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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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