
~~(3)~~	~~STOCKHOLDERS' EQUITY~~

~~NWLIC~~

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(3) STOCKHOLDERS' EQUITY

The Robert L. Moody Revocable Trust beneficially owns 99.0% of the total outstanding shares of the Company's Class B common stock as of June 30, 2020. Holders of the Company's Class A common stock elect one-third of the Board of Directors of the Company, and holders of the Class B common stock elect the remainder. Any cash or in-kind dividends paid on each share of Class B common stock are to be only one-half of the cash or in-kind dividends paid on each share of Class A common stock. In the event of liquidation of the Company, the Class A stockholders will receive the par value of their shares; then the Class B stockholders shall receive the par value of their shares; and the remaining net assets of the Company shall be divided between the stockholders of both Class A and Class B stock based upon the number of shares held.

National Western is restricted by state insurance laws as to dividend amounts which may be paid to stockholders without prior approval from the Colorado Division of Insurance. The restrictions are based on the lesser of statutory earnings from operations, excluding capital gains, ~~from the prior calendar year~~ or 10% of statutory surplus of ~~the company~~National Western as of the previous ~~calendar~~ year-end. ~~The~~Under these guidelines the maximum dividend payment which may be made without prior approval in ~~2017~~2020 is ~~$86.0 million~~.$152.8 million. As the sole owner of NWLIC, all dividends declared by National Western are payable entirely to NWLGI and are eliminated in consolidation.

Ozark National is similarly restricted under the state insurance laws of Missouri as to dividend amounts which may be paid to stockholders without prior approval to the greater of 10.0% of the statutory surplus of the company from the preceding year-end or the company's net gain from operations, excluding capital gains, from the prior calendar year. Based upon this restriction, the maximum dividend payment which may be made in 2020 without prior approval is $17.2 million.

As part of the Stock Purchase Agreement dated October 3, 2018, by and between NWLIC and Ozark National's previous owner, the Missouri Department of Commerce and Insurance granted approval for an extraordinary dividend of $102.7 million to be paid to the prior owner concurrent with the closing of the transaction effective January 31, 2019. All dividends declared by Ozark National thereafter are payable entirely to NWLIC as the sole owner and are eliminated in consolidation.

National Western did not declare or pay cash dividends to NWLGI in the six months ended June 30, 2020. In the ~~second~~first quarter of ~~2017~~2019, National Western declared and paid a ~~$4.0~~$32.0 million dividend to ~~NWLGI. During~~NWLGI, the ~~third quarter~~proceeds of ~~2017 National Western declared a $3.0 million dividend payable to NWLGI~~ which ~~was subsequently paid on October 16, 2017. In~~were used as part of the ~~nine months ended September 30, 2016, National Western declared a~~ cash ~~dividend~~purchase of ~~$3.0 million payable to NWLGI which was subsequently paid on October 3, 2016.~~NIS.

NWLGI did ~~not~~0t declare or pay cash dividends on its common shares during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019.

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(4) EARNINGS PER SHARE


~~(4)~~	~~EARNINGS PER SHARE~~

Basic earnings per share of common stock are computed by dividing net ~~income~~earnings available to each class of common stockholders on an as if distributed basis by the weighted-average ~~basic~~number of common shares outstanding ~~during~~for the period. Diluted earnings per share, by definition, ~~assumes~~reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common ~~shares applicable to~~ stock, ~~options~~that then shared in the ~~denominator. However, settlement~~distributed earnings of ~~stock option exercises in cash or by issuance~~each class of ~~shares is at discretion of~~common stock. U.S. GAAP requires a two-class presentation for the Company's ~~optionholders and such exercises have predominantly been in cash. Consequently, the Company's stock options~~two classes of common stock. The Company currently has no share-based compensation awards outstanding ~~are not considered potentially dilutive under accounting guidance.~~that could be redeemed for shares of common stock.

Net ~~income~~earnings for the periods shown below is allocated between Class A shares and Class B shares based upon (1) the proportionate number of shares issued and outstanding as of the end of the period, and (2) the per share dividend rights of the two classes under the Company's Restated Certificate of Incorporation (the Class B dividend per share is equal to one-half the Class A dividend per share).


	Three Months Ended June 30,
	2020				2019
	Class A		Class B	Class A	Class B
	(In thousands except per share amounts)

Numerator for Basic and Diluted Earnings Per Share:
Net earnings	$	48,413		33,696
Dividends - Class A shares	—			—
Dividends - Class B shares	—			—

Undistributed earnings	$	48,413		33,696

Allocation of net earnings:
Dividends	$	—	—	—	—
Allocation of undistributed earnings	47,044		1,369	32,743	953

Net earnings	$	47,044	1,369	32,743	953

Denominator:
Basic earnings per share - weighted-average shares	3,436		200	3,436	200
Effect of dilutive stock options	—		—	—	—

Diluted earnings per share - adjusted weighted-average shares for assumed conversions	3,436		200	3,436	200

Basic earnings per share	$	13.69	6.85	9.53	4.76

Diluted earnings per share	$	13.69	6.85	9.53	4.76

Three Months Ended September 30,
2017 2016
Class A Class B Class A Class B
(In thousands except per share amounts)

Numerator for Basic and Diluted Earnings Per Share:
Net income $ 21,813
33,736

Dividends - Class A shares —
—

Dividends - Class B shares —
—

Undistributed income $ 21,813
33,736

Allocation of net income:

Dividends $ —
—
—
—
Allocation of undistributed income 21,196
617
32,782
954

Net income $ 21,196
617
32,782
954

Denominator:

Basic earnings per share - weighted-average shares 3,436
200
3,436
200
Effect of dilutive stock options —
—
—
—

Diluted earnings per share - adjusted weighted-average shares for assumed conversions 3,436
200
3,436
200

Basic Earnings Per Share $ 6.17
3.08
9.54
4.77

Diluted Earnings Per Share $ 6.17
3.08
9.54
4.77

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Six Months Ended June 30,
	2020				2019
	Class A		Class B	Class A	Class B
	(In thousands except per share amounts)

Numerator for Basic and Diluted Earnings Per Share:
Net earnings	$	46,351		73,894
Dividends - Class A shares	—			—
Dividends - Class B shares	—			—

Undistributed earnings	$	46,351		73,894

Allocation of net earnings:
Dividends	$	—	—	—	—
Allocation of undistributed earnings	45,040		1,311	71,804	2,090

Net earnings	$	45,040	1,311	71,804	2,090

Denominator:
Basic earnings per share - weighted-average shares	3,436		200	3,436	200
Effect of dilutive stock options	—		—	—	—

Diluted earnings per share - adjusted weighted-average shares for assumed conversions	3,436		200	3,436	200

Basic Earnings Per Share	$	13.11	6.55	20.90	10.45

Diluted Earnings Per Share	$	13.11	6.55	20.90	10.45

Nine Months Ended September 30,
2017 2016
Class A Class B Class A Class B
(In thousands except per share amounts)

Numerator for Basic and Diluted Earnings Per Share:
Net income $ 70,834
77,280

Dividends - Class A shares —
—

Dividends - Class B shares —
—

Undistributed income $ 70,834
77,280

Allocation of net income:

Dividends $ —
—
—
—
Allocation of undistributed income 68,831
2,003
75,095
2,185

Net income $ 68,831
2,003
75,095
2,185

Denominator:

Basic earnings per share - weighted-average shares 3,436
200
3,436
200
Effect of dilutive stock options —
—
—
—

Diluted earnings per share - adjusted weighted-average shares for assumed conversions 3,436
200
3,436
200

Basic Earnings Per Share $ 20.03
10.02
21.85
10.93

Diluted Earnings Per Share $ 20.03
10.02
21.85
10.93

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


~~(5)~~	~~PENSION AND OTHER POSTRETIREMENT PLANS~~


~~(A)~~	~~Defined Benefit Pension Plans~~

(5) PENSION AND OTHER POSTRETIREMENT PLANS

(A)Defined Benefit Pension Plans

National Western sponsors a qualified defined benefit pension plan covering employees enrolled prior to 2008. The plan provides benefits based on the participants' years of service and compensation. The ~~company~~Company makes annual contributions to the plan that comply with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On October 19, 2007, National Western's Board of Directors approved an amendment to freeze the pension plan as of December 31, 2007. The freeze ceased future benefit accruals to all participants and closed the plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. As participants are no longer earning a credit for service, future qualified defined benefit plan expense is projected to be minimal. Fair values of plan assets and liabilities are measured as of the prior December 31 for each ~~respective~~ year. The following table summarizes the components of net periodic benefit cost.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019	2020	2019
	(In thousands)

Service cost	$	27	24	54	48
Interest cost	169		210	337	420
Expected return on plan assets	(316)		(272)	(631)	(544)
Amortization of prior service cost	—		—	—	—
Amortization of net loss	145		165	290	330

Net periodic benefit cost	$	25	127	50	254

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(In thousands)

Service cost $ 27
26
81
79
Interest cost 240
250
718
750
Expected return on plan assets (306 ) (304 ) (920 ) (912 )
Amortization of prior service cost —
—
—
—
Amortization of net loss 159
193
477
579

Net periodic benefit cost $ 120
165
356
496

The service cost shown above for each period represents plan expenses expected to be paid out of plan assets. Under the clarified rules of the Pension Protection Act, plan expenses paid from plan assets are to be included in the plan's service cost component.

The ~~company's~~Company's minimum required contribution for the ~~2017~~2020 plan year is ~~$0.2~~$0.0 million. There was no$0.8 million in planned contributions remaining ~~contribution payable~~ for the ~~2016~~2019 plan year as of ~~September~~June 30, ~~2017.~~2020. As of ~~September~~June 30, ~~2017,~~2020, the ~~company~~Company had ~~contributed a total of $0.0~~made $0.2 million in contributions to the plan for the ~~2017~~2020 plan year.

The components of net periodic benefit cost including service cost are reported in the line item “Other operating expenses” in the Condensed Consolidated Statements of Earnings (Loss).

National Western also sponsors ~~a nonqualified~~3 non-qualified defined benefit pension plans. The first plan ~~primarily for~~covers certain senior ~~officers. The plan~~officers and provides benefits based on the participants' years of service and compensation. The primary pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO")., a related party. ANICO has guaranteed the payment of pension obligations under the plan. However, the company has a contingent liability with respect to the plan should these entities be unable to meet their obligations under the existing agreements. Also, the ~~company~~Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with National Western beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan. If any of these conditions are met, the ~~company~~Company would be responsible for any additional pension obligations resulting from these items. Amendments were made to the plan to allow an additional employee to participate and to change the benefit formula for the then Chairman of the ~~company.~~Company. As previously mentioned, these additional obligations are a liability to the ~~company.~~Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the then Chairman and the then President of the ~~company~~Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Effective July 1, 2005, National Western established a second non-qualified defined benefit plan for the benefit of the then Chairman of the ~~company.~~Company. This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed non-qualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, National Western established a third non-qualified defined benefit plan for the benefit of the then President of the ~~company.~~Company. This plan is intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first non-qualified plan as previously discussed, while complying with the requirements of the Act.

The following table summarizes the components of net periodic benefit costs for the ~~nonqualified~~non-qualified defined benefit plans.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019	2020	2019
	(In thousands)

Service cost	$	303	126	605	251
Interest cost	337		256	675	512
Amortization of prior service cost	15		15	30	30
Amortization of net loss	1,445		348	2,890	696

Net periodic benefit cost	$	2,100	745	4,200	1,489

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(In thousands)

Service cost $ 204
109
612
327
Interest cost 347
265
1,041
794
Amortization of prior service cost 15
15
45
45
Amortization of net loss 818
501
2,455
1,503

Net periodic benefit cost $ 1,384
890
4,153
2,669

As the plans are not funded, there is no expected return on plan assets shown in the net periodic benefit cost table above. The ~~company~~Company expects to contribute ~~$2.0~~$2.0 million to these plans in ~~2017~~.2020. As of ~~September~~June 30, ~~2017~~,2020, the ~~company~~Company has contributed ~~$1.6~~$0.9 million to the plans.


~~(B)~~	~~Defined Benefit Postretirement Healthcare Plans~~

The components of net periodic benefit cost including service cost are reported in the line item “Other operating expenses” in the Condensed Consolidated Statements of Earnings (Loss).

Ozark National and NIS have no defined benefit plans.

(B)Postretirement Employment Plans Other Than Pension

National Western sponsors ~~two~~2 healthcare plans that were amended in 2004 to provide postretirement benefits to certain fully-vested individuals. The plans are unfunded. The following table summarizes the components of net periodic benefit costs.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019	2020	2019
	(In thousands)

Interest cost	$	42	50	83	99
Amortization of prior service cost	—		13	—	26
Amortization of net loss	39		61	79	122

Net periodic benefit cost	$	81	124	162	247

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(In thousands)

Interest cost $ 35
30
104
90
Amortization of prior service cost 25
26
77
78
Amortization of net loss 10
—
31
—

Net periodic benefit cost $ 70
56
212
168

Table of Contents

~~The company expects to contribute~~ ~~minimal~~ ~~amounts to the plan in~~ ~~2017~~.

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


~~(6)~~	~~SEGMENT AND OTHER OPERATING INFORMATION~~

As the plans are not funded, there is no expected return on plan assets shown in the net periodic benefit cost table above. The Company expects to contribute minimal amounts to the plans in 2020. Ozark National and NIS do not offer postemployment benefits.

The components of net periodic benefit cost including service cost are reported in the line item “Other operating expenses” in the Condensed Consolidated Statements of Earnings (Loss).

(6)SEGMENT AND OTHER OPERATING INFORMATION

The Company defines its reportable operating segments as domestic life insurance, international life insurance, annuities, and ~~annuities.~~acquired businesses. These segments are organized based on product types, ~~and~~ geographic marketing ~~areas.~~ areas, and business groupings. Ozark National and NIS have been combined into the segment "Acquired Businesses" given its inter-related marketing and sales approach which consists of a coordinated sale of a non-participating whole life insurance product (Ozark National) and a mutual fund investment product (NIS). A fifth category "All Others" primarily includes investments and earnings of non-operating subsidiaries as well as other remaining investments and assets not otherwise supporting specific segment operations.

A summary of segment information as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 for the Condensed Consolidated Balance Sheet items and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019 for the Condensed Consolidated ~~Statement~~Statements of Earnings (Loss) is provided below.

Condensed Consolidated Balance Sheet Items:


	June 30, 2020
	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Deferred policy acquisition costs, sales inducements, and value of business acquired	$	130,961	192,498	444,772	140,429	—	908,660
Total segment assets	1,419,575		1,086,774	7,867,906	1,006,618	363,950	11,744,823
Future policy benefits	1,229,105		827,711	7,113,037	716,267	—	9,886,120
Other policyholder liabilities	14,544		12,150	94,190	14,986	—	135,870


	December 31, 2019
	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Deferred policy acquisition costs, sales inducements, and value of business acquired	$	127,557	209,858	486,553	142,434	—	966,402
Total segment assets	1,399,818		1,153,105	8,198,730	978,243	362,900	12,092,796
Future policy benefits (1)	1,198,103		870,461	7,366,894	706,513	—	10,141,971
Other policyholder liabilities	18,016		14,903	80,002	14,686	—	127,607

(1) Revised to correct for an adjustment related to an understatement of reserve liabilities of $15.0 million. Refer to Note 1.

September 30, 2017
Domestic
Life
Insurance International
Life
Insurance Annuities All
Others Totals
(In thousands)

Deferred policy acquisition costs and sales inducements $ 95,894
254,150
598,234
—
948,278
Total segment assets 1,071,664
1,238,990
9,306,527
309,197
11,926,378
Future policy benefits 909,407
904,097
8,178,265
—
9,991,769
Other policyholder liabilities 14,441
14,635
107,996
—
137,072

Table of Contents

December 31, 2016
Domestic
Life
Insurance International
Life
Insurance Annuities All
Others Totals
(In thousands)

Deferred policy acquisition costs and sales inducements $ 90,485
243,106
648,714
—
982,305
Total segment assets 971,990
1,232,648
9,193,980
298,481
11,697,099
Future policy benefits 830,460
919,380
8,109,255
—
9,859,095
Other policyholder liabilities 13,998
10,528
118,865
—
143,391

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Condensed Consolidated ~~Statement~~Statements of ~~Earnings:~~Earnings (Loss):


	Three Months Ended June 30, 2020
	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Premiums and contract revenues	$	12,009	23,061	4,699	19,841	—	59,610
Net investment income (loss)	21,475		11,153	97,666	6,549	8,851	145,694
Other revenues	1		(6)	(8)	2,319	5,280	7,586

Total revenues	33,485		34,208	102,357	28,709	14,131	212,890

Life and other policy benefits	4,169		3,684	8,880	16,698	—	33,431
Amortization of deferred policy acquisition costs and value of business acquired	3,209		6,844	19,344	1,703	—	31,100
Universal life and annuity contract interest	19,172		9,492	33,108	—	—	61,772
Other operating expenses	5,643		4,517	12,715	4,794	1,485	29,154
Federal income taxes (benefit)	172		934	6,173	1,918	2,292	11,489

Total expenses	32,365		25,471	80,220	25,113	3,777	166,946

Segment earnings (loss)	$	1,120	8,737	22,137	3,596	10,354	45,944

Three Months Ended September 30, 2017

Domestic
Life
Insurance

International
Life
Insurance
Annuities
All
Others
Totals
(In thousands)

Premiums and contract revenues $ 9,907
30,353
5,293
—
45,553
Net investment income 17,385
15,711
114,123
4,472
151,691
Other revenues 11
26
26
4,609
4,672

Total revenues 27,303
46,090
119,442
9,081
201,916

Life and other policy benefits 3,483
8,437
9,095
—
21,015
Amortization of deferred policy acquisition costs 2,517
(21,585 ) 37,790
—
18,722
Universal life and annuity contract interest 14,119
9,112
84,568
—
107,799
Other operating expenses 4,086
5,661
8,714
4,135
22,596
Federal income taxes (benefit) 1,061
15,473
(7,007 ) 1,792
11,319

Total expenses 25,266
17,098
133,160
5,927
181,451

Segment earnings (loss) $ 2,037
28,992
(13,718 ) 3,154
20,465

Table of Contents

Nine Months Ended September 30, 2017

Domestic
Life
Insurance

International
Life
Insurance
Annuities
All
Others
Totals
(In thousands)

Premiums and contract revenues $ 27,822
91,563
16,583
—
135,968
Net investment income 51,998
48,581
346,031
19,435
466,045
Other revenues 30
73
90
13,521
13,714

Total revenues 79,850
140,217
362,704
32,956
615,727

Life and other policy benefits 13,850
19,399
25,377
—
58,626
Amortization of deferred acquisition costs 8,300
(7,874 ) 85,566
—
85,992
Universal life and annuity contract interest 41,576
36,871
221,415
—
299,862
Other operating expenses 13,975
18,846
28,588
12,622
74,031
Federal income taxes (benefit) 740
25,125
605
7,001
33,471

Total expenses 78,441
92,367
361,551
19,623
551,982

Segment earnings (loss) $ 1,409
47,850
1,153
13,333
63,745

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Six Months Ended June 30, 2020
	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Premiums and contract revenues	$	23,237	45,928	9,349	39,924	—	118,438
Net investment income	2,092		2,153	108,297	12,850	6,823	132,215
Other revenues	30		48	(4)	4,741	6,425	11,240

Total revenues	25,359		48,129	117,642	57,515	13,248	261,893

Life and other policy benefits	10,046		7,015	17,069	32,935	—	67,065
Amortization of deferred policy acquisition costs and value of business acquired	5,782		12,896	38,365	4,094	—	61,137
Universal life and annuity contract interest	(2,521)		(1,345)	37,612	—	—	33,746
Other operating expenses	9,938		7,613	19,582	8,863	2,980	48,976
Federal income taxes (benefit)	360		3,738	854	3,140	1,748	9,840

Total expenses	23,605		29,917	113,482	49,032	4,728	220,764

Segment earnings (loss)	$	1,754	18,212	4,160	8,483	8,520	41,129


	Three Months Ended June 30, 2019
	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Premiums and contract revenues	$	10,706	23,777	5,857	20,380	—	60,720
Net investment income	14,995		9,276	89,572	6,007	8,574	128,424
Other revenues	20		33	64	2,290	1,559	3,966

Total revenues	25,721		33,086	95,493	28,677	10,133	193,110

Life and other policy benefits	3,829		2,959	9,876	16,993	—	33,657
Amortization of deferred acquisition costs and value of business acquired	3,307		6,948	18,750	2,406	—	31,411
Universal life and annuity contract interest	12,985		7,337	39,817	—	—	60,139
Other operating expenses	5,017		4,521	9,374	4,491	1,931	25,334
Federal income taxes (benefit)	89		2,014	3,155	956	2,323	8,537

Total expenses	25,227		23,779	80,972	24,846	4,254	159,078

Segment earnings (loss)	$	494	9,307	14,521	3,831	5,879	34,032

Three Months Ended September 30, 2016

Domestic
Life
Insurance

International
Life
Insurance
Annuities
All
Others
Totals
(In thousands)

Premiums and contract revenues $ 8,507
31,066
5,391
—
44,964
Net investment income 12,294
12,763
97,384
4,540
126,981
Other revenues 7
10
139
4,320
4,476

Total revenues 20,808
43,839
102,914
8,860
176,421

Life and other policy benefits 5,338
5,038
7,054
—
17,430
Amortization of deferred acquisition costs (4,331 ) 7,296
21,430
—
24,395
Universal life and annuity contract interest 9,795
11,287
46,694
—
67,776
Other operating expenses 4,847
6,691
7,526
4,531
23,595
Federal income taxes (benefit) 1,667
3,591
6,549
1,209
13,016

Total expenses 17,316
33,903
89,253
5,740
146,212

Segment earnings (loss) $ 3,492
9,936
13,661
3,120
30,209

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Nine Months Ended September 30, 2016

Domestic
Life
Insurance

International
Life
Insurance
Annuities
All
Others
Totals
(In thousands)

Premiums and contract revenues $ 24,814
95,291
17,407
—
137,512
Net investment income 28,011
30,203
261,579
15,939
335,732
Other revenues 37
50
145
13,818
14,050

Total revenues 52,862
125,544
279,131
29,757
487,294

Life and other policy benefits 13,629
14,789
20,153
—
48,571
Amortization of deferred acquisition costs 989
11,720
75,872
—
88,581
Universal life and annuity contract interest 20,855
19,643
139,094
—
179,592
Other operating expenses 11,745
17,867
23,044
13,650
66,306
Federal income taxes (benefit) 1,833
19,977
6,808
5,229
33,847

Total expenses 49,051
83,996
264,971
18,879
416,897

Segment earnings (loss) $ 3,811
41,548
14,160
10,878
70,397

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Six Months Ended June 30, 2019
	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Premiums and contract revenues	$	21,510	49,840	10,725	34,181	—	116,256
Net investment income	38,494		23,293	192,726	9,983	15,259	279,755
Other revenues	64		54	72	3,731	6,458	10,379

Total revenues	60,068		73,187	203,523	47,895	21,717	406,390

Life and other policy benefits	7,751		5,121	21,306	27,668	—	61,846
Amortization of deferred acquisition costs and value of business acquired	6,717		14,242	38,462	4,154	—	63,575
Universal life and annuity contract interest	34,426		19,330	87,299	—	—	141,055
Other operating expenses	9,140		8,785	16,882	7,576	9,000	51,383
Federal income taxes (benefit)	413		5,222	8,038	1,703	2,582	17,958

Total expenses	58,447		52,700	171,987	41,101	11,582	335,817

Segment earnings (loss)	$	1,621	20,487	31,536	6,794	10,135	70,573

Reconciliations of segment information to the Company's Condensed Consolidated Financial Statements are provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Premiums and Other Revenues:
Premiums and contract revenues	$	59,610	60,720	118,438	116,256
Net investment income (loss)	145,694		128,424	132,215	279,755
Other revenues	7,586		3,966	11,240	10,379
Realized gains (losses) on investments	3,125		(425)	6,610	4,204

Total condensed consolidated premiums and other revenues	$	216,015	192,685	268,503	410,594

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Premiums and Other Revenues:

Premiums and contract revenues $ 45,553
44,964
135,968
137,512
Net investment income 151,691
126,981
466,045
335,732
Other revenues 4,672
4,476
13,714
14,050
Realized gains (losses) on investments 2,074
5,426
10,906
10,589

Total condensed consolidated premiums and other revenues $ 203,990
181,847
626,633
497,883

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Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Federal Income Taxes:

Total segment Federal income taxes $ 11,319
13,016
33,471
33,847
Taxes on realized gains (losses) on investments 726
1,899
3,817
3,706

Total condensed consolidated Federal income taxes $ 12,045
14,915
37,288
37,553

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Net Earnings:

Total segment earnings $ 20,465
30,209
63,745
70,397
Realized gains (losses) on investments, net of taxes 1,348
3,527
7,089
6,883

Total condensed consolidated net earnings $ 21,813
33,736
70,834
77,280

NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Federal Income Taxes:
Total segment Federal income taxes	$	11,489	8,537	9,840	17,958
Taxes on realized gains (losses) on investments	656		(89)	1,388	883

Total condensed consolidated Federal income taxes	$	12,145	8,448	11,228	18,841


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Net Earnings:
Total segment earnings	$	45,944	34,032	41,129	70,573
Realized gains (losses) on investments, net of taxes	2,469		(336)	5,222	3,321

Total condensed consolidated net earnings	$	48,413	33,696	46,351	73,894


	June 30,		December 31,
	2020		2019
	(In thousands)

Assets:
Total segment assets	$	11,744,823	12,092,796
Other unallocated assets	646,908		460,651

Total condensed consolidated assets	$	12,391,731	$	12,553,447

(7) SHARE-BASED PAYMENTS

September 30, December 31,
2017 2016
(In thousands)

Assets:

Total segment assets $ 11,926,378
11,697,099
Other unallocated assets 211,913
197,882

Total condensed consolidated assets $ 12,138,291
11,894,981


~~(7)~~	~~SHARE-BASED PAYMENTS~~

~~The Company had~~Effective June 20, 2008, the Company's shareholders approved a ~~stock and incentive plan ("1995 Plan"~~2008 Incentive Plan (“2008 Plan”) which provided for the grant of any or all of the following types of awards to eligible employees: (1) stock options, including incentive stock options and nonqualified stock options; (2) stock appreciation rights ("SARs"), in tandem with stock options or freestanding; (3) restricted stock or restricted stock units; and, (4) performance awards. The ~~1995 Plan began on April 21, 1995, and was amended on June 25, 2004 to extend the termination date to April 20, 2010. The~~ number of shares of Class A, ~~$1.00~~$1.00 par value, common stock which were allowed to be issued under the ~~1995~~2008 Plan, or as to which ~~stock appreciation rights ("SARs")~~SARs or other awards were allowed to be granted, could not exceed ~~300,000~~. Effective June 20, 2008, the Company's shareholders approved a 2008 Incentive Plan (“2008 Plan”). The 2008 Plan is substantially similar to the 1995 Plan and authorized an additional number of Class A common stock shares eligible for issue not to exceed ~~300,000. These plans were~~300,000. This plan was assumed by NWLGI from National Western pursuant to the terms of the holding company reorganization in 2015. On June 15, 2016, stockholders of NWLGI approved an amended and restated 2008 Plan ("Incentive Plan"), which extended the ~~Incentive Plan, which is a stock and incentive plan essentially similar to~~term of the 2008 ~~Plan.~~Plan for ten years from the date of stockholder approval. The Incentive Plan includes additional provisions, most notably regarding the definition of performance objectives which could be used in the issuance of the fourth type of award noted above (performance awards).

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

All of the employees of the Company and its subsidiaries are eligible to participate in the current Incentive Plan. In addition, directors of the Company are eligible to receive the same types of awards as employees except that they are not eligible to receive incentive stock options. Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options. ~~All current~~At the end of 2018, all stock options ~~outstanding were~~ granted under the ~~1995~~2008 Plan ~~and 2008 Plan. Employee stock option and~~had been exercised, forfeited, or expired. SARs granted prior to 2016 vest 20% annually following three years of service following the grant date. Employee SARs granted 2016 and thereafter vest 33.3% annually following one year of service from the date of the grant. Directors' ~~stock option and SAR~~SARs grants vest 20% annually following one year of service from the date of grant.

Effective during ~~March 2006,~~August 2008, the Company adopted and implemented a limited stock buy-back program with respect to the ~~1995~~2008 Plan which ~~provides~~provided stock option holders the additional alternative of selling shares acquired through the exercise of options directly back to the Company. Option holders ~~may~~could elect to sell such acquired shares back to the Company at any time within ninety (90) days after the exercise of options at the prevailing market price as of the date of notice of election. The buy-back program did not alter the terms and conditions of the 1995 Plan; however, the program necessitated a change in accounting from the equity classification to the liability classification. In August 2008, the Company implemented another limited stock buy-back program, substantially similar to the 2006 program, for shares issued under the 2008 Plan. ~~These plans were~~This plan was assumed as well by NWLGI from National Western pursuant to the terms of the holding company reorganization. There are currently no stock options issued and outstanding.

The Incentive Plan allows for certain other share or unit awards which are solely paid out in cash based on the value of the Company's shares, or changes therein, as well as the financial performance of the Company under pre-determined target performance metrics. Certain awards, such as restricted stock units ~~(RSUs)~~("RSUs") provide solely for cash settlement based upon the market price of the Company's Class A ~~commons~~common shares, often referred to as "phantom stock-based awards". in equity compensation plans. Unlike share-settled awards, which have a fixed grant-date fair value, the fair value of unsettled or unvested liability awards is remeasured at the end of each reporting period based on the change in fair value of a share. The liability and corresponding expense are adjusted accordingly until the award is settled. For employees, the vesting period for RSUs is 100% at the end of ~~three~~3 years from the grant date. ~~The~~ RSUs granted prior to 2019 are payable in cash at the vesting date equal to the closing price of the Company's Class A common share on the three years anniversary date. RSUs granted in 2019 are payable in cash at the 3 years vesting date equal to the 20-day moving average closing price of the Company’s Class A common share at that time.

~~NATIONAL WESTERN LIFE GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Table of these strategies the company's portfolio of fixed-index (equity indexed) life insurance products plays an important role. Fixed-index life products accounted for 86% of total life sales in the first nine months of 2017, as compared to 85% for the same period in 2016.Contents

The table below sets forth information regarding ~~National Western's~~ life insurance in force for each date presented.


	Insurance In Force as of
	June 30,		December 31,
	2020		2019
	($ in thousands)

National Western

Universal life:
Number of policies	32,280		33,760
Face amounts	$	4,518,300	4,746,100

Traditional life:
Number of policies	27,140		28,400
Face amounts	$	2,515,390	2,671,120

Fixed-index life:
Number of policies	35,190		36,170
Face amounts	$	9,307,610	9,635,810

Total life insurance:
Number of policies	94,610		98,330
Face amounts	$	16,341,300	17,053,030

Ozark National

Total life insurance (all traditional):
Number of policies	181,130		183,380
Face amounts	$	6,129,030	6,246,800

Insurance In Force as of
September 30,
2017 2016
($ in thousands)

Universal life:
Number of policies 41,070
44,940
Face amounts $ 4,271,900
5,064,620

Traditional life:
Number of policies 32,570
34,330
Face amounts $ 3,459,330
3,490,930

Fixed-index life:
Number of policies 38,300
38,850
Face amounts $ 9,104,030
9,462,720

Rider face amounts $ 3,043,010
3,046,760

Total life insurance:
Number of policies 111,940
118,120
Face amounts $ 19,878,270
21,065,030

At ~~September~~June 30, ~~2017, the company’s~~2020, National Western’s face amount of life insurance in force was comprised of ~~$16.8~~$12.9 billion from the international line of business and ~~$3.1~~$3.4 billion from the domestic line of business. At ~~September 30, 2016,~~December 31, 2019, these amounts were ~~$18.0~~$13.7 billion and ~~$3.0~~$3.4 billion for the international and domestic lines of business, respectively.

Annuities

The following table sets forth information regarding the ~~company's~~Company's annuity sales activity as measured by single and annualized first year premiums. Similar to life insurance sales, these figures are considered a non-GAAP financial measure but are shown in accordance with industry practice and depict National Western's sales productivity.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Fixed-index annuities	$	70,984	55,395	145,737	115,618
Other deferred annuities	2,140		4,718	3,600	7,849
Immediate annuities	6,218		1,295	8,721	1,733

Totals	$	79,342	61,408	158,058	125,200

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Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Fixed-index annuities $ 147,966
156,297
420,757
498,186
Other deferred annuities 3,057
4,671
14,517
27,075
Immediate annuities 1,789
807
2,871
3,198

Totals $ 152,812
161,775
438,145
528,459
Annuity sales increased 29% in the second quarter of 2020 compared to 2019 and were 26% higher in the six months ended June 30, 2020 relative to the comparable period in 2019. The increased sales activity, in the midst of the COVID-19 pandemic, reflects National Western's addition of new marketing personnel during the second half of 2019 and an expansion of sales and marketing initiatives in this line of business.

The ~~company's~~Company's mix of annuity sales has historically shifted with interest rate levels and the relative performance of the equity market. With the decline in interest rates subsequent to the subprime crisis, ~~sales of~~ fixed-index products have ~~become proportionately greater~~comprised the majority of annuity sales generally accounting for 90% or more of all annuity sales the past several years. During the first ~~nine~~six months of ~~2017,~~2020, this percentage ~~exceeded 96%~~approximated 92% reflecting the ongoing bull market run in equities since bottoming out in ~~2009.~~2009 in combination with historically low levels in interest rates. For all fixed-index products, the ~~company~~Company purchases over the counter call options to hedge the equity return feature. The options are purchased relative to the issuance of the annuity contracts in such a manner to minimize timing risk. Generally, the index return during the indexing period (if the underlying index increases) becomes a component in a formula (set forth in the annuity), the result of which is credited as interest to contract holders electing the index formula crediting method at the beginning of the indexing period. The formula result can never be less than zero with these products. The ~~company~~Company does not deliberately mismatch or under hedge for the equity feature of the products. Fixed-index products also provide the contract holder the alternative to elect a fixed interest rate crediting option.

With the advent of a low interest rate policy engineered by the Federal Reserve in response to the subprime financial crisis, ~~company~~Company management evaluated the potential ramifications of continuing a high level of annuity sales in a depressed interest rate environment. Under the auspices of the ~~company's~~Company's enterprise risk management ~~(ERM)~~("ERM") processes, taking into consideration the Federal Reserve's announced intention to maintain interest rates at historically reduced levels over a prolonged period of time, the decision was made to curtail new sales to desired levels in order to minimize the level of assets added at low yield rates. While National Western does not subsidize its interest crediting rates on new policies in order to obtain market share, the Company's ERM considerations determined that managing to a lower level of annuity sales was prudent given the environment.

~~The decrease in~~Two subsequent regulatory events served to further limit annuity sales ~~in 2017 relative to the prior year reflects the impact of two regulatory changes.~~activity. The first iswas the Department of Labor's "fiduciary rule" on standards for retirement investment advice ~~which has affected insurance carriers, marketing organizations and agents as each develop strategies for future product sales under this standard.~~in 2017. The uncertainty associated with the timing and ultimate requirements of the rule ~~has~~ served to decrease activity for annuity sales ~~involving~~incorporating qualified funds ~~during~~as insurance carriers, marketing organizations, and independent distributors sought to develop strategies for operating under the ~~current year.~~proposed fiduciary rule guidelines. The Department of Labor's rule was ultimately vacated in 2018 at the appellate court level but continued to impact the industry's approach to annuity sales. The second regulatory change impacting the level of annuity sales occurred ~~late in 2016~~ when the state of California mandated more restrictive annuity product features for policies sold in the state. This required ~~the company~~National Western, and other annuity carriers, to refile products complying with the new standards for state approval. ~~As of the date of this filing,~~ California regulators ~~have yet~~were slow to process and approve product filings received from insurance carriers in the ~~company's~~aftermath of imposing these restrictive product ~~filings.~~features thus eliminating a key market for annuity sales for an extended period of time and disrupting distributor relationships.

In addition to the above, National Western, similar to other annuity product providers, faced a scenario of declining yields on its investment portfolio as securities backing annuity policies and their credited rates were subsequently reinvested at substantially lower yields in the depressed interest rate environment. The compression on interest rate margins resulted in decrements to fixed interest rate renewal rates provided to annuity contractholders often to the minimum interest rate guarantee levels prescribed by state insurance regulators under non-forfeiture laws. The low renewal interest crediting rates discouraged repeat sales to existing clients and prompted a movement toward competitor annuities that offered multi-year interest rate guarantees.

As a result of the foregoing, the Company initiated rebuilding of sales momentum in its annuity sales. In the latter half of 2019, it added to its marketing staff individuals with extensive experience and expertise in annuity production in the life insurance industry and began developing products targeting new channels of distribution in addition to its current partnerships with national marketing organizations.

The level of annuity business in force requires a focused discipline on asset/liability analysis. The ~~company~~Company monitors its asset/liability matching within the self-constraints of desired capital levels and risk tolerance. ~~The company's~~National Western's capital level remains substantially above industry averages and regulatory targets. Management has performed analyses of the capital strain associated with incrementally higher levels of annuity new business and determined that ~~the company's~~National Western's capital position is more than sufficient to handle an increase in sales ~~activity when a more favorable rate environment returns.~~activity.

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The following table sets forth information regarding annuities in force for each date presented.


	Annuities In Force as of
	June 30,		December 31,
	2020		2019
	($ in thousands)

Fixed-index annuities
Number of policies	69,130		70,790
GAAP annuity reserves	$	5,296,332	5,467,786

Other deferred annuities
Number of policies	34,630		36,550
GAAP annuity reserves	$	1,318,814	1,420,237	(1)

Immediate annuities
Number of policies	12,170		12,530
GAAP annuity reserves	$	355,313	349,389

Total annuities
Number of policies	115,930		119,870
GAAP annuity reserves	$	6,970,459	7,237,412

Annuities In Force as of
September 30,
2017 2016
($ in thousands)

Fixed-index annuities
Number of policies 75,070
73,930
GAAP annuity reserves $ 5,909,871
5,666,087

Other deferred annuities
Number of policies 44,620
47,780
GAAP annuity reserves $ 1,804,826
1,958,672

Immediate annuities
Number of policies 13,940
14,400
GAAP annuity reserves $ 369,188
368,724

Total annuities
Number of policies 133,630
136,110
GAAP annuity reserves $ 8,083,885
7,993,483

(1) Revised to correct for an adjustment related to the understatement of reserve liabilities of $15.0 million. See Note (1) Consolidation and Basis of Presentation in the accompanying Notes to Condensed Consolidated Financial Statements included in this report.

Impact of Recent Business Environment

The Company's business is generally aided by an economic environment experiencing growth, whether moderate or vibrant, characterized by ~~metrics which indicate~~ improving employment data and increases in personal income. ~~Central banks~~Important metrics indicating sustained economic growth over the longer term principally revolve around employment and confidence, both consumer and business sentiment.

While the morbidity exposure of COVID-19 to the life insurance industry is uncertain at this point, it is not expected to result in significant excess mortality claims. The Company has incurred just over $1 million in net death claims for which COVID-19 was identified as the cause of death. The biggest near-term risk to life insurance companies has been the decline in value of invested assets due to downgrades in credit market securities, derivative investments experiencing fair value declines resulting in unrealized losses, impairment-related losses or sizable additions being made to the allowance for current credit expected losses in financial statements. Consequently, there has been balance sheet asset deterioration, charges to capital, and lower reported earnings.

In recent years, in the ~~United States, Europe, and Japan are currently contemplating how~~attempt to unwind the years of large asset purchases used to prop up capital markets. These policies, intended to be temporary in order to stabilize the financial system, are on the verge of being unwound as a favorable combination of growth and inflation has pervaded the U.S. and global economies. The prospect of U.S. corporate tax reform may cause a pick-up in economic growth stemming from desired changesacquire additional investment yield in the ~~tax code.~~

~~As noted previously, regulatory actions have recently been an impediment~~low rate environment, life insurers substantially increased allocations to ~~life insurers. This past week the Department~~BBB-rated bonds. In a recession, many of ~~Labor (DOL) filed a rule with the Office of Management and Budget~~these investment grade corporate credits are at risk for an additional 18-month delay of the DOL's fiduciary rule from January 1, 2018 until July 1, 2019. As proposed, the rule is extending the applicability of the Best Interest Contract Exemption (BIC) and the Class Exemption for Principal Transactions (PTE) 84-24. Concerns have been raised by various parties that the DOL rule could disrupt the marketplace, increase costs for retirement savers, and eliminate access for middle- and lower-income workers to individualized retirement planning services. Observers are hopeful that the DOL and the SEC can reach a consensus on a uniform standard that protects investorsdowngrades, as well ~~their access~~as the potential to ~~affordable,~~default. Risk-based capital (RBC) formulas assess higher required capital charges as investment quality ~~advice, products~~declines. A meaningful shift of BBB-rated debt securities to non-investment grade categories could have significant implications in terms of required capital levels which would depress RBC ratios of impacted insurers. Life insurance companies also have a large exposure to real estate in its investment portfolios through commercial mortgage, direct real estate investment, and ~~services. It~~mortgage-backed securities. These investments are highly dependent upon occupancy and payment of rent and lease obligations. The quarantine and shelter-at-home lockdown affect the ability to meet these payment obligations.

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Life insurance revenues are driven more by renewal premiums than sales. Most state insurance departments have issued directives instructing insurers to allow premium payments to fall into arrears. New life insurance sales face the challenge of having to forego face-to-face consultation with agents and distributors. In addition, full medical underwriting which is ~~uncertain~~a cornerstone of evaluating risk in an insurer making the decision to offer coverage and at what ~~effect, if any,~~level of coverage will likely be unavailable or difficult to complete as medical test for life insurance applications will not be considered as "essential" in the ~~extension, and any ultimate changes to the DOL's fiduciary rule, will have on the Company's business.~~pandemic environment.

With regard to the credit market, although not probable in the current environment, industry analysts and observers generally agree that a sudden jump in interest rate levels ~~while presently a highly unlikely scenario,~~ would be harmful to life insurers with interest-sensitive products as it could provide an impetus for abnormal levels of product surrenders and withdrawals at the same time fixed debt securities held by insurers declined in market value. ~~Currently,~~Ultimately, a mix of monetary policy adjustments, fiscal policy, and economic fundamentals will determine the ~~consensus view of the Federal Reserve's course of action is predicated on the thesis that the U.S. economy is in a position to absorb a series~~future direction of interest rate ~~hikes without impeding ongoing economic growth. A progression~~movements and the speed of ~~carefully measured increases in interest rates would be beneficial to financial service institutions, including life insurance companies.~~such shifts. It is uncertain ~~what direction and~~ at what pace interest rate movements may occur in the future and what impact, if any, such movements would have on the Company's business, results of operations, cash flows, or financial condition.

~~The U.S life insurance sector is experiencing an interest rate, economic and regulatory environment making strategic long-term planning decisions more challenging and suspect to inaccuracies.~~ In an environment such as this, the need for a strong capital position that can cushion against unexpected bumps is critical for stability and ongoing business activity. The Company's operating strategy continues to be ~~to maintain~~focused on maintaining capital levels substantially above regulatory and rating agency requirements. Our business model is predicated upon steady growth in invested assets while managing the block of business within profitability objectives. A key premise of our financial management is maintaining a high quality investment portfolio, well matched in terms of duration with policyholder obligations, that continues to outperform the industry with respect to adverse impairment experience. This discipline enables the Company to sustain resources more than adequate to fund future growth and absorb abnormal periods of cash outflows.

RESULTS OF OPERATIONS

The Company's Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition, the Company regularly evaluates operating performance using non-GAAP financial measures which exclude or segregate derivative and realized investment gains and losses from operating revenues. Similar measures are commonly used in the insurance industry in order to assess profitability and results from ongoing operations. The Company believes that the presentation of these non-GAAP financial measures enhances the understanding of the Company's results of operations by highlighting the results from ongoing operations and the underlying profitability factors of the Company's business. The Company excludes or segregates derivative and realized investment gains and losses because such items are often the result of events which may or may not be at the Company's discretion and the fluctuating effects of these items could distort trends in the underlying profitability of the Company's business. Therefore, in the following sections discussing condensed consolidated operations and segment operations, appropriate reconciliations have been included to report information management considers useful in enhancing an understanding of the Company's operations to reportable GAAP balances reflected in the Condensed Consolidated Financial Statements.

Consolidated Operations

~~Revenues.~~Premiums and other revenues. The following details Company revenues.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Universal life and annuity contract charges	$	36,869	36,910	72,175	74,863
Traditional life premiums	22,741		23,810	46,263	41,393
Net investment income (excluding derivatives)	105,451		110,596	198,601	219,925
Other revenues	7,586		3,966	11,240	10,379
Derivative gain (loss)	40,243		17,828	(66,386)	59,830
Net realized investment gains (losses)	3,125		(425)	6,610	4,204

Total revenues	$	216,015	192,685	268,503	410,594

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Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Universal life and annuity contract charges $ 40,268
40,333
122,329
123,791
Traditional life premiums 5,285
4,631
13,639
13,721
Net investment income (excluding derivatives) 106,560
107,867
327,493
327,425
Other revenues 4,672
4,476
13,714
14,050

Operating revenues 156,785
157,307
477,175
478,987
Derivative gain (loss) 45,131
19,114
138,552
8,307
Net realized investment gains (losses) 2,074
5,426
10,906
10,589

Total revenues $ 203,990
181,847
626,633
497,883

Universal life and annuity contract charges - Revenues for universal life and annuity contracts were ~~marginally~~ lower for the first ~~nine~~six months in ~~2017~~2020 compared to ~~2016~~.2019 with the component sources shown below. Revenues for universal life and annuity products consist of policy charges for the cost of insurance, administration charges, ~~and~~ surrender charges assessed against policyholder account balances, and amortization of deferred premium loads less reinsurance premiums, as shown in the following table.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Contract Revenues:
Cost of insurance and administrative charges	$	30,706	31,146	62,147	62,331
Surrender charges	7,577		8,926	15,027	16,975
Other charges	2,506		1,306	3,339	4,437
Gross contract revenues	40,789		41,378	80,513	83,743

Reinsurance premiums	(3,920)		(4,468)	(8,338)	(8,800)

Net contract revenues	$	36,869	36,910	72,175	74,943

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Contract Revenues:
Cost of insurance and administrative charges $ 33,915
33,335
100,823
99,624
Surrender charges 10,114
11,348
33,682
34,955
Other charges (171 ) (187 ) (131 ) 1,131
Gross contract revenues 43,858
44,496
134,374
135,710

Reinsurance premiums (3,590 ) (4,163 ) (12,045 ) (11,919 )

Net contract revenues $ 40,268
40,333
122,329
123,791

Cost of insurance charges were $24.6 million in the quarter ended June 30, 2020 compared to $25.5 million in the second quarter of 2019, and were $49.6 million for the six months ended June 30, 2020 compared to $51.3 million for the same period in 2019. Cost of insurance charges typically trend with the size of the universal life insurance block in force and the amount of new business issued during the period. ~~Life~~The volume of universal life insurance in force ~~during the~~ ~~nine~~ ~~months ended~~ ~~September~~at June 30, ~~2017~~ ~~averaged~~2020 declined to $13.8 billion from approximately ~~$20.3~~$14.4 billion while for the same period of 2016 it averaged $21.5 billion. Countering the decline in insurance in force, the company implemented higher cost of insurance charges on international life insurance products during the second quarter of 2016. Accordingly, for the three months ended September 30, 2017, cost of insurance charges increased to $26.9 million from $26.5 million at ~~September 30, 2016,~~December 31, 2019 and ~~for the nine months ended September 30, 2017, cost of insurance charges increased to $80.6 million from $79.2 million~~$15.6 billion at September 30, 2016. In addition to the increase in international cost of insurance charges, the increase reflects larger domestic face amounts of insurance being added to the in force block of business, which produce higher contract charges per policy, replacing smaller face amounts terminated through death, surrender or lapsation.December 31, 2018. Administrative charges pertaining to new business issued ~~declined marginally~~increased to ~~$20.3 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~versus $20.5~~$6.1 million for the ~~nine~~three months ended ~~September~~June 30, ~~2016~~ ~~due~~2020 from $5.6 million for the same period in 2019, and to ~~a lower number~~$12.5 million for the first six months of ~~international life insurance policies issued.~~2020 compared to $11.0 million for the first six months of 2019, reflecting higher sales activity in the current periods.

Surrender charges assessed against policyholder account balances upon withdrawal ~~remained relatively level~~decreased in the first ~~nine~~three and six months of ~~2017~~2020 versus the comparable prior year ~~period.~~periods. While the ~~company~~Company earns surrender charge income that is assessed upon policy terminations, the ~~company's~~Company's overall profitability is enhanced when policies remain in force and additional contract revenues are realized and the ~~company~~Company continues to make an interest rate spread equivalent to the difference it earns on its ~~investment~~investments and the amount that it credits to policyholders. In the first ~~nine~~three and six months of ~~2017,~~2020, lapse rates on ~~domestic~~annuity and universal life ~~insurance policies~~products were ~~better~~higher than the prior year while lapse rates for international life insurance and annuity policies increased somewhat. The increase in the international life insurance lapse rate most noticeably came from the countries from which National Western ceased accepting applications from residents in the fourth quarter of 2015. Surrenderperiods. However, surrender charge income recognized is also dependent upon the duration of policies at the time of surrender (i.e. later duration policy surrenders ~~having a~~have lower surrender ~~charge~~charges assessed and earlier ~~duration~~policy surrenders having a higher surrender ~~charge)~~charge assessed). The lower surrender charge revenue reflects later duration policies terminating having lower surrender charges.

Other charges include the net amortization into income of the premium load on single premium life insurance products which is deferred at the inception of the policy. The amount of income recognized in a period reflects the excess of amortization of prior period deferrals over current period deferrals. As these products have become a substantial portion of domestic life insurance sales, the amortization of accumulated deferrals has surpassed current period premium loads deferred for several years. The increase in net amortization into revenue in the second quarter of 2020 as compared to 2019 reflects the higher levels of sales achieved of these products in prior period resulting in an increased amount of amortization over current premium loads being deferred.

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Traditional life premiums - Traditional life premiums ~~were slightly lower in~~include the ~~three and nine months ended September 30, 2017 compared to the same periods in 2016 reflecting~~activity of Ozark National. Ozark National's principal product is a ~~slight decrease in sales during the first nine months of 2017 and the lapsation of international~~non-participating whole life insurance ~~policies noted above.~~policy with premiums remitted primarily on a monthly basis. The product is sold in tandem with a mutual fund investment product offered through its broker-dealer affiliate, NIS. Traditional life insurance premiums for products such as whole life and term life are recognized as revenues over the premium-paying period. ~~The company's~~A sizable portion of National Western's traditional life business resided in the International Life segment. However, National Western's overall life insurance sales focus has historically been primarily centered around universal life ~~products, although additional term products have been added~~products. The addition of Ozark National's business of repetitive paying permanent life insurance adds an important complement to National Western's life insurance sales. Included in the ~~company's portfolio recently.~~amount for the quarter ended June 30, 2020 is $18.8 million of life insurance renewal premium from Ozark National compared to $18.6 million in the second quarter of 2019. For the six months ended June 30, 2020 and 2019, the Ozark National life insurance renewal premium amounts were $37.6 million and $31.6 million, respectively. Universal life products, especially ~~the company's~~National Western's equity indexed universal life products, which offer the opportunity for consumers to acquire life insurance protection and receive credited interest linked in part to an outside market index, have been the more popular product offerings in the ~~company's markets representing 93% of new life insurance sales for 2017 thus far.~~Company's markets.

Net investment income - To ensure the Company will be able to honor future commitments to policyholders and provide a financial return, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed maturity debt securities. The income from these investments is closely monitored by the Company due to its significant impact on the business. A detail of net investment income (with and without index option gains and losses) is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Gross investment income:
Debt and equities	$	97,581	101,627	184,079	205,551
Mortgage loans	2,921		2,823	5,625	6,175
Policy loans	757		829	1,635	1,707
Short-term investments	565		644	1,698	1,209
Other invested assets	4,264		5,249	6,945	6,583

Total investment income	106,088		111,172	199,982	221,225
Less: investment expenses	637		576	1,381	1,300

Net investment income (excluding derivatives)	105,451		110,596	198,601	219,925
Derivative gain (loss)	40,243		17,828	(66,386)	59,830

Net investment income (loss)	$	145,694	128,424	132,215	279,755

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Gross investment income:
Debt and equities $ 101,664
103,650
307,540
312,833
Mortgage loans 2,645
2,070
8,333
5,576
Policy loans 885
868
2,638
2,732
Short-term investments 339
252
585
507
Other invested assets 1,408
1,318
9,363
6,594

Total investment income 106,941
108,158
328,459
328,242
Less: investment expenses 381
291
966
817

Net investment income (excluding derivatives) 106,560
107,867
327,493
327,425
Derivative gain (loss) 45,131
19,114
138,552
8,307

Net investment income $ 151,691
126,981
466,045
335,732

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, debt and equity securities generated approximately ~~94%~~93% of total net investment income, excluding derivative gain (loss). The Company's strategy is to invest substantially all of its cash flows in fixed debt securities ~~consistent with~~within its guidelines for credit quality, duration, and diversification. ~~The lower level of investment income from~~National Western's debt and equity securities ~~through the third quarter of 2017 versus 2016, reflects~~investment income continues to experience higher yielding debt securities maturing or being called by borrowers and being replaced with lower yielding securities in the current interest rate environment. ~~In addition, investment~~Investment yields on new bond purchases during the first ~~nine~~six months of ~~2017~~2020 approximated ~~3.57% remaining below~~3.88% as compared to the ~~portfolio's~~4.06% yield achieved during the full year 2019. During the second quarter of 2020, interest rate levels were relatively level with the ten-year treasury bond falling one basis point. Widening credit spreads early in the second quarter along with the ongoing strategy of purchasing slightly longer duration securities helped to partially offset the low rate rate environment. National Western's weighted average ~~yield.~~portfolio yield was 3.74% at June 30, 2020 declining from 3.78% at December 31, 2019. Ozark National's weighted average portfolio yield at June 30, 2020 was 3.68%.

~~Mortgage loan~~

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Changes in fair values of equity securities are included in net investment income ~~for~~in the ~~nine~~Condensed Consolidated Statements of Earnings (Loss). For the three months ended ~~September~~June 30, ~~2017~~ ~~increased significantly over~~2020 and 2019, unrealized gains of $1.8 million and $0.3 million, respectively, are included in investment income. For the ~~comparable~~six months ended June 30th, unrealized losses of $4.1 million in 2020 are netted in investment income while unrealized gains of $1.9 million are included in investment income in the same period for 2019. The carrying value of the Company's portfolio of equity securities was $17.9 million at June 30, 2020.

The Company's mortgage loan activity in ~~2016~~ ~~reflecting increased~~the first half of 2020 was impacted by the pandemic crisis and the low interest rate levels which subsequently materialized. This environment slowed down the underwriting of new loan ~~origination activity beginning in 2016.~~applications until clarity regarding the impacts of closing down the economy upon commercial real estate became available. The portfolio balance increased to $273.7 million at June 30, 2020 from ~~$108.3~~$272.4 million at December 31, 2015 to $174.5 million at December 31, 2016 as the Company identified this as an area of investment focus. The mortgage loan portfolio balance further increased to $188.6 million at September 30, 2017 reflecting ongoing loan origination efforts during the period.2019. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 the Company originated new mortgage loans in the amount of ~~$38.2~~$10.4 million compared to ~~$55.8~~$33.2 million in the comparable period of ~~2016.~~2019.

~~Other invested asset~~As disclosed in the accompanying Notes to Condensed Consolidated Financial Statements included in this report, the Company adopted new accounting guidance pertaining to current expected credit losses on financial instruments ("CECL"). The adoption as of January 1, 2020 was reported as a change in accounting with initial balances recorded and charged to retained earnings. In the quarter ended March 31, 2020, an additional $3.4 million was added to the initial allowance and recorded as a reduction of investment income ~~increased during the first nine months of 2017 as various profit participation loans paid out~~ during the period. ~~These loans, generally underwritten~~Remeasurement of the CECL allowance as of June 30, 2020 resulted in ~~conjunction with~~ an ~~underlying~~increase in the allowance of $2.7 million for the six months ended June 30, 2020 and a decrease in allowance of $0.8 million for the three months ended June 30, 2020 which are included in gross investment income. The year-to-date allowance increase is allocated $1.6 million for debt securities held to maturity and $1.1 million for mortgage ~~loan, enhance the Company's returns on its lending due the opportunity to participate in profit generation from the supporting venture.~~loans.

In order to evaluate underlying profitability and results from ongoing operations, net investment income performance is analyzed excluding derivative gain (loss), which is a common practice in the insurance industry. Although this is considered a non-GAAP financial measure, Company management believes this financial measure provides useful supplemental information by removing the swings associated with fair value changes in derivative instruments. Net investment income and average invested assets shown below includes cash and cash equivalents. Net investment income performance is summarized as follows:


	Six Months Ended June 30,
	2020			2019
	(In thousands)

Excluding derivatives:
Net investment income (loss)	$	198,601		219,925
Average invested assets, at amortized cost	$	10,979,385		10,941,405
Annual yield on average invested assets	3.62		%	4.02	%

Including derivatives:
Net investment income (loss)	$	132,215		279,755
Average invested assets, at amortized cost	$	11,091,548		10,993,697
Annual yield on average invested assets	2.38		%	5.09	%

Nine Months Ended September 30,
2017 2016
(In thousands)

Excluding derivatives:
Net investment income $ 327,493
327,425
Average invested assets, at amortized cost $ 10,580,953
10,407,898
Annual yield on average invested assets 4.13 % 4.19 %

Including derivatives:

Net investment income $ 466,045
335,732
Average invested assets, at amortized cost $ 10,723,043
10,472,151
Annual yield on average invested assets 5.79 % 4.27 %

The ~~yield on~~decline in average invested ~~assets,~~asset yield, excluding derivatives, ~~declined slightly from~~ ~~2016. Yields obtained on new fixed maturity debt securities investments during~~for the first ~~nine~~six months of ~~2017 were below~~2020 is due to the ~~total weighted average yield. During~~ ~~2016~~,Company continuing to obtain low yields on newly invested cash flows as higher yielding assets mature or are called, the current period mark-to-market unrealized loss on equity securities, and the current period allowance for expected credit losses.

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The average yield on bond purchases during the six months ended June 30, 2020 to fund National Western insurance operations was ~~3.38%~~3.88% representing a ~~1.54%~~2.29% spread over treasury rates. ~~Insurance operation bond purchases through the~~ ~~third quarter~~ of ~~2017~~ ~~had a higher average yield of 3.57%; however, spreads decreased to 1.20% over treasury rates during this period while treasury rates increased.~~

~~The bond yield rates during both 2016 and 2017 are below the weighted average bond portfolio rate which was slightly less than 4.02% at September 30, 2017.~~ The weighted average quality of new purchases during the first ~~nine~~six months of ~~the current year~~2020 was ~~"A-~~"BBB+" which was slightly higher than the ~~overall "BBB+"~~"BBB" average quality ~~rating~~ of ~~purchases during 2016.~~new investments in 2019. The composite duration of purchases during the first ~~nine~~six months of ~~2017~~2020 was ~~approximately~~longer than that of purchases made in previous years as the ~~same as~~Company purchased a higher proportion of investments for its life insurance line of business which has a longer liability duration than that ~~for 2016 purchases.~~of the annuity line of business. The Company's general investment strategy is to purchase debt securities with maturity dates approximating ten years in the future. Accordingly, an appropriate measure for benchmarking the direction of interest rate levels for the Company's debt security purchases is the ten year treasury bond rate. After ending ~~2016~~2019 at a rate of ~~2.45%~~1.92%, the daily closing yield of the ~~ten year~~ten-year treasury bond ranged from a low of ~~approximately 2.05%~~0.54% to a high of roughly ~~2.60%~~1.88% during the first ~~nine~~six months of ~~2017, and ended~~2020 finishing the ~~third calendar quarter~~period at ~~2.33%~~0.66%.

The pattern in average invested asset yield, including derivatives, incorporates increases and decreases in the fair value of index options purchased by ~~the company~~National Western to support its fixed-index products. Fair values of the purchased call options ~~increased~~recorded a net loss during the ~~2017 and~~first six months of 2020 while recording a gain during the ~~2016 periods, substantially more in the 2017 period compared to the 2016 period,~~first six months of 2019, corresponding to the movement in ~~equity market indices in~~the S&P 500 Index during these ~~time frames.~~periods (the primary index the fixed-index products employ). Refer to the derivatives discussion below for a more detailed ~~explanation of these instruments.~~explanation.

Other revenues - Other revenues primarily pertain to NIS, the broker-dealer affiliate of Ozark National; the operations of Braker P III ("BP III"), a subsidiary created at the end of 2016 to own and manage a commercial office building BP III acquired; and the Company's previously owned two nursing home operations in Reno, Nevada and San Marcos, Texas.

Revenues associated with ~~these operations~~NIS were ~~$13.5~~$2.3 million and ~~$13.5~~$2.2 million in the quarter ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, NIS revenues were $4.7 million and $3.6 million, respectively. NIS revenues in the first six months of 2019 were for the ~~nine~~period subsequent to its acquisition effective January 31, 2019.

Revenues associated with BP III were $1.1 million and $1.2 million in the quarter ended June 30, 2020 and 2019, respectively, and $2.3 million and $2.0 million in the first six months of 2020 and 2019, respectively. The increased revenues in 2020 reflect tenant leases that were subsequently entered into. The facility is currently fully leased.

The Company closed on the sale of its Reno nursing home operations effective February 1, 2019 and on the sale of its San Marcos nursing home operations effective May 1, 2019. Revenues of $4.4 million in the first six months of 2019 include Reno and San Marcos operating revenues up to their respective sales dates. In addition, net gains from the sale of personal property and equipment at the Reno facility of $1.4 million are included in 2019 revenues.

The Company's acquisition of Ozark National (by National Western) included a contingent payment provision that was dependent upon the subsequent persistency of Ozark National's in force block of business that was acquired. The Company had been progressively accruing for this potential obligation in its financial statements. Prior to the end of the quarter ended June 30, 2020, the Company executed an agreement with the seller under which both parties agreed that the Company had fulfilled its payment obligation under the Stock Purchase Agreement executed October 3, 2018. Consequently, the Company reversed the contingent payment amounts previously accrued. These amounts were recognized as Other revenues in the amounts of $4.2 million and $4.1 million in the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2020, respectively. ~~Level nursing home revenues reflect stable census figures at the facilities thus far in 2017 and a steady mix of payor sources by patient types.~~

Derivative gain (loss) - Index options are derivative financial instruments used to hedge the equity return component of ~~the company's~~National Western's fixed-index products. Derivative gain or loss includes the amounts realized from the sale or expiration of the options. Since the index options do not meet the requirements for hedge accounting under GAAP, they are marked to fair value on each reporting date and the resulting unrealized gain or loss is ~~also~~ reflected as a component of net investment income. As the options hedging the notional amount of policyholder contract obligations are purchased as close as possible to like amounts, the amount of the option returns tends to correlate closely with indexed interest credited.

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Gains and losses from index options are substantially due to changes in equity market conditions. Index options are intended to act as hedges to match the returns on the product's underlying reference index and the rise or decline in the index relative to the index level at the time of the option purchase which causes option values to likewise rise or decline. As income from index options fluctuates with the underlying index, the contract interest expense to policyholder accounts for the ~~company's~~Company's fixed-index products also fluctuates in a similar manner and direction. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, the reference indices increased~~2020 and 2019, the Company recorded ~~an overall gain~~realized and unrealized gains/(losses) from index options as shown below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Derivatives:
Unrealized gain (loss)	$	44,975	21,770	(93,152)	82,870
Realized gain (loss)	(4,732)		(3,942)	26,766	(23,040)

Total gain (loss) included in net investment income	$	40,243	17,828	(66,386)	59,830

Total contract interest	$	61,772	60,139	33,746	141,055

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Derivatives:
Unrealized gain (loss) $ 13,197
32,821
44,053
60,121
Realized gain (loss) 31,934
(13,707 ) 94,499
(51,814 )

Total gain (loss) included in net investment income $ 45,131
19,114
138,552
8,307

Total contract interest $ 107,799
67,776
299,862
179,592

The economic impact of option performance in the Company's financial statements is not generally determined solely by the option gain or loss included in net investment income as there is a corresponding amount recorded in the contract interest expense line. The Company's profitability with respect to these options is largely dependent upon the purchase cost of the option remaining within the financial budget for acquiring options embedded in the product pricing. Option prices vary with interest rates, volatility, and dividend yields among other things. As option prices vary, the Company manages for the variability by making offsetting adjustments to product caps, participation rates, and management fees. For the periods shown, the Company's option costs have been close to or within the product pricing budgets.

The financial statement investment spread, the difference between investment income and interest credited to contractholders, is subject to variations from option performance during any given period. For example, many of the ~~company's~~Company's equity-index annuity products provide for the collection of asset management fees. These asset management fees are assessed when returns on expiring options are positive, and they are collected prior to passing any additional returns above the assessed management fees to the policy contractholders. During periods of positive returns, the collected asset management fees serve to increase the financial statement ~~investment~~ spread by increasing option realized gains ~~more~~reported as investment income in an amount greater than interest credited to policy ~~contractholders.~~contractholders which is reported as contract interest expense. Asset management fees collected in the first ~~nine~~six months of ~~2017~~2020 and 2019 were approximately ~~$20.9~~$17.9 million ~~more than in~~and $7.6 million, respectively. For the ~~first nine~~three months ~~of 2016. Of this amount, approximately $5.0~~ended June 30, 2020 and 2019, asset management fees collected were $7.8 million ~~of the increase occurred in the quarter ended September 30, 2017.~~and $5.9 million, respectively.

Net realized investment gains (losses) - Realized gains (losses) on investments in ~~2017~~ ~~primarily resulted~~include proceeds from bond calls, sales and ~~sales.~~impairment write-downs as well as gains and losses on the sale of real estate property. The net gains reported for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 consisted of gross gains of ~~$11.0~~$6.6 million offset by gross losses of ~~$0.1~~$0.0 million. Included in the gross gains is approximately $2.3 million realized during the second quarter from a partial sale of home office land property to the Texas Department of Transportation (TxDOT) to be used in the construction of roadway expansion. The net gains reported for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019 consisted of gross gains of ~~$10.0~~$12.2 million offset by gross losses of ~~$0.1~~$8.0 million. ~~No other-than-temporary credit impairment~~Included in gross gains in 2019 is $5.7 million from the sale of land and building associated with the nursing home in Reno, Nevada and a $3.2 million gain on the sale of the Company's former home office facility. Gross losses ~~were recorded~~ during the ~~nine~~first six months ~~ended September 30, 2017~~of 2019 include a $5.9 million other-than-temporary impairment of a debt security and ~~2016.~~a $2.0 million loss on the building pertaining to the San Marcos, Texas nursing home which was sold during the period.

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~~The~~Prior to January 1, 2020 and the adoption of the new accounting guidance on current expected credit losses, the Company ~~records~~recorded impairment write-downs when a decline in value iswas considered to be other-than-temporary and full recovery of the investment iswas not expected. Impairments due to credit factors are recorded in the Company's Condensed Consolidated Statements of Earnings while non-credit (liquidity) impairment losses are included in Condensed Consolidated Statement of Comprehensive Income (Loss). No impairment or valuation write-downs were recorded in the Company's Condensed Consolidated Statements of Earnings (Loss) while non-credit (liquidity) impairment losses were included in Condensed Consolidated Statements of Comprehensive Income (Loss). Under the new accounting guidance, credit loss allowances for available for sale debt securities are recorded following the same process previously applied for impairment accounting. Credit loss allowances are recorded through net investment income in the Condensed Consolidated Statements of Earnings (Loss). Impairment or valuation write-downs recorded prior to January 1, 2020 in the Company’s Condensed Consolidated Statement of Earnings (Loss) were completed under accounting guidance prior to the adoption of the accounting standard update 2016-13, Financial Instruments-Credit Losses. Such impairments related to bonds and totaled $5.9 million for the ~~periods as shown~~three and six months ended June 30, 2019.

The Company had recorded an impairment of $2.2 million during the first quarter of 2019 on real estate property associated with its nursing home operations in San Marcos, Texas based upon a pending agreement to sell the operations. Upon closing of the sale in the ~~following table.~~second quarter of 2019, a realized loss of $2.0 million was recognized and the impairment allowance reversed.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Impairment or valuation write-downs:
Bonds $ —
—
—
—
Equities —
—
—
—

Total $ —
—
—
—

While market values of equity securities are subject to variation between reporting periods, the Company's analysis of potential impairments in the periods shown did not identify other than temporary declines. Equity securities (common stocks) represent 0.1% of invested assets and individual common stock holdings have an average cost basis of approximately $43,000.

Benefits and Expenses. The following table details benefits and expenses.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Life and other policy benefits	$	33,431	33,657	67,065	61,846
Amortization of deferred policy acquisition costs and value of business acquired	31,100		31,411	61,137	63,575
Universal life and annuity contract interest	61,772		60,139	33,746	141,055
Other operating expenses	29,154		25,334	48,976	51,383

Totals	$	155,457	150,541	210,924	317,859

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Life and other policy benefits $ 21,015
17,430
58,626
48,571
Amortization of deferred policy acquisition costs 18,722
24,395
85,992
88,581
Universal life and annuity contract interest 107,799
67,776
299,862
179,592
Other operating expenses 22,596
23,595
74,031
66,306

Totals $ 170,132
133,196
518,511
383,050

Life and other policy benefits - Death claim benefits, the largest component of policy benefits, ~~increased to $33.3~~were $30.2 million in the first ~~nine~~six months of ~~2017~~2020 compared to ~~$25.9~~$30.8 million for the first ~~nine~~six months of ~~2016. For~~2019. Of the ~~three~~amount included in the six months ended ~~September~~June 30, ~~2017~~2020, $14.3 million was associated with National Western business and ~~2016, death claim benefits~~$15.9 million pertained to Ozark National. In the six months of 2019, these amounts were ~~$12.3~~$15.9 million and ~~$8.0~~$14.9 million for National Western and Ozark National, respectively. Death claim amounts are ~~generally~~ subject to variation from period to period. For the first ~~nine~~six months of ~~2017,~~2020, the number of National Western life insurance claims ~~declined 8%~~increased 21% from the comparable period in ~~2016. However,~~2019 while the ~~distribution~~average dollar amount per net claim decreased to $36,000 from approximately $44,000. The increase in number of claims reflects additional claims reported through National Western's periodic search of the Social Security Administration's Master Death Claim database which was ~~skewed toward higher dollar policies within~~conducted in the ~~company's net retention limit~~first quarter of ~~$500,000 per life resulting in a higher average dollar per claim. The company's~~2020. National Western's overall mortality experience has generally been consistent with or better than its product pricing assumptions. The average net claim for Ozark National during the 2020 and 2019 six-month periods was $14,700 and $16,500, respectively. Mortality exposure is managed through reinsurance treaties under which National Western's retained maximum net amount at risk on any one life is capped at $500,000. Ozark National's retained maximum net amount at risk is capped at $200,000 under its reinsurance treaties with limited exceptions related to the conversion of child protection and guaranteed insurability riders.

Both National Western and Ozark National have established specific coding to track the death claim experience associated with COVID-19. During the six months ended June 30, 2020, National Western had incurred 19 death claims on life insurance policies in which the reported cause of death was due to the coronavirus (COVID-19) totaling a net claim amount (after reinsurance) of $906,000. During the same period, Ozark National incurred 18 confirmed COVID-19 death claims aggregating to a net claim amount of $189,000. The COVID-19 claim activity is included in the claim disclosures made in the preceding paragraph.

Life and other policy benefits also includes ~~reserve changes~~policy liabilities held associated with the ~~company's~~Company's traditional life products, including riders such as the guaranteed minimum withdrawal benefit rider ~~(WBR)~~("WBR"), a popular rider to ~~its~~National Western's equity-indexed annuity products. ~~During the second quarter of 2016, as part of the unlocking of deferred policy acquisition costs, the company recorded a prospective unlocking adjustment which reduced WBR reserves by $3.1~~The increases in these liabilities for National Western were $9.9 million and ~~decreased life~~$8.9 million in the quarters ended June 30, 2020 and 2019, respectively, and $19.7 million and $18.3 million, respectively, for the six months then ended.

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Life and other policy benefits ~~by a like amount~~in the quarters ended June 30, 2020 and 2019 includes changes in traditional life reserves and miscellaneous benefit payments associated with Ozark National's operations of $8.5 million and $7.6 million, respectively, and $17.0 million and $12.8 million, respectively, for the ~~nine~~six months ~~ended September 30, 2016.~~then ended. The amounts for the first six months of 2019 reflect activity subsequent to the acquisition date of January 31, 2019.

Amortization of deferred policy acquisition costs and value of business acquired - Life insurance companies are required to defer certain expenses that vary with, and are primarily related to, the cost of acquiring new business. The majority of these acquisition expenses consist of commissions paid to agents, underwriting costs, and certain marketing expenses. Recognition of these deferred policy acquisition costs (“DPAC”) as an expense in the Condensed Consolidated Financial Statements occurs over future periods in relation to the expected emergence of profits priced into the products sold. This emergence of profits is based upon assumptions regarding premium payment patterns, mortality, persistency, investment performance, and expense patterns. Companies are required to review universal life and annuity contract assumptions periodically to ascertain whether actual experience has deviated significantly from that assumed. If it is determined that a significant deviation has occurred, the emergence of profits pattern is to be "unlocked" and reset based upon ~~the~~ actual experience. DPAC balances are also adjusted each period to reflect current policy lapse or termination rates, expense levels and credited rates on policies compared to anticipated experience (“true-up”) with the adjustment reflected in current period amortization expense. In accordance with GAAP guidance, the Company must also write-off deferred acquisition costs and unearned revenue liabilities upon internal replacement of certain contracts as well as annuitizations of deferred annuities.

The following table identifies the effects of unlocking adjustments on DPAC balances recorded through amortization expense separate from recurring amortization expense components for the three and ~~nine~~six months ended~~September~~ June 30, ~~2017~~2020 and ~~2016~~.2019.


Amortization of DPAC	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Unlocking adjustments	$	—	—	—	—
Other amortization components	29,493		29,127	57,336	59,668

Totals	$	29,493	29,127	57,336	59,668

Amortization of DPAC Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Unlocking adjustments $ (12,935 ) (8,170 ) (11,856 ) (11,790 )
Other amortization components 31,657
32,565
97,848
100,371

Totals $ 18,722
24,395
85,992
88,581

~~During~~The amortization amount for the ~~quarter ended September 30, 2017, the company unlocked the DPAC balances associated with its International Life insurance~~three and Annuity segments the effect of which was to increase DPAC balances by $12.9 million (and reduce amortization expense). The International Life insurance DPAC balance was unlocked for favorable mortality, lower than expected lapses from disengaged countries, and the implementation of an interest crediting clawback on certain universal life policies. The Annuity DPAC balance was unlocked for crediting rate spreads and surrender/annuitization assumptions. Earlier in 2017, the company unlocked the interest crediting rate spread on three of its equity-indexed universal life products in its Domestic and International life insurance segments during the second quarter of 2017. The effect of the prospective unlocking was to decrease the DPAC balance by $1.1 million with a corresponding increase to amortization expense.

~~In the quarter and nine~~six months ended ~~September~~June 30, ~~2016, the company unlocked the~~2020 was comprised of DPAC ~~balance associated with its Domestic Life insurance segment for favorable mortality. The effect~~amortization by National Western of ~~the prospective unlocking was to increase DPAC balances~~$29.4 million and $57.0 million, respectively, and by ~~$8.2~~Ozark National of $0.1 million (and decrease amortization expense). During the second quarter of 2016, the company unlocked the DPAC balance associated with its International Life insurance segment for favorable mortality, increased cost of insurance charges that had been implemented, and higher lapse assumptions for policies associated with residents in "disengaged countries" (countries which the company ceased accepting applications from residents during 2015). The effect of the prospective unlocking was to increase DPAC balances by $7.3$0.3 million, (and decrease amortization expense). At the same time, the company also unlocked the DPAC balance for its Annuity segment for surrender and annuitization rates on its indexed, single tier, and two tier annuities. The effect of this prospective unlocking was to decrease DPAC balances by $3.7 million (and increase amortization expense). Accordingly, the net effect during the second quarter of 2016 for the unlockings was a $3.6 million increase to the DPAC balance and decrease to amortization expense.

~~The Company is required to evaluate its emergence of profits continually and management believes that the current amortization patterns of~~respectively. Ozark National's deferred policy acquisition ~~costs, incorporating these unlocking adjustments, are reflective of actual experience. It is the company's intent going forward to annually perform any necessary DPAC~~cost balance ~~unlockings in the third calendar quarter of the year.~~was initiated February 1, 2019 following its acquisition by National Western.

As the DPAC balance is an asset on the Company's Condensed Consolidated Balance ~~Sheet, generally accepted accounting principles (GAAP) provide~~Sheets, GAAP provides for an earned interest return on the unamortized balance each period. The earned interest serves to increase the DPAC balance and reduce other amortization component expense. The rate at which the DPAC balance earns interest is the average credited interest rate on the ~~company's~~Company's universal life and annuity policies in force, including credited interest on ~~equity-index~~equity-indexed policies. ~~During the three and nine months ended September 30, 2017 the company's crediting rates have increased compared to comparable prior year periods due to higher equity-index credits and the~~The amount of earned interest on DPAC balances ~~has therefore increased serving to offset~~recorded for the three months ended June 30, 2020 and 2019 was $2.4 million and $3.8 million, respectively, decreasing other amortization component expense. The amount of interest earned on DPAC balances for the six months ended June 30, 2020 and 2019 was $10.6 million and $5.6 million, respectively. The increased interest amount in the first six months of 2020 reflects higher returns on equity-index products, particularly life insurance products..

The Company is required to evaluate its emergence of profits continually and management believes that the current amortization patterns of deferred policy acquisition costs are reflective of actual experience. It is the Company's practice, absent intervening events or experience, to annually perform any necessary DPAC balance unlockings in the third calendar quarter of each year.

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As part of the purchase accounting required with the acquisition of Ozark National effective January 31, 2019, the Company recorded an intangible asset of $145.8 million referred to as the value of business acquired ("VOBA"). VOBA represents the difference between the acquired assets and liabilities of Ozark National measured in accordance with the Company's accounting policies and the fair value of these same assets and liabilities. The VOBA balance sheet amount is amortized following a methodology similar to that used for amortizing deferred policy acquisition costs. In the quarters ended June 30, 2020 and 2019, the Company's VOBA amortization expense was $1.6 million and $2.3 million, respectively, and $3.8 million and $3.9 million, respectively, for the six months then ended. The amount for the first six months of 2019 reflects five months of amortization subsequent to the acquisition date of January 31, 2019.

Universal life and annuity contract interest - The ~~company~~Company closely monitors its credited interest rates on interest sensitive policies (National Western products), taking into consideration such factors as profitability goals, policyholder benefits, product marketability, and economic market conditions. As long term interest rates change, the ~~company's~~Company's credited interest rates are often adjusted accordingly, taking into consideration the factors described above. The difference between yields earned on investments over policy credited rates is often referred to as the "interest spread".

~~The company's~~National Western's approximated average credited rates through the first ~~nine~~six months, excluding and including ~~fixed-index (derivative)~~equity-indexed products, were as follows:


	June 30,						June 30,
	2020		2019		2020		2019
	(Excluding fixed-index products)						(Including fixed-index products)

Annuity	1.94	%	1.94	%	0.88	%	2.11	%
Interest sensitive life	3.37	%	3.37	%	0.27	%	6.68	%

September 30, September 30,
2017 2016 2017 2016
(Excluding fixed-index products) (Including fixed-index products)

Annuity 2.20 % 2.32 % 3.57 % 1.94 %
Interest sensitive life 3.42 % 3.62 % 6.83 % 3.90 %

Contract interest reported in ~~the~~ financial statements also encompasses the performance of the index options associated with the ~~company's~~Company's fixed-index products. As previously noted, the market value changes of these derivative features resulted in net realized and unrealized gains/(losses) of ~~$138.6~~$(66.4) million and ~~$8.3~~$59.8 million ~~being included in net investment income~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. These ~~positive~~amounts consisted of realized gains of $26.8 million and unrealized losses of $(93.2) million for the year-to-date 2020 period, and realized losses of $(23.1) million and unrealized gains of $82.9 million for the comparable 2019 time frame. In the second quarter of 2020, this figure was comprised of realized losses of $(4.7) million and unrealized gains of $45.0 million. In the second quarter of 2019, the amount was made up of realized losses of $(3.9) million and unrealized gains of $21.8 million. These returns similarly ~~increase~~increased/(decreased) the computed average credited rates for the periods shown above. Policyholders of equity-indexed products cannot receive an interest credit below 0% according to the policy contract terms.

Contract interest expense includes other items which may increase or decrease reported contract interest in a particular reporting period. For the three and six months ended June 30, 2020 and 2019, these other items include the amounts shown in the table below.


Contract Interest Expense	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Reserve changes	$	6,613	6,621	12,352	15,206
Unlocking adjustments	(12,125)		—	(12,125)	—
Asset management fees collected	(7,791)		(5,948)	(17,942)	(7,567)
Projected asset management fees	(3,682)		(4,672)	25,635	(20,328)
Other embedded derivative components	(1,276)		1,776	4,848	5,869

Totals	$	(18,261)	(2,223)	12,768	(6,820)

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Contract interest expense includes reserve changes for immediate annuities, two tier annuities, excess death benefit reserves, excess annuitizations, and amortization of deferred sales inducement balances. These items are offset by policy charges assessed for policies having the withdrawal benefit rider (WBR). As changes in these items collectively impact contract interest expense, financial statement interest spread is also affected. Included in the reserve changes for the first six months of 2020 is $11.8 million for assessed WBR policy charges compared to $11.1 million in the same period for 2019.

Generally, the impact of the market value change of index options on asset values aligns closely with the movement of the embedded derivative liability held for the ~~company's~~Company's fixed-index products such that the net effect upon pretax earnings is negligible (i.e. net realized and unrealized gains/(losses) included in net investment income approximate the change in contract interest associated with the corresponding embedded derivative liability change). However, other aspects of the embedded derivatives can cause deviations to occur between the change in index option asset values included in net investment income and the change in the embedded derivative liability included in contract interest. ~~Many~~As noted in the discussion of ~~the company's fixed-index products provide for~~net investment income, the collection of asset management ~~fees. These~~ fees ~~are~~in a period can cause investment income to increase marginally higher than contract interest expense since these collected ~~when realized gains on index options occur and~~fees are deducted from indexed interest credited to policyholders. ~~During the three months ended September 30, 2017 and 2016,~~The increase in collected asset management fees ~~collected were $7.5 million~~for the three and ~~$2.5 million, respectively. These collected fees serve to enhance the company's interest spread. For the nine~~six months ended ~~September~~June 30, ~~2017 and 2016, asset management fees collected were $24.3 million and $3.5 million, respectively.~~2020 relative to their comparable periods in 2019 reflects the level of realized option gains incurred during these periods.

Accounting rules require the embedded derivative liability to include a projection of asset management fees estimated to be collected in the ~~next~~succeeding fiscal year. ~~The change~~This projection is based upon the most recent performance of the reference equity index. Increases in ~~this projection, plus or minus, is included in~~projected asset management fees collected reduce contract interest ~~for the period being reported on.~~expense while decreases in projected asset management fees collected increase contract interest expense. In the ~~three~~six month ~~periods~~period ended ~~September~~June 30, ~~2017 and 2016,~~2020 contract interest was increased ~~$1.5~~by $25.6 million for the projected decrease in asset management fees to be collected.

Other embedded derivative components include changes pertaining to other modeling differences, changes in future interest adjustments, and ~~decreased $(5.9) million, respectively, for these projection changes.~~the change in the host contract component of the embedded derivative products. In the ~~nine month periods ended September 30, 2017 and 2016,~~first quarter of 2020, the Company incurred an additional charge to contract interest pertaining to an assumption regarding the embedded derivative option budget which was ~~increased $5.0 million~~made several years ago when the Company's investment portfolio yield was higher. The combination of the embedded derivative option budget being out of date relative to the Company's current investment portfolio yield and ~~decreased $(11.9) million, respectively,~~the historically low interest rate levels introduced an embedded derivative floor which prevented the Company's contract interest expense from declining in tandem with the option value decreases recorded in net investment income. The additional contract interest charge in the quarter ended March 31, 2020 for this ~~occurrence.~~occurrence was $12.1 million. In the quarter ended June 30, 2020, the Company unlocked for this out of date embedded derivative option budget assumption to reflect the Company's current investment portfolio yield. This unlocking had the effect of removing the embedded derivative floor and reversing the $12.1 million contract interest charge recorded in the first quarter of 2020. This amount is included in the three and six month other embedded derivative component figures for the June 30, 2020 periods.

~~Contract~~Another contract interest expense ~~also includes reserve changes for immediate annuities, two tier annuities, excess death benefit reserves, excess annuitization, and~~component is the amortization of deferred sales inducement balances. These expense items are offset by policy charges assessed for policies with the withdrawal benefit rider. Collectively, the changes in these items also impact contract interest expense and the financial statement interest spread. For the three and nine month periods ended September 30, 2017, the changes in these items increased financial statement interest spread by $1.5 million and $6.0 million, respectively, relative to the comparable periods in 2016.

inducements. Similar to deferred policy acquisition costs, the ~~company~~Company defers sales inducements in the form of first year credited interest bonuses on annuity products that are directly related to the production of new business. These bonus interest charges are deferred and amortized using the same methodology and assumptions used to amortize other capitalized acquisition costs and the amortization is included in contract interest. In addition, deferred sales inducement balances are also reviewed periodically to ascertain whether actual experience has deviated significantly from that assumed (unlock) and are adjusted to reflect current policy lapse or termination rates, expense levels and credited rates on policies compared to anticipated experience (true-up). These adjustments, plus or minus, are included in contract interest expense.

~~As part of the DPAC~~ No unlocking ~~discussed previously for the Annuity segment, the company also unlocked its deferred sales inducement balance~~adjustments were recorded during the three and ~~nine months~~six month periods ended ~~September~~June 30, 2017 which decreased the deferred sales inducement balance by $4.3 million (and increased contract interest expense). During the nine months ended September 30, 2016, the company also unlocked its deferred sales inducement balance associated with its annuity segment for surrender and annuitization rate changes with the effect2020 or 2019.

Table of ~~this prospective unlocking decreasing the deferred sales inducement balance by $1.7 million (and increasing contract interest expense).~~Contents

As part of these unlockings in 2017 and 2016, in addition to the changes in the DPAC and deferred sales inducement balances, net benefit reserves for the international universal life and deferred annuities (two tier) product lines were increased. The net amount of the reserve increase from these adjustments were $9.0 million and $5.8 million in the nine months ended September 30, 2017 and 2016, respectively. These reserve changes increased the contract interest charge for each period. For the three months ended September 30, 2017 and 2016, the reserve changes from these adjustments were $9.4 million and $(0.3) million, respectively.

Other operating expenses - Other operating expenses consist of general administrative expenses, licenses and fees, commissions not subject to deferral, nursing home expenses, real estate expenses, brokerage expenses, and compensation costs. These expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are summarized in the table that follows.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

General insurance expenses	$	10,436	9,581	21,118	22,689
Nursing home expenses	10		666	41	3,240
Compensation expenses	10,527		7,033	12,226	11,992
Commission expenses	2,640		2,718	5,575	4,373
Real estate expenses	1,475		1,265	2,939	2,510
Brokerage expenses (NIS)	1,204		1,184	2,373	1,912
Taxes, licenses and fees	2,862		2,887	4,704	4,667

Totals	$	29,154	25,334	48,976	51,383

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

General insurance expenses $ 6,497
7,661
23,782
25,447
Nursing home expenses 4,135
4,531
12,622
13,650
Compensation expenses 7,140
6,909
22,203
14,063
Commission expenses 2,854
3,043
8,149
8,480
Taxes, licenses and fees 1,970
1,451
7,275
4,666

Totals $ 22,596
23,595
74,031
66,306

For the six months ended June 30, 2019, general insurance expenses include a $3.3 million broker fee paid in connection with the acquisition of Ozark National and NIS which closed during this period. GAAP precludes this fee from being part of the purchase price for acquiring these businesses. General insurance expenses include ~~provisions for litigation~~software amortization expense associated with National Western's proprietary policy administration system which was phased into production over the past few years as well as other acquired software. Expenses pertaining to these items were $3.1 million and ~~other settlement payments made in lieu of litigation. As discussed~~$3.2 million in the ~~Legal Proceedings section~~second quarter of 2020 and 2019, respectively, and $6.1 million and $6.1 million in the ~~footnotes~~first half of 2020 and 2019, respectively. This category of expenses also includes employee benefit plan expenses for the various employee health and retirement plans the Company sponsors. Related expenses for the second quarter of 2020 and 2019 were $3.2 million and $2.1 million, respectively, and for the first half of 2020 and 2019 were $6.6 million and $4.0 million. Refer to Note (5) Pension and Other Postretirement Plans in the accompanying Notes to Condensed Consolidated Financial Statements in this report for discussion of the ~~Company charged $2.9 million against earnings in~~financial statement expenses of the ~~first quarter~~Company's defined benefit pension plans.

Nursing home expenses reflect the operations of ~~2016 related to litigation involving an annuity contract matter in Puerto Rico. In aggregate, general insurance expenses for~~ the ~~nine months ended September 30, 2017 are slightly higher than~~Company's two nursing home operations which were sold during 2019. The Reno, Nevada nursing home was sold effective February 1, 2019 while the ~~prior year period (excluding this litigation charge) due to increases in 2017 for real estate expense from the new~~San Marcos, Texas nursing home ~~office building acquired in December 2016, incremental amortization from the company's deployment of its proprietary policy administration system, and employee benefit plan liability increases.~~sale closed effective May 1, 2019.

Compensation expenses include share-based compensation costs related to outstanding vested and nonvested stock ~~options and SARs,~~appreciation rights ("SARs"), restricted stock units ~~(RSUs)~~("RSUs") and performance share units ~~(PSUs)~~("PSUs"). The related share-based compensation costs move in tandem not only with the number of awards outstanding but also with the movement in the market price of the Company's Class A common stock as a result of marking the ~~stock options,~~ SARs, RSUs, and ~~RSUs~~PSUs to fair value under the liability method of accounting. Consequently, the related expense amount varies positive or negative in any given period. In the amounts shown above, share-based compensation expense totaled $2.4 million in the second quarter of 2020 and $0.1 million in the second quarter of 2019. For the six-month periods shown, share-based compensation expense was $(3.8) million in 2020 and $(1.4) million in 2019. The negative expense levels reflect a change in the Company's Class A common share price ~~increased~~ from ~~$205.37~~$290.88 at ~~September~~December 31, 2019 to $203.19 at June 30, ~~2016~~2020, and from $300.70 at December 31, 2018 to ~~$310.80~~$257.00 at ~~the end of 2016. During~~June 30, 2019. No performance share awards were granted in the first ~~nine~~six months of ~~2017, the Company's closing stock price further increased to $349.00 at September 30, 2017. For the three months ended September 30, 2017 share-based~~2020 and 2019. Ozark National compensation ~~expense was $1.3~~expenses were $0.9 million ~~while for the comparable period in 2016 share-based compensation expense was $1.7 million. For the nine months ended September 30, 2017 share-based compensation was $5.6 million versus $(1.1)~~and $0.6 million in the ~~same period for 2016.~~second quarter of 2020 and 2019, respectively, and $1.7 million and $1.0 million in the six months ended June 30, 2020 and 2019, respectively.

Real estate expenses pertain to the commercial building operated by Braker P III. Expense increases in the 2020 periods relative to comparable 2019 periods reflect the addition of new tenants.

Taxes, licenses and fees include premium taxes and licensing fees paid to state insurance departments, guaranty fund assessments, the company portion of social security and Medicare taxes, real estate taxes, state income taxes, and other state and municipal taxes. State income taxes are generally determined by apportioning the company's federal taxable income based upon premiums generated from a particular state as a percentage of total premiums. Federal taxable income is principally derived from the company's statutory financial results. Through

NIS brokerage expense in the first ~~nine~~six months of ~~2017,~~2019 reflects the ~~company's statutory earnings are significantly higher causing estimated state income tax payments~~activity subsequent to ~~be correspondingly higher. In the nine months ended September 30, 2017 and 2016, taxes, licenses and fees include state income tax expense~~its acquisition effective January 31, 2019.

Table of $1.9 million and $0.4 million, respectively. In addition, included in the nine months ended September 30, 2017, is $0.8 million for real estate tax expense pertaining to the new home office facility acquired in December of 2016.Contents

Federal Income Taxes. Federal income taxes on earnings from operations reflect an effective tax rate of ~~34.5%~~19.5%for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~32.7%~~20.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The Federal corporate tax rate decreased to 21% effective in 2018 under the Tax Cuts and Jobs Act ("Tax Act") passed in December 2017. The Company's effective tax rate is typically lower than the Federal statutory rate ~~of 35%~~ due to tax-exempt investment income related to municipal securities and dividends-received deductions on income from ~~stocks.~~stocks, absent other permanent tax items.

While the Company's overall effective tax rate remains close to the statutory rate level, the Company's current tax expense is elevated due to a provision of the Tax Act which imposed a limitation on the amount of tax reserves a life insurer is able to deduct in arriving at its taxable income. The limitation is the greater of net surrender value or 92.81% of the reserve method prescribed by the National Association of Insurance Commissioners. Implementation of this provision was required as of January 1, 2018 and the Company ultimately determined that the resultant tax reserve adjustment was a decrease of $332.9 million. The Tax Act provided that this tax reserve adjustment could be brought into taxable income ratably over a period of eight (8) years. Based upon the tax reserve adjustment derived, the effect of the Tax Act limiting the tax reserve deductible in the current tax computation serves to increase the Company's taxable income by approximately $41.6 million per year through 2025. At the Federal statutory rate of 21%, the impact upon current tax expense is an increase of approximately $8.7 million per year or approximately $2.2 million each quarter.

Segment Operations

Summary of Segment Earnings

A summary of segment ~~earnings~~earnings/(losses) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 is provided below. The segment ~~earnings~~earnings/(losses) exclude realized gains and losses on investments, net of taxes.


	Domestic Life Insurance		International Life Insurance	Annuities	Acquired Businesses	All Others	Totals
	(In thousands)

Segment earnings (losses):
Three months ended:
June 30, 2020	$	1,120	8,737	22,137	3,596	10,354	45,944
June 30, 2019	$	494	9,307	14,521	3,831	5,879	34,032

Six months ended:
June 30, 2020	$	1,754	18,212	4,160	8,483	8,520	41,129
June 30, 2019	$	1,621	20,487	31,536	6,794	10,135	70,573

Domestic
Life
Insurance

International
Life
Insurance
Annuities
All
Others
Totals
(In thousands)

Segment earnings (losses):
Three months ended:
September 30, 2017 $ 2,037
28,992
(13,718 ) 3,154
20,465
September 30, 2016 $ 3,492
9,936
13,661
3,120
30,209

Nine months ended:
September 30, 2017 $ 1,409
47,850
1,153
13,333
63,745
September 30, 2016 $ 3,811
41,548
14,160
10,878
70,397

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Domestic Life Insurance Operations

A comparative analysis of results of operations for the Company's domestic life insurance segment is detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Premiums and other revenues:
Premiums and contract revenues	$	12,009	10,706	23,237	21,510
Net investment income (loss)	21,475		14,995	2,092	38,494
Other revenues	1		20	30	64

Total premiums and other revenues	33,485		25,721	25,359	60,068

Benefits and expenses:
Life and other policy benefits	4,169		3,829	10,046	7,751
Amortization of deferred policy acquisition costs	3,209		3,307	5,782	6,717
Universal life insurance contract interest	19,172		12,985	(2,521)	34,426
Other operating expenses	5,643		5,017	9,938	9,140

Total benefits and expenses	32,193		25,138	23,245	58,034

Segment earnings (loss) before Federal income taxes	1,292		583	2,114	2,034
Provision (benefit) for Federal income taxes	172		89	360	413

Segment earnings (loss)	$	1,120	494	1,754	1,621

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Premiums and contract revenues:
Premiums and contract charges $ 9,907
8,507
27,822
24,814
Net investment income 17,385
12,294
51,998
28,011
Other revenues 11
7
30
37

Total revenues 27,303
20,808
79,850
52,862

Benefits and expenses:

Life and other policy benefits 3,483
5,338
13,850
13,629
Amortization of deferred policy acquisition costs 2,517
(4,331 ) 8,300
989
Universal life insurance contract interest 14,119
9,795
41,576
20,855
Other operating expenses 4,086
4,847
13,975
11,745

Total benefits and expenses 24,205
15,649
77,701
47,218

Segment earnings (loss) before Federal income taxes 3,098
5,159
2,149
5,644
Provision (benefit) for Federal income taxes 1,061
1,667
740
1,833

Segment earnings (loss) $ 2,037
3,492
1,409
3,811

Revenues from domestic life insurance operations include life insurance premiums on traditional type products and contract revenues from universal life insurance. Revenues from traditional products are simply premiums collected, while revenues from universal life insurance consist of policy charges for the cost of insurance, policy administration fees, and surrender charges assessed during the period. A comparative detail of premiums and contract revenues is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Universal life insurance revenues	$	14,082	12,654	26,687	24,797
Traditional life insurance premiums	618		811	1,896	2,143
Reinsurance premiums	(2,691)		(2,759)	(5,346)	(5,430)

Totals	$	12,009	10,706	23,237	21,510

Table of Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Universal life insurance revenues $ 10,373
9,384
30,656
26,909
Traditional life insurance premiums 1,793
1,161
3,761
3,825
Reinsurance premiums (2,259 ) (2,038 ) (6,595 ) (5,920 )

Totals $ 9,907
8,507
27,822
24,814

~~The company's~~National Western's domestic life insurance in force, in terms of policy count, has been declining for some time. The pace of new policies issued has lagged the number of policies terminated from death or surrender ~~by roughly a two-to-one rate over the past several years~~ causing a declining level of ~~insurance~~policies in force from which contract ~~charge~~ revenue is received. Consequently, the number of domestic life insurance policies in force has declined from ~~54,300~~49,000 at December 31, ~~2015~~2018 to ~~51,600~~47,900 at December 31, ~~2016,~~2019, and to ~~50,500~~47,000 at ~~September~~June 30, ~~2017~~.2020. Policy lapse rates in the first six months of 2020 approximated 7.0% compared to 6.2% and 6.5% in 2019 and 2018, respectively. The higher lapse rate in the first six months of 2020 is indicative of the pandemic induced economic crisis which has caused consumers to access available sources of liquidity. While policy count rates have declined, the face amount of life insurance in force has increased from $3.2 billion at December 31, 2018 to less than $3.4 billion at December 31, 2019 and to more than $3.4 billion at June 30, 2020.

Universal life insurance revenues are also generated with the issuance of new business based upon amounts per application and percentages of the face amount (volume) of insurance issued. The number of domestic life policies issued in the first ~~nine~~six months of ~~2017~~2020 was ~~10% higher~~5% lower than in the comparable period for ~~2016~~2019 and the volume of insurance issued was ~~8% more than~~level with that in ~~2016.~~ 2019.

Universal life insurance revenues also include surrender charge income realized on terminating policies and, in the case of domestic universal life, amortization into income of the premium load on single premium policies which is deferred. The net premium load amortization was $3.3 million and $4.4 million in the ~~company began deferring~~six months ended June 30, 2020 and 2019, respectively. The lower net amortization amount in ~~2013.~~2020 is due to higher premium loads being currently deferred as a result of increased sales activity of single premium products.

Premiums collected on universal life products are not reflected as revenues in the Company's Condensed Consolidated Statements of Earnings (Loss) in accordance with GAAP. Actual domestic universal life premiums collected are detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Universal life insurance:
First year and single premiums	$	37,190	40,224	84,861	75,552
Renewal premiums	4,052		4,479	8,390	9,012

Totals	$	41,242	44,703	93,251	84,564

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Universal life insurance:
First year and single premiums $ 30,170
30,373
92,495
85,915
Renewal premiums 5,166
5,135
15,297
15,481

Totals $ 35,336
35,508
107,792
101,396

During the past ~~couple of~~several years, ~~the company has achieved some success in growing its domestic life insurance business. Sales~~sales have been substantially weighted toward single premium policies which do not have much in the way of recurring premium payments. These products are targeting wealth transfer strategies involving the movement of accumulated wealth in alternative investment vehicles, including annuities, into life insurance products. As a result, renewal premium levels have not been exhibiting a corresponding level of increase.

Net investment income for this segment of business, excluding derivative gain/~~(losses)~~(loss), has been gradually increasing due to the increased new business activity described above (single premium policies) and a higher level of investments needed to support the corresponding growth in policy obligations, especially those for single premium policies. The increase in net investment income has been partially muted by lower investment yields from debt security investment purchases during this time frame. Net investment income also includes the gains and losses on index options purchased to back the index crediting mechanism on fixed-index universal products.

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A detail of net investment income (loss) for domestic life insurance operations is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Net investment income (excluding derivatives)	$	11,373	10,930	22,280	21,523
Derivative gain (loss)	10,102		4,065	(20,188)	16,971

Net investment income (loss)	$	21,475	14,995	2,092	38,494

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Net investment income (excluding derivatives) $ 9,353
8,329
27,675
25,093
Derivative gain (loss) 8,032
3,965
24,323
2,918

Net investment income $ 17,385
12,294
51,998
28,011

As seen in the above table, reported net investment income (loss) includes the gains and losses on index options purchased to back the index crediting mechanism on fixed-index universal products. The gain or loss on index options follows the movement of the S&P 500 Index (the primary index for the Company's fixed-index products) with realized gains or losses being recognized on the anniversary of each index option based upon the S&P 500 Index level at each expiration date relative to the index level at the time the index option was purchased, and unrealized gains and losses being recorded for index options outstanding based upon the S&P 500 Index at the balance sheet reporting date as compared to the index level at the time each respective option was purchased.

Life and policy benefits for a smaller block of business are subject to variation from ~~quarter~~period to ~~quarter.~~period. Claim count activity during the first ~~nine~~six months of ~~2017 was in line with historical trends and was slightly lower compared to the same period for 2016. The number of incurred claims during the first nine months of 2017 decreased 10%~~2020 increased 20% compared to the first ~~nine~~six months of ~~2016~~2019 while the average net claim amount (after reinsurance) decreased to $25,900 from $31,900. The increased ~~to $27,000 from $24,000.~~amount of claims is the result of the Company performing a search during the 1st quarter of 2020 of the Social Security Administration's Master Death data base for unreported death claims. The low face amount per claim relative to current issued amounts of insurance per policy reflects the older block of domestic life insurance policies sold which were final expense type products (i.e. purchased to cover funeral costs). ~~The increase~~Claims on these older blocks of the policies are those most susceptible to not being reported timely to the Company. GAAP reporting requires that claims be recorded net of any cash value amounts that have been accumulated in the ~~average net claim amount reflects claims from more recent policy sales (single premium wealth transfer products) which have much higher face amounts of insurance coverage per policy.~~policies. The ~~company's~~Company's overall mortality experience for this segment has been ~~better than~~consistent with pricing assumptions.

As noted previously in the discussion of Results of Operations, the ~~company~~Company records true-up adjustments to DPAC balances each period to reflect current policy lapse or termination rates, expense levels and credited rates on policies as compared to anticipated experience with the adjustment reflected in current period amortization expense. To the extent required, ~~the company~~unlocking adjustments may also ~~record unlocking adjustments~~be recorded to DPAC balances. The following table identifies the effects of unlocking adjustments on domestic life insurance DPAC balances recorded through amortization expense separate from recurring amortization expense components for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019.


Amortization of DPAC	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Unlocking adjustments	$	—	—	—	—
Other amortization components	3,209		3,307	5,782	6,717

Totals	$	3,209	3,307	5,782	6,717

Amortization of DPAC Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Unlocking adjustments $ —
(8,170 ) 795
(8,170 )
Other amortization components 2,517
3,839
7,505
9,159

Totals $ 2,517
(4,331 ) 8,300
989

~~The company unlocked~~In the Consolidated Operations discussion of amortization of deferred acquisition costs it was noted that interest earned on DPAC balances serves to offset (decrease) amortization expense and that the interest rate used is the crediting rate ~~spread~~experience during the period. The decrease in amortization expense in 2020 relative to 2019 reflects higher interest earned on ~~two of its equity-indexed~~ universal life ~~products during~~DPAC balances due to increased crediting rates resulting from greater realized gains from index options.

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Contract interest expense includes the ~~first nine months of 2017. The effect~~fluctuations that are the result of the ~~prospective unlocking was to decrease~~effect upon the ~~DPAC balance by $(0.8) million~~embedded derivative for the performance of underlying equity indices associated with ~~a corresponding increase to amortization expense. In~~fixed-index universal life products. For liability purposes, the ~~three and nine months ended September 30, 2016,~~embedded option in the ~~company unlocked its DPAC balance~~Company's policyholder obligations for this ~~segment~~feature is bifurcated and reserved for ~~favorable mortality. The effect of~~separately. Accordingly, the ~~prospective unlocking was to increase DPAC balances by $8.2 million (and decrease amortization expense).~~impact for the embedded derivative component in the equity-index universal life product is reflected in contract interest expense for approximately the same amounts as in net investment income for each respective period.

International Life Insurance Operations

National Western's international life operations have been a significant factor in the company's overall earnings performance and represents a niche where the company believes it has had a competitive advantage historically. A stable population of distribution relationships has been developed over decades of operations providing the company with a consistent foundation for development of the block of business.

A comparative analysis of results of operations for the ~~company's~~Company's international life insurance segment is detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Premiums and other revenues:
Premiums and contract revenues	$	23,061	23,777	45,928	49,840
Net investment income (loss)	11,153		9,276	2,153	23,293
Other revenues (loss)	(6)		33	48	54

Total premiums and other revenues	34,208		33,086	48,129	73,187

Benefits and expenses:
Life and other policy benefits	3,684		2,959	7,015	5,121
Amortization of deferred policy acquisition costs	6,844		6,948	12,896	14,242
Universal life insurance contract interest	9,492		7,337	(1,345)	19,330
Other operating expenses	4,517		4,521	7,613	8,785

Total benefits and expenses	24,537		21,765	26,179	47,478

Segment earnings (losses) before Federal income taxes	9,671		11,321	21,950	25,709
Provision (benefit) for Federal income taxes	934		2,014	3,738	5,222

Segment earnings (loss)	$	8,737	9,307	18,212	20,487

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Premiums and other revenues:
Premiums and contract revenues $ 30,353
31,066
91,563
95,291
Net investment income 15,711
12,763
48,581
30,203
Other revenues 26
10
73
50

Total revenues 46,090
43,839
140,217
125,544

Benefits and expenses:

Life and other policy benefits 8,437
5,038
19,399
14,789
Amortization of deferred policy acquisition costs (21,585 ) 7,296
(7,874 ) 11,720
Universal life insurance and annuity contract interest 9,112
11,287
36,871
19,643
Other operating expenses 5,661
6,691
18,846
17,867

Total benefits and expenses 1,625
30,312
67,242
64,019

Segment earnings (losses) before Federal income taxes 44,465
13,527
72,975
61,525
Provision (benefit) for Federal income taxes 15,473
3,591
25,125
19,977

Segment earnings (loss) $ 28,992
9,936
47,850
41,548

As with domestic life operations, revenues from the international life insurance segment include both premiums on traditional type products and contract revenues from universal life insurance. A comparative detail of premiums and contract revenues is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Universal life insurance revenues	$	22,007	22,865	44,476	48,220
Traditional life insurance premiums	2,283		2,620	4,444	5,070
Reinsurance premiums	(1,229)		(1,708)	(2,992)	(3,450)

Totals	$	23,061	23,777	45,928	49,840

Table of Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Universal life insurance revenues $ 28,190
29,687
87,134
91,359
Traditional life insurance premiums 3,494
3,470
9,879
9,896
Reinsurance premiums (1,331 ) (2,091 ) (5,450 ) (5,964 )

Totals $ 30,353
31,066
91,563
95,291

~~In general, universal~~Universal life revenues and operating earnings are ~~anticipated to emerge with growth in~~largely generated from the amount of life insurance in force. The volume of ~~insurance~~ in force for this segment, primarily universal life, has contracted from ~~$19.0~~$15.4 billion at December 31, ~~2015~~2018 to ~~$17.9~~$13.7 billion at December 31, ~~2016~~2019 and ~~further decreased~~ to ~~$16.8~~$12.9 billion at ~~September~~June 30, ~~2017~~. Universal life insurance revenues are also generated with the issuance of new business based upon amounts per application and percentages of the face amount (volume) of insurance issued. The number of international life policies issued in the first ~~nine~~ ~~months of 2017 was 14% lower than in the first~~ ~~nine~~ ~~months of 2016 while the volume of insurance issued was 18% less than that issued in 2016 during the same period.~~2020.

~~A third~~Another component of international universal life revenues ~~include~~includes surrender charges assessed upon surrender of contracts by policyholders. At the height of the financial crisis in 2008 through 2010 National Western's international policyholders exhibited concern regarding the developments in U.S. financial markets. This evidenced itself in the company's termination activity in its international life policies in force. The company incurred higher termination experience than is typical which resulted in recognition of increased surrender charge fee income. This level of termination activity subsequently subsided in 2011 withWhile the termination ~~activity over~~rate has edged higher, the ~~following years remaining relatively stable. In 2015, termination activity revisited the levels last seen during the 2008 through 2010 period~~ resulting in additional surrender charge fee ~~revenues, and this activity~~revenue has ~~continued into 2016 and 2017.~~been less due to lower surrender charge fees assessed later in the contract term according to the policy contract provisions. The following table illustrates National Western's recent international life termination experience.


	Amount in $'s	Annualized Termination Rate
	(millions)

Volume In Force Terminations
Six Months Ended June 30, 2020	767.3	11.2	%
Year ended December 31, 2019	1,671.5	10.9	%
Year ended December 31, 2018	1,706.3	10.0	%
Year ended December 31, 2017	2,309.7	12.2	%
Year ended December 31, 2016	2,340.6	11.6	%
Year ended December 31, 2015	2,659.1	12.3	%

Amount in $'s Annualized Termination Rate
(millions)

Volume In Force Terminations
Nine months ended September 30, 2017 1,823.6
12.9 %
Year ended December 31, 2016 2,340.6
11.6 %
Year ended December 31, 2015 2,659.1
12.3 %
Year ended December 31, 2014 1,825.5
8.4 %
Year ended December 31, 2013 1,838.5
8.6 %
Year ended December 31, 2012 1,828.4
8.7 %

The higher incidence of terminations primarily is occurring with policies to residents of the countries from which the company discontinued accepting applications in late 2015. As a result of the higher termination incidence, the company unlocked its DPAC balances for this segment of the business during 2016 to incorporate a greater lapse assumption, among other things.

As noted previously, premiums collected on universal life products are not reflected as revenues in the Company's Condensed Consolidated Statements of Earnings (Loss) in accordance with GAAP. Actual international universal life premiums collected are detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Universal life insurance:
First year and single premiums	$	3	348	5	935
Renewal premiums	12,394		16,767	26,972	33,639

Totals	$	12,397	17,115	26,977	34,574

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Universal life insurance:
First year and single premiums $ 3,983
5,578
11,367
14,679
Renewal premiums 22,204
23,393
64,392
69,903

Totals $ 26,187
28,971
75,759
84,582

National Western's most popular international products ~~have been~~were its fixed-index universal life products in which the policyholder ~~can~~could elect to have the interest rate credited to their policy account values linked in part to the performance of an outside equity index. These products issued were not generally available in the local markets when sold. Included in the totals in the above table are collected premiums for fixed-index universal life products of approximately ~~$47.9~~$16.0 million and ~~$50.2~~$21.1 million for the first ~~nine~~six months of ~~2017~~2020 and ~~2016~~,2019, respectively. The ~~decline~~declining trend in renewal premiums during ~~2017 compared to 2016~~these periods corresponds with the decline in policies in force due to increased termination activity as discussed above.

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As previously noted, net investment income and contract interest include period-to-period changes in fair values pertaining to call options purchased to hedge the interest crediting feature on the fixed-index universal life products. With the ~~growth in~~relatively large size of the fixed-index universal life block of business, the period-to-period changes in fair values of the underlying options have ~~had an increasingly greater impact~~a significant effect on net investment income and universal life contract interest. A detail of net investment income for international life insurance operations is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Net investment income (excluding derivatives)	$	6,835	7,716	13,646	15,700
Derivative gain (loss)	4,318		1,560	(11,493)	7,593

Net investment income (loss)	$	11,153	9,276	2,153	23,293

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Net investment income (excluding derivatives) $ 8,837
9,221
26,863
27,738
Derivative gain (loss) 6,874
3,542
21,718
2,465

Net investment income $ 15,711
12,763
48,581
30,203

~~For liability purposes,~~The gain or loss on index options follows the ~~embedded~~movement of the reference indice with realized gains or losses being recognized on the anniversary of each index option inbased upon the ~~company's policyholder obligations~~reference indice level at expiration date relative to the index level at the time the index option was purchased. Unrealized gains and losses are recorded for ~~this feature is bifurcated and reserved for separately. Accordingly,~~index options outstanding based upon their fair values, largely determined by the ~~impact for~~reference indice level, at the ~~embedded derivative component in~~balance sheet reporting date as compared to the ~~equity-index universal life product is reflected in the contract interest expense for~~original purchase cost of each respective ~~period.~~option.

Life and policy benefits primarily consist of death claims on policies. National Western's clientèle for international products are generally wealthy individuals with access to U.S. dollars and quality medical care. Consequently, the amounts of coverage purchased ~~have~~ historically tended to be larger ~~amounts than those for domestic life insurance. In the year ended December 31, 2016, the average face amount of insurance purchased was $336,500, and in the first~~ ~~nine~~ ~~months of 2017, the average was slightly lower at $311,600. While life~~amounts. Life and policy benefit expense for the international life segment reflects the larger policies historically purchased, however mortality due to natural causes is comparable to that in the United States. The ~~company's~~Company's maximum risk exposure per insured life is capped at $500,000 through reinsurance. The average international life net claim amount (after reinsurance) in the first ~~nine~~six months of ~~2017 increased~~2020 decreased to ~~$159,000~~$134,000 from ~~$140,000~~$161,000 in the first ~~nine~~six months of ~~2016.~~2019 while the number of claims incurred increased 24%. Measured over a period of years, the Company's international life mortality experience has generally been better than pricing assumptions.

The ~~company~~Company records true-up adjustments to DPAC balances each period to reflect current policy lapse or termination rates, expense levels, and credited rates on policies as compared to anticipated experience as well as unlocking adjustments as necessary. The following table identifies the effects of unlocking adjustments on international life insurance DPAC balances recorded through amortization expense separate from recurring amortization expense components for the three and ~~nine~~six months ended~~September~~ June 30, ~~2017~~2020 and ~~2016~~.2019.


Amortization of DPAC	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)


Unlocking adjustments	$	—	—	—	—
Other amortization components	6,844		6,948	12,896	14,242

Totals	$	6,844	6,948	12,896	14,242

Table of Contents

Amortization of DPAC Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Unlocking adjustments $ (28,016 ) —
(27,731 ) (7,270 )
Other amortization components 6,431
7,296
19,857
18,990

Totals $ (21,585 ) 7,296
(7,874 ) 11,720

In the three and nine months ended September 30, 2017, the company unlocked its DPAC balance for favorable mortality, lower than expected lapses from disengaged countries, and the implementation of an interest crediting clawback on certain universal life policies. The effect of the prospective unlocking was to increase the DPAC balance by $28.0 million (and decrease amortization expense). During the second quarter of 2017, the company unlocked the interest crediting rate spread on one of its international equity-indexed universal life products the effect of which was to decrease the DPAC balance by $0.3 million with a corresponding increase to amortization expense.

During the nine months ended September 30, 2016, the company unlocked the DPAC balance for this segment for favorable mortality, higher cost of insurance charges which had been implemented, future profit on universal life insurance riders, and increased lapse rates for disengaged countries. These prior year unlockings served to increase the DPAC balance by $7.3 million and reduce the level of amortization by a similar amount during the period shown.

~~As indicated in the discussion concerning net investment income, contract~~Contract interest expense includes fluctuations that are the result of the effect upon the embedded derivative for the performance of underlying equity indices associated with fixed-index universal life products. ~~The~~For liability purposes, the embedded option in the Company's policyholder obligations for this feature is bifurcated and reserved for separately. Accordingly, the impact of the embedded derivative component in the equity-index universal life product is reflected in the contract interest expense for approximately the same amounts as the purchased call options are reported in net investment income for each respective period. Amounts realized on ~~purchased~~purchase call options generally approximate the amounts ~~National Western credits~~credited to policyholders.

~~In addition, contract interest expense for this segment includes changes in reserves for excess death benefits. As part~~Operating expenses are allocated to lines of business based upon a functional cost analysis of the ~~DPAC unlocking described above for~~activity by the three and nine months ended September 30, 2017, the company decreased excess benefit reserves by $4.2 million which decreased contract interest expense in these periods. Similarly, during the second quarter of 2016, as partbusiness area giving rise to incurred expenses. A greater proportion of the ~~DPAC unlocking described above, universal life excess death benefit reserves were also unlocked. The effect of this prospective unlocking was~~Company's overall expenses have been allocated to ~~decrease reserves by $6.1 million during~~ the ~~period which served~~Domestic Life and Annuity segments and away from the International Life segment due to ~~concurrently reduce contract interest expense.~~the decreased activity relative to the former two segments.

Annuity Operations

National Western's annuity operations are almost exclusively in the United States. Although some of the company's investment contracts are available to international residents, current sales of these are small relative to total annuity sales. A comparative analysis of results of operations for National Western's annuity segment is detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Premiums and other revenues:
Premiums and contract revenues	$	4,699	5,857	9,349	10,725
Net investment income	97,666		89,572	108,297	192,726
Other revenues	(8)		64	(4)	72

Total premiums and other revenues	102,357		95,493	117,642	203,523

Benefits and expenses:
Life and other policy benefits	8,880		9,876	17,069	21,306
Amortization of deferred policy acquisition costs	19,344		18,750	38,365	38,462
Annuity contract interest	33,108		39,817	37,612	87,299
Other operating expenses	12,715		9,374	19,582	16,882

Total benefits and expenses	74,047		77,817	112,628	163,949

Segment earnings (loss) before Federal income taxes	28,310		17,676	5,014	39,574
Provision (benefit) for Federal income taxes	6,173		3,155	854	8,038

Segment earnings (loss)	$	22,137	14,521	4,160	31,536

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Premiums and other revenues:
Premiums and contract revenues $ 5,293
5,391
16,583
17,407
Net investment income 114,123
97,384
346,031
261,579
Other revenues 26
139
90
145

Total revenues 119,442
102,914
362,704
279,131

Benefits and expenses:

Life and other policy benefits 9,095
7,054
25,377
20,153
Amortization of deferred policy acquisition costs 37,790
21,430
85,566
75,872
Annuity contract interest 84,568
46,694
221,415
139,094
Other operating expenses 8,714
7,526
28,588
23,044

Total benefits and expenses 140,167
82,704
360,946
258,163

Segment earnings (loss) before Federal income taxes (20,725 ) 20,210
1,758
20,968
Provision (benefit) for Federal income taxes (7,007 ) 6,549
605
6,808

Segment earnings (loss) $ (13,718 ) 13,661
1,153
14,160

Premiums and contract charges primarily consist of surrender charge income recognized on terminated policies. The amount of the surrender charge income recognized is determined by the volume of surrendered contracts as well as the duration of each contract at the time of surrender given the pattern of declining surrender charge rates over time that is common to most annuity contracts. The ~~company's~~Company's lapse rate for annuity contracts in the first ~~nine~~six months of ~~2017~~2020 was ~~6.3%~~8.9% which was ~~marginally lower than~~higher compared to the ~~6.7%~~7.8% rate during the same period in ~~2016.~~2019. In the first six months of 2020, an outcome of the COVID-19 pandemic crisis was a movement of consumers toward fortifying liquidity positions. This manifested in greater withdrawal and surrender activity. In addition, annuity contracts with fixed interest rates are more prone to terminate during periods of increases in secular interest rate levels and as contracts approach the end of their surrender charge period.

Table of Contents

Deposits collected on annuity contracts are not reflected as revenues in the Company's Condensed Consolidated Statements of Earnings (Loss) in accordance with GAAP. Actual annuity deposits collected for the three and ~~nine~~six months ended~~September~~ June 30, ~~2017~~2020 and ~~2016~~2019 are detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Fixed-index annuities	$	72,124	56,663	148,392	118,113
Other deferred annuities	2,395		5,077	4,083	8,677
Immediate annuities	8,498		2,812	13,075	3,780

Totals	$	83,017	64,552	165,550	130,570

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Fixed-index annuities $ 151,894
156,417
439,337
502,386
Other deferred annuities 4,617
7,555
19,917
31,767
Immediate annuities 1,918
1,865
4,984
5,575

Totals $ 158,429
165,837
464,238
539,728

Fixed-index products are more attractive for consumers when interest rate levels remain low and equity markets produce positive returns. Since National Western does not offer variable products or mutual funds, fixed-index products provide an important alternative to the ~~company's~~Company's existing fixed interest rate annuity products. Fixed-index annuity deposits as a percentage of total annuity deposits were ~~95%~~90% and ~~93%~~90% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, respectively. The percentage of fixed-index products to total annuity sales reflects the low interest rate environment and ~~the ongoing~~what had been a long run bull market in equities.

~~As a selling inducement, some~~Some of the Company's deferred products, including fixed-index annuity products, contain a first year interest bonus ranging from 1% to 7% depending upon the product, in addition to the base first year interest rate. Other products include a premium bonus ranging from 2% to 10% which is credited to the account balance when premiums are applied. These ~~bonus rates~~sales inducements are deferred in conjunction with other capitalized policy acquisition costs. The amounts deferred to be amortized over future periods amounted to approximately ~~$13.7~~$2.9 million and ~~$13.6~~$1.4 million during the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively. Amortization of deferred sales inducements is included as a component of annuity contract interest as described later in this discussion of Annuity Operations.

A detail of net investment income for annuity operations is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Net investment income (excluding derivatives)	$	71,843	77,369	143,002	157,460
Derivative gain (loss)	25,823		12,203	(34,705)	35,266

Net investment income	$	97,666	89,572	108,297	192,726

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Net investment income (excluding derivatives) $ 83,898
85,777
253,520
258,655
Derivative gain (loss) 30,225
11,607
92,511
2,924

Net investment income $ 114,123
97,384
346,031
261,579

As ~~previously described, derivatives are call~~seen in the above table, net investment income also includes the gains and losses on index options purchased to ~~hedge~~back the ~~equity return component~~index crediting mechanism on fixed-index universal products. The gain or loss on index options follows the movement of ~~National Western's fixed-index annuity products~~the reference indice with ~~any~~realized gains or losses ~~from~~being recognized on the ~~sale or~~anniversary of each index option based upon the reference indice at the expiration date relative to the index level at the time the index option was purchased. Unrealized gains and losses are recorded for index options outstanding based upon their fair value, largely determined by the reference indice level, at the balance sheet reporting date as compared to the original purchase cost of ~~the options, as well as period-to-period changes in fair values, reflected in net investment income.~~ each respective option.

Since the embedded derivative option in the policies is bifurcated when determining the contract reserve liability, the impact of the market value change of index options on asset values generally aligns closely with the movement of the embedded derivative liability such that the net effect upon pretax earnings is negligible (i.e. net realized and unrealized gains/(losses) included in net investment income approximate the change in contract interest associated with the corresponding embedded derivative liability change). See further discussion below regarding contract interest activity.

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Consistent with the domestic and international life segments, the ~~company~~Company records true-up adjustments to DPAC balances each period to reflect current policy lapse or termination rates, expense levels and credited rates on policies as compared to anticipated experience as well as unlocking adjustments as necessary. The following table identifies the effects of unlocking adjustments on annuity DPAC balances recorded through amortization expense separate from recurring amortization expense components for the three and ~~nine~~six months ended~~September~~ June 30, ~~2017~~2020 and ~~2016~~.2019.


Amortization of DPAC	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)


Unlocking adjustments	$	—	—	—	—
Other amortization components	19,344		18,750	38,365	38,462

Totals	$	19,344	18,750	38,365	38,462

Amortization of DPAC Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Unlocking adjustments $ 15,080
—
15,080
3,650
Other amortization components 22,710
21,430
70,486
72,222

Totals $ 37,790
21,430
85,566
75,872

Amortization of DPAC balances is proportional to estimated expected gross profits ("EGPs") for a line of business. The ~~Annuity~~EGPs of the block of annuity policies that are not fixed-index have been steadily decreasing with the declining amount of policies in force, as well as DPAC ~~balance was unlocked~~unlocking in recent years for unfavorable experience. In addition, experience which deviates from the EGPs assumed can similarly increase or decrease the amortization of DPAC. The increase in collected asset management fees collected in the first six months of 2020 has served to increase EGPs for the fixed-index block of annuity policies which served to increase DPAC amortization during the three and nine months ended September 30, 2017, for crediting rate spreads and surrender/annuitization assumptions. The effect of the prospective unlocking was to decrease the DPAC balance by $15.1 million (and increase amortization expense). During 2016 the company unlocked the DPAC balance for surrender and annuitization rates. The effect of the prospective unlocking in this period was to decrease the DPAC balance by $3.7 million (and increase amortization expense).period.

Annuity contract interest includes the equity component return associated with the call options purchased to hedge National Western's fixed-index annuities. The detail of fixed-index annuity contract interest as compared to contract interest for all other annuities is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Fixed-index annuities	$	10,638	20,686	(2,359)	49,225
All other annuities	19,180		14,415	33,321	29,253

Gross contract interest	29,818		35,101	30,962	78,478
Bonus interest deferred and capitalized	(1,364)		(542)	(2,871)	(1,405)
Bonus interest amortization	4,654		5,258	9,521	10,226

Total contract interest	$	33,108	39,817	37,612	87,299

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Fixed-index annuities $ 52,008
26,780
146,456
68,373
All other annuities 26,852
18,140
65,269
63,590

Gross contract interest 78,860
44,920
211,725
131,963
Bonus interest deferred and capitalized (4,772 ) (4,243 ) (13,651 ) (13,587 )
Bonus interest amortization 10,480
6,017
23,341
20,718

Total contract interest $ 84,568
46,694
221,415
139,094

The fluctuation in reported contract interest amounts for fixed-index annuities is driven by sales levels, the level of the business in force and the effect of positive or negative market returns of option values on projected interest credits. As noted in the net investment income discussion, onthe amounts shown for contract interest for fixed-index annuities generally align with the derivative gains/(losses) included in net investment income as due to the market change of index options aligning closely with the movement of the embedded derivative liability held for these products.

As noted in the discussion in the Consolidated Operations ~~positive returns on expiring option contracts during the first nine months~~section, collection of ~~2017 led to an increase in collected~~ asset management fees ~~by National Western which are~~on positive returns of expiring options is subtracted from contract interest credited to ~~policyholders and lessens~~policyholders. This offset serves to lessen the increase in contract interest expense relative to the option gains reported in the Company's net investment income. Asset management fees collected during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were ~~$7.5~~$7.8 million and ~~$24.3~~$17.9 million, respectively, compared to ~~$2.5~~$5.9 million and ~~$3.5~~$7.6 million in the corresponding period of 2019.

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As previously noted, accounting rules require the embedded derivative liability to include a projection of asset management fees estimated to be collected in the succeeding fiscal year as an offset to projected policyholder interest credits. The projections are based upon the recent performance of options as of balance sheet reporting dates. The change in this projection, plus or minus, is included in contract interest for the period being reported on. In the three month periods ended June 30, 2020 and 2019, contract interest was decreased $3.7 million and $4.7 million, respectively, for these projection changes. For the six months ended June 30, 2020 and 2019, contract interest was increased/(decreased) $25.6 million and $(20.3) million, respectively. The increase to contract interest expense reflects lower estimated asset management fees to be collected while the decrease to contract interest expense represents an increase to the amount of ~~2016.~~asset management fees estimated to be collected. The Annuity segment contains the products which charge asset management fees.

As noted in the discussion on the results of Consolidated Operations, other embedded derivative components include changes pertaining to other modeling differences, changes in future interest adjustments, and the change in the host contract component of the embedded derivative products. In the first quarter of 2020, the Company incurred an additional charge to contract interest pertaining to an assumption regarding the embedded derivative option budget which introduced an embedded derivative floor preventing the Company's contract interest expense from declining in tandem with the option value decreases recorded in net investment income. In the quarter ended June 30, 2020, the Company unlocked for this out of date embedded derivative option budget assumption to reflect the Company's current investment portfolio yield. This unlocking had the effect of removing the embedded derivative floor and reversed the $12.1 million contract interest charge recorded in the first quarter of 2020. This amount is included as a reduction in contract interest in the three month June 30, 2020 amount.

Annuity contract interest includes ~~unlocking~~true-up adjustments for the deferred sales inducement balance ~~and annuity reserves. In~~which are done each period similar to that done with respect to DPAC balances with the adjustment reflected in current period contract interest expense. To the extent required, the Company may also record unlocking adjustments to deferred sales inducement balances in conjunction with DPAC balance unlockings. The Company had no unlocking adjustments in the first six months of 2020 and 2019.

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Acquired Businesses

Effective January 31, 2019, Ozark National and NIS were acquired and their results included in the Condensed Consolidated Financial Statements of the Company. Ozark National and NIS have been combined into a separate segment "Acquired Businesses" given their inter-related marketing and sales approach which consists of a coordinated sale of a non-participating whole life insurance product (Ozark National) and a mutual fund investment product (NIS). An analysis of results of operations for the Company's acquired businesses segment is detailed below. The results for the quarter and six months ended June 30, 2019 include the two months of activity subsequent to the acquisition date.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Premiums and other revenues:
Premiums and contract charges	$	19,841	20,380	39,924	34,181
Net investment income	6,549		6,007	12,850	9,983
Other revenues	2,319		2,290	4,741	3,731

Total premiums and other revenues	28,709		28,677	57,515	47,895

Benefits and expenses:
Life and other policy benefits	16,698		16,993	32,935	27,668
Amortization of deferred policy acquisition costs and value of business acquired	1,703		2,406	4,094	4,154

Other operating expenses	4,794		4,491	8,863	7,576

Total benefits and expenses	23,195		23,890	45,892	39,398

Segment earnings (loss) before Federal income taxes	5,514		4,787	11,623	8,497
Provision (benefit) for Federal income taxes	1,918		956	3,140	1,703

Segment earnings (loss)	$	3,596	3,831	8,483	6,794

Revenues from acquired businesses principally include life insurance premiums on traditional type products. Unlike universal life, revenues from traditional products are simply life premiums recognized as income over the premium-paying period of the related policies. The detail of premiums is provided below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Traditional life insurance premiums	$	20,422	20,221	41,104	33,988
Other insurance premiums and considerations	105		121	223	204
Reinsurance premiums	(686)		38	(1,403)	(11)

Totals	$	19,841	20,380	39,924	34,181

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Ozark National's traditional life block of business at June 30, 2020 included approximately 181,100 policies in force representing over $6.1 billion of life insurance coverage. The repetitive pay nature of Ozark National's business promotes a higher level of persistency with an annualized lapse rate of 4.1% through June 30, 2020 which bettered the 4.7% rate experienced in the first six months of 2019. Traditional life premiums by first year and renewal are detailed below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Traditional life insurance premiums:
First year premiums	$	1,031	1,671	2,246	2,464
Renewal premiums	19,391		18,550	38,858	31,524

Totals	$	20,422	20,221	41,104	33,988

Other revenues consists primarily of brokerage revenue of NIS. Brokerage revenues of $4.7 million and $3.6 million for the six months ended June 30, 2020 and 2019, respectively, had associated brokerage expense of $2.4 million and $1.9 million which is included in Other operating expenses.

The average face value of Ozark National's policies in force at June 30, 2020 was approximately $34,000. Consequently, life and policy benefits for smaller face amounts are subject to variation from quarter to quarter. Incurred net death claims, after reinsurance, for the first six months of 2020 were $15.9 million representing an average net claim of $14,700. Incurred net death claims in the quarter ended June 30, 2019 were $14.9 million representing a net average claim of $16,500. Included in the activity for 2020 were confirmed COVID-19 net claims of approximately $0.2 million. Ozark National's maximum retention on any single insured life is $200,000 with limited exceptions related to the conversion of child protection and guaranteed insurability riders. The balance of life and policy benefits during the quarters ended June 30, 2020 and 2019 consisted of increases in insurance reserves and payments of other policy benefits.

Subsequent to its acquisition effective January 31, 2019, Ozark National began deferring policy acquisition costs and amortizing these deferrals similar to the methodology employed by National Western. The following table identifies the amortization expense of Ozark National's DPAC ~~unlocking during~~and VOBA for the three and ~~nine~~six months ended ~~September~~June 30, 2017, as discussed previously, the company unlocked its deferred sales inducement balance decreasing it by $4.3 million (and increasing contract interest expense). Similarly, National Western also unlocked its deferred sales inducement balance during the second quarter2020 and 2019.


Amortization of DPAC and VOBA	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Unlocking	$	—	—	—
VOBA amortization expense	1,607		2,284	3,801	3,907
DPAC amortization expense	96		122	293	247

Totals	$	1,703	2,406	4,094	4,154

Table of ~~2016 for surrender and annuitization rates with the prospective unlocking reducing the sales inducement balance by $1.6 million and increasing contract interest expense.~~Contents

These unlocking adjustments also increased two-tier annuity reserves in each respective period the change of which increased contract interest expense. The two-tier annuity reserve unlocking amounted to $13.6 million in the 2017 reporting periods and $12.2 million during 2016.

Other Operations

The Company's primary business encompasses its domestic and international life insurance operations, ~~and~~ its annuity operations, ~~of National Western.~~and its acquired businesses. However, ~~NWLGI and National Western~~the Company also ~~have small~~has real estate ~~nursing home,~~ and other investment operations through ~~their~~its wholly owned ~~subsidiaries.~~ subsidiaries, and owned nursing operations through the early part of 2019.

Pre-tax operating amounts include the results of BP III, the entity owning and operating the Company's home office facility in Austin, Texas. BP III incurred pre-tax losses of $(0.6) million and $(0.5) million for the six months ended June 30, 2020 and 2019, respectively. National Western maintains its home office in this facility leasing approximately 40% of the space available. The lease payments made by National Western to BP III have been eliminated in consolidation.

Nursing home operations generated ~~$0.9~~$(0.1) million and ~~$(0.1)~~$1.2 million of pre-tax operating earnings in the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively. As discussed in the Consolidated Operations section, the Company closed on the sale of its Reno, Nevada nursing home operations in the first quarter of 2019, and on the sale of its San Marcos, Texas nursing home operations in the second quarter of 2019. Pre-tax operating earnings in the first six months of 2019 include operating results for each entity to the date of their respective sales and net gains from the sale of Reno personal property and equipment of $1.4 million.

The remaining pre-tax earnings of ~~$19.4~~$11.0 million and ~~$16.2~~$12.0 million in Other Operations during the ~~nine~~six month periods ~~represent~~includes investment income from real estate, municipal bonds, and common and preferred equities held in subsidiary company portfolios principally for ~~tax advantage~~tax-advantage purposes. Included in these amounts are semi-annual distributions from a life interest in the ~~Libby~~Libbie Shearn Moody Trust which is held in NWLSM, Inc. ~~Pretax~~Pre-tax distributions from this trust were ~~$3.1~~$2.8 million and ~~$2.9~~$3.6 million in the ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~The remaining increase~~In addition, another subsidiary, NWL Financial, Inc., holds a modest portfolio of equity securities whose fair value changes are recorded in net investment ~~income during~~income. For the six months ended June 30, 2020 and 2019, the market value changes for these securities were $(4.1) million and $1.9 million, respectively.

Pre-tax earnings in the first ~~nine~~six months of ~~2017 compared~~2019 also include expenses of $3.3 million related to ~~2016 reflects payoffs on certain loans having profit participation provisions~~the purchase of Ozark National and NIS which were not eligible for inclusion in the ~~agreements~~purchase price. Pre-tax earnings in the six months ended June 30, 2020 includes $4.1 million pertaining to the release of a contingent purchase price liability associated with ~~borrowers.~~the Ozark National acquisition which the buyer and seller mutually agreed had been satisfied.

INVESTMENTS

General

The Company's investment philosophy emphasizes the careful handling of policyowners' and stockholders' funds to achieve security of principal, to obtain the maximum possible yield while maintaining security of principal, and to maintain liquidity in a measure consistent with current and long-term requirements of the Company.

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The Company's overall conservative investment philosophy is reflected in the allocation of its investments, which is detailed below. The Company emphasizes investment grade debt securities.


	June 30, 2020					December 31, 2019
	Carrying Value		%	Carrying Value		%
	(In thousands)			(In thousands)

Debt securities	$	10,271,955	95.4	$	10,463,190	94.7
Mortgage loans	273,701		2.5	272,422		2.5
Policy loans	76,811		0.7	80,008		0.7
Derivatives, index options	66,738		0.6	157,588		1.4
Real estate	34,298		0.3	34,588		0.3
Equity securities	17,918		0.2	23,594		0.2
Other	36,287		0.3	27,502		0.2

Totals	$	10,777,708	100.0	$	11,058,892	100.0

September 30, 2017 December 31, 2016

Carrying
Value
%
Carrying
Value
%
(In thousands) (In thousands)

Debt securities $ 10,290,622
95.5 $ 10,201,309
96.0
Mortgage loans 188,623
1.8 174,534
1.6
Policy loans 57,466
0.5 58,699
0.6
Derivatives, index options 163,536
1.5 120,644
1.1
Real estate 31,298
0.3 31,761
0.3
Equity securities 19,976
0.2 18,313
0.2
Other 17,635
0.2 22,193
0.2

Totals $ 10,769,156
100.0 $ 10,627,453
100.0

Invested assets at June 30, 2020 include Ozark National and NIS amounts as follows: Debt securities of $738.2 million; Policy loans of $26.4 million; and Real estate of $4.6 million. These invested asset amounts at December 31, 2019 were: Debt securities of $722.9 million; Policy loans of $27.1 million; and Real Estate of $4.6 million.

Debt ~~and Equity~~ Securities

The Company maintains a diversified portfolio which consists mostly of corporate, mortgage-backed, and public utility fixed income securities. Investments in mortgage-backed securities primarily include U.S. Government agency pass-through securities and collateralized mortgage obligations ("CMO"). The Company's investment guidelines prescribe limitations by type of security as a percent of the total investment portfolio and all holdings were within these threshold limits. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, the Company's debt securities portfolio consisted of the following classes of securities:


	June 30, 2020					December 31, 2019
	Carrying Value		%	Carrying Value		%
	(In thousands)			(In thousands)

Corporate	$	7,653,400	74.5	$	7,668,483	73.3
Residential mortgage-backed securities	1,009,343		9.8	1,080,674		10.3
Public utilities	922,582		9.0	959,815		9.2
State and political subdivisions	497,674		4.8	533,962		5.1
U.S. agencies	81,851		0.8	100,910		1.0
Asset-backed securities	61,425		0.6	71,260		0.7
Commercial mortgage-backed	30,455		0.3	32,974		0.3
Foreign governments	11,433		0.1	11,330		0.1
U.S. Treasury	3,792		0.1	3,782		—

Totals	$	10,271,955	100.0	$	10,463,190	100.0

The Company holds minimal levels of U.S. Treasury securities due to their low yields and deposits most of these holdings with various state insurance departments in order to meet security deposit on hand requirements in these jurisdictions.

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September 30, 2017 December 31, 2016

Carrying
Value
%
Carrying
Value
%
(In thousands) (In thousands)

Corporate $ 7,270,804
70.7 $ 7,097,692
69.6
Residential mortgage-backed securities 1,316,921
12.8 1,396,426
13.7
Public utilities 1,217,939
11.8 1,218,870
11.9
State and political subdivisions 456,021
4.4 456,643
4.5
Asset-backed securities 17,188
0.2 20,009
0.2
Foreign governments 10,413
0.1 10,336
0.1
U.S. Treasury 1,336
— 1,333
—

Totals $ 10,290,622
100.0 $ 10,201,309
100.0

~~Substantially all~~The Company has deemphasized mortgage-backed securities for a number of years given the ~~Company's investable cash flows are directed toward~~low interest rate environment and the ~~purchase~~lack of ~~long-term~~incremental yield relative to other classes of debt securities. The Company's investment policy calls for investing in debt securities that are investment grade, meet quality and yield objectives, and provide adequate liquidity for obligations to policyholders. Debt securities with intermediate maturities are targeted by the Company as they more closely match the intermediate nature of the Company's policy liabilities and provide an appropriate strategy for managing cash flows. Long-term debt securities purchased to fund insurance company operations are summarized below.

Nine Months Ended September 30, Year Ended December 31,
2017 2016
($ In thousands)

Cost of acquisitions $ 592,064
$ 700,248
Average credit quality A-
BBB+
Effective annual yield 3.57 % 3.38 %
Spread to treasuries 1.20 % 1.54 %
Effective duration 8.2 years
8.4 years

Rating agencies generally view mortgage-backed securities as having additional risk for insurers holding interest sensitive liabilities given the potential for asset/liability disintermediation. Consequently, the Company holds predominantly agency mortgage-backed securities. Because mortgage-backed securities are subject to prepayment and extension risk, the Company has substantially reduced these risks by investing in collateralized mortgage obligations ("CMO"), which have more predictable cash flow patterns than pass-through securities. These securities, known as planned amortization class I ("PAC I"), very accurately defined maturity ("VADM"), and sequential tranches, are designed to amortize in a more predictable manner than other CMO classes or pass-throughs. The Company does not purchase tranches, such as PAC II and support tranches, that subject the portfolio to greater than average prepayment risk. Using this strategy, the Company can more effectively manage and reduce prepayment and extension risks, thereby helping to maintain the appropriate matching of the Company's assets and liabilities.

The majority of the Company's investable cash flows are directed toward the purchase of long-term debt securities. The Company's investment policy calls for investing in debt securities that are investment grade, meet quality and yield objectives, and provide adequate liquidity for obligations to policyholders. Particular attention is paid to avoiding concentration in any one industry classification or in large singular credit exposures. Debt securities with intermediate maturities are targeted by the Company as they more closely match the intermediate nature of the Company's policy liabilities and provide an appropriate strategy for managing cash flows. Long-term debt securities purchased to fund National Western insurance company operations are summarized below.


	Six Months Ended June 30,			Year Ended December 31,
	2020			2019
	($ In thousands)

Cost of acquisitions	$	227,143		$	299,442
Average credit quality	BBB+			BBB
Effective annual yield	3.88		%	4.06		%
Spread to treasuries	2.29		%	1.79		%
Effective duration	13.7 years			12.0 years

Beginning in 2019, the Company began purchasing a greater proportion of longer maturity debt securities to match the increased duration of its growing life insurance policy liabilities. Purchases in prior periods were concentrated in effective durations between eight and nine years.

In addition to diversification, an important aspect of the Company's investment approach is managing the credit quality of its investment in debt securities. Thorough credit analysis is performed on potential corporate investments including examination of a company's credit and industry outlook, financial ratios and trends, and event risks. This emphasis is reflected in the high average credit rating of the Company's debt securities portfolio with ~~98.8%~~97.7%, as of ~~September~~June 30, ~~2017,~~2020, held in investment grade securities. In the table below, investments in debt securities are classified according to credit ratings by nationally recognized statistical rating organizations.


	June 30, 2020					December 31, 2019
	Carrying Value		%	Carrying Value		%
	(In thousands)			(In thousands)

AAA	$	110,803	1.1	$	113,875	1.1
AA	1,865,043		18.2	2,112,238		20.2
A	3,168,922		30.8	3,347,199		32.0
BBB	4,894,636		47.6	4,806,181		45.9
BB and other below investment grade	232,551		2.3	83,697		0.8

Totals	$	10,271,955	100.0	$	10,463,190	100.0

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September 30, 2017 December 31, 2016

Carrying
Value
%
Carrying
Value
%
(In thousands) (In thousands)

AAA $ 108,963
1.1 $ 97,421
1.0
AA 2,128,202
20.7 2,225,606
21.8
A 3,232,971
31.4 3,288,882
32.2
BBB 4,692,405
45.6 4,409,873
43.2
BB and other below investment grade 128,081
1.2 179,527
1.8

Totals $ 10,290,622
100.0 $ 10,201,309
100.0

~~The~~Although the Company's investment guidelines ~~do not~~ allow for the purchase of below investment grade ~~securities.~~securities up to an aggregate amount of $10 million, it has been the Company's practice to only purchase debt securities which are investment grade at the time of acquisition. The investments held in debt securities below investment grade are the result of subsequent downgrades of the securities. These holdings are further summarized below.


	Below Investment Grade Debt Securities
	Amortized Cost		Carrying Value	Fair Value	% of Invested Assets
	(In thousands, except percentages)

June 30, 2020	$	242,939	232,551	227,309	2.2	%

December 31, 2019	$	85,493	83,697	84,516	0.8	%

Below Investment Grade Debt Securities

Amortized
Cost

Carrying
Value

Fair
Value

% of
Invested
Assets
(In thousands, except percentages)

September 30, 2017 $ 127,407
128,081
130,244
1.2 %

December 31, 2016 $ 180,943
179,527
180,732
1.7 %

The Company's percentage of below investment grade securities as of ~~September~~June 30, ~~2017~~2020 compared with the percentage at December 31, ~~2016~~ ~~decreased~~2019 increased due to ~~the maturity and disposal~~net downgrades of several ~~securities~~credit issuers, most notably in the oil and ~~credit rating upgrades of~~gas/energy sector as well as certain ~~holdings.~~retail industry issuers. These industries in particular were affected by the economic slowdown invoked by the global pandemic crisis. The Company's holdings of below investment grade securities are relatively small and as a percentage of total invested assets remain low compared to industry averages.

Holdings in below investment grade securities ~~by category~~ as of ~~September~~June 30, ~~2017~~2020 are summarized below by category, including their comparable fair value as of December 31, ~~2016~~ ~~for those debt securities rated below investment grade at September 30, 2017.~~2019. The Company continually monitors developments in these industries for issues that may affect security valuation.


	Below Investment Grade Debt Securities
	Amortized Cost		Carrying Value	Fair Value	Fair Value
Industry Category	June 30, 2020		June 30, 2020	June 30, 2020	December 31, 2019
	(In thousands)

Retail	$	21,957	16,943	16,943	22,133

Asset-backed securities	3,191		3,285	3,324	3,312
Residential mortgage-backed	753		594	594	647
Oil & gas	83,030		77,605	72,582	62,553
Manufacturing	122,460		122,628	122,051	123,790


Other	11,867		11,815	11,815	12,211

Total before Allowance for credit losses	243,258		232,870	227,309	224,646

Allowance for credit losses	(319)		(319)

Totals	$	242,939	232,551	227,309	224,646

Below Investment Grade Debt Securities
Amortized Cost Carrying Value Fair Value Fair Value
Industry Category September 30, 2017 September 30, 2017 September 30, 2017 December 31, 2016
(In thousands)

Asset-backed securities $ 7,554
7,715
8,996
8,840
Residential mortgage-backed 1,170
1,115
1,115
1,093
Oil & gas 35,063
33,701
33,701
32,465
Manufacturing 57,340
58,014
58,896
57,161
Other 26,280
27,536
27,536
26,772

Totals $ 127,407
128,081
130,244
126,331

The Company closely monitors its below investment grade holdings by reviewing investment performance indicators, including information such as issuer operating performance, debt ratings, analyst reports and other economic factors that may affect these specific investments. As a result of the investment downgrades which occurred in the first six months of 2020 due to the economic stresses caused by the COVID-19 pandemic, additional analyses were performed of the individual credits whose market values were most significantly impacted. While additional losses are not currently anticipated, based on the existing status and condition of these securities, continued credit deterioration of some securities or the markets in general is possible, which may result in ~~further~~future allowances or write-downs.

~~In the energy sector, oil prices declined over the past several years. Since then, prices have bottomed and come off~~

Table of their lows, and the credit quality of individual companies that was affected during this downturn has begun to improve. At September 30, 2017 and December 31, 2016, the Company's aggregate holdings in this sector approximated $941 million and $951 million, respectively. These holdings represented debt securities issued by approximately forty companies in the oil and gas industry. The Company's oil and gas debt securities were 96.4% investment grade as of the balance sheet date and had an overall investment credit rating of BBB+. Further mitigating the risk of the Company's holdings in this sector are ample diversification by subsector (integrated, independent, pipeline, servicer, and equipment).Contents

Generally accepted accounting principles ~~require~~through the end of 2019 required that investments in debt securities be written down to fair value when declines in value ~~are~~were judged to be other-than-temporary. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price methodology). Refer to Note 10, Fair Values of Financial Instruments, of the accompanying Condensed Consolidated Financial Statements for further discussion.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019, the Company recorded noa $5.9 million other-than-temporary impairment ~~credit related write-downs~~ on a single debt ~~or equity securities. See Note 9, Investments, of the accompanying Condensed Consolidated Financial Statements for further discussion. Since the Company's adoption of the~~security issuer. Under prior GAAP guidance onpertaining to the recognition and accounting for other-than-temporary impairments ~~due to~~and their classification as either a credit loss ~~versus~~or non non-credit loss, the Company ~~has~~ recognized a cumulative total of ~~$2.0~~$8.5 million of other-than-temporary impairments of which ~~$1.4~~$8.5 million was deemed credit related and recognized as realized investment losses in earnings, and ~~$0.6~~$0.0 million,, net of amortization, which was deemed a non-credit related ~~impairment~~ and recognized in other comprehensive income.

As disclosed in Note (2) New Accounting Pronouncements in the accompanying Notes to Condensed Consolidated Financial Statements in this report, the Company adopted new accounting guidance effective January 1, 2020 for credit loss recognition of certain financial assets, including debt securities classified in the "held to maturity" category. The Company employed a cohort cumulative loss rate method in estimating current expected credit losses with respect to its held to maturity debt securities as of January 1, 2020, March 31, 2020, and June 30, 2020. This method applies publicly available industry wide statistics of default incidence by defined segmentations of debt security investments combined with future assumptions regarding economic conditions (i.e. GDP forecasts) both in the near term and the long term. The following table presents the allowance for credit losses for the periods shown.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Debt Securities Allowance for Credit Losses:
Balance, beginning of the period	$	6,039	—	—	—
Provision at January 1, 2020 for adoption of new accounting guidance	—		—	3,334	—
(Releases)/provision during the period	(1,099)		—	1,606	—

Balance, end of period	$	4,940	—	4,940	—

The $1.1 million allowance release during the three months ended June 30, 2020 represents a reduction in the balance from the allowance recorded at March 31, 2020. The release was principally the result of obtaining updated industry wide statistics of default incidence which incorporated data through 2019.

The Company is required to classify its investments in debt ~~and equity~~ securities into one of three categories: (a) trading securities; (b) securities available for sale; or (c) securities held to maturity. The Company purchases securities with the intent to hold to maturity and accordingly does not maintain a portfolio of trading securities. Of the remaining two categories, available for sale and held to maturity, the Company makes a determination on categorization based on various factors including the type and quality of the particular security and how it will be incorporated into the Company's overall asset/liability management strategy. As shown in the table below ~~28.9%~~at June 30, 2020, 31.2% of the Company's total debt ~~and equity~~ securities, based on fair values, were classified as securities available for ~~sale at September 30, 2017.~~sale. These holdings in available for sale provide flexibility to the Company to react to market opportunities and conditions and to practice active management within the portfolio to provide adequate liquidity to meet policyholder obligations and other cash needs.

Table of Contents

September 30, 2017

Fair
Value

Amortized
Cost

Unrealized
Gains (Losses)
(In thousands)

Securities held to maturity:
Debt securities $ 7,498,922
7,264,995
233,927
Securities available for sale:

Debt securities 3,025,627
2,927,787
97,840
Equity securities 19,976
14,807
5,169

Totals $ 10,544,525
10,207,589
336,936


	June 30, 2020
	Fair Value		Amortized Cost	Allowance for Credit Losses	Unrealized Gains (Losses)
	(In thousands)

Debt securities held to maturity	$	7,432,702	6,903,782	(4,940)	528,920
Debt securities available for sale	3,373,113		3,166,206	—	206,907

Totals	$	10,805,815	10,069,988	(4,940)	735,827

~~Asset-Backed Securities~~

The Company holds approximately $17.2 million in asset-backed securities as of September 30, 2017. This portfolio includes $1.1 million of manufactured housing bonds and $16.1 million of home equity loans (also referred to as subprime securities). The Company does not have any holdings in collateralized bond obligations (“CBO”s), collateralized debt obligations (“CDO”s), or collateralized loan obligations (“CLO”s). Principal risks in holding asset-backed securities are structural, credit, and capital market risks. Structural risks include the securities' priority in the issuer's capital structure, the adequacy of and ability to realize proceeds from collateral and the potential for prepayments. Credit risks include corporate credit risks or consumer credit risks for financing such as subprime mortgages. Capital market risks include the general level of interest rates and the liquidity for these securities in the marketplace.

The Company's exposure to the subprime sector has been limited to investments in the senior tranches of subprime residential mortgage loans. The subprime sector is generally categorized under the asset-backed sector. This sector lends to borrowers who do not qualify for prime interest rates due to poor or insufficient credit history. The slowing housing market, rising interest rates, and relaxed underwriting standards for loans originated after 2005 resulted in higher delinquency rates and losses beginning in 2007. These events caused illiquidity in the market and volatility in the market prices of subprime securities. The housing market subsequently stabilized and an improvement in the prices of subprime securities occurred as the bond market regained more liquidity. All of the loans classified as subprime in the Company's portfolio as of ~~September 30, 2017~~ ~~were underwritten prior to 2005 as noted in the table below.~~

September 30, 2017 December 31, 2016
Investment Origination Year Carrying Value Fair Value Carrying Value Fair Value
(In thousands)

Subprime:
1998 $ 1,692
1,753
2,074
2,145
2003 2,719
3,964
2,997
4,369
2004 11,633
11,632
13,382
13,401

Total $ 16,044
17,349
18,453
19,915

~~During the third quarter of 2017, the Company's exposure to the subprime sector decreased due to principal repayments. As of~~ ~~September 30, 2017, the Company held nine subprime issues of which one was rated AA, one was rated A, two were rated BBB, one was rated BB, one was rated B, one was rated CCC, one was rated D and one was not rated.~~

Mortgage Loans and Real Estate

The Company originates loans on high quality, income-producing properties such as shopping centers, freestanding retail stores, office buildings, industrial and sales or service facilities, selected apartment buildings, ~~motels,~~hotels, and health care facilities. The location of these properties is typically in major metropolitan areas that offer a potential for property value appreciation. Credit and default risk is minimized through strict underwriting guidelines and diversification of underlying property types and geographic locations. In addition to being secured by the property, mortgage loans with leases on the underlying property are often guaranteed by the lease ~~payments and also by the borrower.~~payments. This approach has proved over time to result in quality mortgage loans with few defaults. Mortgage loan interest income is recognized on an accrual basis with any premium or discount amortized over the life of the loan. Prepayment and late fees are recorded on the date of collection.

The Company targets a minimum specified yield on mortgage loan investments determined by reference to currently available debt security instrument yields plus a desired amount of incremental basis points. During the past several years, the low interest rate environment, ~~has~~along with a competitive marketplace, resulted in fewer loan opportunities being available that ~~meet~~met the Company's required rate of return. ~~Beginning in 2016, the Company initiated a concerted effort to grow this part of its investment portfolio.~~ Mortgage loans originated by the Company totaled ~~$84.6~~$121.4 million for the year ended December 31, ~~2016~~ ~~and~~ ~~$38.2~~2019 but were $10.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~.2020 reflecting the uncertainty in risk assessment introduced by the pandemic crisis. Principal repayments on mortgage loans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were ~~$24.2 million~~.$4.0 million.

Loans in foreclosure, loans considered impaired, or loans past due 90 days or more are placed on a non-accrual status. If a mortgage loan is determined to be on non-accrual status, the mortgage loan does not accrue any revenue into the Condensed Consolidated Statements of ~~Earnings.~~Earnings (Loss). The loan is independently monitored and evaluated as to potential impairment or foreclosure. If delinquent payments are made and the loan is brought current, then the Company returns the loan to active status and accrues income accordingly. The Company currently has no loans past due 90 days which are accruing interest. As a result of the economic climate change induced by the COVID-19 virus, various mortgage loan borrowers of the Company have requested a temporary forbearance of principal payments on loans in the range of three to nine months. For those borrowers meeting specified criteria of the Company, such terms have been agreed to on approximately a dozen loans.

Table of Contents

The Company held net investments in mortgage loans, after allowances for possible losses, totaling ~~$188.6~~$273.7 million and ~~$174.5~~$272.4 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, respectively. The diversification of the portfolio by geographic region and by property type was as follows:


	June 30, 2020					December 31, 2019
	Amount		%	Amount		%
	(In thousands)			(In thousands)

Mortgage Loans by Geographic Region:
West South Central	$	195,257	70.8	$	191,089	70.0
South Atlantic	35,237		12.8	35,698		13.1
East North Central	16,731		6.0	17,248		6.3
West North Central	12,421		4.5	12,505		4.6
East South Central	7,931		2.9	8,063		2.9
Pacific	6,334		2.3	6,436		2.4
Middle Atlantic	2,017		0.7	2,058		0.7


Gross balance	275,928		100.0	273,097		100.0

Allowance for credit losses	(2,227)		(0.8)	(675)		(0.2)

Totals	$	273,701	99.2	$	272,422	99.8


	June 30, 2020					December 31, 2019
	Amount		%	Amount		%
	(In thousands)			(In thousands)

Mortgage Loans by Property Type:
Retail	$	86,758	31.4	$	91,790	33.6
Office	84,151		30.5	95,362		34.9
Storage facility	40,173		14.6	30,619		11.2
Apartments	30,000		10.9	30,000		11.0
Industrial	15,668		5.7	5,733		2.1
Hotel	8,829		3.2	8,997		3.3
Land/Lots	4,672		1.7	4,829		1.8
All other	5,677		2.0	5,767		2.1
Gross balance	275,928		100.0	273,097		100.0

Allowance for credit losses	(2,227)		(0.8)	(675)		(0.2)

Totals	$	273,701	99.2	$	272,422	99.8

Table of Contents

September 30, 2017 December 31, 2016
Amount % Amount %
(In thousands) (In thousands)

Mortgage Loans by Geographic Region:
West South Central $ 118,123
62.4
$ 102,531
58.5
East North Central 31,066
16.4
26,717
15.3
East South Central 14,373
7.6
6,512
3.7
South Atlantic 13,796
7.3
14,130
8.1
Pacific 8,065
4.3
9,872
5.6
Middle Atlantic 2,234
1.2
2,288
1.3
Mountain 1,616
0.8
1,646
0.9
New England —
—
11,488
6.6
Gross balance 189,273
100.0
175,184
100.0

Allowance for possible losses (650 ) (0.3 ) (650 ) (0.4 )

Totals $ 188,623
99.7
$ 174,534
99.6
As disclosed in Note (2) New Accounting Pronouncements in the accompanying Notes to Condensed Consolidated Financial Statements in this report, the Company adopted new accounting guidance for credit loss recognition of certain financial assets, including mortgage loans. The Company employed the Weighted Average Remaining Maturity ("WARM") method in estimating current expected credit losses with respect to mortgage loan investments as of January 1, 2020, March 31, 2020, and June 30, 2020. The WARM method applies publicly available data of default incidence of commercial real estate properties by several defined segmentations combined with future assumptions regarding economic conditions (i.e. GDP forecasts) both in the near term and the long term. The following table presents the allowance for credit losses for the periods shown.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Mortgage Loans Allowance for Credit Losses:
Balance, beginning of the period	$	1,885	675	675	675
Provision January 1, 2020 for adoption of new accounting guidance	—		—	504	—
Provision during the period	342		—	1,048	—
Releases	—		—	—	—

Balance, end of period	$	2,227	675	2,227	675

September 30, 2017 December 31, 2016
Amount % Amount %
(In thousands) (In thousands)

Mortgage Loans by Property Type:
Retail $ 86,108
45.5
$ 89,947
51.3
Office 56,299
29.7
57,095
32.6
Hotel/Motel 13,734
7.3
9,708
5.6
Land/Lots 10,537
5.6
4,946
2.8
All other 22,595
11.9
13,488
7.7
Gross balance 189,273
100.0
175,184
100.0

Allowance for possible losses (650 ) (0.3 ) (650 ) (0.4 )

Totals $ 188,623
99.7
$ 174,534
99.6

The Company's direct investments in real estate are not a significant portion of its total investment ~~portfolio. The Company also participates in several real estate joint ventures, limited partnerships,~~portfolio and ~~other loans that invest~~consist primarily inof income-producing ~~retail properties. These investments have enhanced the Company's overall investment portfolio returns.~~properties which are being operated by a wholly owned subsidiary of National Western. The Company's real estate investments totaled approximately ~~$31.3~~$34.3 million and ~~$31.8~~$34.6 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, respectively.

The Company recognized operating income of approximately ~~$2.1~~$1.5 million and ~~$2.0~~$1.4 million on real estate properties in the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively. The Company monitors the conditions and market values of these properties on a regular basis and makes repairs and capital improvements to keep the properties in good condition.

Market Risk

Market risk is the risk of change in market values of financial instruments due to changes in interest rates, currency exchange rates, commodity prices, or equity prices. The most significant market risk exposure for ~~National Western~~the Company is interest rate risk. Substantial and sustained increases and decreases in market interest rates can affect the profitability of insurance products and fair value of investments. The yield realized on new investments generally increases or decreases in direct relationship with interest rate changes. The fair values of fixed income debt securities correlate to external market interest rate conditions as market values typically increase when market interest rates decline and decrease when market interest rates rise. However, market values may fluctuate for other reasons, such as changing economic conditions, market dislocations, declination in credit quality, or increasing event-risk concerns.

Interest Rate Risk

A gradual increase in interest rates from current levels would generally be a positive development for the Company. Rate increases would be expected to provide incremental net investment income, produce increased sales of fixed rate products, and limit the potential erosion of the Company's interest rate spread on products due to minimum guaranteed crediting rates in products. Alternatively, a rise in interest rates would reduce the fair value of the Company's investment ~~portfolio. Should~~portfolio and if long-term rates rise dramatically within a relatively short time period the Company could be exposed to disintermediation risk. Disintermediation risk is the risk that policyholders will surrender their policies in a rising interest rate environment forcing the Company to liquidate assets when they are in an unrealized loss position.

A decline in interest rates could cause certain mortgage-backed securities in the Company's portfolio to be more likely to pay down or prepay. In this situation, the Company typically will be unable to reinvest the proceeds at comparable yields. Lower interest rates will likely also cause lower net investment income, subject the Company to reinvestment rate risks, and possibly reduce profitability through reduced interest rate margins associated with products with minimum guaranteed crediting rates. Alternatively, the fair value of the Company's investment portfolio will increase when interest rates decline.

Table of Contents

The correlation between fair values and interest rates for debt securities is reflected in the tables below.


	June 30, 2020			March 31, 2020	December 31, 2019
	(In thousands except percentages)

Debt securities - fair value	$	10,805,815		10,355,947	10,764,648
Debt securities - amortized cost	$	10,069,988		10,202,437	10,312,365
Fair value as a percentage of amortized cost	107.31		%	101.50	104.39	%
Net unrealized gain (loss) balance	$	735,827		153,510	452,283
Ten-year U.S. Treasury bond – (decrease) increase in yield for the period	(0.01)		%	(1.25)	(0.77)	%

September 30,
2017 June 30,
2017 December 31,
2016
(In thousands except percentages)

Debt securities - fair value $ 10,524,549
10,489,280
10,379,661
Debt securities - amortized cost $ 10,192,782
10,159,005
10,136,279
Fair value as a percentage of amortized cost 103.25 % 103.25 % 102.40 %
Net unrealized gain balance $ 331,767
330,275
243,382
Ten-year U.S. Treasury bond – (decrease) increase in yield for the period 0.03 % (0.08 )% 0.18 %

The Company's unrealized gain (loss) balance for debt securities held at June 30, 2020 and December 31, 2019 is shown in the following table.


									Net Unrealized Gain (Loss) Balance
	Net Unrealized Gain Balance								At June 30, 2020		At March 31, 2020	At December 31, 2019	Quarter Change in Unrealized Balance	Year-to-date Change in Unrealized Balance
	At September 30, 2017		At June 30, 2017	At December 31, 2016	Quarter Change in Unrealized Balance		Year-to-date Change in Unrealized Balance		(In thousands)

Debt securities held to maturity	$	233,927	235,953	178,352	(2,026	)	55,575	Debt securities held to maturity	$	528,920	185,607	301,458	343,313	227,462
Debt securities available for sale	97,840		94,322	65,030	3,518		32,810	Debt securities available for sale	206,907		(32,097)	150,825	239,004	56,082

Totals	$	331,767	330,275	243,382	1,492		88,385	Totals	$	735,827	153,510	452,283	582,317	283,544

Debt securities held to maturity are recorded at their amortized cost. Accordingly, the unrealized amounts shown in the table above for Debt securities held to maturity are not incorporated into the Company's Condensed Consolidated Financial Statements at June 30, 2020 and December 31, 2019, respectively.

Changes in interest rates ~~typically~~can have a sizable effect on the fair values of the Company's debt securities. The market interest rate of the ten-year U.S. Treasury bond decreased approximately 12(126) basis points from ~~2.45%~~1.92% at year-end ~~2016~~2019 to ~~2.33%~~0.66% by the end of the first ~~nine~~six months of ~~2017~~ ~~and~~2020. Therefore the ~~Company's~~increase in the unrealized gain balance position ~~increased~~ ~~$88.4 million~~is an expected portfolio value movement. As noted in the Form 10-Q filing for the quarter ended March 31, 2020, the decline in the unrealized gain balance as of that date, in spite of the rapid drop in U.S. Treasury rates, was due to the widening in corporate bond spreads that occurred during that period as a result of COVID-19 effects on ~~a portfolio with an amortized cost basis~~financial markets. In the quarter ended June 30, 2020, although U.S. Treasury rates were substantially unchanged, the prior quarter widening of ~~approximately~~ ~~$10.2 billion~~.corporate bond spreads largely reversed as market risk uncertainty declined significantly and corporate bond spreads decreased accordingly. Given that the majority of the Company's debt securities are classified as held to maturity, which are recorded at amortized cost, changes in fair values have a ~~relatively small~~lesser effect on the Company's Condensed Consolidated Balance Sheet.

The Company manages interest rate risk principally through ongoing cash flow testing as required for insurance regulatory purposes. Computer models are used to perform cash flow testing under various commonly used stress test interest rate scenarios to determine if existing assets would be sufficient to meet projected liability outflows. Sensitivity analysis allows the Company to measure the potential gain or loss in fair value of its interest-sensitive instruments and to protect its economic value and achieve a predictable spread between what is earned on invested assets and what is paid on liabilities. The Company seeks to minimize the impact of interest risk through surrender charges that are imposed to discourage policy surrenders. Interest rate changes can be anticipated in ~~the~~ computer models and the corresponding risk addressed by management actions affecting asset and liability instruments. However, potential changes in the values of financial instruments indicated by hypothetical interest rate changes will likely be different from actual changes experienced, and the differences could be significant.

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Table of Contents

The Company has the ability to adjust interest rates, participation rates, and asset management fees and caps, as applicable, in response to changes in investment portfolio yields for a substantial portion of its business in force. The ability to adjust these rates is subject to competitive forces in the market for the Company’s products. Surrender rates could increase and new sales could be negatively affected if crediting rates are not competitive with the rates on competing products offered by other insurance companies and financial service entities. The Company designs its interest sensitive and annuity products with features encouraging ~~persistency. Interest sensitive life and annuity products have~~persistency, such as surrender and withdrawal penalty provisions. Typically, surrender charge rates gradually decrease each year the contract is in force.

The Company performed detailed sensitivity analysis as of December 31, ~~2016~~,2019, for its interest rate-sensitive assets and liabilities. The changes in market values of the Company's debt securities in the first ~~nine~~six months of ~~2017~~2020 were reasonable given the expected range of results of this analysis.

Credit Risk

The Company is exposed to credit risk through counterparties and within its investment portfolio. Credit risk relates to the uncertainty associated with an obligor's continued ability to make timely payments of principal and interest in accordance with the contractual terms of an instrument or contract. As previously discussed, the Company manages credit risk through established investment credit policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management and ~~National Western's~~the Company's Board of Directors.

In connection with the Company’s use of call options to hedge the equity return component of its fixed-indexed annuity and life products, the Company is exposed to the risk that a counterparty fails to perform under terms of the option contract. The Company purchases one-year option contracts from multiple counterparties and evaluates the creditworthiness of all counterparties prior to the purchase of the contracts. For consideration in contracting with a counterparty, the rating required by the Company is a credit rating of “A” or higher. Accordingly, all options are purchased from nationally recognized financial institutions with a demonstrated performance for honoring their financial obligations and possessing substantial financial capacity. In addition, each counterparty is required to execute a credit support agreement obligating the counterparty to provide collateral to the Company when the fair value of the Company’s exposure to the counterparty exceeds specified amounts. Counterparty credit ratings and credit exposure are monitored continuously by ~~the Company’s~~National Western’s Investment Department with adjustments to collateral levels managed as incurred under the credit support agreements.

The Company is also exposed to credit spread risk related to market prices of investment securities and cash flows associated with changes in credit spreads. Credit spread tightening will reduce net investment income associated with new purchases of fixed debt securities and will increase the fair value of the investment portfolio. Credit spread widening will reduce the fair value of the investment portfolio and will increase net investment income on new purchases.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity requirements are met primarily by funds provided from operations. Premium deposits and annuity considerations, investment income, and investment maturities and prepayments are the primary sources of funds while investment purchases, policy benefits in the form of claims, and payments to policyholders and contract holders in connection with surrenders and withdrawals as well as operating expenses are the primary uses of funds. To ensure the Company will be able to pay future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will meet the ongoing cash flow needs of the Company. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Although the Company historically has not been put in the position of having to liquidate invested assets to provide cash flow, its investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. ~~The Company (National Western) may also borrow up to $40 million on its bank~~National Western maintains a line of credit facility of $75 million which it may access for short-term cash needs. ~~There~~As part of the acquisition of Ozark National and NIS effective January 31, 2019, National Western borrowed $75 million to partly fund the closing cash purchase price of $205.4 million. The amounts borrowed were subsequently repaid during the first quarter of 2019 and there were no borrowings outstanding under the line of credit at ~~September~~June 30, ~~2017~~.2020.

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Table of Contents

A primary liquidity concern for life insurers is the risk of an extraordinary level of early policyholder withdrawals, particularly with respect to annuity products ~~whose funds tend to~~which can move more rapidly with interest rate changes. The Company includes provisions within its annuity and universal life insurance policies, such as surrender and market value adjustments, that help limit and discourage early withdrawals.

The actual amounts paid by product line in connection with surrenders and withdrawals for the three and ~~nine~~six months ended ~~September~~June 30, for each respective year, are noted in the table below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Product Line:
Traditional Life	$	3,883	4,852	8,353	9,022
Universal Life	28,201		23,176	56,799	44,493
Annuities	168,421		181,531	344,384	355,508

Total	$	200,505	209,559	409,536	409,023

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)

Product Line:
Traditional Life $ 1,037
1,636
3,400
4,616
Universal Life 28,488
27,831
93,121
82,781
Annuities 122,697
126,275
393,743
388,102

Total $ 152,222
155,742
490,264
475,499

The above contractual withdrawals, as well as the level of surrenders experienced, ~~were generally consistent with the Company's assumptions in asset/liability management,~~ and the associated cash outflows did not have an adverse impact on overall liquidity. Individual life insurance policies are typically less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may ~~incur surrender charges and~~need to undergo a new underwriting process in order to obtain a new insurance policy. The increase in Universal Life payments year-to-date reflects the increased termination activity associated with policyholder residents of international countries from which the Company ceased accepting new applications from in the fourth quarter of 2015.policy elsewhere. Cash flow projections and tests under various market interest rate scenarios and assumptions are ~~also~~ performed to assist in evaluating liquidity needs and adequacy. ~~The~~Given the economic decline precipitated by the COVID-19 pandemic, Company management conducted additional liquidity scenario testing during the first six months of 2020 using more severe assumptions and concluded that liquid assets were more than adequate under these scenarios. Accordingly, the Company currently expects available liquidity sources and future cash flows to be more than adequate to meet the demand for funds.

Cash flows from the Company's insurance operations have historically been sufficient to meet current needs. Cash flows from operating activities were ~~$193.4~~$208.6 million and ~~$246.2~~$163.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, respectively. The Company also has significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows totaled ~~$525.9~~$532.2 million and ~~$438.4~~$448.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Operating and investing activity cash flow items could be reduced if interest rates rise at an accelerated rate in the future. Net cash inflows/(outflows) from the Company's universal life and investment annuity deposit product operations totaled ~~$(140.1)~~$(285.0) million and ~~$(49.3)~~$(312.4) million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, respectively.~~2019, respectively, reflecting the trend in declining annuity sales during these periods and a higher incidence of annuity cash surrenders and withdrawals.

Capital Resources

The Company relies on stockholders' equity for its capital resources as there is no long-term debt outstanding and the Company does not anticipate the need for any long-term debt in the near future. As of ~~September~~June 30, ~~2017~~,2020, the Company ~~had no~~maintained commitments ~~beyond~~for its normal operating and investment activities. During the first quarter of 2020, National Western became a member of the Federal Home Loan Bank of Dallas (FHLB) through an initial minimum required stock investment of $4.3 million. Through this membership, National Western will have a specified borrowing capacity based upon the amount of collateral it establishes.

The Company has declared and paid an annual dividend on its common shares since 2005. The Company's practice has been to take a conservative approach to dividends, and the Board of Directors has adopted a strategic position to substantially reinvest earnings internally. This conservative approach yields the following benefits: (1) providing capital to finance the development of new business; (2) enabling the Company to take advantage of potential acquisitions and other competitive situations as they arise; (3) building a strong capital base to support the Company's financial strength ratings; (4) maintaining the Company's liquidity and solvency during difficult economic and market conditions; and (5) enhancing the Company's regulatory capital position. For similar reasons, despite the fact the Company's market price of its Class A common shares has been trading at a discount to the book value per share for some time, there are no imminent plans for the Company to repurchase its shares.

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The capacity of National Western to pay dividends to NWLGI is limited by law in the state of Colorado to earned profits (statutory unassigned surplus). At December 31, 2019, the maximum amount legally available for distribution without further regulatory approval is $152.8 million.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

It is ~~not~~ Company practice to not enter into off-balance sheet arrangements or to issue guarantees to third parties, other than in the normal course of issuing insurance contracts. Commitments related to insurance products sold are reflected as liabilities for future policy benefits. Insurance contracts guarantee certain performances by ~~the Company.~~National Western and Ozark National.

Insurance reserves are the means by which life insurance companies determine the liabilities that must be established to assure that future policy benefits are provided for and can be paid. These reserves are required by law and based upon standard actuarial methodologies to ensure fulfillment of commitments guaranteed to policyholders and their beneficiaries, even though the obligations may not be due for many years. Refer to Note 1 in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 for a discussion of reserving methods.

The table below summarizes future estimated cash payments under existing contractual obligations.


	Payment Due by Period
	Total		Less Than 1 Year	1 - 3 Years	3 - 5 Years	More Than 5 Years
	(In thousands)

Loan commitments	$	8,800	8,800	—	—	—
Commitments for capital calls to investment funds	59,000		17,700	35,400	—	5,900
Lease obligations	1,054		410	644	—	—
Claims payable (1)	74,294		74,294	—	—	—
Other long-term reserve liabilities reflected on the balance sheet (2)	13,227,451		1,050,541	1,924,984	1,704,546	8,547,380

Total	$	13,370,599	1,151,745	1,961,028	1,704,546	8,553,280

Payment Due by Period
Total
Less Than
1 Year

1 - 3
Years

3 - 5
Years

More Than
5 Years
(In thousands)

Loan commitments $ 16,300
16,300
—
—
—
Operating lease obligations 844
72
675
97
—
Life claims payable (1) 61,295
61,295
—
—
—
Other long-term reserve liabilities reflected on the balance sheet (2) 10,852,980
940,025
1,869,465
1,692,646
6,350,844

Total $ 10,931,419
1,017,692
1,870,140
1,692,743
6,350,844

(1) ~~Life claims~~Claims payable include benefit and claim liabilities for life, accident and health policies which the Company believes the amount and timing of the payment is essentially fixed and determinable. Such amounts generally relate to incurred and reported death, ~~and~~ critical illness, accident and health claims including an estimate of claims incurred but not reported.

(2) Other long-term liabilities include estimated life and annuity obligations related to death claims, policy surrenders, policy withdrawals, maturities and annuity payments based on mortality, lapse, annuitization, and withdrawal assumptions consistent with the Company's historical experience. These estimated life and annuity obligations are undiscounted projected cash outflows that assume interest crediting and market growth consistent with assumptions used in amortizing deferred acquisition costs. They do not include any offsets for future premiums or deposits. Other long-term liabilities also include determinable payout patterns related to immediate annuities. Due to the significance of the assumptions used, the actual cash outflows will differ both in amount and timing, possibly materially, from these estimates.

Subsequent to acquiring a commercial office building at the end of 2016 through its wholly owned subsidiary Braker P III, LLC ("BP III"), the Company entered into lease agreements with various tenants for available space not occupied by the Company. Total revenues recorded pertaining to these leases for the three month periods ended June 30, 2020 and 2019 amounted to $1.1 million and $1.2 million, respectively, and for the six months ended amounted to $2.3 million and $2.0 million, respectively. Under their respective terms these leases expire at various dates from 2023 through 2026.

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The table below summarizes future estimated cash receipts under all existing lease agreements, including those in addition to the BP III lease agreements discussed above.


	Estimated Cash Receipts by Period
	Total		Less Than 1 Year	1 - 3 Years	3 - 5 Years	More Than 5 Years
	(In thousands)

Real estate revenue	$	43,278	6,049	11,069	9,408	16,752

CHANGES IN ACCOUNTING PRINCIPLES AND CRITICAL ACCOUNTING POLICIES

Changes in Accounting Principles

Effective January 1, 2020 the Company implemented ASU 2016-13, Financial Instruments - Credit Losses. This standard replaced the previous incurred loss recognition model with an expected loss recognition model for certain financial assets. Adoption of the standard resulted in an incremental allowance for credit losses as of January 1, 2020 of $3.8 million, and a charge to retained earnings, net of tax, of $3.0 million as a change in accounting. There were no other changes in accounting principles during the periods reported in this Form 10-Q.

REGULATORY AND OTHER ISSUES

Statutory Accounting Practices

Regulations that affect the Company and the insurance industry are often the result of ~~efforts~~actions taken by the National Association of Insurance Commissioners ("NAIC"). The NAIC routinely publishes new regulations as model acts or laws which states subsequently adopt as part of their insurance regulations. Currently, the Company is not aware of any NAIC regulatory matter material to its operations or reporting of financial results.

Risk-Based Capital Requirements

The NAIC established risk-based capital ("RBC") requirements to help state regulators monitor the financial strength and stability of life insurers by identifying those companies that may be inadequately capitalized. Under the NAIC's requirements, each insurer must maintain its total capital above a calculated threshold or take corrective measures to achieve the threshold. The threshold of adequate capital is based on a formula that takes into account the amount of risk each company faces on its products and investments. The RBC formula takes into consideration four major areas of risk which are: (i) asset risk which primarily focuses on the quality of investments; (ii) insurance risk which encompasses mortality and morbidity risk; (iii) interest rate risk which involves asset/liability matching issues; and (iv) other business risks.

Statutory laws prohibit public dissemination of certain RBC information. However, both National Western and Ozark National's current statutory capital and surplus isare significantly in excess of the current threshold RBC requirements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

This information is included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Investments ~~in Debt and Equity Securities~~ section.

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ITEM 4. CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Effective January 1, 2017, the Company converted its annuity in force policies to its previously implemented internally developed policy administration system and began processing of policy transactions on such business (the Company had previously converted its annuity new business processing and related payment of commissions to the new system during 2016). This constitutes a changeThere were no changes in the Company's internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(e) under the Exchange Act. Prior to implementation of the annuity in force policies, the Company performed model office testing encompassing the new processes and procedures to be employed using the new system and defined its internal controls with respect to such processing in this environment. During the course ofAct, during the quarter ~~and nine months~~ ended ~~September~~June 30, ~~2017, management continued~~2020 that materially affected, or are reasonably likely to ~~perform post-implementation testing and analysis of the processing and internal controls implemented and determined that the change did not~~ materially affect, the Company's internal controls over financial reporting. With respect to the COVID-19 pandemic crisis, the Company's businesses were included in the financial services sector categorized as a Critical Infrastructure Sector by the Department of Homeland Security and mandated to maintain normal work schedules. While the Company has adopted working remote for a sizable portion of its home office employees, existing internal controls over financial reporting ~~such that~~have been maintained and augmented where necessary given the ~~information required to reported and disclosed~~unique situation presented in ~~its reports under the Exchange Act was adversely impacted.~~ this environment.

Internal controls over financial reporting change as the Company modifies or enhances its systems and processes to meet business needs. Any significant changes in controls are evaluated prior to implementation to help ensure continued effectiveness of internal controls and the control environment.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 8(A) "Legal Proceedings" of the accompanying Condensed Consolidated Financial Statements included in this Form 10-Q.

ITEM 1A. RISK FACTORS

~~There have been no substantial changes relative to the~~The risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2019 included a discussion of the potential ramifications of natural or man-made disasters and catastrophes including pandemic disease. As a business identified as being part of a Critical Infrastructure Security by the Department of Homeland Security, our companies and businesses have retained normal operations and business hours throughout the COVID-19 pandemic crisis. Although the majority of our home office staff has been redeployed to remote work sites following social distancing protocols, our companies continued to accept applications for insurance, issue policies, invest and manage assets, pay policy benefits and expenses, maintain information technology operations, and adhere to a sound system of internal controls over financial reporting. Since operations have not been interrupted or suspended, the Company has not activated the business continuity plans that it has in place. The exposure to adverse mortality experience has been evaluated and deemed to not significantly impact the Company's financial position. As the global and U.S. financial markets and economies undergo contraction and a restarting process, the exposure to financial service companies falls principally upon degradations in asset values, management of adequate liquidity and capital resources, and successfully maintaining competitiveness and product profitability in an exceptionally low interest rate environment. No conclusion can be drawn at this time whether the ongoing affects of COVID-19 upon the global economy will have a material effect on our business, results of operations and financial condition.

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Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Effective August 22, 2008, National Western adopted and implemented a limited stock buy-back program associated with the ~~company's~~ 2008 Incentive Plan which provides Option Holders the additional alternative of selling shares acquired through the exercise of options directly back to the ~~company.~~Company. This plan was assumed by NWLGI from National Western in 2015 pursuant to the terms of the holding company reorganization implemented at that time. The program ~~succeeded a similar buy-back program implemented March 10, 2006 associated~~provides Option Holders with the ~~company's 1995 Stock Option and Incentive Plan. Option Holders may~~ability to elect to sell such acquired shares back to the ~~company~~Company at any time within ninety (90) days after the exercise of options at the prevailing market price as of the date of notice of election. ~~These plans and programs were assumed by National Western Life Group, Inc. from National Western in 2015 pursuant to~~As of June 30, 2020, there are no options outstanding under the ~~terms of the holding company reorganization.~~plan.

Purchased shares are reported in the Company's Condensed Consolidated Financial Statements as authorized and unissued. ~~The following table sets forth the Company's repurchase of its Class A common shares from Option Holders for the quarter ended~~ ~~September~~At December 31, 2019 and June 30, ~~2017~~.2020 there were no stock options vested or unvested and outstanding under these plans.

Period

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of Shares that May yet Be Purchased Under the Plans or Programs

~~July~~April 1, ~~2017~~2020 through ~~July 31, 2017~~April 30, 2020

—

—$

—

N/A

~~August~~May 1, ~~2017~~2020 through ~~August~~May 31, ~~2017~~2020

—

—$

—

N/A

~~September~~June 1, ~~2017~~2020 through ~~September~~June 30, ~~2017~~2020

—

—$

—

N/A

Total

—

—$

—

N/A

At September 30, 2017, there were 13,018 stock options vested and outstanding under a grant dated April 18, 2008, and 6,000 stock options vested and outstanding under a grant dated June 20, 2008. These options expire on their respective dates in 2018 and will be forfeited by the option holders (officers and directors) unless exercised prior to those dates.

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Table of Contents

ITEM 4. Removed and Reserved.

ITEM 6. EXHIBITS

(a) Exhibits


~~(a)~~	~~Exhibits~~



Exhibit 31(a)	-	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b)	-	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(a)	-	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATIONAL WESTERN LIFE GROUP, INC.

(Registrant)

Date:

August 7, 2020

/S/ Ross R. Moody

Ross R. Moody

Chairman of the Board, President and

Chief Executive Officer

(Authorized Officer)

~~Date:~~

~~November 3, 2017~~

~~/S/ Ross R. Moody~~

~~Ross R. Moody~~

~~Chairman of the Board, President and~~

Date:

August 7, 2020

~~Chief Executive Officer~~

~~(Authorized Officer)~~

~~Date:~~

~~November 3, 2017~~

/S/ Brian M. Pribyl

Brian M. Pribyl

Senior Vice President,

Chief Financial Officer and Treasurer

(Principal Financial Officer)

(Principal Accounting Officer)

108



~~UNITED STATES~~
~~SECURITIES AND EXCHANGE COMMISSION~~
~~Washington, D.C. 20549~~

~~FORM 10-Q~~

x ~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~
~~THE SECURITIES EXCHANGE ACT OF 1934~~



o ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~ Delaware			47-3339380
~~THE SECURITIES EXCHANGE ACT OF 1934~~

~~For the transition period from __________ to __________~~

~~Commission File Number: 000-55522~~

~~NATIONAL WESTERN LIFE GROUP, INC.~~
~~(Exact name of Registrant as specified in its charter)~~



~~DELAWARE~~	~~47-3339380~~
(State or Other Jurisdiction of Incorporation)		(~~I.R.S.~~IRS Employer Identification ~~Number)~~

~~850 EAST ANDERSON LANE~~
~~AUSTIN, TEXAS 78752-1602~~	~~(512) 836-1010~~
~~(Address of Principal Executive Offices)~~	~~(Telephone Number)~~No.)


TABLE OF CONTENTS
		Page

Part I. Financial Information:		3

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets June 30, 2020 (Unaudited) and December 31, 2019		3

~~TABLE OF CONTENTS~~
	~~Page~~

~~Part I. Financial Information:~~	3

~~Item 1. Financial Statements~~	3

~~Condensed Consolidated Balance Sheets~~ ~~September 30, 2017 (Unaudited) and December 31, 2016~~	3

Condensed Consolidated Statements of Earnings (Loss) For the Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)	5

Condensed Consolidated Statements of Earnings (Loss) For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		6

Condensed Consolidated Statements of Comprehensive Income (Loss) ~~(Loss)~~ For the Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		7

Condensed Consolidated Statements of Comprehensive Income (Loss) ~~(Loss)~~ For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		8

Condensed Consolidated Statements of Changes in Stockholders' Equity For the ~~Nine~~Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		9

Condensed Consolidated Statements of Changes in Stockholders' Equity For the Six Months Ended June 30, 2020 and 2019 (Unaudited)		11

Condensed Consolidated Statements of Cash Flows For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		1113

Notes to Condensed Consolidated Financial Statements (Unaudited)		1315

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		5061

Item 3. Quantitative and Qualitative Disclosures About Market Risk		87104

Item 4. Controls and Procedures		87105

Part II. Other Information:		87105

Item1. Legal Proceedings		87105

Item1A. Risk Factors		87105

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		87106

Item 4. Removed and Reserved		88107

Item 6. Exhibits		88107

Signatures		89108


	(Unaudited)
ASSETS	June 30, 2020		December 31, 2019

Investments:
Debt securities held to maturity, at amortized cost, net of allowance for credit losses ($4,940 and $0; fair value: $7,432,702 and $7,407,703)	$	6,898,842	7,106,245
Debt securities available for sale, at fair value (cost: $3,166,206 and $3,206,120)	3,373,113		3,356,945
Mortgage loans, net of allowance for credit losses ($2,227 and $675)	273,701		272,422
Policy loans	76,811		80,008
Derivatives, index options	66,738		157,588
Equity securities, at fair value (cost: $15,361 and $16,894)	17,918		23,594
Other long-term investments	70,585		62,090


Total investments	10,777,708		11,058,892

Cash and cash equivalents	450,703		253,525
Deferred policy acquisition costs	679,553		723,972
Deferred sales inducements	94,837		104,359
Value of business acquired	134,270		138,071
Accrued investment income	91,068		93,298


Other assets	163,592		181,330

Total assets	$	12,391,731	12,553,447



	(Unaudited)
ASSETS	September 30, 2017		December 31, 2016

Investments:
Securities held to maturity, at amortized cost (fair value: $7,498,922 and $7,337,611)	$	7,264,995	7,159,259
Securities available for sale, at fair value (cost: $2,942,594 and $2,991,042)	3,045,603		3,060,363
Mortgage loans, net of allowance for possible losses ($650 and $650)	188,623		174,534
Policy loans	57,466		58,699
Derivatives, index options	163,536		120,644
Other long-term investments	48,933		53,954

Total investments	10,769,156		10,627,453

Cash and cash equivalents	170,560		51,247
Deferred policy acquisition costs	813,642		835,194
Deferred sales inducements	134,636		147,111
Accrued investment income	103,038		99,245
Federal income tax receivable	7,858		—
Other assets	139,401		134,731

Total assets	$	12,138,291	11,894,981


	(Unaudited)				(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY	September 30, 2017		December 31, 2016	LIABILITIES AND STOCKHOLDERS’ EQUITY	June 30, 2020		December 31, 2019

LIABILITIES:				LIABILITIES:

Future policy benefits:				Future policy benefits:
Universal life and annuity contracts	$	9,856,403	9,722,313
Universal life and annuity contracts (Note 1)				Universal life and annuity contracts (Note 1)	$	9,040,773	9,303,233
Traditional life reserves	135,366		136,782	Traditional life reserves	845,347		838,738
Other policyholder liabilities	137,072		143,391	Other policyholder liabilities	135,870		127,607
Deferred Federal income tax liability	56,016		64,990
Deferred Federal income tax liability (Note 1)				Deferred Federal income tax liability (Note 1)	55,428		36,767
Federal income tax payable	—		789	Federal income tax payable	1,458		3,748
Other liabilities	150,752		104,888	Other liabilities	130,125		126,924

Total liabilities	10,335,609		10,173,153	Total liabilities	10,209,001		10,437,017

COMMITMENTS AND CONTINGENCIES (Note 8)				COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS’ EQUITY:				STOCKHOLDERS’ EQUITY:

Common stock:				Common stock:
Class A - $.01 par value; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2017 and 2016	34		34
Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2017 and 2016	2		2
Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2020 and 2019				Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2020 and 2019	34		34
Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2020 and 2019				Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2020 and 2019	2		2
Additional paid-in capital	41,716		41,716	Additional paid-in capital	41,716		41,716
Accumulated other comprehensive income	20,572		10,552
Retained earnings	1,740,358		1,669,524
Accumulated other comprehensive income (loss)				Accumulated other comprehensive income (loss)	83,089		60,108
Retained earnings (Note 1)				Retained earnings (Note 1)	2,057,889		2,014,570

Total stockholders’ equity	1,802,682		1,721,828	Total stockholders’ equity	2,182,730		2,116,430

Total liabilities and stockholders' equity	$	12,138,291	11,894,981	Total liabilities and stockholders' equity	$	12,391,731	12,553,447


	2017			2016				2020		2019

Premiums and other revenues:							Premiums and other revenues:
Universal life and annuity contract charges	$	40,268		40,333			Universal life and annuity contract charges	$	36,869	36,910
Traditional life premiums	5,285			4,631			Traditional life premiums	22,741		23,810
Net investment income	151,691			126,981
Net investment income (loss)							Net investment income (loss)	145,694		128,424
Other revenues	4,672			4,476			Other revenues	7,586		3,966
Net realized investment gains (losses):							Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) gains (losses)	26			27			Total other-than-temporary impairment (“OTTI”) gains (losses)	2		(5,900)
Portion of OTTI (gains) losses recognized in other comprehensive income	(26		)	(27		)	Portion of OTTI (gains) losses recognized in other comprehensive income	(2)		(2)
Net OTTI losses recognized in earnings	—			—			Net OTTI losses recognized in earnings	—		(5,902)
Other net investment gains (losses)	2,074			5,426			Other net investment gains (losses)	3,125		5,477
Total net realized investment gains (losses)	2,074			5,426			Total net realized investment gains (losses)	3,125		(425)

Total revenues	203,990			181,847			Total revenues	216,015		192,685

Benefits and expenses:							Benefits and expenses:
Life and other policy benefits	21,015			17,430			Life and other policy benefits	33,431		33,657
Amortization of deferred policy acquisition costs	18,722			24,395
Amortization of deferred policy acquisition costs and value of business acquired							Amortization of deferred policy acquisition costs and value of business acquired	31,100		31,411
Universal life and annuity contract interest	107,799			67,776			Universal life and annuity contract interest	61,772		60,139
Other operating expenses	22,596			23,595			Other operating expenses	29,154		25,334

Total benefits and expenses	170,132			133,196			Total benefits and expenses	155,457		150,541

Earnings before Federal income taxes	33,858			48,651
Earnings (loss) before Federal income taxes							Earnings (loss) before Federal income taxes	60,558		42,144

Federal income taxes	12,045			14,915			Federal income taxes	12,145		8,448

Net earnings	$	21,813		33,736
Net earnings (loss)							Net earnings (loss)	$	48,413	33,696

Basic earnings per share:
Basic earnings (loss) per share:							Basic earnings (loss) per share:
Class A	$	6.17		$	9.54		Class A	$	13.69	$	9.53
Class B	$	3.08		$	4.77		Class B	$	6.85	$	4.76

Diluted earnings per share:
Diluted earnings (loss) per share:							Diluted earnings (loss) per share:
Class A	$	6.17		$	9.54		Class A	$	13.69	$	9.53
Class B	$	3.08		$	4.77		Class B	$	6.85	$	4.76

NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Nine Months Ended September 30, 2017 and 2016 (Unaudited) (In thousands)

	2017			2016

Common stock:
Balance at beginning of period	$	36		36
Shares exercised under stock option plan	—			—

Balance at end of period	36			36

Additional paid-in capital:
Balance at beginning of period	41,716			41,716
Shares exercised under stock option plan	—			—

Balance at end of period	41,716			41,716

Accumulated other comprehensive income:
Unrealized gains on non-impaired securities:
Balance at beginning of period	22,813			12,347
Change in unrealized gains (losses) during period, net of tax	12,733			46,956

Balance at end of period	35,546			59,303

Unrealized losses on impaired held to maturity securities:
Balance at beginning of period	(203		)	(240	)
Amortization	45			52
Other-than-temporary impairments, non-credit, net of tax	—			—
Additional credit loss on previously impaired securities	—			—
Change in shadow deferred policy acquisition costs	(23		)	(25	)

Balance at end of period	(181		)	(213	)

Unrealized losses on impaired available for sale securities:
Balance at beginning of period	(1		)	(1	)
Other-than-temporary impairments, non-credit, net of tax	—			—
Change in shadow deferred policy acquisition costs	—			—
Recoveries, net of tax	—			—

Balance at end of period	(1		)	(1	)

	Continued on Next Page



NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)  For the Three Months Ended June 30, 2020 and 2019 (Unaudited) (In thousands)



	2020		2019

Foreign currency translation adjustments:
Balance at beginning of period	5,062		5,130
Change in translation adjustments during period	(92)		(86)

Balance at end of period	4,970		5,044

Benefit plan liability adjustment:
Balance at beginning of period	(17,718)		(11,801)
Amortization of net prior service cost and net loss, net of tax	(2,067)		(504)

Balance at end of period	(19,785)		(12,305)

Accumulated other comprehensive income (loss) at end of period	83,089		43,462

Retained earnings:
Balance at beginning of period	2,009,476		1,936,238
Cumulative effect of change in accounting principle, net of tax	—		—
Net earnings (loss)	48,413		33,696



Balance at end of period	2,057,889		1,969,934

Total stockholders' equity	$	2,182,730	2,055,148


CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)  For the Six Months Ended June 30, 2020 and 2019 (Unaudited) (In thousands)

	2020		2019

Foreign currency translation adjustments:
Balance at beginning of period	5,101		4,577
Change in translation adjustments during period	(131)		467

Balance at end of period	4,970		5,044

Benefit plan liability adjustment:
Balance at beginning of period	(15,652)		(11,297)
Amortization of net prior service cost and net loss, net of tax	(4,133)		(1,008)

Balance at end of period	(19,785)		(12,305)

Accumulated other comprehensive income (loss) at end of period	83,089		43,462

Retained earnings:
Balance at beginning of period	2,014,570		1,896,040
Cumulative effect of change in accounting principle, net of tax (Note2)	(3,032)		—
Net earnings	46,351		73,894



Balance at end of period (Note 1)	2,057,889		1,969,934

Total stockholders' equity	$	2,182,730	2,055,148



	2020		2019

Cash flows from operating activities:
Net earnings (loss)	$	46,351	73,894
Adjustments to reconcile net earnings to net cash from operating activities:
Universal life and annuity contract interest	33,746		141,055
Surrender charges and other policy revenues	(15,027)		(16,975)
Realized (gains) losses on investments	(6,610)		(4,204)
Accretion/amortization of discounts and premiums, investments	1,237		1,362
Depreciation and amortization	5,776		5,464
Increase (decrease) in estimated credit losses on investments	2,654		—
(Increase) decrease in value of equity securities	3,990		(2,338)
(Increase) decrease in value of derivatives	66,385		(59,830)
(Increase) decrease in deferred policy acquisition and sales inducement costs, and value of business acquired	36,144		42,652
(Increase) decrease in accrued investment income	2,230		3,899
(Increase) decrease in other assets	8,119		(2,757)
Increase (decrease) in liabilities for future policy benefits	10,463		769
Increase (decrease) in other policyholder liabilities	8,263		(7,831)
Increase (decrease) in Federal income tax liability	(2,290)		7,895
Increase (decrease) in deferred Federal income tax	13,357		(13,306)
Increase (decrease) in other liabilities	(6,209)		(5,862)


Net cash provided by operating activities	208,579		163,887

Cash flows from investing activities:
Proceeds from sales of:

Debt securities available for sale	—		80,528

Other investments	9,733		34,984
Proceeds from maturities and redemptions of:
Debt securities held to maturity	375,315		310,618
Debt securities available for sale	156,929		137,823

Derivatives, index options	67,729		21,405

Purchases of:
Debt securities held to maturity	(169,704)		(103,710)
Debt securities available for sale	(109,893)		(77,118)
Equity securities	(623)		(295)
Derivatives, index options	(39,676)		(37,089)
Other investments	(12,546)		(11,953)
Property and equipment	(275)		(1,002)
Payment to acquire businesses, net of cash acquired	—		(189,121)


	Continued on Next Page


Affected Line Item in the Statements of Earnings	Amount Reclassified From Accumulated Other Comprehensive Income
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019	2020	2019
	(In thousands)

Other net investment gains (losses)	$	1,729	1,168	2,491	2,267
Net OTTI losses recognized in earnings	—		(5,902)	—	(5,902)
Earnings before Federal income taxes	1,729		(4,734)	2,491	(3,635)
Federal income taxes	363		(994)	523	(763)

Net earnings	$	1,366	(3,740)	1,968	(2,872)



Affected Line Item in the Statements of Earnings	Amount Reclassified From Accumulated Other Comprehensive Income
	Three Months Ended September 30,			Nine Months Ended September 30,
	2017		2016	2017	2016
	(In thousands)

Other net investment gains (losses)	$	1,519	2,151	4,224	3,033
Net OTTI losses recognized in earnings	—		—	—	—
Earnings before Federal income taxes	1,519		2,151	4,224	3,033
Federal income taxes	532		753	1,478	1,062

Net earnings	$	987	1,398	2,746	1,971



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017		2016
	(In thousands)

Service cost	$	27		26		81		79
Interest cost	240			250		718		750
Expected return on plan assets	(306		)	(304	)	(920	)	(912	)
Amortization of prior service cost	—			—		—		—
Amortization of net loss	159			193		477		579

Net periodic benefit cost	$	120		165		356		496



	September 30, 2017
	Domestic Life Insurance		International Life Insurance	Annuities	All Others	Totals
				(In thousands)

Deferred policy acquisition costs and sales inducements	$	95,894	254,150	598,234	—	948,278
Total segment assets	1,071,664		1,238,990	9,306,527	309,197	11,926,378
Future policy benefits	909,407		904,097	8,178,265	—	9,991,769
Other policyholder liabilities	14,441		14,635	107,996	—	137,072


~~(1)~~	~~CONSOLIDATION AND BASIS OF PRESENTATION~~


~~(2)~~	~~NEW ACCOUNTING PRONOUNCEMENTS~~



	December 31, 2016
	Domestic Life Insurance		International Life Insurance	Annuities	All Others	Totals
				(In thousands)

Deferred policy acquisition costs and sales inducements	$	90,485	243,106	648,714	—	982,305
Total segment assets	971,990		1,232,648	9,193,980	298,481	11,697,099
Future policy benefits	830,460		919,380	8,109,255	—	9,859,095
Other policyholder liabilities	13,998		10,528	118,865	—	143,391



	Three Months Ended September 30, 2017
	Domestic Life Insurance		International Life Insurance		Annuities		All Others	Totals
					(In thousands)

Premiums and contract revenues	$	9,907	30,353		5,293		—	45,553
Net investment income	17,385		15,711		114,123		4,472	151,691
Other revenues	11		26		26		4,609	4,672

Total revenues	27,303		46,090		119,442		9,081	201,916

Life and other policy benefits	3,483		8,437		9,095		—	21,015
Amortization of deferred policy acquisition costs	2,517		(21,585	)	37,790		—	18,722
Universal life and annuity contract interest	14,119		9,112		84,568		—	107,799
Other operating expenses	4,086		5,661		8,714		4,135	22,596
Federal income taxes (benefit)	1,061		15,473		(7,007	)	1,792	11,319

Total expenses	25,266		17,098		133,160		5,927	181,451

Segment earnings (loss)	$	2,037	28,992		(13,718	)	3,154	20,465



	Nine Months Ended September 30, 2017
	Domestic Life Insurance		International Life Insurance		Annuities	All Others	Totals
					(In thousands)

Premiums and contract revenues	$	27,822	91,563		16,583	—	135,968
Net investment income	51,998		48,581		346,031	19,435	466,045
Other revenues	30		73		90	13,521	13,714

Total revenues	79,850		140,217		362,704	32,956	615,727

Life and other policy benefits	13,850		19,399		25,377	—	58,626
Amortization of deferred acquisition costs	8,300		(7,874	)	85,566	—	85,992
Universal life and annuity contract interest	41,576		36,871		221,415	—	299,862
Other operating expenses	13,975		18,846		28,588	12,622	74,031
Federal income taxes (benefit)	740		25,125		605	7,001	33,471

Total expenses	78,441		92,367		361,551	19,623	551,982

Segment earnings (loss)	$	1,409	47,850		1,153	13,333	63,745



	Three Months Ended September 30, 2016
	Domestic Life Insurance			International Life Insurance	Annuities	All Others	Totals
					(In thousands)

Premiums and contract revenues	$	8,507		31,066	5,391	—	44,964
Net investment income	12,294			12,763	97,384	4,540	126,981
Other revenues	7			10	139	4,320	4,476

Total revenues	20,808			43,839	102,914	8,860	176,421

Life and other policy benefits	5,338			5,038	7,054	—	17,430
Amortization of deferred acquisition costs	(4,331		)	7,296	21,430	—	24,395
Universal life and annuity contract interest	9,795			11,287	46,694	—	67,776
Other operating expenses	4,847			6,691	7,526	4,531	23,595
Federal income taxes (benefit)	1,667			3,591	6,549	1,209	13,016

Total expenses	17,316			33,903	89,253	5,740	146,212

Segment earnings (loss)	$	3,492		9,936	13,661	3,120	30,209



	Nine Months Ended September 30, 2016
	Domestic Life Insurance		International Life Insurance	Annuities	All Others	Totals
				(In thousands)

Premiums and contract revenues	$	24,814	95,291	17,407	—	137,512
Net investment income	28,011		30,203	261,579	15,939	335,732
Other revenues	37		50	145	13,818	14,050

Total revenues	52,862		125,544	279,131	29,757	487,294

Life and other policy benefits	13,629		14,789	20,153	—	48,571
Amortization of deferred acquisition costs	989		11,720	75,872	—	88,581
Universal life and annuity contract interest	20,855		19,643	139,094	—	179,592
Other operating expenses	11,745		17,867	23,044	13,650	66,306
Federal income taxes (benefit)	1,833		19,977	6,808	5,229	33,847

Total expenses	49,051		83,996	264,971	18,879	416,897

Segment earnings (loss)	$	3,811	41,548	14,160	10,878	70,397



	Nine Months Ended
	September 30, 2017		September 30, 2016
	Officer	Director	Officer	Director

SARs	11,715	—	14,643	—
RSUs	2,725	1,660	3,661	2,563
PSUs	4,526	—	5,727	—


		Options Outstanding
	Shares Available For Grant	Shares	Weighted- Average Exercise Price

Stock Options:
Balance at January 1, 2020	291,000	—	$	—
Exercised	—	—	$	—
Forfeited	—	—	$	—
Expired	—	—	$	—
Stock options granted	—	—	$	—

Balance at June 30, 2020	291,000	—	$	—


	Liability Awards
	SAR	RSU	PSU

Other Share/Unit Awards:
Balance at January 1, 2020	107,517	14,352	19,108
Exercised	(1,372)	(2,357)	(4,150)
Forfeited	(992)	—	—
Granted	—	—	—

Balance at June 30, 2020	105,153	11,995	14,958



	Liability Awards
	SAR		RSU		PSU

Balance at January 1, 2017	77,178		6,029		5,426
Exercised	(1,862	)	(2,563	)	—
Forfeited	(400	)	(238	)	—
Granted	11,715		4,385		4,526

Balance at September 30, 2017	86,631		7,613		9,952


	SARs Outstanding
	Number Outstanding			Weighted- Average Remaining Contractual Life	Number Exercisable

Exercise prices:
$132.56	19,118			1.5 years	19,118
$210.22	23,650			3.4 years	19,600
$216.48	11,149			5.6 years	11,149
$311.16	9,897			6.6 years	9,897
$310.55	203			6.8 years	203
$334.34	9,310			7.5 years	6,202
$303.77	11,566			8.5 years	3,848
$252.91	20,260			9.4 years	120

Totals	105,153				70,137

Aggregate intrinsic value (in thousands)		$	1,350			$	1,350



	Options/SARs Outstanding
	Number Outstanding		Weighted- Average Remaining Contractual Life	Number Exercisable

Exercise prices:
255.13 (options)	13,018		0.5 years	13,018
208.05 (options)	6,000		0.6 years	6,000
114.64 (SARs)	11,900		1.3 years	11,900
132.56 (SARs)	21,968		4.0 years	13,962
210.22 (SARs)	28,050		6.1 years	6,850
216.48 (SARs)	12,998		8.4 years	3,962
311.16 (SARs)	11,512		9.4 years	—
310.55 (SARs)	203		9.6 years	—

Totals	105,649			55,692

Aggregate intrinsic value (in thousands)	$	15,670		$	9,354


	June 30, 2020	December 31, 2019

Expected term	1.5 to 9.4 years	1.9 to 10 years
Expected volatility weighted-average	31.72 %	22.19	%
Expected dividend yield	0.18 %	0.12	%
Risk-free rate weighted-average	0.20 %	1.61	%



	September 30, 2017		December 31, 2016

Expected term of options	0.5 to 9.6 years		1.3 to 9.1 years
Expected volatility weighted-average	23.52	%	23.83	%
Expected dividend yield	0.10	%	0.12	%
Risk-free rate weighted-average	1.60	%	1.03	%



	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017	Year Ended December 31, 2016
	(In thousands)

Beginning balance, cumulative credit losses related to other-than-temporary impairments	$	1,440	1,440	2,278
Reductions for securities sold during current period	—		—	(838	)
Additions for credit losses not previously recognized in other-than-temporary impairments	—		—	—

Ending balance, cumulative credit losses related to other-than-temporary impairments	$	1,440	1,440	1,440


	Debt Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Allowance for Credit Losses
	(In thousands)

U.S. agencies	$	81,855	3,501	—	85,356	(4)
U.S. Treasury	3,792		190	—	3,982	—
States and political subdivisions	401,264		23,915	(57)	425,122	(65)
Foreign governments	1,133		154	—	1,287	—
Public utilities	854,139		64,981	—	919,120	(879)
Corporate	4,559,466		378,165	(7,068)	4,930,563	(3,992)
Commercial mortgage-backed	3,024		52	—	3,076	—
Residential mortgage-backed	996,802		65,045	—	1,061,847	—
Asset-backed	2,307		42	—	2,349	—

Totals	$	6,903,782	536,045	(7,125)	7,432,702	(4,940)



	Securities Held to Maturity
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)

Debt securities:
U.S. Treasury	$	1,336	205	—		1,541
States and political subdivisions	455,435		21,927	(723	)	476,639
Public utilities	1,109,167		37,863	(489	)	1,146,541
Corporate	4,397,029		146,802	(7,402	)	4,536,429
Residential mortgage-backed	1,293,507		38,274	(3,922	)	1,327,859
Home equity	7,377		1,305	—		8,682
Manufactured housing	1,144		87	—		1,231

Totals	$	7,264,995	246,463	(12,536	)	7,498,922



	Securities Available for Sale
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)

Debt securities:
States and political subdivisions	$	577	9	—		586
Foreign governments	9,962		451	—		10,413
Public utilities	103,908		4,864	—		108,772
Corporate	2,783,263		98,637	(8,125	)	2,873,775
Residential mortgage-backed	21,790		1,693	(69	)	23,414
Home equity	8,287		380	—		8,667
Manufactured housing	—		—	—		—
	2,927,787		106,034	(8,194	)	3,025,627

Equity securities	14,807		5,371	(202	)	19,976

Totals	$	2,942,594	111,405	(8,396	)	3,045,603


												Debt Securities Held to Maturity
	Securities Held to Maturity											Less than 12 Months				12 Months or Greater			Total
	Less than 12 Months				12 Months or Greater			Total				Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses			(In thousands)
	(In thousands)

Debt securities:

States and political subdivisions	$	39,659	(723	)	—	—		39,659	(723	)	States and political subdivisions	$	—	—	1,749	(57)	1,749	(57)

Public utilities	41,567		(489	)	—	—		41,567	(489	)	Public utilities	—		—	—	—	—	—
Corporate	456,605		(5,863	)	104,355	(1,539	)	560,960	(7,402	)	Corporate	157,752		(7,068)	—	—	157,752	(7,068)
Commercial mortgage-backed											Commercial mortgage-backed	—		—	—	—	—	—
Residential mortgage-backed	220,414		(3,556	)	9,036	(366	)	229,450	(3,922	)	Residential mortgage-backed	—		—	—	—	—	—
Asset-backed											Asset-backed	—		—	—	—	—	—

Total temporarily impaired securities	$	758,245	(10,631	)	113,391	(1,905	)	871,636	(12,536	)
Totals											Totals	$	157,752	(7,068)	1,749	(57)	159,501	(7,125)


	June 30, 2020
	Total		Level 1	Level 2	Level 3
	(In thousands)

Debt securities, available for sale	$	3,373,113	—	3,373,113	—
Equity securities	17,918		17,918	—	—
Derivatives, index options	66,738		—	—	66,738
Other invested assets	2		2	—	—

Total assets	$	3,457,771	17,920	3,373,113	66,738

Policyholder account balances (a)	$	87,573	—	—	87,573
Other liabilities (b)	5,497		—	—	5,497

Total liabilities	$	93,070	—	—	93,070


	For the Three Months Ended June 30, 2020
	Assets						Other Liabilities
		Derivatives, Index Options		Total Assets	Policyholder Account Balances	Stock Options		Contingent Consideration	Total Other Liabilities
	(In thousands)

Beginning balance, April 1, 2020		$	24,335	24,335	61,625	3,081		4,174	68,880
Total realized and unrealized gains (losses):
Included in net earnings		40,243		40,243	23,790	2,444		(4,174)	22,060
Included in other comprehensive income		—		—	—	—		—	—
Purchases, sales, issuances and settlements, net:
Purchases		16,458		16,458	16,458	—		—	16,458
Sales		—		—	—	—		—	—
Issuances		—		—	—	—		—	—
Settlements		(14,298)		(14,298)	(14,300)	(28)		—	(14,328)
Transfers into (out of) Level 3		—		—	—	—		—	—

Balance at end of period		$	66,738	66,738	87,573	5,497		—	93,070

Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets/liabilities held at the end of the reporting period:
Net investment income		$	62,328	62,328	—	—		—	—
Benefits and expenses		—		—	62,328	2,444		(4,174)	60,598

Total		$	62,328	62,328	62,328	2,444		(4,174)	60,598