and invested by the trustee with the direction and approval of the Pension Committee, which is
appointed by the Board of Directors.

Annual pension benefits for those employees who became eligible participants prior to January 1, 1991 are
calculated as the sum of the following:

(1) 50% of the participant’s final 5-year average annual compensation at December 31, 1990, less 50%
of their primary social security benefit determined at December 31, 1990; this net amount is then prorated
for less than 15 years of benefit service at normal retirement date. This result is multiplied by a fraction
which is the participant’s years of benefit service at December 31, 1990, divided by the participant’s
years of benefit service at normal retirement date.

(2) 1.5% of the participant’s compensation earned during each year of benefit service after December
31, 1990.

Annual pension benefits for those employees who become eligible participants on or subsequent to
January 1, 1991 are calculated as 1.5% of their compensation earned during each year of benefit service.
 Association Financial Examination       National Western Life
                                                                                                          17
 Report as of 12-31-97                    Insurance Company

Non-Qualified Defined Benefit Plan:

The Company established this plan on January 1, 1991. This plan covers those officers in the position of
senior vice president or above and other employees who have been designated by the President of the
Company as being in the class of persons who are eligible to participate in the plan as of December 31,
1990. This plan also provides benefits based on the participants' years of service and compensation.
However, no minimum funding standards are required.

The benefit to be paid pursuant to this plan to a participant who retires at his normal retirement date shall
be equal to (a) less (b) less (c) where:

(a) is the benefit which would have been payable at the participant's normal retirement date under the
terms of the Qualified Defined Benefit Plan as of December 31, 1990, as if that plan had continued
without change, and,

(b) is the benefit which actually becomes payable under the terms of the Qualified Defined Benefit Plan at
the participant's normal retirement date and,

(c) is the actuarially equivalent life annuity which may be provided by an accumulation of 2% of the
participant's compensation for each year of service on or after January 1, 1991, accumulated at an
assumed interest rate of 8.5% to his normal retirement date.

In no event will the benefit be greater than the benefit which would have been payable at normal
retirement date under the terms of the Qualified Defined Benefit Plan as of December 31, 1990, as if that
plan had continued without change, except that the proration over 15 years shall instead be calculated
over 30 years, less the benefit actually provided under the Qualified Defined Benefit Plan.

Non-Qualified Deferred Compensation Plan:

The Company established this plan on January 1, 1991. This plan covers those officers in the position of
senior vice president or above and other employees who have been designated by the President of the
Company as being in the class of persons who are eligible to participate in the plan. This plan allows
eligible participants to defer the payment of a percentage of their compensation and to provide for certain
Company contributions to augment such employees' retirement income in addition to what is provided for
under the tax qualified plans of the Company.

The Company reported the following liabilities at December 31, 1997 related to the employee and agent
welfare and pension plans:

                  Employee Benefit Plan                                        $     161,573
                  Agent Benefit Plan                                                  12,706
                  401 (k) Plan: Accrued matching contribution                         69,971
                  Qualified Defined Benefit Plan                                   (975,049)
                  Non-Qualified Defined Benefit Plan                               2,012,737
                  Non-Qualified Deferred Compensation Plan:
                    Liabilities per line 21 page 3 of Annual Statement           1,255,409
                    Accrued Matching contribution                                    8,209
                  Total                                                         $2,545,556
 Association Financial Examination      National Western Life
                                                                                                       18
 Report as of 12-31-97                   Insurance Company

TERRITORY AND PLAN OF OPERATION

Territory

The Company is licensed to transact business throughout the United States with the exception of the
following:

Connecticut             New Jersey
Delaware                New York
Massachusetts           Vermont
New Hampshire

The Company also accepts applications from and issues polices to residents of various territories and
countries. The following territories and countries are those in which the Company is authorized to write
business:

Guam                    Haiti
Puerto Rico             American Samoa
Virgin Islands          Northern Mariana Islands

Certificates of Authority for the respective states and jurisdictions were reviewed and found to be in order
as of December 31, 1997. The Company was also granted authority by the United States of America,
Department of Defense, to solicit life insurance sales on defense installations in foreign areas.

Total premiums, annuity considerations and fund deposits collected in California, Pennsylvania and Texas
represented 7%, 8% and 18%, respectively, of the Company's total collections in the United States during
1997.

Plan of Operation

The Company is primarily engaged in the underwriting of ordinary life insurance and annuity contracts
through broker-agents. Agency operations are supervised through the Company's home office by two
senior vice presidents, one for domestic and another for international business. The Company's agency
operations are generated through contracts with over 6,000 agents or brokers providing domestic
business, and approximately 1,000 brokers submitting international business.

Over 60% of the Company's life business is produced by independent contracting agents in foreign
countries with the largest volume written in Central and South America. Business produced in foreign
countries is forwarded to the Company's home office for acceptance of risks and issuance of policies.
The commission scale for international business is within a range of 1% to 95% on first year premiums,
up to a maximum of 20% for second year business, and a maximum of 10% each year thereafter.

Commissions paid on life contracts issued as domestic business are within a range up to a maximum of
130% on first year premiums, with renewal commissions of 25% for second year, 15% for third through
tenth years and 5% for each year thereafter. General Agent Managers’ overwrite commissions range up
to a maximum of 80% on first year business, with renewal commissions of 21% for second year, 13%
for third through tenth years and 4% for each year thereafter.

During the period under examination the Company emphasized writing universal life policies and annuities.
The first year commissions on this business is a maximum of 130%, with renewal commissions up to a
maximum of 20% for the second year and 8% for each year thereafter.
 Association Financial Examination      National Western Life
                                                                                                       19
 Report as of 12-31-97                   Insurance Company

A substantial portion of the Company's universal life and investment annuity contracts were written
through three agencies: Creative Marketing International Corporation (Overland Park, Kansas), BHC
Marketing, Inc. (The Woodlands, Texas) (prior to November 1996 Eden Prairie, Montana), and National
Annuity Programs, Inc. and NAP Marketing, Inc. (Austin, Texas).

These agencies accounted for 21% and 31% of these premium revenues during 1997 and 1996,
respectively.

MARKET CONDUCT ACTIVITIES

Policy Forms

The Company offers a variety of individual life insurance policies and individual and group annuity
contracts. The policy forms are designed to meet the particular insurance needs of the policyholder.
Prior to January 1, 1985, policies were offered on both a participating and non-participating basis. Since
January 1, 1985, the Company has only offered non-participating policies.

Policies currently offered are based on the Commissioners 1980 Standard Ordinary Table of Mortality at
either 3%, 3.5% or 4% interest per annum, unless otherwise noted.

Several of the Company’s significant products are outlined as follows:

Single Premium and Flexible Premium Annuities

The Company increased its sales of single and flexible premium annuities during the period under review.
The accumulation account is credited at the higher of a guaranteed minimum interest rate or the current
interest rate as determined by the Company. One hundred percent of the premium payments are credited
to the accumulation account, subject to a varying withdrawal charge which reduces to zero on or before
the seventh through twelfth contract year, depending on the policy form.

Universal Life

This flexible premium adjustable life insurance contract provides life insurance as long as premiums paid
and interest credited are more than charges for mortality, expenses and any attached riders, up to age 95.
Another variation of this plan allows surrender charges to be graded off over ten to twenty years
depending on the plan. Universal life policies are based on the CSO 1980 tables with 3%, 3.5%, 4% or
4.5% minimum guaranteed interest rates.

Two-Tiered Single Premium and Flexible Premium Deferred Annuities

This policy is designed to provide retirement benefits (income at retirement or earlier if elected). One
hundred percent of the premium is accrued at current rates of interest, with a guaranteed floor ranging
from 4% to 6%. Accumulation of net premium at the current rate of interest with a guaranteed floor
provides the cash surrender value of the policy. The Company discontinued its marketing of two tiered
products in 1992.

Single Premium Interest Sensitive Endowment at Age 95

This policy is a single premium which accumulates at current rates, with a guaranteed floor of 4%. It
provides life insurance to age 95 with endowment at age 95 equal to the cash value at age 95. The
reserves are based on the CSO 1980 tables.
 Association Financial Examination       National Western Life
                                                                                                         20
 Report as of 12-31-97                    Insurance Company

Military Division

Permanent insurance is available to military risks, subject to Department of Defense directives. Pay
grades E-2 and higher will be considered on Army, Air Force, Navy and Coast Guard applicants with the
exception of special units and classifications as specified for each branch. In addition to permanent
insurance, disability and other term coverage is provided by rider and attachments to the original policy.

Foreign Business

A substantial portion of the Company’s universal life insurance business is produced in foreign countries,
with the largest volume written by agents in Central and South America; a lesser amount is written in the
Philippines, Guam and a number of Caribbean Islands. All European business is limited to citizens of the
United States. All foreign business is underwritten at the Company's home office and policies issued are
specifically designed for the international market.

Underwriting Practices:

All applications are reviewed by the Underwriting Department before being accepted and are considered
on all ages from 0 to 85. Policies are issued with minimums that vary; however, the lowest allowed is
$1,000.

Inspection reports are required on United States life cases over $250,000 and foreign life cases of
$250,000 and over, except for areas in Latin America experiencing civil unrest where the requirement is
$100,000. Applicants with substandard health or those engaged in hazardous occupations may be
required to submit special questionnaires in addition to the standard application.

Non-medical applications are considered on the following ages and amounts:

                Domestic                                              International
    Age                      Amount                          Age                      Amount

         0-45                 $100,000                           0-45                  $150,000
        46-55                   50,000                          46-55                    50,000
        56-60                   25,000                          56-60                    25,000

The maximum retention limits for all life policies is $200,000. Disability and accidental death benefit
coverages are 100% ceded. Various reinsurance facilities are available to handle amounts in excess of
retention limits.

Treatment of Policyholders

A review of claim files was made to determine the Company's treatment of policyholders and claimants.
Special emphasis was placed on the promptness of payment and adherence to contractual provisions. The
settlement procedures in place to process claims and complaints as well as the documentation supporting
their final disposition were also reviewed.

Evidence contained in the files reviewed indicates that policyholders benefits were paid in accordance
with the terms of the policy.

The Company maintains a complaint file in a format that is in compliance with Colorado Insurance
Regulation 6-2-1 and Section 10-3-1104(1)(i), C.R.S.
 Association Financial Examination      National Western Life
                                                                                                     21
 Report as of 12-31-97                   Insurance Company

The Company was a defendant in a class action suit regarding the sales of certain annuity products. In
September, 1998 a settlement was approved. Under the terms of the settlement, the Company will
contribute approximately $5 million and agree to guarantee minimum interest rates of 3% and 5% in the
future on certain settlement options under specified annuity policies. Company management represents
that $5,000,000 was accrued as of December 31, 1998 and that reserves were increased by $3,150,000
to reflect the additional liabilities to guarantee minimum interest rates of 3% and 5% in the future on
certain settlement options under the specified annuities.

GROWTH OF THE COMPANY

The growth and progress of the Company for the years under review follows (in thousands):

                                                                           Direct
                     Admitted                           Capital &        Premiums
         Year         Assets          Liabilities        Surplus          Written

       1993        $ 2,333,284         $ 2,150,407         $ 182,877        $ 180,968
       1994          2,444,846           2,232,783           212,063          245,147
       1995          2,654,184           2,417,301           236,883          400,495
       1996          2,814,417           2,549,129           265,288          359,709
       1997          2,911,986           2,611,397           300,589          325,738

Above amounts were compiled from annual statements for the respective years. For 1997, the amounts
were determined by examination.

A summary of life insurance written, death claims, other terminations and insurance in force for the years
under review follows (in thousands):

                    Written or       Terminations        Other          Insurance in
         Year       Increased         by Death        Terminations         Force

       1993        $ 1,155,173            $ 27,749       $ 1,079,229      $ 7,451,591
       1994          1,225,014              26,542           935,747        7,714,316
       1995          1,280,437              34,452         1,020,677        7,939,624
       1996          1,274,066              43,559         1,018,864        8,151,267
       1997          1,446,911              32,791         1,005,420        8,559,967

Above amounts were compiled from annual statements filed for the respective years.

A summary of premium earned by line of business (net of reinsurance) for the years under review
appears in the following schedule (in thousands):
                                                   Accident and
          Year          Life           Annuities       Health             Total

       1993            $ 86,476           $ 87,093             $ 791        $ 174,360
       1994              83,277            154,839               903          239,019
       1995              84,155            307,820             1,014          392,989
       1996              82,797            270,013               458          353,268
       1997              80,867            238,713               439          320,019

Above amounts were compiled from annual statements filed for the respective years.
 Association Financial Examination     National Western Life
                                                                                                   22
 Report as of 12-31-97                  Insurance Company

BUSINESS IN FORCE BY STATE

Premium income is allocated to the respective states and territories based on the residence of the
policyholder at the time of premium receipt. The Company's process for the allocation of premium
income was reviewed, noting no discrepancies. Total premiums and annuity considerations through direct
business by each state for 1997 follows:

               Life Insurance    Life Premium      A&H Premium           Annuity              Fund
   State          In Force         Collected         Collected         Considerations        Deposits

AL             $    78,781,176       $ 845,309    $                    $    3,962,711    $
AK                   1,934,261           10,934                               117,331
AZ                  25,711,666          264,487                             4,521,113              148
AR                  54,722,230          556,032                             1,271,982          162,354
CA                 196,695,606        2,292,365                            19,909,146          133,396
CO                  95,522,728          669,322                             2,689,232            2,551
CT                   1,557,895           13,184                               112,697
DE                   1,268,480           10,184                               107,675
DC                  61,211,823          480,359                                49,438
FL                 212,053,308        2,332,362             12,033         12,477,067           92,916
GA                 114,320,399        1,573,961                             8,290,015
HI                  32,832,899          182,795                             1,206,918           30,780
ID                   6,332,031           74,273                               637,368
IL                  74,453,985        1,289,451                             9,670,737
IN                  36,539,738          560,089                             5,905,893
IA                  12,668,134          209,965                             2,830,994
KS                  35,726,505          373,128                             4,675,340           46,171
KY                  37,504,275          548,450                             1,091,197
LA                  32,472,374          506,393                             3,440,971
ME                   4,497,543           47,600                             2,233,471
MD                 154,808,551        1,207,771                             2,230,750
MA                   3,541,625           22,568                               292,258
MI                  39,752,741          381,121                            13,240,332            2,161
MN                  16,997,081          414,419                             6,408,722
MS                  18,266,837          215,249                             1,347,220
MO                 102,872,695        1,257,247                             4,494,544
MT                   4,931,514           49,589                             1,170,722
NE                  13,123,567           93,186                               816,081
NV                   7,704,720           77,470                             1,399,806
NH                     837,548            4,246                                   416
NJ                   9,722,446           67,936                               251,927
NM                  10,628,967          113,899                               470,401               19
NY                  15,143,625          127,357                               173,365
NC                  66,309,017          542,108                             6,467,058
ND                  39,118,706          153,271                               990,558
OH                  82,402,113        1,016,420                            12,295,491           16,262
OK                 100,500,074          942,920                             4,989,787          169,944
OR                   9,014,731          141,764                             3,445,738          249,848
PA                 147,310,475        1,205,829                            24,763,971
RI                     666,804            3,888                               258,280
SC                 103,015,032          635,025                             1,582,896
 Association Financial Examination         National Western Life
                                                                                                      23
 Report as of 12-31-97                      Insurance Company

                Life Insurance     Life Premium          A&H Premium          Annuity            Fund
   State           In Force          Collected             Collected        Considerations      Deposits
SD                   6,636,902            63,217                                   904,116
TN                  28,523,996           568,853                                 4,058,573         23,942
TX                748,181,377          6,683,521              408,933          50,894,787       1,427,532
UT                  28,672,694           291,511                                   216,612
VT                     274,014             1,993                                     5,000
VA                  69,979,582           544,327                                   817,619
WA                  14,889,073           131,805                                   574,070         14,973
WV                   8,031,980           139,830                                   102,876
WI                  58,204,141           702,453                                 7,044,498
WY                  16,085,209            85,392                                   155,428
AS                                        54,939
GU                   10,018,071           47,348                                     1,531
PR                   13,514,128          169,214                                    21,892
VI                   22,100,385          189,549                                    17,430
CN                    1,984,480           33,646                                     2,000
Aggregate
  Other         5,469,394,950           55,625,381                               1,606,250
Sub Totals      8,559,966,908           86,846,906            420,966          238,714,301      2,372,997
Less: Reins
  Ceded         1,238,389,000            5,138,830                                                 196,623
Totals         $7,321,577,90                     $    $       420,966      $ 238,714,301       $ 2,176,374
                            8           81,708,076

MORTALITY AND LOSS EXPERIENCE

The mortality and loss experience for the period under examination is presented as follows (in thousands):

Life:
                                                                                Ratio of
               Death          Reserves             Net          Tabular         Actual to
   Year       Benefits        Released           Benefits        Cost           Expected

  1993         $24,290            $5,402          $18,888        $28,529             66%
  1994          21,554             5,404           16,150         26,254             62%
  1995          27,304             5,585           21,719         32,578             67%
  1996          24,969             5,638           19,331         33,587             58%
  1997          27,871             6,533           21,338         41,455             51%

Accident and Health:
                                                Other                      Ratio of Benefits
              Premiums       Benefits         Expenses       Gain or       and Expenses to
   Year        Earned        Incurred         Incurred       (Loss)        Earned Premiums

  1993          $     791         $616               $32       $143                    82%
  1994                903          709                41        153                    83%
  1995              1,014          916                36          62                   94%
  1996                458          338                10        110                    76%
  1997                439          436                 9         (6)                  101%
 Association Financial Examination      National Western Life
                                                                                                      24
 Report as of 12-31-97                   Insurance Company

REINSURANCE

An overview of the extent of the Company's reinsurance program for 1997, as regards premium income,
follows:

                 Life               Annuity           Accident & Health            Total
  Direct    $ 86,585,685         $ 238,713,017               $ 438,861         $ 325,737,563
  Ceded       (5,718,570)                                                         (5,718,570)
  Totals    $ 80,867,115         $ 238,713,017                $ 438,861        $ 320,018,993

Total reserve credits taken as of December 31, 1997 totaled $9,305,863 for life business and $52,666 for
accident and health.

Various reinsurance agreements are in place to protect against loss in excess of the Company’s retention
of $200,000. Prior to 1996, the Company’s policy was to reinsure amounts in excess of $150,000.
Many of the programs provide for a voluntary recapture program by the Company in accordance with the
provisions and retention schedule of each treaty. The various contracts provide for automatic coverages
as well as facultative submissions.

Significant reinsurance contracts in effect for the period under examination were reviewed. All contracts,
with the exception of the facultative agreements discussed below, were determined to be in compliance
with Colorado Insurance Regulation 3-3-2.

A summary of the Company's significant reinsurance contracts by line of business follows:

Annuity:

The Company entered into a modified coinsurance agreement with the NAP Life Insurance Company
(NAP) to cover annuity policies issued under the National Annuity Program on March 1, 1988. Fifty
percent of each annuity policy issued by the Company under the policy forms and plans covered is ceded
to NAP.

As NAP is an unauthorized reinsurer, the agreement provides that the Company will retain premiums
received on reinsured policies equal to the amount of statutory reserves on the policies. At December 31,
1997, the Company reported reserve credits and funds held under this agreement totaling $8.7 million,
which represents 92% of the Company's total reserve credits. The amount of funds held is maintained in
a separate liability account titled Funds Held Under Reinsurance Treaties with Unauthorized Reinsurers.

To protect its interests under the agreement, the Company has negotiated the right to appoint to the board
of directors and executive committee of NAP a representative of its choice.

Life:

The majority of the Company's ceded life business results from the first and second surplus pool
agreements whereby all of its domestic and international plans are reinsured. The Company's policy is to
retain the first $200,000 of risk on each policy, with the excess ceded under these agreements. These
agreements became effective on April 1, 1987 and have been revised various times since that date. The
revisions were primarily to adjust rates and the mix of reinsurers participating in the pools. All
reinsurance with unauthorized reinsurers under these agreements is secured by letters of credit or funds
held equal to or in excess of any reserve credits taken.
 Association Financial Examination      National Western Life
                                                                                                      25
 Report as of 12-31-97                   Insurance Company

At December 3l, 1997, the following reinsurers were participating in the agreement:

                                        Participation Percentages

                                                              Percentage as of
                      Reinsurer                               December 31, 1997

                      Agrippina Ruckversicherung
                        Atiengesellshaft (Zurich Re)                         30.0%
                      NWNL (Reliastar)                                       10.0%
                      Union Re (Swiss Re)                                    10.0%
                      Cologne                                                10.0%
                      Winterthur (Partner Re)                                10.0%
                      Employers Reassurance Corporation                      10.0%
                      Allianz                                                 7.5%
                      CNA                                                     7.5%
                      Copenhagen                                              5.0%
                        Total                                               100.0%

The primary provisions of these agreements are summarized below:

Issue limits:               $5,000,000
Reinsurance limits:         $4,800,000
Company retention limit:    $ 200,000
Jumbo Risks:                Risks for which the total in force and applied for insurance in all companies
                            with respect to any insured life exceeds $7,500,000 will not be included in the
                            pool.
Minimum Cessions:           Cessions must be at least $50,000 in excess of the Company's retention to be
                            included in the pool.

Accidental death, disability waiver of premium, insurance issued under a guaranteed insurability option or
other supplementary benefits will not be ceded to the pool.

Other life reinsurance agreements entered into during the examination period relate to facultative
coverages. The only significant facultative agreement in force at December 31, 1997 is the Facultative
Individual YRT Reinsurance coverage obtained on the life of Robert L. Moody, Chairman and CEO of the
Company. The agreement covers four "YRT" to 100 policies issued in 1990 with face values aggregating
$27,000,000. The Company issued the policies and reinsured them with unaffiliated companies. The
policies were issued to guarantee the cash flows anticipated to be received from the Libbie Shearn Moody
Trust (“the Trust”). The Company was also the beneficiary of these policies for an amount equal to the
statutory admitted value of the Trust. However, as a result of the transfer of the Trust to NWL Services,
Inc., in 1997, the Company assigned its rights as beneficiary of these policies to NWL Services, Inc. The
excess of $27,000,000 face amount of the reinsured policies over the statutory admitted value of the
Trust has been assigned to Mr. Robert L. Moody. The Company retains the first $150,000 on the policies
and the remainder is 100% ceded to the following reinsurers:
 Association Financial Examination         National Western Life
                                                                                                       26
 Report as of 12-31-97                      Insurance Company

                                           Participation Percentages

                                           Reinsurer                                Percentages

           Cigna Re                                                                       79.9%
           SCOR VIE                                                                       11.1%
           Agrippina Ruckversicherung Atiengesellschaft (Zurich Re)                        3.4%
           American United Life Insurance Company                                          2.6%
           Employers Reassurance Corporation                                               1.9%
           Union Ruckversicherung Gesellschaft                                             1.1%
              Total                                                                      100.0%

Facultative agreements are not required to be filed with the Colorado Division of Insurance. In addition,
several participants in this facultative agreement are also participants in the first and/or second surplus
pool agreements discussed above. The pool agreements provided for the cession of additional facultative
risks by the Company. The Company interpreted these circumstances to negate the need for a formal
signed treaty to be obtained from each of the participants in the facultative agreement. Obtaining such
treaties is considered to be necessary to provide adequate documentation of the terms of the agreement.

Recommendation

No.1
It is recommended that the Company obtain adequate documentation of its facultative coverages in
accordance with Colorado Insurance Regulation 3-3-2.


Accidental Death:

The Company has a bulk Accidental Death (AD) reinsurance agreement whereby all AD benefits are
100% ceded up to a maximum of $500,000. As $500,000 is the Company's maximum AD benefit, this
agreement effectively covers all of the Company's AD benefits.

STATUTORY AND SPECIAL DEPOSITS

In compliance with statutory and other special requirements, the Company maintained the following
deposits at December 31, 1997:

Special deposits (not held for the protection of all policyholders)

                            Type of                              Statement
     Location               Security           Par Value           Value         Market Value

State of Arkansas             Bond               $140,000          $138,410          $148,400
State of Colorado             Bond              7,700,000         7,774,374         8,289,000
State of Florida              Bond              2,250,000         2,254,065         2,407,500
State of Georgia           U.S. Treasury           25,000            25,000            25,000
                               Note
State of Idaho                Bond                225,000           225,406           240,750
State of Indiana              Bond              1,055,000         1,051,567         1,148,300
State of Michigan             Bond                200,000           197,730           212,000
 Association Financial Examination       National Western Life
                                                                                                         27
 Report as of 12-31-97                    Insurance Company

                            Type of                              Statement
      Location              Security          Par Value            Value          Market Value
State of New
  Mexico                      Bond               110,000            105,191            111,100
State of North
  Carolina                    Bond               270,000            266,934            286,200
State of South
  Carolina                    Bond             1,000,000          1,055,519          1,290,000
State of Tennessee            Bond               125,000            119,535            126,250
State of Texas                Bond             1,800,000          1,769,050          2,107,000
State of Virginia             Bond               230,000            227,389            243,800
Puerto Rico                   Bond               455,000            431,897            459,550
Guam                           CD                 50,000             50,000             50,000
Other Alien                   Bond             1,000,000          1,001,806          1,070,000
 Total special deposits                      $16,635,000        $16,693,873        $18,214,850

Other deposits (held for the protection of all policyholders)

State of Colorado            Bond           1,500,000             1,482,970          1,590,000
  TOTALS                                   $18,135,000          $18,176,843        $19,804,850

Special deposit amounts held on deposit with the various states were verified by direct written
confirmation. The securities held on deposit reconcile to Company records and reports.

Securities held on joint deposit with the Colorado Division of Insurance were verified and reconciled with
Division records. Statutory deposits are maintained with the Colorado Division of Insurance in
accordance with Sections 10-3-201(2) and 203 C.R.S.

ACCOUNTS AND RECORDS

Accounts and records of the Company are maintained by an electronic data processing system called
“Life 70”. Company transactions are posted and entered to the system daily. A miscellaneous journal and
trial balance are generated daily to reflect month-to-date activity. Financial statements, including a trial
balance, income statement and balance sheet, are generated monthly. Monthly statutory financial
statements are prepared for management use. Although the Company does not have an internal auditing
staff, annual audits are conducted by an independent certified public accounting firm.

A trial balance was extracted from the general ledger for the year ended December 31, 1997 and traced to
the appropriate asset, liability and expense exhibits of the annual statement. For the years 1993 through
1996, the Company trial balances were reviewed and traced from the general ledger to copies of the
respective annual statements on a sample basis.

A review of income and disbursement postings to the general ledger was made for selected periods. Test
checks of these postings revealed no material errors. Test checks performed during the course of
verifying the assets and determining liabilities revealed no material differences.

A comprehensive internal control review of the Company's EDP systems disclosed there were no
formalized written change control procedures for system development and maintenance, no access
control software is in place, programmers have access to the tape library and there is no formal disaster
recovery plan.
 Association Financial Examination     National Western Life
                                                                                                    28
 Report as of 12-31-97                  Insurance Company


Recommendation

 No. 2
 It is recommended that the Company effect the controls and procedures necessary to safeguard the
Statutory audited financial reports and actuarial opinions were filed with the Colorado Division of
 data availability required to maintain its operations.
Insurance in accordance with Colorado Insurance Regulations 3-1-3 and 3-1-4.

Custody Agreement:

Effective November 19, 1997, the Company entered into a custody agreement with Moody National Bank
of Galveston (Texas) for safekeeping services for the Company's securities. As provided for by this
agreement, the bank holds the Company's securities solely for safekeeping purposes and the collection of
the related income or proceeds. The fee for this service is $6,562.50 per month, and under the terms of
this agreement, the Company paid $78,750 during 1997. The terms of the agreement were reviewed and
found to be in compliance with the requirements of Colorado Insurance Regulation 3-1-6.
 Association Financial Examination     National Western Life
                                                                                                   29
 Report as of 12-31-97                  Insurance Company


                                     FINANCIAL STATEMENTS

The following pages contain a statement of Assets, Liabilities, Surplus and Other Funds as of December
31, 1997, as determined by this examination. This statement is followed by supporting statements and
reconciliations presented below:

       Statement of Assets, Liabilities, Surplus and Other Funds, December 31, 1997

       Summary of Operations for the Year Ended December 31, 1997

       Capital and Surplus Account for the Year Ended December 31, 1997

       Reconciliation of Capital and Surplus Accounts December 31, 1992 through December 31, 1997

       Examination Changes for the Year Ended December 31, 1997

       Comparative Statement of Assets, Liabilities, Surplus and Other Funds as of December 31, 1992
       and December 31, 1997
Association Financial Examination      National Western Life
                                                                                                30
Report as of 12-31-97                   Insurance Company

             STATEMENT OF ASSETS, LIABILITIES, SURPLUS and OTHER FUNDS
                               DECEMBER 31, 1997

                                                 ASSETS

                                                   Non-Ledger       Assets Not        Net Admitted
                              Ledger Assets          Assets         Admitted             Assets

Bonds                          $2,479,721,986      $                $                $2,479,721,986
Stocks:
Preferred stocks                    30,226,630                          24,775,160       5,451,470
Common stocks                       32,504,025                           6,522,615      25,981,410
Mortgage loans on real estate:
  First liens                     186,518,068                            1,866,706     184,651,362
Real estate:
  Property acquired in
    satisfaction of debt             4,213,802                             860,305       3,353,497
  Investment real estate            12,709,197                           1,120,636      11,588,561
Policy loans                      133,825,509                                          133,825,509
Collateral loans                       258,814                                             258,814
Cash on hand and on deposit:
  Cash in Company’s
office                                   6,334                                                6,334
  Cash on deposit                  (5,223,925)                                          (5,223,925)
Short-term investments              12,491,648                                           12,491,648
Other invested assets                7,244,677                            333,671         6,911,006
Receivable for securities              155,936                                              155,936
Aggregate write-ins for invested assets:
  Equity-indexed options               402,635            17,600                           420,235
Reinsurance ceded:
  Amounts recoverable from reinsurers                    461,000                           461,000
Electronic data processing
  equipment                            352,695                                             352,695
Federal income tax recoverable                            73,824                            73,824
Guaranty funds receivable
  or on deposit                      1,522,044                                            1,522,044
Life insurance premiums
  and annuity
  considerations deferred
  and uncollected                                       5,154,606                         5,154,606
Accident & health
  premiums due and unpaid                                  63,862                           63,862
Investment income due and accrued                      39,364,021          19,502       39,344,519
Net adjustments in assets
  and liabilities due to
  foreign exchange rates                                3,824,182                         3,824,182
Receivable from parent,
  subsidiaries and affiliates          273,831                                             273,831
Association Financial Examination      National Western Life
                                                                                         31
Report as of 12-31-97                   Insurance Company

             STATEMENT OF ASSETS, LIABILITIES, SURPLUS and OTHER FUNDS
                           DECEMBER 31, 1997 (Continued)

                                         ASSETS (Continued)

                                                  Non-Ledger    Assets Not     Net Admitted
                                Ledger Assets       Assets      Admitted          Assets
Other assets:
Agents’ balances (net)              (203,282)                     (203,282)
Bills receivable                      826,667                       826,667
Furniture and equipment               864,765                       864,765
Cash advanced to or in hands
  of officers or agents                 2,578                         2,578
Aggregate write-ins for
  other than invested assets:
Assets of non-qualified
  deferred compensation trust                       1,255,409                      1,255,409
Utility and other deposits            294,209                      294,209
Cash value of officers life
  insurance                            66,314                                        66,314
Returned checks and
  collection items                    197,594                      197,594
Notes receivable                       74,301                       74,301
Unsecured debit balances
  in liability accounts                              110,970       110,970
Software                               84,814                       84,814
Trust account, NBD Bank                70,000                       70,000

TOTALS                       $2,899,481,866      $50,325,474    $37,821,211   $2,911,986,129
Association Financial Examination    National Western Life
                                                                                              32
Report as of 12-31-97                 Insurance Company

             STATEMENT OF ASSETS, LIABILITIES, SURPLUS and OTHER FUNDS
                           DECEMBER 31, 1997 (Continued)

                          LIABILITIES, SURPLUS AND OTHER FUNDS

     Aggregate reserves for life policies and contracts                     $2,528,901,740
     Aggregate reserves for accident and health policies                           141,571
     Supplementary contracts without life contingencies                          2,236,003
     Policy and contract claims:
       Life                                                                      12,617,720
       Accident and health                                                            5,342
     Policyholders’ dividend and coupon accumulations                             6,506,553
     Policyholders’ dividends and coupons due and unpaid                              2,073
     Provision for policyholders’ dividends and coupons payable in
       following calendar year-estimated amounts:
       Dividends apportioned for payment to December 31, 1998                      131,834
       Coupons and similar benefits                                                 47,562
     Premiums and annuity considerations received in advance                       196,460
     Liability for premium and other deposit funds:
       Policyholder premiums                                                        323,000
     Interest maintenance reserve (IMR)                                           9,629,821
     Commissions to agents due or accrued                                         5,528,391
     General expenses due or accrued                                              3,659,847
     Taxes, licenses and fees due or accrued, excluding federal
       income tax                                                                 4,192,708
     Federal income taxes due or accrued                                          2,469,930
     ‘Cost of collection’ on premiums and annuity considerations
       deferred and uncollected in excess of total loading thereon                  330,318
     Unearned investment income                                                   5,567,118
     Amounts withheld or retained by Company as agent or trustee                  2,298,810
     Amount held for agents’ accounts                                             1,102,597
     Remittances and items not allocated                                          3,455,785
     Liability for benefits for employees and agents if not included
       above                                                                      1,255,409
     Miscellaneous liabilities:
       Asset valuation reserve                                                   11,654,078
       Funds held under reinsurance treaties with unauthorized reinsurers         8,653,897
     Aggregate write-ins for liabilities:
       Reserve for contingencies                                                   390,000
       Bills payable                                                                98,174
     TOTAL LIABILITIES                                                      $2,611,396,741

     Common capital stock                                                   $     3,491,738
     Gross paid in and contributed surplus                                       26,973,081
     Unassigned funds (surplus)                                                 270,124,569

     TOTAL SURPLUS                                                          $ 300,589,388

     TOTAL LIABILITIES, SURPLUS AND OTHER FUNDS                             $2,911,986,129
Association Financial Examination      National Western Life
                                                                                                   33
Report as of 12-31-97                   Insurance Company

                                   SUMMARY OF OPERATIONS
                                 YEAR ENDED DECEMBER 31, 1997

Income:
Premiums and annuity considerations                                                      $320,018,994
Deposit-type funds                                                                          2,176,374
Considerations for supplementary contracts without life contingencies and dividend
  accumulations                                                                               479,977
Coupons left to accumulate at interest                                                          44,760
Net investment income                                                                     212,313,978
Amortization of Interest Maintenance Reserve (IMR)                                             (5,422)
Commissions and expenses allowances on reinsurance ceded                                        37,319
Aggregate write-ins for miscellaneous income:
  Surrender charges                                                                        13,801,493
  Other miscellaneous income                                                                1,129,319
  Total income                                                                           $549,996,792

Expenses:
Death benefits                                                                             27,871,349
Matured endowments (excluding guaranteed annual pure endowments)                              271,559
Annuity benefits                                                                           71,085,988
Disability benefits and benefits under accident and health policies                           538,558
Coupons, guaranteed annual endowment and similar benefits                                     203,909
Surrender benefits and other fund withdrawals                                             267,852,454
Interest on policy or contract funds                                                          852,769
Payments on supplementary contracts with life contingencies                                   137,685
Payments on supplementary contracts without life contingencies and of dividend
  accumulations                                                                             1,199,729
Accumulated coupon payments                                                                   376,563
Increase in aggregate reserves for life and accident and health policies and contracts     53,605,029
Increase in liability for premium and other deposit funds                                     156,431
Increase in reserve for supplementary contracts without life contingencies and for
  dividend and coupon accumulations                                                         (705,519)
  Subtotal                                                                               $423,446,504
Commissions on premiums and annuity considerations (direct business only)                  45,226,381
General insurance expenses                                                                 18,236,568
Insurance taxes, licenses and fees, excluding federal income taxes                          2,534,174
Increases in loading on and cost of collection in excess of loading on deferred and
  uncollected premiums                                                                      (101,506)
  Total expenses                                                                         $489,342,121
Net gain from operations before dividends to policyholders and federal income taxes       $60,654,671
Dividends to policyholders                                                                $ 129,424
Net gain from operations after dividends to policyholders & before federal income
taxes                                                                                     $60,525,247
Federal income taxes incurred (excluding tax on capital gains)                             23,174,000
Net gain from operations after dividends to policyholders & before realized capital
  gains or (losses)                                                                      $ 37,351,246
Net realized capital gains or (losses)                                                     (3,579,807)

Net income                                                                               $ 33,771,439
 Association Financial Examination      National Western Life
                                                                               34
 Report as of 12-31-97                   Insurance Company


                                 CAPITAL AND SURPLUS ACCOUNT
                                 YEAR ENDED DECEMBER 31, 1997


Capital and surplus, December 31, 1996                          $265,288,617

Gains and (losses) in surplus:
  Net income                                                      33,771,439
  Change in net unrealized capital gains                           4,799,250
  Change in non-admitted assets and related items                  (259,219)
  Change in asset valuation reserve                              (1,250,673)
  Aggregate write-ins for gains                                  (1,775,276)
Capital changes:
  Paid in                                                               400
Surplus adjustment:
  Paid in                                                             14,850

Net change in capital and surplus for the year                   $35,300,771

Capital and surplus, December 31, 1997                          $300,589,388
  Association Financial Examination     National Western Life
                                                                                            35
  Report as of 12-31-97                  Insurance Company


                    RECONCILIATION OF CAPITAL AND SURPLUS ACCOUNTS

                                                      Year ended December 31,
                                      1993        1994          1995          1996      1997*

Capital and surplus December
  31, prior year                  $129,391,431 $182,876,219 $212,063,336 $236,883,563 $265,288,617
Gains and (losses) in surplus:
Net income                           46,013,453   32,512,755   28,342,879  35,644,131 33,771,439
Change in net unrealized capital
  gains (losses)                    (5,270,894) (10,219,581) (14,815,727) (2,090,175)    4,799,250
(Increase) decrease in non-
  admitted assets                     (145,020)      258,385      435,143   (639,507)    (259,219)
(Increase) decrease in AVR            5,018,846    3,027,829    6,195,083 (6,401,333) (1,250,673)
Capital changes:
Paid in                                   6,830        3,520        3,146                      400
Surplus adjustments:
Paid in                                 290,341      118,800      172,922                   14,850
Aggregate write-ins for gains and
  losses                              7,571,232    3,485,409    4,486,781   1,891,938 (1,775,276)
Net change in capital and surplus
  for the year                       53,484,788   29,187,117   24,820,227  28,405,054 35,300,771
Capital and surplus, December
  31, current year                $182,876,219 $212,063,336 $236,883,563 $265,288,617 $300,589,388
  *Per Examination
 Association Financial Examination   National Western Life
                                                                                           36
 Report as of 12-31-97                Insurance Company


                            ANALYSIS OF EXAMINATION CHANGES
                           FOR THE YEAR ENDED DECEMBER 31, 1997

                                                                    Surplus
                                                                    Increase
                                 Per Company     Per Examination   (Decrease)      Total

Capital and surplus per
 company                                                                        $300,589,388

Assets                          $2,911,986,129   $2,911,986,129        –             –

Liabilities                     $2,611,396,741   $2,611,396,741        –             –

Net changes per examination           –                –                             –

Capital and surplus per
 examination                                                                    $300,589,388
    Association Financial Examination    National Western Life
                                                                                                      37
    Report as of 12-31-97                 Insurance Company


                               COMPARATIVE STATEMENT OF ASSETS,
                              LIABILITIES, SURPLUS AND OTHER FUNDS


                                                                               December 31,
                                                                       1997*                  1992*

Admitted Assets
Bonds                                                              $2,479,721,986      $1,754,854,236
Stocks                                                                  31,432,880          48,146,871
Mortgage loans on real estate                                         184,651,362         178,746,849
Real estate                                                             14,942,058          21,321,945
Policy loans                                                          133,825,509         158,215,781
Collateral loans                                                           258,814             454,470
Cash on hand and on deposit                                            (5,217,591)         (6,600,364)
Short-term investments                                                  12,491,648          30,556,341
Other invested assets                                                    6,911,006          29,100,719
Income interest in Libbie Shearn Moody Trust                               –                26,400,000
Receivable for securities                                                  155,936            –
Equity-indexed options                                                     420,235            –
Reinsurance ceded:
  Amounts recoverable from reinsurers                                     461,000               551,696
Electronic data processing equipment                                      352,695               292,347
Federal income tax recoverable                                             73,824                 3,775
Life insurance premiums and annuity considerations deferred
  and uncollected                                                       5,154,606              5,888,551
Accident and health premiums due and unpaid                                63,862                    283
Investment income due and accrued                                      39,344,519             30,617,622
Net adjustment in assets and liabilities due to foreign exchange
  rates                                                                 3,824,182               –
Receivable from parent, subsidiaries and affiliates                       273,831              24,002
Guaranty fund assessments                                               1,522,044           1,502,390
Cash surrender value of officers life insurance                            66,314              58,552
Assets of non-qualified deferred compensation trust                     1,255,409            –
TOTALS                                                             $2,911,986,129      $2,280,136,066

*         Per Examination
 Association Financial Examination           National Western Life
                                                                                                    38
 Report as of 12-31-97                        Insurance Company

                              COMPARATIVE STATEMENT OF ASSETS,
                        LIABILITIES, SURPLUS AND OTHER FUNDS (Continued)

                                                                                 December 31,
                                                                            1997*           1992*

Liabilities, Surplus and Other Funds
Aggregate reserve for life policies and contracts                       $2,528,901,740   $2,070,913,812
Aggregate reserve for accident and health policies                             141,571          209,370
Supplementary contracts without life contingencies                           2,236,003        1,267,744
Policy and contract claims:
  Life                                                                      12,617,720        9,390,460
  Accident and health                                                            5,342          242,525
Policyholders’ dividend and coupon accumulations                             6,506,553        7,346,434
Policyholders’ dividends and coupons due and unpaid                              2,073            3,746
  Dividends apportioned for payment to next December 31                        131,834          182,768
  Coupons and similar benefits                                                  47,562           76,067
Premiums and annuity considerations received in advance                        196,460          133,785
Liability for premium and other deposit funds:
  Policyholder premiums                                                       323,000          244,933
Policy and contract liabilities not included elsewhere:
  Interest maintenance reserve                                               9,629,821        1,960,538
Commissions to agents due or accrued                                         5,528,391        4,081,929
General expenses due or accrued                                              3,659,847        2,650,009
Taxes, licenses and fees due or accrued, excluding federal income
taxes                                                                        4,192,708        1,010,560
Federal income taxes due or accrued                                          2,469,930        3,536,000
‘Cost of collection’ on premiums and annuity considerations
deferred
  and uncollected in excess of total loading thereon                           330,318          762,901
Unearned investment income                                                   5,567,118        6,069,324
Amounts withheld or retained by Company as agent or trustee                  2,298,810          951,751
Amounts held for agents’ account                                             1,102,597        1,990,167
Remittances and items not allocated                                          3,455,785        2,075,526
Liability for benefits for employees and agents if not included above        1,255,409                –
Miscellaneous liabilities:
  Asset valuation reserve                                                   11,654,078       14,454,204
  Funds held under reinsurance treaties with unauthorized
reinsurers                                                                   8,653,897       12,730,891
Aggregate write-ins for liabilities:
  Funds held as collateral                                                                   11,702,508
  Coinsurance reserve deposit                                                                    67,740
  Bills payable                                                                 98,174           55,373
  Reserve for contingencies                                                    390,000         –
TOTAL LIABILITIES                                                       $2,611,396,741   $2,154,111,065

Common capital stock                                                    $    3,491,738   $    3,477,842
Gross paid in and contributed surplus                                       26,973,081       26,376,168
Unassigned funds (surplus)                                                 270,124,569       96,170,991
  Total surplus and other funds                                         $ 300,589,388    $ 126,025,001
Total liabilities, surplus and other funds                              $2,911,986,129   $2,280,136,066
*        Per Examination
 Association Financial Examination      National Western Life
                                                                                                      39
 Report as of 12-31-97                   Insurance Company




                                NOTES TO FINANCIAL STATEMENTS

There are no notes to the financial statements as there were no examination changes resulting in an
adjustment to surplus.
 Association Financial Examination     National Western Life
                                                                                                       40
 Report as of 12-31-97                  Insurance Company


                                              SUMMARY

The results of the Association Financial Examination disclosed that as of December 31, 1997, the
Company has admitted assets of $2,911,986,129, liabilities of $2,611,396,741, capital of $3,491,738,
gross paid-in and contributed surplus of $26,973,081 and unassigned surplus of $270,124,569. No
change was made to the Company's reported surplus as a result of this examination.
 Association Financial Examination         National Western Life
                                                                                                          41
 Report as of 12-31-97                      Insurance Company



                                               RECOMMENDATIONS

Recommendations made as a result of this examination follow:

                                                 Rec.   Page
Issue                                            No.    No.    Recommendation
The Company does not have a formal               1      26     It is recommended that the Company
signed treaty for all of the participants in                   obtain adequate documentation of its
facultative agreements.                                        facultative coverages in accordance with
                                                               Colorado Insurance Regulation 3-3-2.


The Company does not have formal                 2      28     It is recommended that the Company
written change control procedures,                             effect the controls and procedures
access control of software in place or a                       necessary to safeguard the data availability
formal disaster recovery plan.                                 required to maintain its operations.
 Association Financial Examination       National Western Life
                                                                                                          42
 Report as of 12-31-97                    Insurance Company


                                              CONCLUSION

The assistance and cooperation extended by the officers and employees of the Company during the
course of this Association Financial Examination is hereby acknowledged.

In addition to the undersigned, the participants in this Association Financial Examination included the
following persons:

              Participant              Employer                       Position

              Robert Crawford          Ernst & Young LLP              Partner
              Peter Howard             Ernst & Young LLP              Senior Manager
              Stephen Spinn            Ernst & Young LLP              Senior Manager
              Matt Joergensen          Ernst & Young LLP              Senior
              Allison Tebbe            Ernst & Young LLP              Senior
              Matthew May              Ernst & Young LLP              Staff
              Louis Koven              Ernst & Young LLP              Manager


                                                  Respectfully submitted,




                                                  ____________________________________
                                                  Cecil W. Thomas, CFE
                                                  Huff, Thomas & Company
                                                  On behalf of
                                                  Division of Insurance
                                                  State of Colorado

								
To top