Table of Contents
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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2017March 31, 2021

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-55522

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

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)
DELAWARE47-3339380
(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.)


10801 N. Mopac Expy Bldg 3
Austin,Texas 
78759(512)836-1010
(Address of Principal Executive Offices) (Zip Code) (Telephone Number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:
Title of each class to be so registered:Trading SymbolName of each exchange on which
each class is to be registered:
Class A Common Stock, $0.01 par valueNWLIThe NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes x☒No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes x☒No o☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of "accelerated filer." "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  oAccelerated filer  x☐Accelerated filer  ☒   Non-accelerated filer (Do not check if a smaller reporting company)  o ☐Smaller reporting company o ☐Emerging growth company o☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o☐No x☒
As of November 2, 2017,May 7, 2021, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,1663,436,020 and  Class B - 200,000.

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3
3
September 30, 2017March 31, 2021 (Unaudited) and December 31, 20162020
3
For the Three Months Ended September 30, 2017March 31, 2021 and 20162020 (Unaudited)
5
For the Nine Months Ended September 30, 2017 and 2016 (Unaudited)
6
Condensed Consolidated Statements of Comprehensive Income (Loss) (Loss)
For the Three Months Ended September 30, 2017March 31, 2021 and 20162020 (Unaudited)
76
For the Nine Months Ended September 30, 2017 and 2016 (Unaudited)
8
Condensed Consolidated Statements of Changes in Stockholders' Equity
For the NineThree Months Ended September 30, 2017March 31, 2021 and 20162020 (Unaudited)
97
For the NineThree Months Ended September 30, 2017March 31, 2021 and 20162020 (Unaudited)
119
1311
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
5048
8789
8789
8789
8789
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8790
8891
8891
8992

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PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)


 (Unaudited) 
ASSETSMarch 31,
2021		December 31,
2020
Investments:  
Debt securities available-for-sale, at fair value (cost: $9,447,267 and $9,874,543)$10,014,351 10,770,923 
Debt securities trading, at fair value (cost: $668,285 and $0)654,333 0 
Mortgage loans, net of allowance for credit losses ($3,033 and $2,486)377,495 332,521 
Policy loans72,832 74,083 
Derivatives, index options137,130 132,821 
Equity securities, at fair value (cost: $12,052 and $12,069)19,120 17,744 
Other long-term investments115,830 104,113 
Total investments11,391,091 11,432,205 
Cash and cash equivalents435,644 581,059 
Deferred policy acquisition costs497,678 382,080 
Deferred sales inducements63,149 43,845 
Value of business acquired160,417 162,968 
Cost of reinsurance98,972 102,840 
Accrued investment income90,171 88,323 
Federal income tax receivable0 10,408 
Amounts recoverable from reinsurer1,695,698 1,709,232 
Other assets169,626 135,310 
Total assets$14,602,446 14,648,270 
 (Unaudited)  
ASSETSSeptember 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 loans57,466
 58,699
Derivatives, index options163,536
 120,644
Other long-term investments48,933
 53,954
    
Total investments10,769,156
 10,627,453
    
Cash and cash equivalents170,560
 51,247
Deferred policy acquisition costs813,642
 835,194
Deferred sales inducements134,636
 147,111
Accrued investment income103,038
 99,245
Federal income tax receivable7,858
 —
Other assets139,401
 134,731
    
Total assets$12,138,291
 11,894,981


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

(Unaudited)   (Unaudited) 
LIABILITIES AND STOCKHOLDERS’ EQUITYSeptember 30,
2017		 December 31,
2016		LIABILITIES AND STOCKHOLDERS’ EQUITYMarch 31,
2021		December 31,
2020
   
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)$9,029,904 9,035,316 
Traditional life reserves135,366
 136,782
 Traditional life reserves899,471 898,103 
Other policyholder liabilities137,072
 143,391
Other policyholder liabilities148,261 138,480 
Deferred Federal income tax liability56,016
 64,990
Funds withheld liabilityFunds withheld liability1,636,959 1,697,591 
Deferred Federal income tax liability (Note 1)Deferred Federal income tax liability (Note 1)107,116 145,126 
Federal income tax payable—
 789
Federal income tax payable3,417 0 
Other liabilities150,752
 104,888
Other liabilities326,823 193,904 
   
Total liabilities10,335,609
 10,173,153
Total liabilities12,151,951 12,108,520 
   
COMMITMENTS AND CONTINGENCIES (Note 8)

 

COMMITMENTS AND CONTINGENCIES (Note 8)00
   
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 201634
 34
Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2017 and 20162
 2
Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2021 and 2020Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2021 and 202034 34 
Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2021 and 2020Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2021 and 20202 2 
Additional paid-in capital41,716
 41,716
Additional paid-in capital41,716 41,716 
Accumulated other comprehensive income20,572
 10,552
Accumulated other comprehensive income244,037 395,421 
Retained earnings1,740,358
 1,669,524
Retained earnings (Note 1)Retained earnings (Note 1)2,164,706 2,102,577 
   
Total stockholders’ equity1,802,682
 1,721,828
Total stockholders’ equity2,450,495 2,539,750 
   
Total liabilities and stockholders' equity$12,138,291
 11,894,981
Total liabilities and stockholders' equity$14,602,446 14,648,270 


Note:  The Condensed Consolidated Balance Sheet at December 31, 20162020 has been derived from the audited Consolidated Financial Statements as of that date.


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the Three Months Ended September 30, 2017March 31, 2021 and 20162020
(Unaudited)
(In thousands, except per share amounts)

2017 2016 20212020
   
Premiums and other revenues:   Premiums and other revenues:  
Universal life and annuity contract charges$40,268
 40,333
Universal life and annuity contract charges$34,889 35,306 
Traditional life premiums5,285
 4,631
Traditional life premiums22,584 23,522 
Net investment income151,691
 126,981
Net investment income (loss)Net investment income (loss)166,075 (13,478)
Other revenues4,672
 4,476
Other revenues5,414 3,653 
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)0 2 
Portion of OTTI (gains) losses recognized in other comprehensive income(26) (27)Portion of OTTI (gains) losses recognized in other comprehensive income0 (2)
Net OTTI losses recognized in earnings—
 —
Net OTTI losses recognized in earnings0 0 
Other net investment gains (losses)2,074
 5,426
Other net investment gains (losses)1,416 3,485 
Total net realized investment gains (losses)2,074
 5,426
Total net realized investment gains (losses)1,416 3,485 
   
Total revenues203,990
 181,847
Total revenues230,378 52,488 
   
Benefits and expenses: 
  
Benefits and expenses:  
Life and other policy benefits21,015
 17,430
Life and other policy benefits37,889 33,634 
Amortization of deferred policy acquisition costs18,722
 24,395
Amortization of deferred transaction costsAmortization of deferred transaction costs29,989 30,037 
Universal life and annuity contract interest107,799
 67,776
Universal life and annuity contract interest52,845 (28,026)
Other operating expenses22,596
 23,595
Other operating expenses31,335 19,822 
   
Total benefits and expenses170,132
 133,196
Total benefits and expenses152,058 55,467 
   
Earnings before Federal income taxes33,858
 48,651
Earnings (loss) before Federal income taxesEarnings (loss) before Federal income taxes78,320 (2,979)
   
Federal income taxes12,045
 14,915
Federal income taxes16,191 (917)
   
Net earnings$21,813
 33,736
Net earnings (loss)Net earnings (loss)$62,129 (2,062)
   
Basic earnings per share: 
  
Basic earnings (loss) per share:Basic earnings (loss) per share:  
Class A$6.17
 $9.54
Class A$17.57 $(0.58)
Class B$3.08
 $4.77
Class B$8.79 $(0.29)
   
Diluted earnings per share: 
  
Diluted earnings (loss) per share:Diluted earnings (loss) per share:  
Class A$6.17
 $9.54
Class A$17.57 $(0.58)
Class B$3.08
 $4.77
Class B$8.79 $(0.29)


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
(In thousands, except per share amounts)


5
 2017 2016
    
Premiums and other revenues:   
Universal life and annuity contract charges$122,329
 123,791
Traditional life premiums13,639
 13,721
Net investment income466,045
 335,732
Other revenues13,714
 14,050
Net realized investment gains (losses): 
  
Total other-than-temporary impairment (“OTTI”) gains (losses)69
 80
Portion of OTTI (gains) losses recognized in other comprehensive income(69) (80)
Net OTTI losses recognized in earnings—
 —
Other net investment gains (losses)10,906
 10,589
Total net realized investment gains (losses)10,906
 10,589
    
Total revenues626,633
 497,883
    
Benefits and expenses: 
  
Life and other policy benefits58,626
 48,571
Amortization of deferred policy acquisition costs85,992
 88,581
Universal life and annuity contract interest299,862
 179,592
Other operating expenses74,031
 66,306
    
Total benefits and expenses518,511
 383,050
    
Earnings before Federal income taxes108,122
 114,833
    
Federal income taxes37,288
 37,553
    
Net earnings$70,834
 77,280
    
Basic earnings per share: 
  
Class A$20.03
 $21.85
Class B$10.02
 $10.93
    
Diluted earnings per share: 
  
Class A$20.03
 $21.85
Class B$10.02
 $10.93
    

Table of Contents
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended September 30, 2017March 31, 2021 and 20162020
(Unaudited)
(In thousands)

20212020
2017 2016
   
Net earnings$21,813
 33,736
Net earnings (loss)Net earnings (loss)$62,129 (2,062)
   
Other comprehensive income (loss), net of effects of deferred costs and taxes: 
  
Other comprehensive income (loss), net of effects of deferred costs and taxes:  
Unrealized gains (losses) on securities: 
  
Unrealized gains (losses) on securities:  
Net unrealized holding gains (losses) arising during period2,212
 2,824
Net unrealized holding gains (losses) arising during period(152,195)(78,153)
Net unrealized liquidity gains (losses)9
 9
Net unrealized liquidity gains (losses)0 1 
Reclassification adjustment for net amounts included in net earnings(988) (1,398)Reclassification adjustment for net amounts included in net earnings(1,119)(601)
   
Net unrealized gains (losses) on securities1,233
 1,435
Net unrealized gains (losses) on securities(153,314)(78,753)
   
Foreign currency translation adjustments166
 22
Foreign currency translation adjustments(5)(39)
   
Benefit plans: 
  
Benefit plans:  
Amortization of net prior service cost and net gain (loss)(910) (283)Amortization of net prior service cost and net gain (loss)1,935 (2,066)
   
Other comprehensive income (loss)489
 1,174
Other comprehensive income (loss)(151,384)(80,858)
   
Comprehensive income (loss)$22,302
 34,910
Comprehensive income (loss)$(89,255)(82,920)


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CHANGES IN STOCKHOLDERS' EQUITY
For the NineThree Months Ended September 30, 2017March 31, 2021 and 2016
2020
(Unaudited)

(In thousands)


 20212020
Common stock:  
Balance at beginning of period$36 36 
Shares exercised under stock option plan0 0 
Balance at end of period36 36 
Additional paid-in capital:  
Balance at beginning of period41,716 41,716 
Shares exercised under stock option plan0 0 
Balance at end of period41,716 41,716 
Accumulated other comprehensive income (loss):  
Unrealized gains (losses) on non-impaired securities:  
Balance at beginning of period418,741 70,665 
Change in unrealized gains (losses) during period, net of tax(153,314)(78,754)
Balance at end of period265,427 (8,089)
Unrealized losses on impaired held-to-maturity securities:  
Balance at beginning of period0 (4)
Cumulative effect of change in accounting principle0 0 
Amortization0 2 
Other-than-temporary impairments, non-credit, net of tax0 0 
Additional credit loss on previously impaired securities0 0 
Change in shadow deferred policy acquisition costs0 (1)
Balance at end of period0 (3)
Unrealized losses on impaired available-for-sale securities:  
Balance at beginning of period0 (2)
Other-than-temporary impairments, non-credit, net of tax0 0 
Change in shadow deferred policy acquisition costs0 0 
Recoveries, net of tax0 0 
Balance at end of period0 (2)
Continued on Next Page
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 2017 2016
    
Net earnings$70,834
 77,280
    
Other comprehensive income, net of effects of deferred costs and taxes: 
  
Unrealized gains (losses) on securities: 
  
Net unrealized holding gains (losses) arising during period15,479
 48,927
Net unrealized liquidity gains (losses)22
 27
Reclassification adjustment for net amounts included in net earnings(2,746) (1,971)
    
Net unrealized gains (losses) on securities12,755
 46,983
    
Foreign currency translation adjustments(5) (81)
    
Benefit plans: 
  
Amortization of net prior service cost and net gain (loss)(2,730) (850)
    
Other comprehensive income (loss)10,020
 46,052
    
Comprehensive income (loss)$80,854
 123,332
    
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
(In thousands)
20212020
Foreign currency translation adjustments:  
Balance at beginning of period5,116 5,101 
Change in translation adjustments during period(5)(39)
Balance at end of period5,111 5,062 
Benefit plan liability adjustment:  
Balance at beginning of period(28,436)(15,652)
Amortization of net prior service cost and net gain (loss), net of tax1,935 (2,066)
Balance at end of period(26,501)(17,718)
Accumulated other comprehensive income (loss) at end of period244,037 (20,750)
Retained earnings:  
Balance at beginning of period2,102,577 2,014,570 
Cumulative effect of change in accounting principle, net of tax (Note 1)— (3,032)
Net earnings (loss)62,129 (2,062)
Balance at end of period2,164,706 2,009,476 
Total stockholders' equity$2,450,495 2,030,478 


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).











8
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 period36
 36
    
Additional paid-in capital: 
  
Balance at beginning of period41,716
 41,716
Shares exercised under stock option plan—
 —
    
       Balance at end of period41,716
 41,716
    
Accumulated other comprehensive income: 
  
Unrealized gains on non-impaired securities: 
  
Balance at beginning of period22,813
 12,347
Change in unrealized gains (losses) during period, net of tax12,733
 46,956
    
   Balance at end of period35,546
 59,303
    
Unrealized losses on impaired held to maturity securities: 
  
Balance at beginning of period(203) (240)
Amortization45
 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 
    
    
    
    
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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
(In thousands)
 20212020
Cash flows from operating activities:  
Net earnings (loss)$62,129 (2,062)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:  
Universal life and annuity contract interest52,845 (28,026)
Surrender charges and other policy revenues(6,134)(7,450)
Realized (gains) losses on investments(1,416)(3,485)
Accretion/amortization of discounts and premiums, investments464 850 
Depreciation and amortization3,159 2,993 
Increase (decrease) in estimated credit losses on investments547 3,411 
(Increase) decrease in value of debt securities trading13,952 0 
(Increase) decrease in value of equity securities(1,627)5,816 
(Increase) decrease in value of derivative options(28,023)106,629 
(Increase) decrease in deferred policy acquisition and sales inducement costs, and value of business acquired2,876 16,681 
(Increase) decrease in accrued investment income(1,848)(2,482)
(Increase) decrease in reinsurance recoverable13,534 9,389 
(Increase) decrease in cost of reinsurance3,868 0 
(Increase) decrease in other assets184 (98)
Increase (decrease) in liabilities for future policy benefits17,765 6,357 
Increase (decrease) in other policyholder liabilities9,781 6,972 
Increase (decrease) in Federal income tax liability13,825 (17,030)
Increase (decrease) in deferred Federal income tax2,231 15,971 
Increase (decrease) in funds withheld liability(60,632)0 
Increase (decrease) in other liabilities(41,590)(8,775)
Net cash provided by operating activities55,890 105,661 
Cash flows from investing activities:  
Proceeds from sales of:  
Debt securities available-for-sale571,117 0 
Other investments10,608 2,285 
Proceeds from maturities, redemptions, and prepayments of:  
Debt securities held-to-maturity0 187,973 
Debt securities available-for-sale384,835 93,326 
Debt securities trading1,309 0 
  Other investments4,557 7,280 
Derivatives, index options34,968 52,973 
Purchases of:  
Debt securities held-to-maturity0 (75,836)
Debt securities available-for-sale(408,534)(92,963)
Continued on Next Page
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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(continued)
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
(In thousands)
 2017 2016
    
Foreign currency translation adjustments: 
  
Balance at beginning of period2,661
 2,825
Change in translation adjustments during period(5) (81)
    
  Balance at end of period2,656
 2,744
    
Benefit plan liability adjustment: 
  
Balance at beginning of period(14,718) (14,602)
Amortization of net prior service cost and net loss, net of tax(2,730) (850)
    
  Balance at end of period(17,448) (15,452)
    
Accumulated other comprehensive income at end of period20,572
 46,381
    
Retained earnings:   
   Balance at beginning of period1,669,524
 1,569,905
   Net earnings70,834
 77,280
   Stockholder dividends—
 —
    
   Balance at end of period1,740,358
 1,647,185
    
Total stockholders' equity$1,802,682
 $1,735,318

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
(In thousands)
20212020
Debt securities trading(605,828)0 
Equity securities(10,356)(488)
Derivatives, index options(11,511)(22,403)
Other investments(17,208)(11,446)
Property, equipment, and other productive assets(2,603)(58)
Principal payments on mortgage loans4,015 2,149 
Cost of mortgage loans acquired(49,510)(6,996)
Decrease (increase) in policy loans1,251 1,972 
Other (increases) decreases to funds withheld(39,790)0 
Net cash provided by (used in) investing activities(132,680)137,768 
Cash flows from financing activities:  
Deposits to account balances for universal life and annuity contracts169,294 117,682 
Return of account balances on universal life and annuity contracts(237,814)(262,371)
Principal payments under finance lease obligation(99)0 
Net cash provided by (used in) financing activities(68,619)(144,689)
Effect of foreign exchange(6)(50)
Net increase (decrease) in cash, cash equivalents, and restricted cash(145,415)98,690 
Cash, cash equivalents, and restricted cash at beginning of period581,059 253,525 
Cash, cash equivalents and restricted cash at end of period$435,644 352,215 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  
Cash paid (received) during the period for:  
Interest$19 19 
Income taxes$5 1 
Noncash operating activities:
Net deferral and amortization of sales inducements$2,257 (3,360)


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).





10
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
(In thousands)
 2017 2016
    
Cash flows from operating activities:   
Net earnings$70,834
 77,280
Adjustments to reconcile net earnings to net cash from operating activities: 
  
Universal life and annuity contract interest299,862
 179,592
Surrender charges and other policy revenues(33,682) (34,955)
Realized (gains) losses on investments(10,905) (10,589)
Accretion/amortization of discounts and premiums, investments308
 51
Depreciation and amortization7,379
 5,823
(Increase) decrease in value of derivatives(138,552) (8,307)
(Increase) decrease in deferred policy acquisition and sales inducement costs19,895
 10,799
(Increase) decrease in accrued investment income(3,793) (1,618)
(Increase) decrease in other assets(7,762) (3,683)
Increase (decrease) in liabilities for future policy benefits6,616
 3,408
Increase (decrease) in other policyholder liabilities(6,319) (5,175)
Increase (decrease) in Federal income taxes liability(8,647) 21,661
Increase (decrease) in deferred Federal income tax(14,370) 10,587
Increase (decrease) in other liabilities12,530
 1,352
    
Net cash provided by operating activities193,394
 246,226
    
Cash flows from investing activities: 
  
Proceeds from sales of: 
  
Securities held to maturity—
 —
Securities available for sale22,184
 16,087
Other investments4,943
 3,947
Proceeds from maturities and redemptions of: 
  
Securities held to maturity303,081
 304,190
Securities available for sale222,841
 134,208
Derivatives, index options151,298
 13,273
Property and equipment2,731
 —
Purchases of: 
  
Securities held to maturity(377,821) (231,804)
Securities available for sale(192,670) (229,932)
Derivatives, index options(55,780) (57,224)
Other investments(329) (27,525)
Property and equipment(1,697) —
Net change in short-term investments—
 (14,972)
    
 Continued on Next Page 
    
    
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
(In thousands)
 2017 2016
    
    
Principal payments on mortgage loans24,199
 17,295
Cost of mortgage loans acquired(38,166) (55,796)
Decrease (increase) in policy loans1,233
 2,739
    
Net cash provided by/(used in) investing activities66,047
 (125,514)
    
Cash flows from financing activities: 
  
Deposits to account balances for universal life and annuity contracts546,966
 626,083
Return of account balances on universal life and annuity contracts(687,087) (675,389)
    
Net cash provided by (used in) financing activities(140,121) (49,306)
    
Effect of foreign exchange(7) (125)
    
Net increase (decrease) in cash and cash equivalents119,313
 71,281
Cash and cash equivalents at beginning of period51,247
 106,007
    
Cash and cash equivalents at end of period$170,560
 $177,288
    
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 
  
    
Cash paid (received) during the period for: 
  
Interest$30
 33
Income taxes$60,304
 5,032
    
Noncash operating activities:   
   Deferral of sales inducements$(9,696) (7,146)

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).




NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



(1) CONSOLIDATION AND BASIS OF PRESENTATION

(1) CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position of National Western Life Group, Inc. ("NWLGI") and its wholly owned subsidiaries (“Company”(collectively, the “Company”) as of September 30, 2017,March 31, 2021, and the results of its operations and its cash flows for the three and nine months endedSeptember 30, 2017 March 31, 2021 and September 30, 2016.March 31, 2020. Such adjustments are of a normal recurring nature. Certain reclasses of prior year balances have been made for comparison. In addition, certain segment information disclosed in Note 6 has been revised. The results of operations for the ninethree months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results to be expected for the full year. It is recommended that these Condensed Consolidated Financial Statements be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 20162020 which is accessible free of charge through the Company's internet site at www.nwlgi.com or the Securities and Exchange Commission internet site at www.sec.gov. The Condensed Consolidated Balance Sheet at December 31, 20162020 has been derived from the audited consolidated financial statements as of that date.


The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of NWLGI and its wholly owned subsidiaries: National Western Life Insurance Company ("NWLIC" or "National Western"), Regent Care San Marcos Holdings, LLC, NWL Investments,Services, Inc., and NWLN.I.S. Financial Services, Inc. ("NIS"). National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., and Braker P III, LLC. Where comments or disclosures are made specifically in reference to the insurance operations ofLLC, and Ozark National Western, the "company" is used in order to distinguish such comments from the consolidated entity.Life Insurance Company ("Ozark National"). All significant intercorporate transactions and accounts have been eliminated in consolidation.


The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying Condensed Consolidated Financial Statements include: (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs ("DPAC"), deferred sales inducements ("DSI"), the value of business acquired ("VOBA"), and the cost of reinsurance ("COR"), (4) valuation allowances for deferred tax assets, (5) other-than-temporary impairmentgoodwill, (6) allowances for credit losses on debt securities (6) commitments and contingencies, and (7) valuation allowances for mortgage loans, and real estate.(7) commitments and contingencies.


As a result of executing a funds withheld coinsurance agreement at December 31, 2020, in the quarter ended March 31, 2021, the Company implemented accounting policies related to trading debt securities and the embedded derivative on reinsurance in its financial statements. Trading securities represent debt securities that are included in the fund assets withheld as part of the funds withheld coinsurance agreements to support the policyholder liability obligations ceded to the reinsurer. Trading debt securities are reported in the accompanying Condensed Consolidated Financial Statements at their fair values with changes in their fair values reflected as a component of Net investment income (loss) in the Condensed Consolidated Statements of Earnings (Loss). Since these trading debt securities pertain to investment activities related to coinsurance agreements rather than as an income strategy based on active trading, they are classified as investing activities in the Condensed Consolidated Statements of Cash Flows. Under the terms of the coinsurance funds withheld agreement, while the assets are withheld the associated interest and credit risk of these assets are transferred to the reinsurer creating an embedded derivative on reinsurance in the funds withheld liability. Accordingly, the Company is required to bifurcate the embedded derivative from the host contract in accordance with ASC 815-15. The bifurcated embedded derivative on reinsurance is computed as the fair value unrealized gain (loss) on the underlying funds withheld assets. This amount is included as a component of the funds withheld liability balance reported on the Condensed Consolidated Balance Sheets, with changes in the embedded derivative on reinsurance reported in Net investment income (loss) in the Condensed Consolidated Statements of Earnings. The embedded derivative on reinsurance is classified as a Level 2 financial instrument in the fair value hierarchy because its valuation input is the fair value market adjustments on the underlying Level 2 debt securities. See Note (10) Fair Values of Financial Instruments for further details of fair value disclosures. In the Condensed Consolidated Statements of Cash Flows, changes in the funds withheld liability are reported as operating activities. Realized gains on funds withheld assets are transferred to the reinsurer and reported as investing activities in the Condensed Consolidated Statements of Cash Flows.

11
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below shows the net unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and nine months ended September 30, 2017March 31, 2021 and September 30, 2016.March 31, 2020.


Affected Line Item in the
Statements of Earnings/(Loss)		Amount Reclassified From Accumulated Other Comprehensive Income
Three Months Ended March 31,
20212020
(In thousands)
Other net investment gains (losses)$1,416 761 
Earnings before Federal income taxes1,416 761 
Federal income taxes297 160 
Net earnings$1,119 601 


(2) NEW ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements not yet adopted

In August 2018, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts. This update is aimed at improving the Codification as it relates to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. Amendments include the following:

A. Require insurance entity to (1) review and update assumptions used to measure cash flows at least annually (with changes recognized in net income) and (2) update discount rate assumption at each reporting date (with changes recognized in other comprehensive income).

B. Require insurance entity to measure all market risk benefits associated with deposit (i.e. account balance) contracts at fair value, with change in fair value attributable to change in instrument-specific credit risk recognized in other comprehensive income.

C. Simplify amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins and require those balances be amortized on constant level basis over expected term of related contract. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to impairment test.

D. Require insurance entity to add disclosures of disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. Insurance entity must also disclose information about significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement.

These updates are required to be applied retrospectively to the earliest period presented in the financial statements for fiscal periods beginning after December 15, 2022, with early adoption permitted. The Company has performed a preliminary gap analysis and created a roadmap for implementation of this standard by the effective date and is evaluating the impact of the new guidance on its Consolidated Financial Statements.

12
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
Table of Contents



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) NEW ACCOUNTING PRONOUNCEMENTS

Accounting pronouncements adopted

In January 2016,December 2019, the FASB released accounting standards update (ASU) 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The main provisionsissued ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies various aspects of the update are to eliminate the available for sale classification ofincome tax accounting for equity securitiesguidance and to adjust the fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update will require that equity securities be carried at fair market valueapplied using different approaches depending on the balance sheet and any periodic changes in value will be adjustments to the income statement.specific amendment. The provisions of this update becomeamendments are effective for interim and annualfiscal periods beginning after December 15, 2017.2020. Early adoption is permitted. The Company does not expect the requirementsadoption of this update toASU did not have a material impacteffect on the Company’s financial position, results of operations or cash flows.financial position of the Company.


In June 2016, the FASB released ASU 2016-13, Financial Instruments - Credit Losses, which revises the credit loss recognition criteria for certain financial assets measured at amortized cost. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model.model ("CECL"). The objective of the expected credit lossCECL model is for the reporting entity to recognize its estimate of current expected credit losses for affected financial assets in a valuation allowance deducted from the amortized cost basis of the related financial assets that results in presenting the net carrying value of the financial assets at the amount expected to be collected. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this Update add clarification and correction to ASU 2016-13 around expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, and financial assets secured by collateral maintenance provisions. The guidance isfor these pronouncements was effective for interim and annual periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income. Theearnings. Effective January 1, 2020, the Company is currently evaluating this guidance.

In March 2017,adopted the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callableexpected loss recognition model related to mortgage loans, debt securities held atto maturity, and reinsurance recoverable using a premium.modified retrospective approach. The amortization periodchange in accounting, net of tax, of $3.0 million was recorded as a charge to retained earnings in the first quarter of 2020 reflecting initial allowance for premiums is being shortenedestimated credit losses balances of $1.2 million on mortgage loans and $3.3 million on debt securities held to maturity. The estimated credit losses for reinsurance recoverable were immaterial to the earliest call date. This guidance is effectivefinancial statements, but are monitored on a quarterly basis for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating this guidance.

In May 2017,any changes. Refer to Note (9) Investments for more information. Certain disclosures required by ASU 2016-13 are not included in the FASB released ASU 2017-09, Compensation - Stock Compensation. The update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Accounting Standards Codification (ASC) Topic 718. An entity shall account for the effects of a modification described in ASC paragraphs 718-20-35-3 through 35-9, unless all the following are met: (1) The fair value of the modified award is the sameConsolidated Financial Statements as the fair value of the original award immediately before the original award is modified; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The provisionsimpact of this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company doesstandard was not expect a material effect on the results of operations or financial position with the adoption of this ASU.material.

In July 2017, the FASB released ASU 2017-11, Earnings Per Share; Distinguishing Liabilities from Equity; and, Derivatives and Hedging. This update includes: (I) Accounting for Certain Financial Instruments with Down Round Features, and (II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. Part I of this update changes the classification analysis of certain equity-linked financial instruments with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. Part II of this update recharacterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. The Company does not expect a material effect on the results of operations or financial position with the adoption of this ASU.

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In September 2017, the FASB released ASU 2017-13, Revenue Recognition (Topic 605), Revenue from contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). This update adds SEC paragraphs pursuant to the SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force (EITF) meeting to provide effective dates that differ for (1) public business entities and certain other specified entities and (2) all other entities. The Company does not expect an effect on the results of operations or financial position with the adoption of this ASU. The Company will adopt Topic 606 and 842 within the required effective dates set by the SEC. Amendment to Topic 605 does not affect the Company since management fees amongst affiliates are eliminated upon consolidation. Amendment to Topic 840 does not affect the Company since the Company does not have any Third-Party Value Guarantees embedded within its lease agreements that will have a material effect on the results of operations or financial position.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.Consolidated Financial Statements.




(3) STOCKHOLDERS' EQUITY

NWLIC(3) STOCKHOLDERS' EQUITY

Robert L. Moody, Sr., through the Robert L. Moody Revocable Trust, controls 99.0% of the total outstanding shares of the Company's Class B common stock as of March 31, 2021. 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.

As the sole owner of National Western, all dividends declared by National Western are payable entirely to NWLGI and are eliminated in consolidation. 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 companyNational Western as of the previous calendar year-end. TheUnder these guidelines the maximum dividend payment which may be made without prior approval in 20172021 is $86.0 million. As the sole owner$10.0 million.

13
Table of NWLIC, all dividends declared by National Western are payable entirely to NWLGI and are eliminated in consolidation.Contents

In the second quarter of 2017 National Western declared and paid a $4.0 million dividend to NWLGI. During the third quarter of 2017 National Western declared a $3.0 million dividend payable to NWLGI which was subsequently paid on October 16, 2017. In the nine months ended September 30, 2016, National Western declared a cash dividend of $3.0 million payable to NWLGI which was subsequently paid on October 3, 2016.

NWLGI did not declare or pay cash dividends on its common shares during the nine months ended September 30, 2017 and 2016.




NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 2021 without prior approval is $20.0 million. All dividends declared by Ozark National are payable entirely to NWLIC as the sole owner and are eliminated in consolidation.
(4) EARNINGS PER SHARE

National Western did 0t declare or pay cash dividends to NWLGI during the three months ended March 31, 2021 and 2020. NWLGI also did 0t declare or pay cash dividends on its common shares during the three months ended March 31, 2021 and 2020.


(4) EARNINGS PER SHARE

Basic earnings (loss) per share of common stock are computed by dividing net incomeearnings available to each class of common stockholders on an as if distributed basis by the weighted-average basicnumber of common shares outstanding duringfor the period. Diluted earnings per share, by definition, assumesreflects 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, optionsthat then shared in the denominator. However, settlementdistributed earnings of stock option exercises in cash or by issuanceeach class of shares is at discretion ofcommon 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 optionstwo 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.


14
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Net incomeearnings (loss) for the periods shown isbelow are 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 March 31,
 20212020
 Class AClass BClass AClass B
(In thousands except per share amounts)
Numerator for Basic and Diluted Earnings (Loss) Per Share:    
Net earnings (loss)$62,129  (2,062) 
Dividends - Class A shares0  0  
Dividends - Class B shares0  0  
Undistributed earnings (loss)$62,129  (2,062) 
Allocation of net earnings (loss):    
Dividends$0 0 0 0 
Allocation of undistributed earnings (loss)60,372 1,757 (2,004)(58)
Net earnings (loss)$60,372 1,757 (2,004)(58)
Denominator:    
Basic earnings (loss) per share - weighted-average shares3,436 200 3,436 200 
Effect of dilutive stock options0 0 0 0 
Diluted earnings (loss) per share - adjusted weighted-average shares for assumed conversions3,436 200 3,436 200 
Basic earnings (loss) per share$17.57 8.79 (0.58)(0.29)
Diluted earnings (loss) per share$17.57 8.79 (0.58)(0.29)


15
 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 income21,196
 617
 32,782
 954
        
Net income$21,196
 617
 32,782
 954
        
Denominator: 
  
  
  
Basic earnings per share - weighted-average shares3,436
 200
 3,436
 200
Effect of dilutive stock options—
 —
 —
 —
        
Diluted earnings per share - adjusted weighted-average shares for assumed conversions3,436
 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)

(5) PENSION AND OTHER POSTRETIREMENT PLANS

        
 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 income68,831
 2,003
 75,095
 2,185
        
Net income$68,831
 2,003
 75,095
 2,185
        
Denominator: 
  
  
  
Basic earnings per share - weighted-average shares3,436
 200
 3,436
 200
Effect of dilutive stock options—
 —
 —
 —
        
Diluted earnings per share - adjusted weighted-average shares for assumed conversions3,436
 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
(A)Defined Benefit Pension Plans






NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(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 companyCompany 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
 March 31,
 20212020
 (In thousands)
Service cost$30 27 
Interest cost132 168 
Expected return on plan assets(356)(315)
Amortization of net loss134 145 
Net periodic benefit cost$(60)25 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
 (In thousands)
        
Service cost$27
 26
 81
 79
Interest cost240
 250
 718
 750
Expected return on plan assets(306) (304) (920) (912)
Amortization of prior service cost—
 —
 —
 —
Amortization of net loss159
 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'sCompany's minimum required contribution for the 20172021 plan year is $0.2$0.0 million. There was no$0.7 million in planned contributions remaining contribution payable for the 20162020 plan year as of September 30, 2017.March 31, 2021. As of September 30, 2017,March 31, 2021, the company had contributed a total of $0.0Company has made $0.2 million in contributions to the plan for the 20172020 plan year and $0.0 million in contributions to the plan for the 2021 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 nonqualified3 non-qualified defined benefit pension plans. The first plan primarily forcovers certain senior officers. The planofficers 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 CompanyGroup, Inc. ("ANICO"American National"). ANICO, a related party. American National has guaranteed the payment of pension obligations under the plan. However, the companyCompany has a contingent liability with respect to the plan should these entities be unable to meet their obligations under the existing agreements. Also, the companyCompany 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 companyCompany 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 companyCompany in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

16
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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 nonqualifiednon-qualified defined benefit plans.


 Three Months Ended
March 31,
 20212020
 (In thousands)
Service cost$309 302 
Interest cost261 338 
Amortization of prior service cost15 15 
Amortization of net loss1,282 1,445 
Net periodic benefit cost$1,867 2,100 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
 (In thousands)
        
Service cost$204
 109
 612
 327
Interest cost347
 265
 1,041
 794
Amortization of prior service cost15
 15
 45
 45
Amortization of net loss818
 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 companyCompany expects to contribute $2.0$2.0 million to these plans in 2017.2021. As of September 30, 2017,March 31, 2021, the companyCompany has contributed $1.6$0.4 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 two2 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
March 31,
 20212020
 (In thousands)
Interest cost$37 41 
Amortization of net loss73 40 
Net periodic benefit cost$110 81 

17
 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 cost25
 26
 77
 78
Amortization of net loss10
 —
 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 2021. 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.ONL and Affiliates (previously referred to as "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 a separate segment 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 30, 2017March 31, 2021 and December 31, 20162020 for the Condensed Consolidated Balance Sheet items and for the three and nine months ended September 30, 2017March 31, 2021 and September 30, 2016March 31, 2020 for the Condensed Consolidated StatementStatements of Earnings (Loss) is provided below.


Condensed Consolidated Balance Sheet Items:

March 31, 2021
 Domestic
Life
Insurance		International
 Life
Insurance		AnnuitiesONL & AffiliatesAll
 Others		Totals
 (In thousands)
Deferred transaction costs$118,116 152,639 380,497 168,964 0 820,216 
Total segment assets1,669,647 1,056,287 9,742,904 1,085,932 374,454 13,929,224 
Future policy benefits1,388,377 793,066 6,977,712 770,220 0 9,929,375 
Other policyholder liabilities18,315 11,297 103,317 15,332 0 148,261 
Funds withheld liability0 0 1,636,959 0 0 1,636,959 

December 31, 2020
 Domestic
Life
Insurance		International
 Life
Insurance		AnnuitiesONL & AffiliatesAll
 Others		Totals
 (In thousands)
Deferred transaction costs$94,100 124,480 302,397 170,756 0 691,733 
Total segment assets3,242,794 1,034,280 7,976,588 1,117,509 382,149 13,753,320 
Future policy benefits1,337,174 798,952 7,028,860 768,433 0 9,933,419 
Other policyholder liabilities16,378 11,086 94,049 16,967 0 138,480 
Funds withheld liability0 0 1,697,591 0 0 1,697,591 

18
 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 assets1,071,664
 1,238,990
 9,306,527
 309,197
 11,926,378
Future policy benefits909,407
 904,097
 8,178,265
 —
 9,991,769
Other policyholder liabilities14,441
 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 assets971,990
 1,232,648
 9,193,980
 298,481
 11,697,099
Future policy benefits830,460
 919,380
 8,109,255
 —
 9,859,095
Other policyholder liabilities13,998
 10,528
 118,865
 —
 143,391



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Condensed Consolidated StatementStatements of Earnings:Earnings (Loss):


Three Months Ended March 31, 2021
 Domestic
Life
Insurance		International
 Life
Insurance		AnnuitiesONL & AffiliatesAll
 Others		Totals
 (In thousands)
Premiums and contract revenues$13,898 20,180 3,930 19,465 0 57,473 
Net investment income (loss)23,843 12,116 119,724 6,574 3,818 166,075 
Other revenues21 28 1,374 2,926 1,065 5,414 
Total revenues37,762 32,324 125,028 28,965 4,883 228,962 
Life and other policy benefits6,110 4,375 10,001 17,403 0 37,889 
Amortization of deferred transaction costs5,460 5,392 16,447 2,690 0 29,989 
Universal life and annuity contract interest21,621 10,799 20,425 0 0 52,845 
Other operating expenses7,447 4,774 12,930 4,746 1,438 31,335 
Federal income taxes (benefit)(594)1,443 13,476 857 712 15,894 
Total expenses40,044 26,783 73,279 25,696 2,150 167,952 
Segment earnings (loss)$(2,282)5,541 51,749 3,269 2,733 61,010 


19

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 income17,385
 15,711
 114,123
 4,472
 151,691
Other revenues11
 26
 26
 4,609
 4,672
          
Total revenues27,303
 46,090
 119,442
 9,081
 201,916
          
Life and other policy benefits3,483
 8,437
 9,095
 —
 21,015
Amortization of deferred policy acquisition costs2,517
 (21,585) 37,790
 —
 18,722
Universal life and annuity contract interest14,119
 9,112
 84,568
 —
 107,799
Other operating expenses4,086
 5,661
 8,714
 4,135
 22,596
Federal income taxes (benefit)1,061
 15,473
 (7,007) 1,792
 11,319
          
Total expenses25,266
 17,098
 133,160
 5,927
 181,451
          
Segment earnings (loss)$2,037
 28,992
 (13,718) 3,154
 20,465
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 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 income51,998
 48,581
 346,031
 19,435
 466,045
Other revenues30
 73
 90
 13,521
 13,714
          
Total revenues79,850
 140,217
 362,704
 32,956
 615,727
          
Life and other policy benefits13,850
 19,399
 25,377
 —
 58,626
Amortization of deferred acquisition costs8,300
 (7,874) 85,566
 —
 85,992
Universal life and annuity contract interest41,576
 36,871
 221,415
 —
 299,862
Other operating expenses13,975
 18,846
 28,588
 12,622
 74,031
Federal income taxes (benefit)740
 25,125
 605
 7,001
 33,471
          
Total expenses78,441
 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)

Three Months Ended March 31, 2020
Domestic
Life
Insurance		International
Life
Insurance		AnnuitiesONL & AffiliatesAll
Others		Totals
 (In thousands)
Premiums and contract revenues$11,228 22,867 4,650 20,083 0 58,828 
Net investment income(19,383)(9,000)10,632 6,301 (2,028)(13,478)
Other revenues29 54 4 2,422 1,144 3,653 
Total revenues(8,126)13,921 15,286 28,806 (884)49,003 
Life and other policy benefits5,877 3,331 8,189 16,237 0 33,634 
Amortization of deferred transaction costs2,573 6,052 19,021 2,391 0 30,037 
Universal life and annuity contract interest(21,693)(10,837)4,504 0 0 (28,026)
Other operating expenses4,295 3,096 6,867 4,069 1,495 19,822 
Federal income taxes (benefit)188 2,804 (5,319)1,222 (544)(1,649)
Total expenses(8,760)4,446 33,262 23,919 951 53,818 
Segment earnings (loss)$634 9,475 (17,976)4,887 (1,835)(4,815)

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 income12,294
 12,763
 97,384
 4,540
 126,981
Other revenues7
 10
 139
 4,320
 4,476
          
Total revenues20,808
 43,839
 102,914
 8,860
 176,421
          
Life and other policy benefits5,338
 5,038
 7,054
 —
 17,430
Amortization of deferred acquisition costs(4,331) 7,296
 21,430
 —
 24,395
Universal life and annuity contract interest9,795
 11,287
 46,694
 —
 67,776
Other operating expenses4,847
 6,691
 7,526
 4,531
 23,595
Federal income taxes (benefit)1,667
 3,591
 6,549
 1,209
 13,016
          
Total expenses17,316
 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 income28,011
 30,203
 261,579
 15,939
 335,732
Other revenues37
 50
 145
 13,818
 14,050
          
Total revenues52,862
 125,544
 279,131
 29,757
 487,294
          
Life and other policy benefits13,629
 14,789
 20,153
 —
 48,571
Amortization of deferred acquisition costs989
 11,720
 75,872
 —
 88,581
Universal life and annuity contract interest20,855
 19,643
 139,094
 —
 179,592
Other operating expenses11,745
 17,867
 23,044
 13,650
 66,306
Federal income taxes (benefit)1,833
 19,977
 6,808
 5,229
 33,847
          
Total expenses49,051
 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)


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


 Three Months Ended March 31,
 20212020
 (In thousands)
Premiums and Other Revenues:
  
Premiums and contract revenues$57,473 58,828 
Net investment income (loss)166,075 (13,478)
Other revenues5,414 3,653 
Realized gains (losses) on investments1,416 3,485 
Total condensed consolidated premiums and other revenues$230,378 52,488 

20
 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 income151,691
 126,981
 466,045
 335,732
Other revenues4,672
 4,476
 13,714
 14,050
Realized gains (losses) on investments2,074
 5,426
 10,906
 10,589
        
Total condensed consolidated premiums and other revenues$203,990
 181,847
 626,633
 497,883
Table of Contents

 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 investments726
 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 taxes1,348
 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 March 31,
 20212020
 (In thousands)
Federal Income Taxes:
  
Total segment Federal income taxes$15,894 (1,649)
Taxes on realized gains (losses) on investments297 732 
Total condensed consolidated Federal income taxes$16,191 (917)

 Three Months Ended March 31,
 20212020
 (In thousands)
Net Earnings (Loss):
  
Total segment earnings (loss)$61,010 (4,815)
Realized gains (losses) on investments, net of taxes1,119 2,753 
Total condensed consolidated net earnings (loss)$62,129 (2,062)

 March 31,December 31,
 20212020
 (In thousands)
Assets:
  
Total segment assets$13,929,224 13,753,320 
Other unallocated assets673,222 894,950 
Total condensed consolidated assets$14,602,446 14,648,270 


(7) SHARE-BASED PAYMENTS
 September 30, December 31,
 2017 2016
 (In thousands)
    
Assets:
   
Total segment assets$11,926,378
 11,697,099
Other unallocated assets211,913
 197,882
    
Total condensed consolidated assets$12,138,291
 11,894,981



(7)  SHARE-BASED PAYMENTS

The Company hadEffective 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 19952008 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 were300,000. 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 toterm 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).


21
Table of Contents

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 currentAt the end of 2018, all stock options outstanding were granted under the 19952008 Plan and 2008 Plan. Employee stock option andhad 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 SARSARs 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 19952008 Plan which providesprovided stock option holders the additional alternative of selling shares acquired through the exercise of options directly back to the Company. Option holders maycould 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 wereThis 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 commonscommon 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 three3 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 and forward 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)

Other awards may involve performance share units (PSUs)("PSUs") which are units granted at a specified dollar amount per unit, typically linked to the Company's Class A common share price, that are subsequently multiplied by an attained performance factor to derive the number of PSUs to be paid as cash compensation at the vesting date. PSUs also vest three years from the date of grant. For PSUs, the performance period begins the first day of the calendar year infor which the PSUs are granted and runs three calendar years. At that time, the three-year performance outcome will be measured against the pre-defined target amounts to determine the number of PSUs earned as compensation. PSUs granted prior to 2019 are paid at the closing price of the Company's Class A common share on the vesting date. PSUs granted in 2019 and forward are payable at the 20-day moving average closing price of the Company’s Class A common share at the vesting date.


PSU awards covering the three year measurement period ended December 31, 2019 were paid out in the first quarter of 2020. The performance factor during the measurement period used to determine compensation payouts was 101.19% of the pre-defined metric target.

PSU awards covering the three year measurement period ended December 31, 2020 were paid out in April 2021. The performance factor during the measurement period used to determine compensation payouts was 85.16% of the pre-defined metric target.

Directors of the Company are eligible to receive RSUs under the Incentive Plan. As shown in the table below, during the nine months ended September 30, 2017 and 2016, the Company granted RSUs to directors based upon the closing market price per Class A common share at the time of the grant. Unlike RSUs granted to officers, the RSUs granted to directors vest one year from the date of grant. TheyRSUs 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 at that time.

The following table shows all grants issued RSUs granted in 2019 and forward are payable in cash at the vesting date equal to officers and directors for the three and nine months ended September 30, 2017 and 2016. These grants were made based upon20-day moving average closing market price perof the Company’s Class A common share at that time.

NaN awards were granted to officers and directors during the grant date.

three months ended March 31, 2021 and 2020.
Three Months Ended
September 30, 2017September 30, 2016
OfficerDirectorOfficerDirector
SARs—

—
—

—
RSUs—

—
—

—
PSUs—

—
—


—

22
Table of Contents
 Nine Months Ended
 September 30, 2017 September 30, 2016
 Officer Director Officer Director
        
SARs11,715
 —
 14,643
 —
RSUs2,725
 1,660
 3,661
 2,563
PSUs4,526
 —
 5,727
 —


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The Company uses the current fair value method to measure compensation costcosts for awards granted under the share-based plans. As of September 30, 2017March 31, 2021 and 2016,December 31, 2020, the liability balance was $16.6$9.9 million and $6.4$6.2 million, respectively. A summary of shares available for grantawards by type and related activity is detailed below.


  Stock Options Outstanding
Shares
Available
For Grant		SharesWeighted-
Average
Exercise
Price
Stock Options:   
Balance at January 1, 2021291,000 0 $0 
Exercised0 0 $0 
Forfeited0 0 $0 
Expired0 0 $0 
Stock options granted0 0 $0 
Balance at March 31, 2021291,000 0 $0 
   Options Outstanding
 
Shares
Available
For Grant
 Shares 
Weighted-
Average
Exercise
Price
      
Stock Options:     
Balance at January 1, 2017291,000
 19,268
 $240.47
Exercised—
 (250) $255.13
Forfeited—
 —
 $—
Expired—
 —
 $—
Stock options granted—
 —
 $—
      
Balance at September 30, 2017291,000
 19,018
 $240.28


 Liability Awards
SARRSUPSU
Other Share/Unit Awards:
Balance at January 1, 2021144,248 16,449 24,282 
Exercised(100)0 (3,863)
Forfeited0 0 0 
Granted0 0 0 
Balance at March 31, 2021144,148 16,449 20,419 

 Liability Awards
 SAR RSU PSU
      
Balance at January 1, 201777,178
 6,029
 5,426
Exercised(1,862) (2,563) —
Forfeited(400) (238) —
Granted11,715
 4,385
 4,526
      
Balance at September 30, 201786,631
 7,613
 9,952

Stock options, SARs, RSUs, and RSUsPSUs shown as forfeited in the above tables represent vested and unvested awards not exercised by plan participants prior toupon their termination from the Company. Forfeited stock options, if any, are not shown as being added back toCompany in accordance with the "Shares Available For Grant" balance as they were awarded underexpiration provisions of the 1995 Plan which was terminated during calendar year 2010.awards.


The total intrinsic value of shared-basedshare-based compensation exercised was $1.0$0.7 million and $0.1$1.9 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The total share-based compensation paid during the period was $1.0$0.7 million and $0.1$1.9 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The total fair value of stock optionsSARs, RSUs, and SARsPSUs vested during the ninethree months ended September 30, 2017March 31, 2021 and 20162020 was $0.6$0.0 million and $0.3$1.8 million,, respectively. For the nine months ended September 30, 2017 and 2016, the totalNaN cash amounts were received from the exercise of stock options under the Plans was $0.0 million and $0.0 million, respectively.during the periods reported.



23
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes information about stock options and SARs outstanding at September 30, 2017.March 31, 2021. There were 0 options outstanding as of March 31, 2021.


 SARs Outstanding
Number
Outstanding		Weighted-
Average
Remaining
Contractual Life		Number
Exercisable
Exercise prices:   
$132.5619,018 0.7 years19,018 
$210.2223,450 2.7 years23,450 
$216.4811,149 4.9 years11,149 
$311.169,531 5.9 years9,531 
$310.55203 6.1 years203 
$334.349,018 6.7 years9,018 
$303.7711,233 7.7 years7,483 
$252.9119,556 8.7 years6,509 
$192.1040,990 9.7 years0 
Totals144,148  86,361 
   
Aggregate intrinsic value (in thousands)$5,819  $3,486 
  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


The aggregate intrinsic value in the table above is based on the closing Class A stock price of $349.00$249.00 per share on September 30, 2017.March 31, 2021.


The stock optionsSARs shown above with exercise pricesprice of $255.13 and $208.05$132.56 have a remaining contractual liveslife of less than one year each.year. The option holders for these respective grantsthis grant have until the end of the contractual life April 18, 2018 and June 20, 2018, respectively,of December 14, 2021 to exercise these holdings or otherwise forfeit the optionSAR grants held.


In estimating the fair value of the share-based awardsSARs outstanding at September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company employed the Black-Scholes option pricing model with assumptions detailed below.


March 31,
2021		December 31,
2020
Expected term0.7 to 9.7 years1.0 to 9.9 years
Expected volatility weighted-average33.88 %33.47 %
Expected dividend yield0.14 %0.17 %
Risk-free rate weighted-average0.39 %0.19 %
 September 30,
2017		 December 31,
2016
    
Expected term of options0.5 to 9.6 years
 1.3 to 9.1 years
Expected volatility weighted-average23.52% 23.83%
Expected dividend yield0.10% 0.12%
Risk-free rate weighted-average1.60% 1.03%


The Company reviewed the contractual term relative to the optionsSARs as well as perceived future behavior patterns of exercise. Volatility is based on the Company’s historical volatility over the expected term of the option’sSARs by expected exercise date.


The pre-tax compensation cost/(benefit) recognized in the financial statements related to these plans was $1.3$4.4 million and $5.6$(6.3) million for the three and nine months ended September 30, 2017March 31, 2021 and $1.7 million and $(1.1) million for the three and nine months ended September 30, 2016,2020, respectively. The related tax expense/(benefit) recognized was $(0.5)$(0.9) million and $(2.0)$1.3 million for the three and nine months ended September 30, 2017March 31, 2021 and $(0.6) million and $0.4 million for the three and nine months ended September 30, 2016,2020, respectively.

24
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


As of September 30, 2017,March 31, 2021, the total pre-tax compensation costexpense related to nonvested share basednon-vested share-based awards not yet recognized was $5.9 million.$10.3 million. This amount is expected to be recognized over a weighted-average period of 1.31.4 years. The Company recognizes compensation cost over the graded vesting periods.




(8)COMMITMENTS AND CONTINGENCIES

(8) COMMITMENTS AND CONTINGENCIES

(A)  Legal Proceedings


In the normal course of business, the Company is involved or may become involved in various legal actions in which claims for alleged economic and punitive damages have been or may be asserted, some for substantial amounts. In recent years, carriers offering life insurance and annuity products have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices, and similar claims. As previously disclosed, the Company has been a defendant in prior years in such class action lawsuits. Given the uncertainty involved in these types of actions, the ability to make a reliable evaluation of the likelihood of an unfavorable outcome or an estimate of the amount of or range of potential loss is endemic to the particular circumstances and evolving developments of each individual matter on its own merits.

On October 26, 2011 the Brazilian Superintendence of Private Insurance (“SUSEP”) attempted to serve National Western with a subpoena regarding an administrative proceeding initiated by SUSEP in which it alleged that National Western was operating as an insurance company in Brazil without due authorization. National Western had been informed that SUSEP was attempting to impose a penal fine, based on currency exchange rates at that time, of approximately $6.0 billion on the company.  SUSEP unsuccessfully attempted to serve National Western with notice regarding this matter.  National Western does not transact business in Brazil and has no officers, employees, property, or assets in Brazil. National Western believes that SUSEP has no jurisdiction over the company, that SUSEP's attempts at service of process were invalid, and that any penal fine would be unenforceable.  In addition, due to a new law recently enacted in Brazil the penal fine has been limited to 3 million reais (approximately $960,000). For the reasons described above, the Company does not believe that this matter meets the definition of a material pending legal proceeding as such term is defined in Item 103 of Regulation S-K but has included the foregoing description solely due to the purported amount of the fine sought at that time. Despite SUSEP's lack of jurisdiction over National Western and absence of National Western officers, employees, property, or assets in Brazil, SUSEP affirmed its imposition of a penal fine against National Western, but in the reduced amount of 3 million reais (approximately $960,000). In light of the substantial reduction in the proposed penal fine by SUSEP, during the fourth quarter of 2016 National Western paid the penal fine in the reduced amount under protest and thereby retained its rights to seek judicial review in Brazil of the merits of the SUSEP charges. In consideration of these developments, National Western ceased accepting new applications in the fourth quarter of 2015 from residents in Brazil.

National Western was the named defendant in the case of Damaris Maldonado Vinas, et al. vs. National Western Life Insurance, in which the plaintiffs, after National Western had paid the death benefits to the beneficiary (Francisco Iglesias-Alvarez) upon the annuitant’s (Carlos Iglesias-Alvarez) death, sought to annul two annuity policies issued by National Western at the behest of Carlos Iglesias-Alvarez and which named Francisco Iglesias-Alvarez as their beneficiary.  On March 31, 2016, the United States District Court for the District of Puerto Rico (the “Court”) issued its Opinion and Order on the pending Motions for Summary Judgment submitted by the parties, and therein denied National Western’s motion and granted plaintiffs’ motion voiding the two annuities and requesting a refund of the premiums paid ($2.9 million).  National Western vigorously defended the case and believes that the Court’s Opinion and Order is contrary to applicable law.  As such, National Western filed a Motion for Reconsideration of Opinion and Order and Corresponding Judgment with the Court on April 27, 2016, which the Court denied on May 5, 2016. National Western filed a Notice of Appeal on June 10, 2016, filed its Appeal Brief on September 12, 2016, and oral arguments with the U.S. Court of Appeals for the First Circuit were held on March 9, 2017. On June 29, 2017, the Court of Appeals vacated the district court's judgment and remanded to the district court to determine whether it is nevertheless equitable for the case to proceed without Francisco Iglesias-Alvarez. Plaintiffs filed a Motion in Support of Determination in Equity and Good Conscience That Action Should Proceed Among Existing Parties Under Fed.R.Civ.P. 19(B) on September 14, 2017, and National Western filed its Opposition to Plaintiff’s Motion on October 27, 2017.


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


On September 28, 2017, a purported shareholder derivative lawsuit was filed in the 122nd District Court of Galveston County, State of Texas entitled Robert L. Moody, Jr. derivatively on behalf of National Western Life Insurance Company and National Western Life Group, Inc. v. Ross Rankin Moody, et al., naming certain current and former directors and current officers as defendants. The complaint allegeschallenged the directors’ oversight of insurance sales to non-U.S. residents and alleged that the defendants breached their fiduciary duties in the conduct of their duties as board members by failing to act (i) on an informed basis and (ii) in good faith or with the honest belief that their actions were in the best interests of the Company. The complaint seekssought an undetermined amount of damages, attorneys’ fees and costs, and equitable relief, including the removal of the Company’s Chairman and Chief Executive Officer and other board members and/or officers of the Company. The Company believes that the claims in the complaint arewere baseless and without merit, will continue to vigorously defend this lawsuit, and will seekwas awarded reimbursement of all legal costs and expenses from plaintiff.plaintiff as detailed below. The Company believes, based on information currently available, that the final outcome of this lawsuit will not have a material adverse effect on the Company’s business, results of operations, or consolidated financial position. The companies and directors filed their respective Pleas to the Jurisdiction ("Pleas") contesting the plaintiff's standing to even pursue this action, along with their Answers, on October 27, 2017. On December 14, 2017, plaintiff filed a Response to the Pleas and on December 21, 2017, the Court heard oral argument on the Pleas. Plaintiff then filed a First Amended Petition on January 11, 2018. The companies and directors filed a Supplement to the Pleas on January 30, 2018, to which plaintiff responded on February 1, 2018, and the companies and directors replied on February 9, 2018. On May 3, 2018, the Court issued a memorandum to all attorneys of record stating that the Court would grant the defendants' Pleas and asked the attorney for defendants to prepare and submit proposed orders/judgments granting the requested relief for consideration by the Court. The defendants filed such proposed order granting the Pleas on May 7, 2018. On May 16, 2018 the Court issued an Order granting the Pleas and dismissing Robert L. Moody, Jr.’s claims with prejudice, and plaintiff then filed a Motion to Transfer Venue (“MTTV”). Defendants filed an Application for Fees, seeking to recover defendants’ legal costs and expenses from plaintiff, and a Response to the MTTV on June 8, 2018. In response plaintiff filed a Motion to Vacate, a Response to the Application for Fees, and his own Request for Attorney’s Fees on July 5, 2018. Defendants filed a Response to the Motion to Vacate and to plaintiff’s Request for Attorney’s Fees on July 11, 2018, and the Court heard oral arguments on July 16, 2018. Plaintiff filed supplemental briefing in support of his July 5, 2018 filings on July 25, 2018, and defendants filed their response to plaintiff's supplemental briefing on July 27, 2018. On August 8, 2018 the Court issued an Order denying plaintiff's Motion to Vacate. Pursuant to the Court’s instructions, on October 5, 2018, defendants filed an Order Granting Application for Expenses. Defendants then filed a Motion for Entry of Final Judgment and a Request for Submission Date on Motion for Entry of Final Judgment on October 11, 2018, which the Court set as October 30, 2018. Plaintiff filed his Objection to Proposed Final Judgment and Objection to Proposed Order on Attorneys’ Fees on October 25, 2018, to which defendants filed a response on October 30, 2018. On November 11, 2018, the Court issued its Final Judgment: ordering Plaintiff to pay the companies $1,314,054 for reasonable and necessary fees and expenses, denying Plaintiff’s Motion to Transfer Venue, and dismissing Plaintiff’s counterclaim. Plaintiff appealed the Court’s Final Judgment to the First District Court of Appeals in Houston, TX. The court of appeals issued a panel decision on December 10, 2020 affirming the dismissal and award of attorneys’ fees and expenses to the companies. On January 22, 2021, Plaintiff filed a motion for rehearing en banc of the affirmance of the award of attorneys’ fees and expenses. That motion remains pending.
25
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In April of 2019, National Western defended a two-week jury trial in which it was alleged that it committed actionable Financial Elder Abuse in its issuance of a $100,000 equity indexed annuity to the Plaintiff in the case of Williams v Pantaleoni et al, Case No. 17CV03462, Butte County California Superior Court. The Court entered an Amended Judgment on the Jury Verdict on July 27, 2019 against National Western in the amount of $14,949 for economic damages and $2.9 million in non-economic and punitive damages. National Western vigorously disputes the verdicts and the amounts awarded, and in furtherance of such, filed a Motion for Judgment Notwithstanding Jury Verdict and a Motion for New Trial, both of which were rejected by the Court. On September 9, 2019, NWLIC filed its Notice of Appeal. On November 11, 2019, the judge awarded the Plaintiff attorney’s fees in the amount of $1.26 million. Both the Plaintiff and NWLIC have appealed this ruling.

In the Form 10-Q for the period ended September 30, 2020, the Company reported that it experienced a data event in which an intruder accessed and exfiltrated certain data from the Company's network. As a result of this event, the Company is aware of two proposed class actions filed against the Company, Mildred Baldwin, on behalf of herself and others similarly situated vs. National Western Life Insurance Company, Missouri Circuit Court for the 18th Judicial Circuit (Pettis County) filed February 16, 2021, and Douglas Dyrssen Sr., individually and on behalf of all others similarly situated vs. National Western Life Insurance Company and National Western Life Group, Inc., United States District Court for the Eastern District of California filed March 8, 2021. The actions are seeking an undetermined amount of damages, attorneys' fees and costs, injunctive relief, declaratory and other equitable relief, and enjoinment. As the Company has been notified only recently of these lawsuits, it is in the process of analyzing the merits of these various allegations. At this time, no prediction can be made as to the likelihood or amount of any recovery against the Company. It is possible other actions may be filed against the Company due to the data event.

Although there can be no assurances, at the present time, the Company does not anticipate that the ultimate liability arising from such other potential, pending, or threatened legal actions will have a material adverse effect on the financial condition or operating results of the Company.

Separately, in 2015, Brazilian authorities commenced an investigation into possible violations of Brazilian criminal law in connection with the issuance of National Western insurance policies to Brazilian residents, and in assistance of such investigation a Commissioner appointed by the U.S. District Court for the Western District of Texas issued a subpoena in March of 2015 upon the CompanyNWLIC to provide information relating to such possible violations. No conclusion can be drawn at this time as to its outcome or how such outcome may impact the Company’s business, results of operations or financial condition. National Western ishas been cooperating with the relevant governmental authorities in regard to this matter.

(B) Financial Instruments


In order to meet the financing needs of its customers in the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments are commitments to extend credit which involve elements of credit and interest rate risk in excess of the amounts recognized in the Condensed Consolidated Balance Sheets.


The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amounts, assuming that the amounts are fully advanced and that collateral or other security is of no value. Commitments to extend credit are legally binding agreements to lend to a customer that generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments do not necessarily represent future liquidity requirements, as some could expire without being drawn upon. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company controls the credit risk of these transactions through credit approvals, limits, and monitoring procedures.


The Company had $14.9 million0 commitments to fund new loans and $1.4 million in0 commitments to extend credit relating to existing loans at September 30, 2017.March 31, 2021. The Company evaluates each customer's creditworthiness on a case-by-case basis. The Company had commitments to make capital contributions to alternative investment funds of $210.1 million as of March 31, 2021.





26
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(9)INVESTMENTS

(A)Investment Gains and Losses

(9)INVESTMENTS

(A)Investment Gains and Losses

The Company uses the specific identification method in computing realized gains and losses. The table below presents realized investment gains and losses, excluding impairment losses, for the periods indicated.


Three Months Ended March 31,
 20212020
 (In thousands)
Available-for-sale debt securities:  
Realized gains on disposal$1,416 761 
Realized losses on disposal0 0 
Held-to-maturity debt securities:
Realized gains on disposal0 2,724 
Realized losses on disposal0 0 
Real estate gains (losses)0 0 
Other0 0 
Totals$1,416 3,485 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands)
        
Available for sale debt securities:       
Realized gains on disposal$1,529
 1,773
 4,137
 2,455
Realized losses on disposal—
 (23) —
 (29)
Held to maturity debt securities:       
Realized gains on disposal555
 3,278
 4,059
 4,764
Realized losses on disposal—
 (3) (34) (109)
Equity securities realized gains (losses)(10) 401
 87
 607
Real estate gains (losses)—
 —
 2,657
 2,901
        
Totals$2,074
 5,426
 10,906
 10,589


Disposals in the held to maturityheld-to-maturity category during the periods shown primarilyquarter ended March 31, 2020 represent calls initiated by the credit issuer of the debt security. It isAt year-end 2020, the Company transferred all of its held-to-maturity debt securities to the available-for-sale category as the result of entering into a funds withheld reinsurance agreement effective December 31, 2020. The Company's policy was to initiate disposals of debt securities in the held to maturityheld-to-maturity category only in instances in which the credit status of the issuer comescame into question and the realization of all or a significant portion of the investment principal of the holding iswas deemed to be in jeopardy.



For the three months ended March 31, 2021 and 2020 the percentage of total gains on bonds due to the call of securities was 100.0% and 99.6%, respectively.















27
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(B)Debt Securities

The Company uses the specific identification method in computing realized gains and losses. For the three months ended September 30, 2017 and 2016 the percentagetransferred all of gains on bonds dueits debt securities to the callavailable-for-sale classification as of securities was 100.0%December 31, 2020. The table below presents amortized costs and 95.0%, respectively. For the nine months ended September 30, 2017 and 2016 the percentage of gains on bonds due to the call of securities was 88.0% and 87.0%, respectively. This includes calls out of the Company's available for sale portfoliofair values of debt securities.securities available-for-sale at March 31, 2021.


 Debt Securities Available-for-Sale
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		Allowance for Credit Losses
 (In thousands)
U.S. agencies$55,399 2,053 0 57,452 0 
U.S. Treasury3,156 99 0 3,255 0 
States and political subdivisions491,168 26,872 (2,733)515,307 0 
Foreign governments18,990 236 (583)18,643 0 
Public utilities799,468 52,905 (239)852,134 0 
Corporate6,999,640 472,691 (27,643)7,444,688 0 
Commercial mortgage-backed30,075 1,210 0 31,285 0 
Residential mortgage-backed837,066 40,868 (161)877,773 0 
Asset-backed212,305 2,194 (685)213,814 0 
Totals$9,447,267 599,128 (32,044)10,014,351 0 

The table below presents net impairment losses recognized in earnings for the periods indicated.amortized costs and fair values of debt securities available-for-sale at December 31, 2020.


 Debt Securities Available-for-Sale
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		Allowance for Credit Losses
 (In thousands)
U.S. agencies$72,945 2,496 0 75,441 0 
U.S. Treasury3,152 126 0 3,278 0 
States and political subdivisions528,266 37,909 (86)566,089 0 
Foreign governments11,115 334 0 11,449 0 
Public utilities831,990 77,920 0 909,910 0 
Corporate7,376,104 727,470 (4,601)8,098,973 0 
Commercial mortgage-backed30,108 1,363 0 31,471 0 
Residential mortgage-backed902,974 50,970 (156)953,788 0 
Asset-backed117,889 2,635 0 120,524 0 
Totals$9,874,543 901,223 (4,843)10,770,923 0 

28
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
  (In thousands)
         
Total other-than-temporary impairment gains (losses) on debt securities $26
 27
 69
 80
Portion of loss (gain) recognized in comprehensive income (26) (27) (69) (80)
         
Net impairment losses on debt securities recognized in earnings —
 —
 —
 —
Equity securities impairments —
 —
 —
 —
         
Totals $—
 —
 —
 —
Table of Contents

The table below presents a roll forward of credit losses on securities for which the Company also recorded non-credit other-than-temporary impairments in other comprehensive loss.

 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



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(B)Debt and Equity Securities

The table below presents amortized costs and fair values of securities held to maturity at September 30, 2017.

 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 subdivisions455,435
 21,927
 (723) 476,639
Public utilities1,109,167
 37,863
 (489) 1,146,541
Corporate4,397,029
 146,802
 (7,402) 4,536,429
Residential mortgage-backed1,293,507
 38,274
 (3,922) 1,327,859
Home equity7,377
 1,305
 —
 8,682
Manufactured housing1,144
 87
 —
 1,231
        
Totals$7,264,995
 246,463
 (12,536) 7,498,922

The table below presents amortized costs and fair values of securities available for sale at September 30, 2017.

 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 governments9,962
 451
 —
 10,413
Public utilities103,908
 4,864
 —
 108,772
Corporate2,783,263
 98,637
 (8,125) 2,873,775
Residential mortgage-backed21,790
 1,693
 (69) 23,414
Home equity8,287
 380
 —
 8,667
Manufactured housing—
 —
 —
 —
 2,927,787
 106,034
 (8,194) 3,025,627
        
Equity securities14,807
 5,371
 (202) 19,976
        
Totals$2,942,594
 111,405
 (8,396) 3,045,603


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2016.

 Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 (In thousands)
        
Debt securities:       
U.S. Treasury$1,333
 235
 —
 1,568
States and political subdivisions456,069
 22,697
 (2,841) 475,925
Public utilities1,087,176
 36,904
 (3,133) 1,120,947
Corporate4,237,029
 116,720
 (29,701) 4,324,048
Residential mortgage-backed1,367,270
 42,345
 (6,468) 1,403,147
Home equity8,826
 1,462
 —
 10,288
Manufactured housing1,556
 132
 —
 1,688
        
Totals$7,159,259
 220,495
 (42,143) 7,337,611

The table below presents amortized costs and fair values of securities available for sale at December 31, 2016.

 Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 (In thousands)
        
Debt securities:       
States and political subdivisions$580
 —
 (6) 574
Foreign governments9,956
 380
 —
 10,336
Public utilities127,181
 4,745
 (232) 131,694
Corporate2,802,852
 80,414
 (22,603) 2,860,663
Residential mortgage-backed27,110
 2,137
 (91) 29,156
Home equity9,341
 286
 —
 9,627
Manufactured housing—
 —
 —
 —
 2,977,020
 87,962
 (22,932) 3,042,050
        
Equity securities14,022
 4,657
 (366) 18,313
        
Totals$2,991,042
 92,619
 (23,298) 3,060,363

The Company does not consider securities to be other-than-temporarily impaired when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity, spread widening and credit quality and when recovery of all amounts due under the contractual terms of the security is anticipated. Based on the review and the Company's ability and intent not to sell these securities until maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2017. The Company will monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

During the three and nine months ended September 30, 2017, the Company recorded no other-than-temporary impairment on debt and equity securities.

Unrealized losses for debt securities held to maturity and securities available for sale decreased during the first nine months of 2017available-for-sale increased at March 31, 2021 from comparable balances at December 31, 2020 primarily due to increases in interest rate levels during the downward movementperiod.

Debt securities balances at March 31, 2021 and December 31, 2020 include Ozark National holdings of $790.3 million and $811.6 million in market interest rates during this period (which increasesavailable-for-sale. As part of the market priceacquisition effective January 31, 2019 the Company employed purchase accounting procedures in accordance with GAAP which revalued the acquired investment portfolio to their fair values as of the date of the acquisition. These fair values became the book values for Ozark National from that point going forward. Accordingly, unrealized gains and losses for the Ozark National debt securities).securities represent the changes subsequent to the purchase accounting book values established at the acquisition.


The following table shows the gross unrealized losses and fair values of the Company's held to maturity investmentsavailable-for-sale debt securities by investment category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2017.
March 31, 2021.
 Securities Held to Maturity
 Less than 12 Months 12 Months or Greater Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (In thousands)
            
Debt securities:           
States and political subdivisions$39,659
 (723) —
 —
 39,659
 (723)
Public utilities41,567
 (489) —
 —
 41,567
 (489)
Corporate456,605
 (5,863) 104,355
 (1,539) 560,960
 (7,402)
Residential mortgage-backed220,414
 (3,556) 9,036
 (366) 229,450
 (3,922)
            
Total temporarily impaired securities$758,245
 (10,631) 113,391
 (1,905) 871,636
 (12,536)


 Debt Securities Available-for-Sale
 Less than 12 Months12 Months or GreaterTotal
Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
 (In thousands)
States and political subdivisions$93,449 (2,636)1,772 (97)95,221 (2,733)
Foreign governments7,295 (583)0 0 7,295 (583)
Public utilities9,644 (239)0 0 9,644 (239)
Corporate607,543 (25,520)57,091 (2,123)664,634 (27,643)
Commercial mortgage-backed0 0 0 0 0 0 
Residential mortgage-backed0 0 460 (161)460 (161)
Asset-backed51,640 (685)0 0 51,640 (685)
Totals$769,571 (29,663)59,323 (2,381)828,894 (32,044)

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category and length of time the individualavailable-for-sale debt securities have been in a continuous unrealized loss position at September 30, 2017.

 Securities Available for Sale
 Less than 12 Months 12 Months or Greater Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (In thousands)
            
Debt securities:           
States and political subdivisions$—
 —
 —
 —
 —
 —
Public utilities—
 —
 —
 —
 —
 —
Corporate350,939
 (6,120) 57,034
 (2,005) 407,973
 (8,125)
Residential mortgage-backed1,371
 (14) 1,115
 (55) 2,486
 (69)
 352,310
 (6,134) 58,149
 (2,060) 410,459
 (8,194)
            
Equity securities940
 (128) 375
 (74) 1,315
 (202)
            
Total temporarily impaired securities$353,250
 (6,262) 58,524
 (2,134) 411,774
 (8,396)


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



The following table shows the gross unrealized losses and fair values of the Company's held to maturity investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2016.

 Securities Held to Maturity
 Less than 12 Months 12 Months or Greater Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (In thousands)
            
Debt securities:           
States and political subdivisions$80,507
 (2,841) —
 —
 80,507
 (2,841)
Public utilities162,587
 (3,133) —
 —
 162,587
 (3,133)
Corporate1,063,194
 (22,867) 179,113
 (6,834) 1,242,307
 (29,701)
Residential mortgage-backed274,045
 (5,989) 8,943
 (479) 282,988
 (6,468)
            
Total temporarily impaired securities$1,580,333
 (34,830) 188,056
 (7,313) 1,768,389
 (42,143)

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2016.2020.


 Debt Securities Available-for-Sale
 Less than 12 Months12 Months or GreaterTotal
Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
 (In thousands)
States and political subdivisions$0 0 1,762 (86)1,762 (86)
Public utilities0 0 0 0 0 0 
Corporate174,252 (3,836)36,152 (765)210,404 (4,601)
Residential mortgage-backed0 0 500 (156)500 (156)
Totals$174,252 (3,836)38,414 (1,007)212,666 (4,843)

29
 Securities Available for Sale
 Less than 12 Months 12 Months or Greater Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 (In thousands)
            
Debt securities:           
States and political subdivisions$574
 (6) —
 —
 574
 (6)
Public utilities10,765
 (232) —
 —
 10,765
 (232)
Corporate680,988
 (16,427) 106,969
 (6,176) 787,957
 (22,603)
Residential mortgage-backed1,292
 (91) —
 —
 1,292
 (91)
 693,619
 (16,756) 106,969
 (6,176) 800,588
 (22,932)
            
Equity securities4,154
 (305) 422
 (61) 4,576
 (366)
            
Total temporarily impaired securities$697,773
 (17,061) 107,391
 (6,237) 805,164
 (23,298)
Table of Contents





NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Debt securities. The gross unrealized losses for debt securities are made up of 168117 individual issues, or 12.7%8.8% of the total debt securities held available for sale by the Company at September 30, 2017.March 31, 2021. The market value of these bonds as a percent of amortized cost approximates 98.4%96.3%. Of the 168117 securities, 28,11, or 16.7%9.4%, fall in the 12 months or greater aging category;category and 163104 were rated investment grade at September 30, 2017.March 31, 2021.

Equity securities.  The gross unrealized losses for equity securities are made up of 26 individual issues at September 30, 2017.  These holdings are reviewed quarterly for impairment.  


The amortized cost and fair value of investments in debt securities available-for-sale at September 30, 2017,March 31, 2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


 Debt Securities Available-for-Sale
 Amortized CostFair Value
 (In thousands)
Due in 1 year or less$619,152 627,717 
Due after 1 year through 5 years3,916,418 4,177,254 
Due after 5 years through 10 years2,318,454 2,500,460 
Due after 10 years1,513,797 1,586,048 
 8,367,821 8,891,479 
Mortgage and asset-backed securities1,079,446 1,122,872 
Totals before allowance for credit losses9,447,267 10,014,351 
Allowance for credit losses0 — 
Totals$9,447,267 10,014,351 

30
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Debt Securities Available for Sale Debt Securities Held to Maturity
 Amortized Cost Fair Value Amortized Cost Fair Value
 (In thousands)
        
Due in 1 year or less$107,418
 109,701
 327,702
 334,140
Due after 1 year through 5 years1,134,227
 1,193,059
 2,165,828
 2,270,603
Due after 5 years through 10 years1,604,862
 1,638,814
 3,103,155
 3,174,126
Due after 10 years51,203
 51,972
 366,282
 382,281
 2,897,710
 2,993,546
 5,962,967
 6,161,150
        
Mortgage and asset-backed securities30,077
 32,081
 1,302,028
 1,337,772
        
Total$2,927,787
 3,025,627
 7,264,995
 7,498,922
As disclosed in the Notes to Condensed Consolidated Financial Statements, the Company adopted new accounting guidance as of 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. 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 Company utilized Moody's loss rates by industry type and credit ratings and applied them to each major bond category. These bond categories were further segmented by credit ratings and by maturities of two years and less and more than two years. The following table presents the allowance for credit losses for the three months ended March 31, 2021 and 2020.


Three Months Ended March 31,Three Months Ended March 31,
2021202120202020
 Debt Securities Held-to-MaturityDebt Securities Available-for-SaleDebt Securities Held-to- MaturityDebt Securities Available-for- Sale
 (In thousands)
Balance, beginning of period$0 0 0 0 
Provision January 1, 2020 for adoption of new accounting guidance0 0 3,334 0 
(Releases)/provision during period0 0 2,705 0 
 
Balance, end of period$0 0 6,039 0 

As previously noted, the Company reclassified all held-to-maturity debt securities to available-for-sale as December 31, 2020. Provisions to and releases from the allowance for credit losses in 2020 are recorded in net investment income in the Condensed Consolidated Statements of Earnings (Loss).

The Company determines current expected credit losses for available-for-sale debt securities in accordance with FASB ASC Subtopic 326-30 when fair value is less than amortized cost, interest payments are missed and the security is experiencing credit issues. Based on its review, the Company determined none of these investments required an allowance for credit loss at March 31, 2021 or 2020. The Company's operating procedures include monitoring the investment portfolio on an ongoing basis for any changes in issuer facts and circumstances that might lead to future need for a credit loss allowance.
(C) Transfer of Securities

During(C)Transfer of Securities

The Company reassessed its classification of its held-to-maturity portfolio at December 31, 2020 as a result of a funds withheld coinsurance agreement entered into with a third party reinsurer. A portion of the threetransferred debt securities was added to a funds withheld account for which the reinsurer provides investment management services and nine months ended September 30, 2017does not intend to hold the securities until maturity. Consequently, the Company made no transfers fromdetermined that its continued classification of held-to-maturity debt securities was not appropriate and transferred the heldentire balance at that time to maturity category to securities available for sale.available-for-sale.


(D) Mortgage Loans and Real Estate


A financing receivable is a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in a company's statement of financial position. Mortgage, equity,The Company's mortgage, participation and mezzanine loans on real estate are consideredthe only financing receivables reported byincluded in the Company.Condensed Consolidated Balance Sheets.


31
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Credit and default risk isare 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 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 and a competitive marketplace resulted in fewer loan opportunities being available that met the Company's required rate of return. During the first half of 2020, mortgage loan originations were further impeded by the COVID-19 pandemic and its effects upon the commercial real estate market. Mortgage loans originated by the Company totaled $49.5 million for the quarter ended March 31, 2021 and $80.2 million for the year ended December 31, 2020.

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 had no mortgage loans past due 90 days or more at September 30, 2017March 31, 2021 or 20162020 and as a result all interest income was recognized at September 30, 2017March 31, 2021 and 2016.2020. As a result of the economic climate change induced by the COVID-19 virus, various mortgage loan borrowers of the Company requested a temporary forbearance of principal payments on loans in the range of three to nine months. During the year 2020 there were 8 loans representing an aggregate principal balance of $29.2 million with borrowers meeting specified criteria of the Company that forbearance terms were agreed to by the Company. As of March 31, 2021 all forbearance loans have returned to the terms of the original loan agreements.


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table represents the mortgage loan portfolio by loan-to-value ratio.


March 31, 2021December 31, 2020
Amount%Amount%
(In thousands)(In thousands)
Mortgage Loans by Loan-to-Value Ratio (1):
Less than 50%$102,883 27.0 $66,635 19.9 
50% to 60%77,267 20.3 64,536 19.3 
60% to 70%156,087 41.0 153,414 45.8 
70% to 80%44,291 11.7 50,422 15.0 
80% to 90%0 0 0 0 
Greater than 90%0 0 0 0 
Gross balance380,528 100.0 335,007 100.0 
Allowance for credit losses(3,033)(0.8)(2,486)(0.7)
Totals$377,495 99.2 $332,521 99.3 
 September 30, 2017 December 31, 2016
 Amount % Amount %
 (In thousands)   (In thousands)  
        
Mortgage Loans by Loan-to-Value Ratio (1):       
Less than 50%$80,202
 42.4
 $54,783
 31.3
50% to 60%27,630
 14.6
 12,946
 7.4
60% to 70%64,253
 33.9
 76,959
 43.9
70% to 80%4,657
 2.5
 6,192
 3.5
80% to 90%6,999
 3.7
 18,688
 10.7
Greater than 90%5,532
 2.9
 5,616
 3.2
Gross balance189,273
 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


(1) Loan-to-Value Ratio is determined using the most recent appraised value. Appraisals are required at the time of funding and may be updated if a material change occurs from the original loan agreement.


32
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All mortgage loans are analyzed quarterly in order to monitor the financial quality of these assets. Based on ongoing monitoring, mortgage loans with a likelihood of becoming delinquent are identified and placed on an internal “watch list”.list.” Among the criteria that may indicate a potential problem include: major tenant vacancies or bankruptcies, late payments, and loan relief/restructuring requests. The mortgage loan portfolio is analyzed for the need for a valuation allowance on any loan that is on the internal watch list, in the process of foreclosure or that currently has a valuation allowance.


Mortgage loans are considered impaired when, based on current information and events, it is probable thatEffective January 1, 2020, the Company will be unable to collect all amounts due according toimplemented FASB ASU 2016-13, Financial Instruments-Credit Losses, which revised the contractual termscredit loss recognition criteria for certain financial assets measured at amortized cost. The guidance replaced the existing incurred loss recognition model with an expected loss recognition model (“CECL”). The objective of the loan agreement. When itCECL model is determined that a loan is impaired, a loss is recognized for the difference betweenreporting entity to recognize its estimate of current expected credit losses for affected financial assets in a valuation allowance deducted from the carrying amountamortized cost basis of the mortgage loan andrelated financial assets that results in presenting the estimated value reduced by the cost to sell. Estimated value is typically based on the loan's observable market price or the fairnet carrying value of the collateral less costfinancial assets at the amount expected to sell. Impairments andbe collected. For mortgage loan investments the Company is using the Weighted Average Remaining Maturity ("WARM") method, which uses an average annual charge-off rate applied to each mortgage loan risk category. At January 1, 2020, a CECL balance of $1.2 million was recorded for mortgage loans which incorporated the previous year-end balance under the prior accounting method. The adjustment resulted in a charge to retained earnings as a change in accounting, net of tax, of $0.4 million. Subsequent changes in the valuation allowance for current expected credit losses for mortgage loans are reported in net realized investment gains (losses)income in the Condensed Consolidated Statements of Earnings.Earnings (Loss).


The following table represents the mortgage loan allowance.allowance for credit losses.
March 31, 2021December 31, 2020
 (In thousands)
Balance, beginning of the period$2,486 675 
Provision January 1, 2020 for adoption of new accounting guidance0 504 
Provision during the period547 1,307 
Releases0 0 
Total ending allowance for credit losses$3,033 2,486 
 September 30, 2017 December 31, 2016
 (In thousands)
    
Balance, beginning of period$650
 650
Provision—
 —
Releases—
 —
    
Balance, end of period$650
 650


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The Company's direct investments in real estate are not a significant portion of its total investment portfolio and totaled approximately $31.3$33.6 million and $31.8$33.8 million at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. The Company recognized operating income on real estate properties of approximately $2.1$0.7 million and $2.0$0.7 million for the first ninethree months of 20172021 and 2016,2020, respectively.




33
Table of Contents
(10)FAIR VALUES OF FINANCIAL INSTRUMENTS


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(10) FAIR VALUES OF FINANCIAL INSTRUMENTS

For financial instruments, the FASB provides guidance which defines fair value, establishes a framework for measuring fair value under GAAP, and requires additional disclosures about fair value measurements. In compliance with this GAAP guidance, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1)("Level 1") and the lowest priority to unobservable inputs (Level 3)("Level 3"). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.


Financial assets and liabilities recorded at fair value on the Condensed Consolidated Balance Sheets are categorized as follows:


Level 1: Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. These generally provide the most reliable evidence and are used to measure fair value whenever available. The Company's Level 1 assets are equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.


Level 2:  Fair value is based upon significant inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable for substantially the full term of the asset or liability through corroboration with observable market data as of the reporting date. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, model-derived valuations whose inputs are observable or whose significant value drivers are observable and other observable inputs. The Company’s Level 2 assets include fixed maturity debt securities (corporate and private bonds, government or agency securities, asset-backed and mortgage-backed securities), and preferred stock.. The Company's Level 2 liabilities include the embedded derivative on reinsurance. Valuations are generally obtained from third party pricing services for identical or comparable assets or determined through use of valuation methodologies using observable market inputs.


Level 3:  Fair value is based on significant unobservable inputs which reflect the entity’s or third party pricing service’s assumptions about the assumptions market participants would use in pricing an asset or liability. The Company’s Level 3 assets are over-the-counter derivative contracts and thecontracts. The Company’s Level 3 liabilities consist of share-based compensation obligations and certain equity-index product-related embedded derivatives. Valuations are estimated based on non-binding broker prices or internally developed valuation models or methodologies, discounted cash flow models and other similar techniques.



34
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables set forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of the date indicated:


 March 31, 2021
 TotalLevel 1Level 2Level 3
 (In thousands)
Debt securities, available-for-sale$10,014,351 0 10,014,351 0 
Debt securities, trading654,333 0 654,333 0 
Equity securities19,120 19,120 0 0 
Derivatives, index options137,130 0 0 137,130 
Total assets$10,824,934 19,120 10,668,684 137,130 
Policyholder account balances (a)$168,902 0 0 168,902 
Other liabilities (b)(60,471)0 (70,370)9,899 
Total liabilities$108,431 0 (70,370)178,801 
 September 30, 2017
 Total Level 1 Level 2 Level 3
 (In thousands)
        
Debt securities, available for sale$3,025,627
 —
 3,025,627
 —
Equity securities, available for sale19,976
 19,976
 —
 —
Derivatives, index options163,536
 —
 —
 163,536
        
Total assets$3,209,139
 19,976
 3,025,627
 163,536
        
Policyholder account balances (a)$175,221
 —
 —
 175,221
Other liabilities (b)16,641
 —
 —
 16,641
        
Total liabilities$191,862
 —
 —
 191,862


During the three and nine months ended September 30, 2017,March 31, 2021, the Company had nomade 0 transfers into or out of Levels 1,from Level 2 or 3.to Level 3 for debt securities available for sale.

 December 31, 2020
 TotalLevel 1Level 2Level 3
 (In thousands)
Debt securities, available for sale$10,770,923 0 10,770,923 0 
Equity securities17,744 17,744 0 0 
Derivatives, index options132,821 0 0 132,821 
Total assets$10,921,488 17,744 10,770,923 132,821 
Policyholder account balances (a)$161,351 0 0 161,351 
Other liabilities (c)6,202 0 0 6,202 
Total liabilities$167,553 0 0 167,553 
 December 31, 2016
 Total Level 1 Level 2 Level 3
 (In thousands)
        
Debt securities, available for sale$3,042,050
 —
 3,042,050
 —
Equity securities, available for sale18,313
 18,313
 —
 —
Derivatives, index options120,644
 —
 —
 120,644
        
Total assets$3,181,007
 18,313
 3,042,050
 120,644
        
Policyholder account balances (a)$122,666
 —
 —
 122,666
Other liabilities (b)12,027
 —
 —
 12,027
        
Total liabilities$134,693
 —
 —
 134,693


(a)  Represents the fair value of certain product-related embedded derivatives that were recorded at fair value.
(b)  Represents the liability for share-based compensation and the embedded derivative for funds withheld.
(c)  Represents the liability for share-based compensation.



35
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables present, by pricing source and fair value hierarchy level, the Company’sCompany's assets that are measured at fair value on a recurring basis:


 March 31, 2021
 TotalLevel 1Level 2Level 3
 (In thousands)
Debt securities, available-for-sale:    
Priced by third-party vendors$10,014,351 0 10,014,351 0 
Priced internally0 0 0 0 
Subtotal10,014,351 0 10,014,351 0 
Debt securities, trading:
Priced by third-party vendors654,333 0 654,333 0 
Priced internally0 0 0 0 
Subtotal654,333 0 654,333 0 
Equity securities:    
Priced by third-party vendors19,120 19,120 0 0 
Priced internally0 0 0 0 
Subtotal19,120 19,120 0 0 
Derivatives, index options:    
Priced by third-party vendors137,130 0 0 137,130 
Priced internally0 0 0 0 
Subtotal137,130 0 0 137,130 
Total$10,824,934 19,120 10,668,684 137,130 
Percent of total100.0 %0.2 %98.5 %1.3 %
36
 September 30, 2017
 Total Level 1 Level 2 Level 3
 (In thousands)
        
Debt securities, available for sale:       
Priced by third-party vendors$3,025,627
 —
 3,025,627
 —
Priced internally—
 —
 —
 —
Subtotal3,025,627
 —
 3,025,627
 —
        
Equity securities, available for sale: 
  
  
  
Priced by third-party vendors19,976
 19,976
 —
 —
Priced internally—
 —
 —
 —
Subtotal19,976
 19,976
 —
 —
        
Derivatives, index options: 
  
  
  
Priced by third-party vendors163,536
 —
 —
 163,536
Priced internally—
 —
 —
 —
Subtotal163,536
 —
 —
 163,536
        
Total$3,209,139
 19,976
 3,025,627
 163,536
        
Percent of total100.0% 0.6% 94.3% 5.1%
Table of Contents

 December 31, 2016
 Total Level 1 Level 2 Level 3
 (In thousands)
        
Debt securities, available for sale:       
Priced by third-party vendors$3,042,050
 —
 3,042,050
 —
Priced internally—
 —
 —
 —
Subtotal3,042,050
 —
 3,042,050
 —
        
Equity securities, available for sale: 
  
  
  
Priced by third-party vendors18,313
 18,313
 —
 —
Priced internally—
 —
 —
 —
Subtotal18,313
 18,313
 —
 —
        
Derivatives, index options: 
  
  
  
Priced by third-party vendors120,644
 —
 —
 120,644
Priced internally—
 —
 —
 —
Subtotal120,644
 —
 —
 120,644
        
Total$3,181,007
 18,313
 3,042,050
 120,644
        
Percent of total100.0% 0.6% 95.6% 3.8%


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




The following tables provide additional information about fair value measurements for which significant unobservable (Level 3) inputs were utilized to determine fair value.

 December 31, 2020
 TotalLevel 1Level 2Level 3
 (In thousands)
Debt securities, available-for-sale:    
Priced by third-party vendors$10,770,923 0 10,770,923 0 
Priced internally0 0 0 0 
Subtotal10,770,923 0 10,770,923 0 
Equity securities:    
Priced by third-party vendors17,744 17,744 0 0 
Priced internally0 0 0 0 
Subtotal17,744 17,744 0 0 
Derivatives, index options:    
Priced by third-party vendors132,821 0 0 132,821 
Priced internally0 0 0 0 
Subtotal132,821 0 0 132,821 
Total$10,921,488 17,744 10,770,923 132,821 
Percent of total100.0 %0.2 %98.6 %1.2 %
37
 For the Three Months Ended September 30, 2017
 
Debt
Securities,
Available
for Sale
 
Equity
Securities,
Available
for Sale
 Derivatives, Index Options 
Total
Assets
 
Other
Liabilities
 (In thousands)
          
Balance at July 1, 2017$—
 —
 149,341
 149,341
 173,356
Total realized and unrealized gains (losses):

 

    
  
Included in net income—
 —
 45,130
 45,130
 48,927
Purchases, sales, issuances and settlements, net:         
Purchases—
 —
 19,847
 19,847
 19,847
Sales—
 —
 —
 —
 —
Issuances—
 —
 —
 —
 531
Settlements—
 —
 (50,782) (50,782) (50,799)
Transfers into (out of) Level 3—
 —
 —
 —
 —
          
Balance at end of period$—
 —
 163,536
 163,536
 191,862
          
Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:         
   Net investment income$—
 —
 16,436
 16,436
 —
Benefits and expenses—
 —
 —
 —
 17,195
          
Total$—
 —
 16,436
 16,436
 17,195
Table of Contents



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



The following tables provide additional information about fair value measurements for Level 3 for which significant unobservable inputs were utilized to determine fair value.

For the Three Months Ended March 31, 2021
AssetsLiabilities
Derivatives, Index OptionsTotal AssetsPolicyholder Account BalancesStock OptionsTotal Liabilities
 (In thousands)
Beginning balance, January 1, 2021$132,821 132,821 161,351 6,202 167,553 
Total realized and unrealized gains (losses):
Included in net earnings28,024 28,024 31,266 4,378 35,644 
Included in other comprehensive income0 0 0 0 0 
Purchases, sales, issuances and settlements, net:
Purchases11,210 11,210 11,210 0 11,210 
Sales0 0 0 0 0 
Issuances0 0 0 0 0 
Settlements(34,925)(34,925)(34,925)(681)(35,606)
Transfers into (out of) Level 30 0 0 0 0 
Balance at end of period$137,130 137,130 168,902 9,899 178,801 
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 income26,594 26,594 0 0 0 
Benefits and expenses0 0 26,594 4,378 30,972 
Total$26,594 26,594 26,594 4,378 30,972 

38
 For the Three Months ended September 30, 2016
 
Debt
Securities,
Available
for Sale
 
Equity
Securities,
Available
for Sale
 Derivatives, Index Options 
Total
Assets
 
Other
Liabilities
 (In thousands)
          
Balance at July 1, 2016$—
 —
 63,319
 63,319
 81,056
Total realized and unrealized gains (losses):    
  
  
   
Included in net income—
 —
 19,113
 19,113
 13,492
Purchases, sales, issuances and settlements, net:         
Purchases—
 —
 18,848
 18,848
 18,848
Sales—
 —
 —
 —
 —
Issuances—
 —
 —
 —
 388
Settlements—
 —
 (11,183) (11,183) (11,255)
Transfers into (out of) Level 3—
 —
 —
 —
 —
          
Balance at end of period$—
 —
 90,097
 90,097
 102,529
          
Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:         
   Net investment income$—
 —
 23,851
 23,851
 —
Benefits and expenses—
 —
 —
 —
 25,150
          
Total$—
 —
 23,851
 23,851
 25,150
Table of Contents


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

For the Three Months Ended March 31, 2020
AssetsLiabilities
Derivatives, Index OptionsTotal AssetsPolicyholder Account BalancesStock OptionsContingent ConsiderationTotal Liabilities
 (In thousands)
Beginning balance, January 1, 2020$157,588 157,588 155,902 11,225 4,076 171,203 
Total realized and unrealized gains (losses):
Included in net earnings (loss)(106,629)(106,629)(67,653)(6,293)98 (73,848)
Included in other comprehensive income0 0 0 0 0 0 
Purchases, sales, issuances and settlements, net:
Purchases22,403 22,403 22,403 0 0 22,403 
Sales0 0 0 0 0 0 
Issuances0 0 0 0 0 0 
Settlements(49,027)(49,027)(49,027)(1,851)0 (50,878)
Transfers into (out of) Level 30 0 0 0 0 0 
Balance at end of period$24,335 24,335 61,625 3,081 4,174 68,880 
Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets/liabilities held at the end of the reporting period:
Net investment income$(105,997)(105,997)0 0 0 0 
Benefits and expenses0 0 (105,997)(6,293)98 (112,192)
Total$(105,997)(105,997)(105,997)(6,293)98 (112,192)





39
 Nine Months Ended September 30, 2017
 
Debt
Securities,
Available
for Sale
 
Equity
Securities,
Available
for Sale
 Derivatives, Index Options 
Total
Assets
 
Other
Liabilities
 (In thousands)
          
Beginning balance, January 1, 2017$—
 —
 120,644
 120,644
 134,693
Total realized and unrealized gains (losses):     
  
  
Included in net income—
 —
 138,552
 138,552
 152,569
Purchases, sales, issuances and settlements, net:         
Purchases—
 —
 55,226
 55,226
 55,226
Sales—
 —
 —
 —
 

Issuances—
 —
 —
 —
 1,275
Settlements—
 —
 (150,886) (150,886) (151,901)
Transfers into (out of) Level 3—
 —
 —
 —
 —
          
Balance at end of period$—
 —
 163,536
 163,536
 191,862
          
Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:         
   Net investment income$—
 —
 83,540
 83,540
 —
   Other operating expenses—
 —
 —
 —
 87,894
          
Total$—
 —
 83,540
 83,540
 87,894
Table of Contents


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 Nine Months Ended September 30, 2016
 
Debt
Securities,
Available
for Sale
 
Equity
Securities,
Available
for Sale
 Derivatives, Index Options 
Total
Assets
 
Other
Liabilities
 (In thousands)
          
Beginning balance, January 1, 2016$—
 —
 38,409
 38,409
 66,028
Total realized and unrealized gains (losses):     
  
  
Included in net income—
 —
 8,307
 8,307
 (7,691)
Purchases, sales, issuances and settlements, net:         
Purchases—
 —
 56,387
 56,387
 56,387
Sales—
 —
 —
 —
 —
Issuances—
 —
 —
 —
 921
Settlements—
 —
 (13,006) (13,006) (13,116)
Transfers into (out of) Level 3—
 —
 —
 —
 —
          
Balance at end of period$—
 —
 90,097
 90,097
 102,529
          
Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:         
   Net investment income$—
 —
 15,628
 15,628
 —
   Other operating expenses—
 —
 —
 —
 13,582
          
Total$—
 —
 15,628
 15,628
 13,582

The following table presents the valuation method for financial assets and liabilities categorized as level 3, as well as the unobservable inputs used in the valuation of those financial instruments:


March 31, 2021
Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
(In thousands)
Assets:
Derivatives, index options$137,130 Broker pricesImplied volatility14.29% - 35.11% (20.07%)
Total assets$137,130 
Liabilities:
Policyholder account balances$168,902 Deterministic cash flow modelProjected option cost0.0% - 29.43% (3.43%)
Share-based compensation9,899 Black-Scholes modelExpected term0.7 to 9.7 years
Expected volatility33.88%
Total liabilities$178,801 

December 31, 2020
Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
(In thousands)
Assets:
Derivatives, index options$132,821 Broker pricesImplied volatility12.96% - 53.69% (20.70%)
Total assets$132,821 
Liabilities:
Policyholder account balances$161,351 Deterministic cash flow modelProjected option cost0.0% - 45.04% (3.27%)
Share-based compensation6,202 Black-Scholes modelExpected term1.0 to 9.9 years
Expected volatility33.47%
Total liabilities$167,553 

Realized gains (losses) on debt securities are reported in the Condensed Consolidated Statements of Earnings (Loss) as net investment gains (losses) with liabilities reported as expenses. Unrealized gains (losses) on available-for-sale debt securities are reported as Other comprehensive income (loss) within the stockholders' equity section of the Condensed Consolidated Balance Sheets.

40
 September 30, 2017
 Fair Value Valuation Technique Unobservable Input
 (In thousands)    
      
Derivatives, index options$163,536
 Broker prices Implied volatility
     Inputs from broker proprietary models
      
Total assets$163,536
    
      
Policyholder account balances$175,221
 Deterministic cash flow model Projected option cost
Other liabilities16,641
 Black-Scholes model Expected term
     Forfeiture assumptions
      
Total liabilities$191,862
    
Table of Contents


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 December 31, 2016
 Fair Value Valuation Technique Unobservable Input
 (In thousands)    
      
Derivatives, index options$120,644
 Broker prices Implied volatility
     Inputs from broker proprietary models
      
Total assets$120,644
    
      
Policyholder account balances$122,666
 Deterministic cash flow model Projected option cost
Other liabilities12,027
 Black-Scholes model Expected term
     Forfeiture assumptions
      
Total liabilities$134,693
    

Realized gains (losses) on debt and equity securities are reported in the Condensed Consolidated Statements of Earnings as net investment gains (losses) with liabilities reported as expenses. Unrealized gains (losses) on available for sale debt and equity securities are reported as other comprehensive income (loss) within the stockholders' equity section of the Condensed Consolidated Balance Sheet.

The fair value hierarchy classifications are reviewed each reporting period. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. Reclassifications are reported as transfers into and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.


NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The carrying amounts and fair values of the Company's financial instruments are as follows:


March 31, 2021
 Fair Value Hierarchy Level
Carrying
Values		Fair
Values		Level 1Level 2Level 3
 (In thousands)
ASSETS    
Debt securities, available-for-sale$10,014,351 10,014,351 0 10,014,351 0 
Debt securities, trading654,333 654,333 0 654,333 0 
Cash and cash equivalents435,644 435,644 435,644 0 0 
Mortgage loans377,495 393,129 0 0 393,129 
Real estate33,639 51,627 0 0 51,627 
Policy loans72,832 109,588 0 0 109,588 
Other loans26,800 27,102 0 0 27,102 
Derivatives, index options137,130 137,130 0 0 137,130 
Equity securities19,120 19,120 19,120 0 0 
Life interest in Libbie Shearn Moody Trust9,083 12,775 0 0 12,775 
Other investments4,513 24,852 0 0 24,852 
LIABILITIES
Deferred annuity contracts$6,605,094 5,327,510 0 0 5,327,510 
Immediate annuity and supplemental contracts416,773 457,299 0 0 457,299 
41
 September 30, 2017
   Fair Value Hierarchy Level
 
Carrying
Values
 
Fair
Values
 Level 1 Level 2 Level 3
 (In thousands)
ASSETS         
Investments in debt and equity securities:         
Securities held to maturity$7,264,995
 7,498,922
 —
 7,498,922
 —
Securities available for sale3,045,603
 3,045,603
 19,976
 3,025,627
 —
          
Cash and cash equivalents170,560
 170,560
 170,560
 —
 —
Mortgage loans188,623
 189,739
 —
 —
 189,739
Policy loans57,466
 102,536
 —
 —
 102,536
Other loans9,786
 10,091
 —
 —
 10,091
Derivatives, index options163,536
 163,536
 —
 —
 163,536
Short-term investments—
 —
 —
 —
 —
Life interest in Trust7,550
 12,775
 —
 —
 12,775
          
LIABILITIES         
Deferred annuity contracts$7,806,058
 7,418,285
 —
 —
 7,418,285
Immediate annuity and supplemental contracts439,440
 469,348
 —
 —
 469,348
Table of Contents



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

December 31, 2020
 Fair Value Hierarchy Level
Carrying
Values		Fair
Values		Level 1Level 2Level 3
 (In thousands)
ASSETS    
Debt securities, available-for-sale$10,770,923 10,770,923 0 10,770,923 0 
Cash and cash equivalents581,059 581,059 581,059 0 0 
Mortgage loans332,521 348,175 0 0 348,175 
Real estate33,783 48,577 0 0 48,577 
Policy loans74,083 121,260 0 0 121,260 
Other loans23,396 23,691 0 0 23,691 
Derivatives, index options132,821 132,821 0 0 132,821 
Equity securities17,744 17,744 17,744 0 0 
Life interest in Libbie Shearn Moody Trust9,083 12,775 0 0 12,775 
Other investments4,513 22,580 0 0 22,580 
LIABILITIES
Deferred annuity contracts$6,662,730 5,192,663 0 0 5,192,663 
Immediate annuity and supplemental contracts412,526 467,538 0 0 467,538 
 December 31, 2016
   Fair Value Hierarchy Level
 
Carrying
Values
 
Fair
Values
 Level 1 Level 2 Level 3
 (In thousands)
ASSETS         
Investments in debt and equity securities:         
Securities held to maturity$7,159,259
 7,337,611
 —
 7,337,611
 —
Securities available for sale3,060,363
 3,060,363
 18,313
 3,042,050
 —
          
Cash and cash equivalents51,247
 51,247
 51,247
 —
 —
Mortgage loans174,534
 176,890
 —
 —
 176,890
Policy loans58,699
 101,092
 —
 —
 101,092
Other loans14,343
 14,898
 —
 —
 14,898
Derivatives, index options120,644
 120,644
 —
 —
 120,644
Life interest in Trust7,550
 12,775
 —
 —
 12,775
          
LIABILITIES         
Deferred annuity contracts$7,739,337
 7,367,851
 —
 —
 7,367,851
Immediate annuity and supplemental contracts443,226
 470,414
 —
 —
 470,414


Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.




(11)  DERIVATIVE INVESTMENTS

(11)  DERIVATIVES

Fixed-index products provide traditional fixed annuities and universal life contracts with the option to have credited interest rates linked in part to an underlying equity index or a combination of equity indices. The equity return component of such policy contracts is identified separately and accounted for in future policy benefits as embedded derivatives on the Condensed Consolidated Balance Sheets. The remaining portions of these policy contracts are considered the host contracts and are recorded separately as fixed annuity or universal life contracts. The host contracts are accounted for under debt instrument type accounting in which future policy benefits are recorded as discounted debt instruments and accreted, using the effective yield method, to their minimum account values at their projected maturities or termination dates.


The companyCompany purchases over-the-counter index options, which are derivative financial instruments, to hedge the equity return component of its fixed-index annuity and life products. The index options act as hedges to match closely the returns on the underlying index or indices. The amounts which may be credited to policyholders are linked, in part, to the returns of the underlying index or indices. As a result, changes to policyholders' liabilities are substantially offset by changes in the value of the options. Cash is exchanged upon purchase of the index options and no principal or interest payments are made by either party during the option periods. Upon maturity or expiration of the options, cash may be paid to the companyCompany depending on the performance of the underlying index or indices and terms of the contract.



42
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company does not elect hedge accounting relative to these derivative instruments.The index options are reported at fair value in the accompanying Condensed Consolidated Financial Statements. The changes in the values of the index options and the changes in the policyholder liabilities are both reflected in the Condensed Consolidated Statements of Earnings.Earnings (Loss). Any changes relative to the embedded derivatives associated with policy contracts are reflected in contract interest in the Condensed Consolidated Statements of Earnings.Earnings (Loss). Any gains or losses from the sale or expiration of the options, as well as period-to-period changes in values, are reflected as net investment income in the Condensed Consolidated Statements of Earnings.Earnings (Loss).


Although there is credit risk in the event of nonperformance by counterparties to the index options, the companyCompany does not expect any of its counterparties to fail to meet their obligations, given their high credit ratings. In addition, credit support agreements are in place with all counterparties for option holdings in excess of specific limits, which may further reduce the company'sCompany's credit exposure.


Effective December 31, 2020, the Company entered into a coinsurance funds withheld reinsurance agreement under which identified assets are maintained in a funds withheld account but the associated interest and credit risk of these assets has been transferred to the reinsurer, representing a total return swap with a floating rate leg. Accordingly, the Company bifurcates the embedded derivative for reinsurance from the host contract in accordance with GAAP. The fair value of the embedded derivative funds withheld liability is computed as the unrealized gain (loss) on the underlying funds withheld assets and is included in the funds withheld liability on the Condensed Consolidated Balance Sheets, with the change reported in net investment income in the Condensed Consolidated Statements of Earnings (Loss). Changes in the funds withheld liability are reported in operating activities in the Condensed Consolidated Statements of Cash Flows.

The tables below present the fair value of derivative instruments as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.


 March 31, 2021
 Asset DerivativesLiability Derivatives
Balance
Sheet
Location		Fair
Value		Balance
Sheet
Location		Fair
Value
(In thousands)(In thousands)
Derivatives not designated as hedging instruments    
Equity index optionsDerivatives, Index Options$137,130   
Fixed-index products Universal Life and Annuity Contracts$168,902 
Embedded derivative on reinsurance contractFunds Withheld Liability(70,370)
Total $137,130  $98,532 
43
 September 30, 2017
 Asset Derivatives Liability Derivatives
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
   (In thousands)   (In thousands)
        
Derivatives not designated as hedging instruments       
        
Equity index optionsDerivatives, Index Options $163,536
    
        
Fixed-index products    Universal Life and Annuity Contracts $175,221
        
Total  $163,536
   $175,221
Table of Contents

 December 31, 2016
 Asset Derivatives Liability Derivatives
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
   (In thousands)   (In thousands)
        
Derivatives not designated as hedging instruments       
        
Equity index optionsDerivatives, Index Options $120,644
    
    
    
Fixed-index products   
 Universal Life and Annuity Contracts $122,666
        
Total  $120,644
   $122,666



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 December 31, 2020
 Asset DerivativesLiability Derivatives
Balance
Sheet
Location		Fair
Value		Balance
Sheet
Location		Fair
Value
(In thousands)(In thousands)
Derivatives not designated as hedging instruments    
Equity index optionsDerivatives, Index Options$132,821   
    
Fixed-index products  Universal Life and Annuity Contracts$161,351 
Total $132,821  $161,351 
The table below presents the effect of derivative instruments in the Condensed Consolidated Statements of Earnings for the three months ended September 30, 2017 and 2016.

    September 30,
2017		 September 30,
2016
Derivatives Not Designated
 As Hedging Instruments
 
Location of Gain
 or (Loss) Recognized
In Income on Derivatives
 
Amount of Gain or
 (Loss) Recognized in
 Income on Derivatives
    (In thousands)
       
Equity index options Net investment income $45,131
 19,114
       
Fixed-index products Universal life and annuity contract interest (48,168) (12,194)
       
    $(3,037) 6,920


The table below presents the effect of derivative instruments in the Condensed Consolidated Statements of Earnings (Loss) for the ninethree months ended September 30, 2017March 31, 2021 and 2016.2020.


March 31,
2021		March 31,
2020
Derivatives Not Designated
 As Hedging Instruments		Location of Gain
 or (Loss) Recognized
In Income on Derivatives		Amount of Gain or
 (Loss) Recognized in
 Income on Derivatives
  (In thousands)
Equity index optionsNet investment income (loss)$28,024 (106,629)
Fixed-index productsUniversal life and annuity contract interest(31,266)67,653 
Embedded derivative on reinsurance contractNet investment income (loss)70,370 0 
  $67,128 (38,976)
The embedded derivative liability on fixed-index products, the change of which is recorded in universal life and annuity contract interest in the Condensed Consolidated Statements of Earnings (Loss), includes projected interest credits that are offset by the expected collectability by the Company of asset management fees on fixed-index products. The anticipated asset management fees to be collected increases or decreases based upon the most recent performance of index options and adds to or reduces the offset applied to the embedded derivative liability (increasing or decreasing contract interest expense). For the three months ended March 31, 2021 and 2020, the change in the embedded derivative liability due to the expected collectability of asset management fees increased contract interest expense by $4.4 million and $29.3 million, respectively. Beginning in the second quarter of 2020, the Company changed its budget for purchasing options to match the collection of asset management fees with the payoff from out-of-the-money options, thereby removing the option premium currently being paid for the probability or expectation of collecting asset management fees ("out of the money" hedging). As the remaining one year options outstanding expire and are replaced by out-of-the-money hedges, the embedded derivative liability component due to the projected collectability of asset management fees will be eliminated.


44
    September 30,
2017		 September 30,
2016
Derivatives Not Designated
 As Hedging Instruments
 
Location of Gain
 or (Loss) Recognized
In Income on Derivatives
 
Amount of Gain or
 (Loss) Recognized in
 Income on Derivatives
    (In thousands)
       
Equity index options Net investment income $138,552
 8,307
       
Fixed-index products Universal life and annuity contract interest (148,214) 5,645
       
    $(9,662) 13,952
       
Table of Contents



NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) INTANGIBLES, VALUE OF BUSINESS ACQUIRED, AND GOODWILL

Identifiable Intangible Assets

The gross carrying amounts and accumulated amortization for intangible assets are as follows for the dates shown.

March 31, 2021December 31, 2020
Weighted-Average Amortization PeriodGross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
(In thousands)
Trademarks/trade names15$2,800 (405)2,800 (358)
Internally developed software73,800 (1,176)3,800 (1,040)
Insurance licensesN/A3,000 0 3,000 0 
$9,600 (1,581)9,600 (1,398)

The value of trademarks was estimated using the relief from royalty method, based on the assumption that in lieu of ownership, an organization would be willing to pay a royalty in order to receive the related benefits of using the brand. The value of insurance licenses was estimated using the market approach to value, based on values paid for licenses in recent shell company transactions. The value of internally developed software was estimated using the replacement cost method. Trademarks, trade names and internally developed software are amortized using a straight-line method over the estimated useful lives. These intangible assets will be evaluated for impairment if indicators of impairment arise. Insurance licenses were determined to have an indefinite useful life. The Company evaluates the useful life of insurance licenses at each reporting period to determine whether the useful life remains indefinite.

As of March 31, 2021, expected amortization expense relating to purchased intangible assets for each of the next 5 years and thereafter is as follows:

Expected
Amortization
(In thousands)
Remainder of 2021$547 
2022730 
2023730 
2024730 
2025730 
Thereafter1,552 

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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Value of Business Acquired ("VOBA")

VOBA is a purchase accounting convention for life insurance companies in business combinations based upon an actuarial determination of the difference between the fair value of policyholder liabilities acquired and the same policyholder liabilities measured in accordance with the acquiring company's accounting policies. The difference, referred to as VOBA, is an intangible asset subject to periodic amortization. Changes in VOBA were as follows for the periods shown:

 March 31,December 31,
 20212020
(In thousands)
Balance, beginning of year$162,968 138,071 
Other increase0 35,125 
Amortization:
Amortization, excluding unlocking(2,551)(10,228)
Balance as of end of period$160,417 162,968 

Estimated future amortization of VOBA, net of interest (in thousands), as of March 31, 2021, is as follows:

Expected Amortization
(In thousands)
Remainder of 2021$7,671 
20229,753 
20239,368 
20249,015 
20258,804 
Goodwill
The changes in the carrying amount of goodwill (in thousands) were as follows:

 March 31,December 31,
 20212020
 (In thousands)
Gross goodwill as of beginning of year$13,864 13,864 
Goodwill resulting from business acquisition0 0 
Gross goodwill, before impairments13,864 13,864 
Accumulated impairment as of beginning of year0 0 
Current year impairments0 0 
Net goodwill as of end of period$13,864 13,864 
Goodwill is evaluated for impairment annually, or more frequently if indicators of impairment arise.
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(13) SUBSEQUENT EVENTS


Subsequent events have been evaluated through the date of filing and no reportable items were identified.




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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS


The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information contained herein or in other written or oral statements made by or on behalf of National Western Life Group, Inc. and its subsidiaries (the "Company") are or may be viewed as forward-looking. Although the Company has taken appropriate care in developing any such information, forward-looking information involves risks and uncertainties that could significantly impact actual results. These risks and uncertainties include, but are not limited to, matters described in the Company's SECSecurities and Exchange Commission (SEC) filings such as exposure to market risks, anticipated cash flows or operating performance, future capital needs, and statutory or regulatory related issues. However, as a matter of policy, the Company does not make any specific projections as to future earnings, nor does it endorse any projections regarding future performance that may be made by others. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments. Also, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise.


Management's discussion and analysis of the financial condition and results of operations (“MD&A”) of National Western Life Group, Inc. ("NWLGI") for the three and nine months ended September 30, 2017March 31, 2021 follows. Where appropriate, discussion specific to the insurance operations of National Western Life Insurance Company is denoted by "National Western" or "company""NWLIC". This discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and related notes beginning on page 3 of this report and with the 20162020 Annual Report filed on Form 10-K with the SEC.



Overview


National Western provides life insurance products on a global basis for the savings and protection needs of policyholders and annuity contracts for the asset accumulation and retirement needs of contract holders, both domestic and international residents.holders. The companyCompany accepts funds from policyholders or contract-holderscontract holders and establishes a liability representing future obligations to pay the policy or contract-holderscontract holders and their beneficiaries. To ensure the companyCompany will be able to pay these future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed income securities. The Company maintains its home office in Austin, Texas where substantially all of its 293 employees at March 31, 2021 are located.


Due to the business of accepting funds to pay future obligations in later years and the underlying economics, the relevant factors affecting the company’sCompany’s overall business and profitability include the following:
• ●the level of sales and premium revenues collected
• ●the volume of life insurance and annuity business in force
 ●persistency of policies and contracts
• ●returnsthe ability to price products to earn acceptable margins over benefit costs and expenses
 ●return on investments sufficient to produce acceptable spread margins over interest crediting rates
• ●investment credit quality which minimizes the risk of default or impairment
• ●levels of policy benefits and costs to acquire business
• ●the ability to manage the level of operating expenses
• ●effect of interest rate changes on revenues and investments including asset and liability matching
• ●maintaining adequate levels of capital and surplus
• ●corporate tax rates and the treatment of financial statement items under tax rules and accounting
 ●actual levels of surrenders, withdrawals, claims and interest spreads
• ●changes in assumptions for amortization of deferred policy acquisition expenses and deferred sales inducements
• ●changes in the fair value of derivative index options and embedded derivatives pertaining to fixed-index life and annuity products
• ●pricing and availability of adequate counterparties for reinsurance and index option contracts
• ●litigation subject to unfavorable judicial development, including the time and expense of litigation


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The Company monitors these factors continually as key business indicators. The discussion that follows in this Item 2 includes these indicators and presents information useful to an overall understanding of the Company's business performance for the ninethree months ended September 30, 2017,March 31, 2021, incorporating required disclosures in accordance with the rules and regulations of the Securities and Exchange Commission.SEC.



Insurance Operations - Domestic


National Western is currently licensed to do business in all states, except New York, and the District of Columbia except for New York.Columbia. Products marketed are annuities, universal life insurance, fixed-index universal life, and traditional life insurance, which include both term and whole life products. The company's domesticDomestic sales in terms of premium levels have historically been more heavily weighted toward annuity products, which include single and flexible premium deferred annuities, single premium immediate annuities, and fixed-index annuities. Most of these annuities can be sold either as tax qualified or nonqualifiednon-qualified products. More recently, a greater proportion of sales activity has been derived from single premium life insurance products, predominantly those with an equity-index crediting mechanism. Presently, 99%nearly all of National Western's domestic life premium sales come from single premium life products. At September 30, 2017, the companyMarch 31, 2021, National Western maintained approximately 133,600111,000 annuity contracts in force and 50,50046,700 domestic life insurance policies in force representing $3.1nearly $3.6 billion in face amount of coverage.


National Western markets and distributes its domestic products primarily through independent national marketing organizations ("NMOs"). These NMOs assist the companyCompany in recruiting, contracting, and managing independent agents. The company'sNational Western's agents are independent contractors who are compensated on a commission basis. The companyIt currently has approximately 27,95029,300 domestic independent agents contracted.


DuringEffective January 31, 2019, the third quarterCompany completed its previously announced acquisition of 2017,Ozark National Life Insurance Company ("Ozark National") and N.I.S. Financial Services, Inc. ("NIS"). All of the outstanding stock of Ozark National is owned by National Western while NIS is wholly owned by NWLGI. Although reported separately for segment disclosure purposes, domestic insurance operations include the activities of Ozark National. Ozark National is a Missouri domiciled, stock life insurance company hiredcurrently licensed to conduct business in thirty states. Organized and incorporated in 1964, its largest markets by state are Missouri, Iowa, Minnesota, Nebraska, and Kansas. Ozark National utilizes a new chief marketing officer over domestic marketing who has initiated new marketing andunique distribution strategiessystem to include generalmarket its flagship Balanced Program which consists of a coordinated sale of a non-participating whole life insurance product with a mutual fund investment product offered through NIS, its affiliated broker-dealer. Due to Ozark National's coordinated sale, their agents banks, broker/dealers, and wirehouses. As parthold a securities license in addition to an insurance license. At March 31, 2021, Ozark National maintained approximately 177,800 life insurance policies in force representing $6.0 billion in face amount of these new initiatives, the company will be expandingcoverage. It maintains its presence into domestic multicultural markets. These distribution strategies aim to increase and balance sales between single and recurring premium life products.home office facility in Kansas City, Missouri along with NIS where most of their 74 combined employees are located.


Insurance Operations - International


National Western's international operations consist of a closed block of in force policies as it discontinued accepting applications for new policies in 2018. At March 31, 2021, National Western had approximately 44,500 international life insurance policies in force representing over $12.1 billion in face amount of coverage. The company doesCompany did not conduct business or maintain offices or employees in any other country, but it doeshistorically did accept applications at its home office in Austin, Texas, and issuesissued policies from there to non-U.S. residents. The company's international clientèle consists mainly of foreign nationals in upper socioeconomic classes.classes of other countries. Insurance products, are issued currentlyprimarily to residents of countries primarily in South America, consisted almost entirely of universal life and the Caribbean based upon applications receivedtraditional life insurance products not available in the company's home office. The company ceased accepting applications from Russian-speaking residents in Eastern Europelocal markets.

Issuing universal life and Asia during the first half of 2017. Issuingtraditional life insurance policies to residents of countries in these different regions providesprovided diversification that helpshelped to minimize large fluctuations that could arise due to various economic, political, and competitive pressures that may occuroccurring from one country to another. Products issuedThese policies also provided diversification of earnings relative to international residents are almost entirely universal life and traditionalthe Company's domestic life insurance products. However, certain annuity and investment contracts are also available. At September 30, 2017, the company had approximately 61,400 international life insurance policies in force representing approximately $16.8 billion in face amount of coverage.

International applications are submitted by independent contractor consultants and broker-agents. The company has approximately 2,150 independent international consultants and brokers currently contracted.

There aresegment. Although there were some inherent risks of accepting international applications which are not present within the domestic market, that arethey were reduced substantially by the companyCompany in several ways. As previously described,Most notably National Western accepts applications fromWestern's customer profile consisted of foreign nationals of other countries in upper socioeconomic classes who havehad substantial financial resources. This, customer base coupled with the company'sNational Western's conservative underwriting practices, havehas historically resulted in claims experience, due to natural causes, similar to that in the United States. The company minimizes exposure to foreignForeign currency risks were minimized by requiring payment of premiums claims and other benefits entirelyclaims in United States dollars (except for a small blockdollars. In addition, the Company adopted an extensive anti-money laundering compliance program in order to fully comply with all applicable U.S. monitoring and reporting requirements pertaining to money laundering and other illegal activities. All of business in Haiti whose policies are denominated in Haitian gourdes). National Western's fifty plus years of experience with the international products and its longstanding independent consultant and broker-agent relationships further serveabove served to minimize risks.



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SALES


Life Insurance


The following table sets forth information regarding National Western's life insurance sales activity as measured by total premium for single premium life insurance products and annualized first year premiums.premiums for all other universal life and traditional life insurance products. While the figures shown below are in accordance with industry practice and represent the amount of new business sold during the periods indicated, they are considered a non-GAAP financial measure. The Company believes sales are a measure of distribution productivity and are a leadingan indicator of future revenue trends. However, revenues are driven by sales in prior periods as well as in the current period and therefore, a reconciliation of sales to revenues is not meaningful or determinable.


Three Months Ended
March 31,
 20212020
 (In thousands)
Single premium life$51,924 47,895 
Traditional life847 848 
Universal life— 1 
Totals$52,771 48,744 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
 (In thousands)
        
International:       
Universal life$755
 590
 1,482
 1,785
Traditional life479
 416
 1,452
 1,396
Equity-index life1,580
 2,143
 4,997
 6,744
        
 2,814
 3,149
 7,931
 9,925
Domestic: 
  
  
  
Universal life8
 22
 18
 32
Traditional life20
 32
 78
 89
Equity-index life4,431
 4,309
 13,263
 12,287
        
 4,459
 4,363
 13,359
 12,408
        
Totals$7,273
 7,512
 21,290
 22,333


Life insurance sales, as measured by total and annualized first year premiums, decreased 3%increased 8% in the thirdfirst quarter of 20172021 as compared to the thirdfirst quarter of 2016. By market segment,2020 reflecting the domestic life insurance line of business increased 2% while the international life insurance line of business posted an 11% decreasecontinuing recovery in new sales activity from the comparable resultscontraction in 2020 due to the COVID-19 pandemic. Sales for the three months ended March 31, 2021, included $0.8 million from Ozark National, matching that of the thirdfirst quarter of 2016. For the nine months ended September 30, 2017, total2020, representing their traditional life sales decreased 5%activity. This amount is an increase from 2016 levels as domestic life insurance$0.7 million in sales expanded 8% during this periodachieved in the fourth quarter of 2020. Ozark National's business model, which is heavily dependent upon in person contact for agent recruiting and international life insurance sales decreased 20%. Increasing domestic life insurance businessobtaining applications for coverage from prospective policyholders, has been a focal pointbeen slow in recovering from the disruption of company management.the pandemic effects upon its business.


The company's domestic operationsNational Western's life insurance product portfolio includes single premium universal life ("SPUL") and equity-index universal life ("EIUL") products as well as hybrids of the EIUL and SPUL products, combining features of these core products. Equity-index universal life products continue to behave been the predominant product sold in the domestic life market.market for a number of years. Most of these sales are single premium mode products (one year, five year, or ten year) designed for transferring accumulated wealth tax efficiently into life insurance policies with limited underwriting due to lesser net insurance amounts at risk (face amount of the insurance policy less cash premium contributed). These products were designed and implemented several years ago targeting the accumulated savings of the Baby Boomer segment of the population entering their retirement years. The wealth transfer life products have been valuable offerings for the company'sCompany's distributors as evidenced by their comprising 99%over 98% of total domestic life sales in the first ninethree months of 2017.2021.

The company's international life business consists of applications accepted from residents of various regions outside of the United States, the volume of which typically varies based upon changes in the socioeconomic climates of these regions. Historically, the company has experienced a simultaneous combination of rising and declining sales in various countries; however, the appeal of the company's dollar-denominated life insurance products overcomes many of the local and national difficulties.


Applications submitted from residents of Latin America have historically comprised the majority of the company's international life insurance sales. This distribution has become more pronounced in the past couple of years as the company ceased accepting applications from residents in various other geographic locations as described below. The company's mix of international sales by geographic region is as follows:

 Nine Months Ended September 30,
 2017 2016
    
Percentage of International Sales:   
Latin America99.2% 95.9%
Eastern Europe/Asia0.8
 4.1
    
Totals100.0% 100.0%

Year-to-date, the company has accepted new business from residents outside of the United States with Venezuela (25%), Peru (18%), Chile (15%), and Ecuador (14%) comprising the regions with contributions of 10% or more of total international sales.

As previously disclosed in prior SEC filings, the Brazilian Superintendence of Private Insurance ("SUSEP") attempted to serve National Western in 2011 with a subpoena regarding an administrative proceeding initiated by SUSEP in which it alleged the company was operating as an insurance company in Brazil without due authorization. While the company believes that SUSEP has no jurisdiction over the company, SUSEP affirmed its imposition of a penal fine against National Western, but in a reduced amount of 3 million reais (approximately $960,000). In light of the substantial reduction in the proposed penal fine by SUSEP, National Western paid the penal fine in the reduced amount in the fourth quarter of 2016 under protest and thereby retained its rights to seek judicial review in Brazil of the merits of the SUSEP charges. In light of these developments, the company ceased accepting new applications from residents in Brazil in the fourth quarter of 2015. Additionally, after careful consideration of various factors, including segment performance and the volume of application submissions, the company ceased accepting applications from residents in certain other countries in Central America and the Pacific Rim during that same time period.

The average new policy face amounts, excluding insurance riders, since 20112017 are as shown in the following table.


 Average New Policy Face Amount
 NWLIC DomesticOzark NationalNWLIC International
Year ended December 31, 2017148,100 — 299,300 
Year ended December 31, 2018162,600 — 290,900 
Year ended December 31, 2019179,900 45,200 — 
Year ended December 31, 2020209,900 46,230 — 
Three Months Ended March 31, 2021189,000 44,220 — 

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 Average New Policy Face Amount
 Domestic International
    
Year ended December 31, 2011178,500
 363,600
Year ended December 31, 2012254,900
 380,200
Year ended December 31, 2013286,000
 384,000
Year ended December 31, 2014286,600
 382,600
Year ended December 31, 2015274,500
 342,500
Year ended December 31, 2016308,700
 336,500
Nine months ended September 30, 2017307,200
 311,600

The company'sContracts issued to international residents historically had larger face amounts of life insurance coverage per policy compared to those issued to domestic policyholders as National Western's efforts arewere directed toward maintaining its competitive advantages in accepting applications from upper socio-economicsocioeconomic residents of international countries and tocountries. The average face amount of insurance coverage per policy for domestic life insurance contracts reflects the sales of single premium life products, primarily fixed-index, as part of its wealth transfer strategiesstrategy for domestic life sales. In both 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.



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


Insurance In Force as of
 March 31,December 31,
 20212020
 ($ in thousands)
National Western
Universal life: 
Number of policies30,550 31,150 
Face amounts$4,261,700 4,354,530 
Traditional life:
Number of policies25,820 26,260 
Face amounts$2,373,130 2,409,110 
Fixed-index life:
Number of policies34,850 35,060 
Face amounts$9,075,600 9,157,010 
Total life insurance: 
Number of policies91,220 92,470 
Face amounts$15,710,430 15,920,650 
Ozark National
Total life insurance (all traditional):
Number of policies177,800 179,000 
Face amounts$5,981,860 6,033,510 
 Insurance In Force as of
 September 30,
 2017 2016
 ($ in thousands)
    
Universal life:   
Number of policies41,070
 44,940
Face amounts$4,271,900
 5,064,620
    
Traditional life:   
Number of policies32,570
 34,330
Face amounts$3,459,330
 3,490,930
    
Fixed-index life:   
Number of policies38,300
 38,850
Face amounts$9,104,030
 9,462,720
    
Rider face amounts$3,043,010
 3,046,760
    
Total life insurance:   
Number of policies111,940
 118,120
Face amounts$19,878,270
 21,065,030


At September 30, 2017, the company’sMarch 31, 2021, National Western’s face amount of life insurance in force was comprised of $16.8$12.1 billion from the international line of business and $3.1$3.6 billion from the domestic line of business. At September 30, 2016,December 31, 2020, these amounts were $18.0$12.4 billion and $3.0$3.5 billion for the international and domestic lines of business, respectively.


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Annuities


The following table sets forth information regarding the company'sCompany'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'sthe Company's sales productivity.


Three Months Ended March 31,
 20212020
 (In thousands)
Fixed-index annuities$116,937 74,753 
Other deferred annuities1,616 1,460 
Immediate annuities10,380 2,503 
Totals$128,933 78,716 
 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 annuities3,057
 4,671
 14,517
 27,075
Immediate annuities1,789
 807
 2,871
 3,198
        
Totals$152,812
 161,775
 438,145
 528,459


Annuity sales increased 64% in the first quarter of 2021 compared to 2020. First quarter 2020 sales activity was dampened by the onset of the COVID-19 pandemic at that time, while 2021 sales activity reflects expansion of sales and marketing initiatives in this line of business as well as an overall increase in market demand.


The company'sCompany'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 greatercomprised the majority of annuity sales, generally accounting for 90% or more of all annuity sales the past several years.over this span. During the first ninethree months of 2017,2021, this percentage exceeded 96%approximated 91% reflecting both the ongoing bull market runhistorically low levels in interest rates and the continuing upward trend in equities since bottoming out in 2009.2009 during the financial crisis. For all fixed-index products, the companyCompany 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 companyCompany 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 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 enterprise risk management (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, similar to some other annuity product providers, the Company's ERM considerations determinedCompany has 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 depressed interest rate environments. 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.

As a result of the foregoing, the Company entered into a coinsurance funds withheld reinsurance arrangement at December 31, 2020 under which 100% of the policyholder obligations associated with its fixed rate and payout annuity block of policies at that managing totime were reinsured with a lower levelthird party. With the transfer of the risk of these policies experiencing compression on interest rate margins, the Company has redirected its attention on rebuilding sales momentum in its annuity sales was prudent given the environment.

The decrease in annuity sales in 2017 relativeby developing products targeting new channels of distribution to the prior year reflects the impact of two regulatory changes. The first is the Department of Labor's "fiduciary rule" on standards for retirement investment advice which has affected insurance carriers,supplement its current partnerships with national marketing organizations and agents as each develop strategies for future product sales under this standard. The uncertainty associated with the timing and ultimate requirementsfocusing its offerings away from fixed interest rate products.


52
Table of the rule has served to decrease activity for annuity sales involving qualified funds during the current year. The second change 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 to refile products complying with the new standards for state approval. As of the date of this filing, California regulators have yet to process and approve the company's product filings.Contents

The level of annuity business in force requires a focused discipline on asset/liability analysis. The company monitors its asset/liability matching within the self-constraints of desired capital levels and risk tolerance. The company'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 capital position is more than sufficient to handle an increase in sales activity when a more favorable rate environment returns.


The following table sets forth information regarding annuities in force for each date presented. These amounts include the policies and reserves associated with the funds withheld reinsurance transaction discussed above.


Annuities In Force as of
 March 31,December 31,
 20212020
 ($ in thousands)
Fixed-index annuities  
Number of policies67,190 68,020 
GAAP annuity reserves$5,232,984 5,254,089 
Other deferred annuities 
Number of policies32,380 33,250 
GAAP annuity reserves$1,222,555 1,264,042 
Immediate annuities 
Number of policies11,450 11,650 
GAAP annuity reserves$369,461 363,983 
Total annuities 
Number of policies111,020 112,920 
GAAP annuity reserves$6,825,000 6,882,114 
 Annuities In Force as of
 September 30,
 2017 2016
 ($ in thousands)
    
Fixed-index annuities   
Number of policies75,070
 73,930
GAAP annuity reserves$5,909,871
 5,666,087
    
Other deferred annuities   
Number of policies44,620
 47,780
GAAP annuity reserves$1,804,826
 1,958,672
    
Immediate annuities   
Number of policies13,940
 14,400
GAAP annuity reserves$369,188
 368,724
    
Total annuities   
Number of policies133,630
 136,110
GAAP annuity reserves$8,083,885
 7,993,483


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 banksImportant 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. During the first quarter of 2021, the Company (National Western and Ozark National) incurred approximately $6.7 million in net death claims for which COVID-19 was identified as the cause of death. Additional 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 howattempt 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 impedimentlow rate environment, life insurers substantially increased allocations to life insurers. This past week the DepartmentBBB- rated bonds. In a recession, many of Labor (DOL) filed a rule with the Office of Management and Budgetthese 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 accessas the potential to affordable,default. Risk-based capital (RBC) formulas assess higher required capital charges as investment quality advice, productsdeclines. 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 is uncertain what effect, if any,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 extension,ability to meet these payment obligations.

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 have had to face the challenge of having to forego face-to-face consultation with agents and any ultimate changes to the DOL's fiduciary rule, will have on the Company's business.distributors.

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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 seriesfuture direction of interest rate hikes without impeding ongoing economic growth. A progressionmovements 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 maintainfocused 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 March 31,
 20212020
 (In thousands)
Universal life and annuity contract charges$34,889 35,306 
Traditional life premiums22,584 23,522 
Net investment income166,075 (13,478)
Other revenues5,414 3,653 
Net realized investment gains (losses)1,416 3,485 
Total revenues$230,378 52,488 

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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 premiums5,285
 4,631
 13,639
 13,721
Net investment income (excluding derivatives)106,560
 107,867
 327,493
 327,425
Other revenues4,672
 4,476
 13,714
 14,050
        
Operating revenues156,785
 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 ninethree months in 20172021 compared to 2016.2020 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 March 31,
20212020
(In thousands)
Contract Revenues:
Cost of insurance and administrative charges$30,593 31,441 
Surrender charges6,134 7,450 
Other charges2,748 833 
Gross contract revenues39,475 39,724 
Reinsurance premiums(4,586)(4,418)
Net contract revenues$34,889 35,306 
 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 charges10,114
 11,348
 33,682
 34,955
Other charges(171) (187) (131) 1,131
Gross contract revenues43,858
 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 $24.3 million in the quarter ended March 31, 2021 compared to $25.0 million in the first quarter of 2020. 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. LifeThe volume of universal life insurance in force during the nine months ended September 30, 2017 averagedat March 31, 2021 declined to $13.3 billion from approximately $20.3$13.5 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, 2020 and for the nine months ended September 30, 2017, cost of insurance charges increased to $80.6 million from $79.2 million$14.4 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, 2019. Administrative charges pertaining to new business issued declined marginally to $20.3 million for the nine months ended September 30, 2017 versus $20.5were $6.3 million for the ninethree months ended September 30, 2016 due to a lower number of international life insurance policies issued.March 31, 2021 and $6.4 million for the same period in 2020.


Surrender charges assessed against policyholder account balances upon withdrawal remained relatively leveldecreased in the first ninethree months of 2017ended March 31, 2021 versus the comparable prior year period.periods. While the companyCompany earns surrender charge income that is assessed upon policy terminations, the company'sCompany's overall profitability is enhanced when policies remain in force and additional contract revenues are realized and the companyCompany continues to make an interest rate spread equivalent to the difference it earns on its investmentinvestments and the amount that it credits to policyholders. In the first ninethree months of 2017,ended March 31, 2021, lapse rates on domestic life insurance policiesannuity products were betterhigher 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 ahave lower surrender chargecharges assessed and earlier durationpolicy 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. 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.

Traditional life premiums - Traditional life premiums were slightly lower ininclude the three and nine months ended September 30, 2017 compared to the same periods in 2016 reflectingactivity 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 internationalnon-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'sA 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 addedproducts. 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 March 31, 2021 is $18.7 million of life insurance renewal premium from Ozark National compared to $18.9 million in the first quarter of 2020. Universal life products, especially the company'sNational 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%Company's markets.

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Table of new life insurance sales for 2017 thus far.Contents


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 March 31,
 20212020
 (In thousands)
Gross investment income:  
Debt and equities$77,363 86,498 
Mortgage loans3,631 2,704 
Policy loans689 878 
Short-term investments129 1,134 
Other invested assets605 2,681 
Total investment income82,417 93,895 
Less: investment expenses784 744 
Net investment income (excluding derivatives and trading securities)81,633 93,151 
Index option derivative gain (loss)28,024 (106,629)
Embedded derivative on reinsurance70,370 — 
Trading securities market adjustment(13,952)— 
Net investment income (loss)$166,075 (13,478)
 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 loans2,645
 2,070
 8,333
 5,576
Policy loans885
 868
 2,638
 2,732
Short-term investments339
 252
 585
 507
Other invested assets1,408
 1,318
 9,363
 6,594
        
Total investment income106,941
 108,158
 328,459
 328,242
Less: investment expenses381
 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 ninethree months ended September 30, 2017,March 31, 2021, debt and equity securities generated approximately 94% of total net investment income, excluding index option derivative gain (loss)., embedded derivative on reinsurance, and market adjustments on trading securities. The Company's strategy is to invest substantially all of its cash flows in fixed debt securities consistent withwithin its guidelines for credit quality, duration, and diversification. The lower level ofNational Western's debt securities investment income from debt and equity securities through the third quarter of 2017 versus 2016, reflectscontinues 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, investmentInvestment yields on new bond purchases during the first ninethree months of 20172021 approximated 3.57% remaining below2.90% as compared to the portfolio's3.33% yield achieved during the full year 2020. During the first quarter of 2021, the ten-year treasury bond increased approximately 80 basis points, however corporate bond credit spreads narrowed substantially. National Western's weighted average yield.bond portfolio yield was 3.64% at March 31, 2021 declining from 3.68% at December 31, 2020 and 3.78% at December 31, 2019. Ozark National's weighted average portfolio yield at March 31, 2021 was also 3.64%.


Mortgage loanChanges in fair values of equity securities are included in net investment income in the Condensed Consolidated Statements of Earnings (Loss). For the first three months of the year, unrealized gains of $1.4 million in 2021 are included in investment income while unrealized losses of $6.0 million are netted in investment income in the same period for 2020. The carrying value of the nine months ended September 30, 2017 increased significantly overCompany's portfolio of equity securities was $19.1 million at March 31, 2021.

The Company's mortgage loan activity in 2020 was initially impacted by the comparable periodpandemic crisis and the low interest rate levels which subsequently materialized. This environment slowed down the underwriting of new loan applications until clarity regarding the impacts of closing down the economy upon commercial real estate became available. As stability in 2016 reflecting increased loan origination activity beginning in 2016. Thethe market slowly returned, the Company commenced underwriting of new loans. As a result, the portfolio balance has increased to $377.5 million at March 31, 2021 from $108.3$332.5 million at December 31, 2015 to $174.52020 and $276.1 million at DecemberMarch 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.2020. During the ninethree months ended September 30, 2017March 31, 2021 the Company originated new mortgage loans in the amount of $38.2$49.5 million compared to $55.8$7.0 million in the comparable period of 2016.2020.


Other invested asset
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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. Remeasurement of the CECL allowance for mortgage loans is performed quarterly and for the quarter ended March 31, 2021 resulted in an increase in the allowance of $0.5 million which is included in gross investment income. The provision for the quarter ended March 31, 2020 was $0.7 million.

Credit loss allowances for available-for-sale debt securities are recorded when unrealized losses and missed payments indicate a credit loss has occurred in which a full recovery of the investment principal is not expected. Credit loss allowances are recorded through net investment income increasedin the Condensed Consolidated Statements of Earnings (Loss). No credit loss allowances for available-for-sale debts securities were recorded during the first ninethree months of 2017 as various profit participation loans paid out during the period. These loans, generally underwritten in conjunction with an underlying mortgage loan, enhance the Company's returns on its lending due the opportunity to participate in profit generation from the supporting venture.ended March 31, 2021 or 2020.


In order to evaluate underlying profitability and results from ongoing operations, net investment income performance is analyzed excluding index option derivative gain (loss), embedded derivative on reinsurance, and trading securities market adjustments, 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:


 Three Months Ended March 31,
 20212020
 (In thousands)
Excluding derivatives and trading securities:  
Net investment income$81,633 93,151 
Average invested assets, at amortized cost$10,185,266 10,994,435 
Annual yield on average invested assets3.21 %3.39 %
Including derivatives and trading securities:  
Net investment income (loss)$166,075 (13,478)
Average invested assets, at amortized cost$11,195,243 11,085,397 
Annual yield on average invested assets5.93 %(0.49)%
 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 assets4.13% 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 assets5.79% 4.27%


The yield ondecline in average invested assets,asset yield, excluding derivatives declined slightly from 2016. Yields obtained on new fixed maturity debtand trading securities, investments duringfor the first ninethree months of 2017 were below2021 is due to the total weighted average yield. During 2016, theCompany continuing to obtain lower yields on newly invested cash flows as higher yielding assets mature or are called.

The average yield on bond purchases during the three months ended March 31, 2021 to fund National Western insurance operations was 3.38%2.90% representing a 1.54%1.26% 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 ninethree months of the current year2021 was "A-"BBB+" which was slightly higher than the overall "BBB+" quality rating ofconsistent with purchases during 2016.2020. The composite duration of purchases during the first ninethree months of 2017 was approximately2021 continued to be longer than that of purchases prior to 2019 as the same asCompany 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 20162020 at a rate of 2.45%0.92%, the daily closing yield of the ten yearten-year treasury bond ranged from aas low of approximately 2.05% to a high of roughly 2.60%as 0.91% during the first ninethree months of 2017, and ended2021 finishing the third calendar quarterperiod at 2.33%1.74%.


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The pattern in average invested asset yield, including derivatives, incorporates increases and decreases in the fair value of index options purchased by the companyNational Western to support its fixed-index products. Fair values of the purchased call options increasedrecorded a net gain during the 2017 andfirst three months of 2021 while a net loss was recorded during the 2016 periods, substantially more in the 2017 period compared to the 2016 period,first three months of 2020, corresponding to the movement in equity market indices inthe 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 explanationexplanation. In addition, the funds withheld reinsurance agreement executed December 31, 2020 introduced embedded derivative accounting with respect to the policyholder obligations reinsured. During the quarter ended March 31, 2021, the embedded derivative liability for reinsurance decreased by $70.4 million which was recorded as investment income. Debt securities supporting the funds withheld policyholder obligations classified as trading incurred a $14.0 million market value decline which was also recorded as a component of net investment income. The net of these instruments.two amounts, or $56.4 million, increased net investment income during the quarter ended March 31, 2021.


Other revenues - Other revenues primarily pertaininclude the operations of 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 a maintenance expense allowance earned by National Western for administering the Company's two nursing home operations in Reno, Nevada and San Marcos, Texas. funds withheld block of annuity policies ceded to a third party reinsurer.

Revenues associated with these operationsNIS were $13.5$2.9 million and $13.5$2.4 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. Level nursing home revenues reflect stable census figures atRevenues associated with BP III were $1.3 million and $1.2 million for the facilities thus far in 2017three months ended March 31, 2021 and 2020, respectively. The facility is currently fully leased.

Under terms of the funds withheld reinsurance contract, National Western earns a steady mixmonthly expense allowance equal to the average policy count of payor sourcesthe funds withheld reinsured block of business multiplied by patient types.a stated amount per policy. In the quarter ended March 31, 2021, the Company reported $1.4 million as maintenance expense allowance revenue.


Derivative gain (loss) - Index options are derivative financial instruments used to hedge the equity return component of the company'sNational 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.



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'sCompany's fixed-index products also fluctuates in a similar manner and direction. For the three and nine months ended September 30, 2017, the reference indices increasedMarch 31, 2021 and 2020, the Company recorded an overall gainrealized and unrealized gains/(losses) from index options as shown below.


 Three Months Ended March 31,
 20212020
 (In thousands)
Derivatives:  
Unrealized gain (loss)$15,503 (138,127)
Realized gain (loss)12,521 31,498 
Total gain (loss) included in net investment income$28,024 (106,629)
Total contract interest$52,845 (28,026)

58
 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
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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,contract holders, is subject to variations from option performance during any given period. For example, many of the company'sCompany'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 morereported 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 ninethree months of 20172021 and 2020 were approximately $20.9$3.9 million more than in the first nine months of 2016. Of this amount, approximately $5.0and 10.2 million, of the increase occurred in the quarter ended September 30, 2017.respectively.


Net realized investment gains (losses) - Realized gains (losses) on investments in 2017 primarily resultedinclude 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 ninethree months ended September 30, 2017March 31, 2021 consisted of gross gains of $11.0$1.4 million offset by gross losses of $0.1 million. Included$0.0 million and are all related to bond calls of debt securities 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.available-to-sale category. The net gains reported for the ninethree months ended September 30, 2016March 31, 2020 consisted of gross gains of $10.0$3.5 million offset by gross losses of $0.1$0.0 million. No other-than-temporary credit impairment losses were recorded during the nine months ended September 30, 2017 and 2016.


The Company records impairment write-downs when a decline in value is considered to be other-than-temporary and full recovery of the investment is not expected. Impairments due to credit factors are recordedgross gains in the Company's Condensed Consolidated Statementsfirst quarter of Earnings while non-credit (liquidity) impairment losses are2020 included in Condensed Consolidated Statement$2.7 million from bonds calls of Comprehensive Income (Loss). No impairment or valuation write-downs were recordedsecurities in the Company's Condensed Consolidated Statements of Earnings for the periods as shown in the following table.held-to-maturity category.

 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 March 31,
 20212020
 (In thousands)
Life and other policy benefits$37,889 33,634 
Amortization of deferred transaction costs29,989 30,037 
Universal life and annuity contract interest52,845 (28,026)
Other operating expenses31,335 19,822 
Totals$152,058 55,467 
 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 costs18,722
 24,395
 85,992
 88,581
Universal life and annuity contract interest107,799
 67,776
 299,862
 179,592
Other operating expenses22,596
 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 $33.3were $24.0 million in the first ninethree months of 20172021 compared to $25.9$15.2 million for the first ninethree months of 2016. For2020. Of the amount included in the three months ended September 30, 2017March 31, 2021, $12.4 million was associated with National Western business and 2016, death claim benefits$11.6 million pertained to Ozark National. In the first quarter of 2020, these amounts were $12.3$7.5 million and $8.0$7.7 million for National Western and Ozark National, respectively. Death claim amounts are generally subject to variation from period to period. For the first ninethree months of 2017,2021, the number of National Western life insurance claims declined 8% from the comparable period in 2016. However,2020 while the distribution of claims was skewed toward higher dollar policies within the company's net retention limit of $500,000 per life resulting in a higher average dollar amount per claim. The company'snet claim increased to $43,900 from approximately $30,900. 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 2021 and 2020 three month periods was $17,600 and $15,700, 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 three months ended March 31, 2021, National Western incurred 47 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 $2.8 million. During the same period, Ozark National incurred 236 confirmed COVID-19 death claims aggregating to a net claim amount of approximately $3.9 million. The COVID-19 claim activity is included in the claim disclosures made in the preceding paragraph.
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Life and other policy benefits also includes reserve changespolicy liabilities held associated with the company'sCompany's traditional life products, policies with life contingencies, and riders such as the guaranteed minimum withdrawal benefit rider (WBR)("WBR"), a popular rider to itsNational 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 $3.1The increases in these liabilities for National Western were $8.1 million and decreased life$9.7 million in the quarters ended March 31, 2021 and 2020, respectively.

Life and other policy benefits by a like amount forin the nine monthsquarters ended September 30, 2016.March 31, 2021 and 2020 includes changes in traditional life reserves and miscellaneous benefit payments associated with Ozark National's operations of $5.9 million and $8.5 million, respectively.



Amortization of deferred policy acquisitiontransaction costs- 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 months endedSeptember 30, 2017 March 31, 2021 and 2016.2020.


Amortization of DPACThree Months Ended March 31,
 20212020
 (In thousands)
Unlocking adjustments$— — 
Other amortization components23,572 27,844 
Totals$23,572 27,844 
Amortization of DPACThree 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 components31,657
 32,565
 97,848
 100,371
        
Totals$18,722
 24,395
 85,992
 88,581


Amortization expense for the three months ended March 31, 2021 was comprised of DPAC amortization by National Western of $23.4 million, and by Ozark National of $0.2 million. Amortization expense for National Western was reduced by $1.4 million for amounts pertaining to the policies ceded under the funds withheld reinsurance agreement.



The Company's practice is to annually review during the third quarter its actuarial assumptions regarding the emergence of profits pertaining to its blocks of businesses and to update or "unlock" those assumptions which deviate significantly from actual experience. During the quarterquarters ended September 30, 2017,March 31, 2021 and 2020, the company unlocked theCompany did not unlock its DPAC balances associated with its International Life insurance 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 months ended September 30, 2016, the company unlocked the DPAC balance associated with its Domestic Life insurance segment for favorable mortality. The effect of the prospective unlocking was to increase DPAC balances by $8.2 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 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.

balances. The Company is required to evaluate its emergence of profits continually and management believes that the current amortization patterns of 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 balance unlockings in the third calendar quarter of the year.



As the DPAC balance is an asset on the Company's Condensed Consolidated Balance Sheet, generally accepted accounting principles (GAAP) provideSheets, 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'sCompany's universal life and annuity policies in force, including credited interest on equity-indexequity-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 theThe amount of earned interest on DPAC balances has therefore increased serving to offsetrecorded for the three months ended March 31, 2021 and 2020 was $4.6 million and $8.2 million, respectively, decreasing other amortization component expense. The decreased interest amount in the first three months of 2021 compared to 2020 reflects lower returns on equity-index products, particularly life insurance products..


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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 $180.9 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 March 31, 2021 and 2020, the Company's VOBA amortization expense was $2.6 million and $2.2 million, respectively.

At December 31, 2020, the Company recorded as an asset on the Consolidated Balance Sheet a deferred Cost of Reinsurance ("COR") amount of $102.8 million associated with the funds withheld reinsurance transaction. This represents the amount of assets transferred at the closing date of funds withheld agreement (debt securities, policy loans, and cash) in excess of the GAAP liability ceded plus a $48 million ceding commission paid to the reinsurer. The COR balance is amortized commensurate with the runoff of the ceded block of funds withheld business. In the quarter ended March 31, 2021, COR amortization expense of $3.9 million is included in Amortization of deferred transaction costs.

Universal life and annuity contract interest - The companyCompany 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'sCompany'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'sNational Western's approximated average credited rates through the first ninethree months, excluding and including fixed-index (derivative)equity-indexed products, were as follows:


 March 31,March 31,
 2021202020212020
 (Excluding fixed-index products)(Including fixed-index products)
Annuity1.88 %1.94 %0.96 %0.22 %
Interest sensitive life3.37 %3.36 %7.17 %(6.66)%
 September 30, September 30,
 2017 2016 2017 2016
 (Excluding fixed-index products) (Including fixed-index products)
        
Annuity2.20% 2.32% 3.57% 1.94%
Interest sensitive life3.42% 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'sCompany'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$28.0 million and $8.3$(106.6) million being included in net investment income for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. These positiveamounts consisted of realized gains of $12.5 million and unrealized gains of $15.5 million for the year-to-date 2021 period, and realized gains of $31.5 million and unrealized losses of $(138.1) million for the comparable 2020 time frame. These returns similarly increaseincreased/(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 months ended March 31, 2021 and 2020, these other items include the amounts shown in the table below.

Contract Interest ExpenseThree Months Ended March 31,
20212020
(In thousands)
Reserve changes$6,518 5,739 
Unlocking adjustments— — 
Asset management fees collected(3,917)(10,151)
Projected asset management fees4,357 29,317 
Other embedded derivative components165 6,124 
Totals$7,123 31,029 

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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. Netted against reserve changes for the first three months of 2021 is $5.8 million for assessed WBR policy charges compared to $5.7 million in the same period for 2020.

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'sCompany'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. ManyAs noted in the discussion of the company's fixed-index products provide fornet investment income, the collection of asset management fees. These fees arein a period can cause investment income to increase marginally higher than contract interest expense since these collected when realized gains on index options occur andfees are deducted from indexed interest credited to policyholders. DuringAs shown in the three months ended September 30, 2017 and 2016,table above, the collection of asset management fees collected were $7.5 million and $2.5 million, respectively. These collected fees serve to enhance the company'sare deductions from contract interest spread. For the nine months ended September 30, 2017 and 2016, asset management fees collected were $24.3 million and $3.5 million, respectively.expense.


Accounting rules require the embedded derivative liability to include a projection of asset management fees estimated to be collected in the next year. The changesucceeding fiscal year due to the Company's historical practice of purchasing options priced to incorporate an expected probability of collecting asset management fees (referred to as "at the money hedging"). This projection for the embedded derivative liability is based upon the most recent performance of the reference equity index. Increases in this projection, plus or minus, is included inprojected asset management fees to be collected reduce contract interest for the period being reported on.expense while decreases in projected asset management fees to be collected increase contract interest expense. In the three month periods ended September 30, 2017March 31, 2021 and 2016,2020 contract interest was increased $1.5by $4.4 million and decreased $(5.9)$29.3 million, respectively, for these projection changes.the projected change in asset management fees to be collected. In the nine month periods ended September 30, 2017second quarter of 2020, the Company changed its embedded derivative hedging process to incorporate "out of the money" hedging which reduces option costs and 2016,eliminates probability projections of collected asset management fees going forward. As the remaining inventory of annual at the money hedges continues to roll over, the embedded derivative liability component for projected asset management fees to be collected diminishes and will ultimately be phased out.

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 was increased $5.0 millionmade 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 updated for this out of date embedded derivative option budget assumption to reflect the Company's current investment portfolio yield. This update 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.


ContractAnother contract interest expense also includes reserve changes for immediate annuities, two tier annuities, excess death benefit reserves, excess annuitization, andcomponent 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, theinducements (included in Reserve 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.


above). Similar to deferred policy acquisition costs, the companyCompany 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 unlocking 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 during the three and nine months ended September 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 effect of this prospective unlocking decreasing the deferred sales inducement balance by $1.7 million (and increasing contract interest expense).

As part of these unlockings in 2017 and 2016, in addition to the changesadjustments were made in the DPACquarters ended March 31, 2021 and deferred sales inducement balances, net benefit reserves for the international universal life and deferred annuities (two tier) product lines were increased. The net amount2020.
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Table 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.Contents

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, compensation costs, and compensation costs.reinsurance ceded commission expense. These expenses for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 are summarized in the table that follows.


Three Months Ended March 31,
20212020
(In thousands)
General insurance expenses$11,742 10,682 
Nursing home expenses34 31 
Compensation expenses12,530 1,699 
Commission expenses3,045 2,935 
Real estate expenses1,404 1,464 
Brokerage expenses (NIS)1,388 1,169 
Reinsurance ceded commission expense6 — 
Taxes, licenses and fees1,186 1,842 
Totals$31,335 19,822 
 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 expenses4,135
 4,531
 12,622
 13,650
Compensation expenses7,140
 6,909
 22,203
 14,063
Commission expenses2,854
 3,043
 8,149
 8,480
Taxes, licenses and fees1,970
 1,451
 7,275
 4,666
        
Totals$22,596
 23,595
 74,031
 66,306


General insurance expenses include provisions for litigationsoftware 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 $3.6 million and other settlement payments made in lieu of litigation. As discussed in the Legal Proceedings section of the footnotes to the Condensed Consolidated Financial Statements, the Company charged $2.9$3.0 million against earnings in the first quarter of 2016 related to litigation involving an annuity contract matter in Puerto Rico. In aggregate, general insurance2021 and 2020, respectively. This category of expenses also includes employee benefit plan expenses for the nine months ended September 30, 2017 are slightly higher thanvarious employee health and retirement plans the prior year period (excludingCompany sponsors. Related expenses for the first quarter of 2021 and 2020 were $2.7 million and $3.3 million, respectively. Refer to Note (5) Pension and Other Postretirement Plans in the accompanying Notes to Condensed Consolidated Financial Statements in this litigation charge) due to increases in 2017report for real estate expense fromdiscussion of the new home office building acquired in December 2016, incremental amortization fromfinancial statement expenses of the company's deployment of its proprietary policy administration system, and employeeCompany's defined benefit plan liability increases.pension plans.


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 RSUsPSUs 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 $4.4 million in the first quarter of 2021 and $(6.3) million in the first quarter of 2020. The Company's Class A common share price increased from $205.37$206.44 at September 30, 2016December 31, 2020 to $310.80$249.00 at the end of 2016. DuringMarch 31, 2021, compared to $290.88 at December 31, 2019 and $172.00 at March 31, 2020. No performance share awards were granted in the first ninethree 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-based2021 and 2020. Ozark National compensation expense was $1.3expenses 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 $0.8 million in the same period for 2016.first quarter of 2021 and 2020, respectively.



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 the first nine months of 2017, the company's statutory earnings are significantly higher causing estimated state income tax payments to be correspondingly higher. In the nine months ended September 30, 2017 and 2016, taxes, licenses and fees include state income tax expense 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.

Federal Income Taxes. Federal income taxes on earnings from operations reflect an effective tax rate of 34.5%20.7%for the ninethree months ended September 30, 2017March 31, 2021 compared to 32.7%30.8% for the ninethree months ended September 30, 2016.March 31, 2020. 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.

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Segment Operations


Summary of Segment Earnings


A summary of segment earningsearnings/(losses) for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 is provided below. The segment earningsearnings/(losses) exclude realized gains and losses on investments, net of taxes.


Domestic
Life
Insurance		International
Life
Insurance		AnnuitiesONL & AffiliatesAll
Others		Totals
 (In thousands)
Segment earnings (losses):     
Three months ended:     
March 31, 2021$(2,282)5,541 51,749 3,269 2,733 61,010 
March 31, 2020$634 9,475 (17,976)4,887 (1,835)(4,815)
 
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



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 March 31,
 20212020
 (In thousands)
Premiums and other revenues:  
Premiums and contract revenues$13,898 11,228 
Net investment income (loss)23,843 (19,383)
Other revenues21 29 
Total premiums and other revenues37,762 (8,126)
Benefits and expenses:  
Life and other policy benefits6,110 5,877 
Amortization of deferred transaction costs5,460 2,573 
Universal life insurance contract interest21,621 (21,693)
Other operating expenses7,447 4,295 
Total benefits and expenses40,638 (8,948)
Segment earnings (loss) before Federal income taxes(2,876)822 
Provision (benefit) for Federal income taxes(594)188 
Segment earnings (loss)$(2,282)634 
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 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 income17,385
 12,294
 51,998
 28,011
Other revenues11
 7
 30
 37
        
Total revenues27,303
 20,808
 79,850
 52,862
        
Benefits and expenses: 
  
  
  
Life and other policy benefits3,483
 5,338
 13,850
 13,629
Amortization of deferred policy acquisition costs2,517
 (4,331) 8,300
 989
Universal life insurance contract interest14,119
 9,795
 41,576
 20,855
Other operating expenses4,086
 4,847
 13,975
 11,745
        
Total benefits and expenses24,205
 15,649
 77,701
 47,218
        
Segment earnings (loss) before Federal income taxes3,098
 5,159
 2,149
 5,644
Provision (benefit) for Federal income taxes1,061
 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 March 31,
 20212020
 (In thousands)
Universal life insurance revenues$15,580 12,605 
Traditional life insurance premiums1,196 1,278 
Reinsurance premiums(2,878)(2,655)
Totals$13,898 11,228 
 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 premiums1,793
 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'sNational 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 insurancepolicies in force from which contract charge revenue is received. Consequently, the number of domestic life insurance policies in force has declined from 54,30047,900 at December 31, 20152019 to 51,60046,900 at December 31, 2016,2020, and to 50,50046,700 at September 30, 2017.March 31, 2021. Policy lapse rates in the first three months of 2021 approximated 6.0% compared to 8.4% and 6.2% in the first three months of 2020 and 2019, respectively. The lapse rate in the first three months of 2020 includes the effect of the pandemic induced economic crisis which caused consumers to access available sources of liquidity. While policy count rates have declined, the face amount of life insurance in force has risen steadily from $3.4 billion at December 31, 2019 to $3.5 billion at December 31, 2020 and to nearly $3.6 billion at March 31, 2021.


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 ninethree months of 20172021 was 10%5% higher than in the comparable period for 20162020 and the volume of insurance issued was 8% more10% higher than that in 2016. 2020.

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 $2.7 million and $0.8 million in the company began deferring in 2013.three months ended March 31, 2021 and 2020, respectively.


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 March 31,
 20212020
 (In thousands)
Universal life insurance:  
First year and single premiums$51,640 47,671 
Renewal premiums3,867 4,338 
Totals$55,507 52,009 
 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 premiums5,166
 5,135
 15,297
 15,481
        
Totals$35,336
 35,508
 107,792
 101,396


During the past couple of years the company has achieved some success in growing its domesticDomestic life insurance business. Salessales 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.


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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.


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


 Three Months Ended March 31,
 20212020
 (In thousands)
Net investment income (excluding derivatives)$12,541 10,907 
Index option derivative gain (loss)11,302 (30,290)
Net investment income (loss)$23,843 (19,383)
 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 life 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 quarterperiod to quarter.period. Claim count activity during the first ninethree 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 20172021 decreased 10%13% compared to the first ninethree months of 20162020 while the average net claim amount (after reinsurance) increased to $27,000$29,000 from $24,000.$24,300. Reported claims in the quarter ended March 31, 2021 for which the cause of death was identified as COVID-19 were $1.0 million after reinsurance. 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 wereconsisting of final expense type products (i.e. purchased to cover funeral costs). The increaseClaims on these older blocks of policies are more 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'sCompany's overall mortality experience for this segment has been better thanconsistent with pricing assumptions.


Included in amortization of deferred transaction costs is DPAC amortization. As noted previously in the discussion of Results of Operations, the companyCompany 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 companyunlocking adjustments may also record unlocking adjustmentsbe 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 months ended September 30, 2017March 31, 2021 and 2016.2020.


Amortization of DPACThree Months Ended March 31,
 20212020
 (In thousands)
Unlocking adjustments$— — 
DPAC amortization expense5,460 2,573 
Totals$5,460 2,573 


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Amortization of DPACThree Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands)
        
        
Unlocking adjustments$—
 (8,170) 795
 (8,170)
Other amortization components2,517
 3,839
 7,505
 9,159
        
Totals$2,517
 (4,331) 8,300
 989



The company unlockedIn 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 spreadexperience during the period. The increase in amortization expense in 2021 relative to 2020 reflects lower interest earned on two of its equity-indexed universal life products duringDPAC balances due to crediting rates in 2021 roughly half of that in 2020 as a result of smaller realized gains from index options.

Contract interest expense includes the first nine months of 2017. The effectfluctuations that are the result of the prospective unlocking was to decreaseeffect upon the DPAC balance by $(0.8) millionembedded derivative for the performance of underlying equity indices associated with a corresponding increase to amortization expense. Infixed-index universal life products. For liability purposes, the three and nine months ended September 30, 2016,embedded option in the company unlocked its DPAC balanceCompany's policyholder obligations for this segmentfeature is bifurcated and reserved for favorable mortality. The effect ofseparately. 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'sCompany's international life insurance segment is detailed below.


 Three Months Ended March 31,
 20212020
 (In thousands)
Premiums and other revenues:  
Premiums and contract revenues$20,180 22,867 
Net investment income (loss)12,116 (9,000)
Other revenues28 54 
Total premiums and other revenues32,324 13,921 
Benefits and expenses:  
Life and other policy benefits4,375 3,331 
Amortization of deferred transaction costs5,392 6,052 
Universal life insurance contract interest10,799 (10,837)
   Other operating expenses4,774 3,096 
Total benefits and expenses25,340 1,642 
Segment earnings before Federal income taxes6,984 12,279 
Provision for Federal income taxes1,443 2,804 
Segment earnings$5,541 9,475 

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 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 income15,711
 12,763
 48,581
 30,203
Other revenues26
 10
 73
 50
        
Total revenues46,090
 43,839
 140,217
 125,544
        
Benefits and expenses: 
  
  
  
Life and other policy benefits8,437
 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 interest9,112
 11,287
 36,871
 19,643
Other operating expenses5,661
 6,691
 18,846
 17,867
        
Total benefits and expenses1,625
 30,312
 67,242
 64,019
        
Segment earnings (losses) before Federal income taxes44,465
 13,527
 72,975
 61,525
Provision (benefit) for Federal income taxes15,473
 3,591
 25,125
 19,977
        
Segment earnings (loss)$28,992
 9,936
 47,850
 41,548
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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 March 31,
 20212020
 (In thousands)
Universal life insurance revenues$19,965 22,469 
Traditional life insurance premiums1,923 2,161 
Reinsurance premiums(1,708)(1,763)
Totals$20,180 22,867 
 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 premiums3,494
 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, universalUniversal life revenues and operating earnings are anticipated to emerge with growth inlargely 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$13.7 billion at December 31, 20152019 to $17.9$12.4 billion at December 31, 20162020 and further decreased to $16.8$12.1 billion at September 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.March 31, 2021.



A thirdAnother component of international universal life revenues includeincludes 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 overrate 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 activityrevenue 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 $'sAnnualized Termination Rate
(millions)
Volume In Force Terminations
Three Months Ended March 31, 2021256.6 8.3 %
Year ended December 31, 20201,295.2 9.5 %
Year ended December 31, 20191,671.5 10.9 %
Year ended December 31, 20181,706.3 10.0 %
Year ended December 31, 20172,309.7 12.2 %
Year ended December 31, 20162,340.6 11.6 %
 Amount in $'s Annualized Termination Rate
 (millions)  
    
Volume In Force Terminations   
Nine months ended September 30, 20171,823.6
 12.9%
Year ended December 31, 20162,340.6
 11.6%
Year ended December 31, 20152,659.1
 12.3%
Year ended December 31, 20141,825.5
 8.4%
Year ended December 31, 20131,838.5
 8.6%
Year ended December 31, 20121,828.4
 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 March 31,
 20212020
 (In thousands)
Universal life insurance:  
First year and single premiums$— 2 
Renewal premiums13,016 14,578 
Totals$13,016 14,580 

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 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 premiums22,204
 23,393
 64,392
 69,903
        
Totals$26,187
 28,971
 75,759
 84,582

National Western's most popular international products have beenwere its fixed-index universal life products in which the policyholder cancould 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 renewal premiums for fixed-index universal life products of approximately $47.9$7.6 million and $50.2$8.6 million for the first ninethree months of 20172021 and 2016,2020, respectively. The declinedeclining trend in renewal premiums during 2017 compared to 2016these periods corresponds with the decline in policies in force due to increased termination activity as discussed above.



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 inrelatively 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 impacta 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 March 31,
 20212020
 (In thousands)
Net investment income (excluding derivatives)$5,879 6,811 
Index option derivative gain (loss)6,237 (15,811)
Net investment income (loss)$12,116 (9,000)
 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 embeddedmovement of the reference indice with realized gains or losses being recognized on the anniversary of each index option inbased upon the company's policyholder obligationsreference 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 forreference indice level, at the embedded derivative component inbalance sheet reporting date as compared to the equity-index universal life product is reflected in the contract interest expense fororiginal 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 lifeamounts. 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'sCompany'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 ninethree months of 20172021 increased to $159,000$158,900 from $140,000$126,800 in the first ninethree months of 2016.2020 while the number of claims incurred increased 63%. Of the increase in number of claims, one-half were from deaths due to COVID-19. Net claims, after reinsurance, associated with COVID-19 were $1.8 million in the quarter ended March 31, 2021.


Included in amortization of deferred transaction costs is DPAC amortization. The companyCompany 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 months endedSeptember 30, 2017 March 31, 2021 and 2016.2020.


Amortization of DPACThree Months Ended March 31,
 20212020
(In thousands)
Unlocking adjustments$— — 
DPAC amortization expense5,392 6,052 
Totals$5,392 6,052 

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Amortization of DPACThree 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 components6,431
 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, contractContract 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. TheFor 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 purchasedpurchase call options generally approximate the amounts National Western creditscredited to policyholders.


In addition, contract interest expense for this segment includes changes in reserves for excess death benefits. As part of the DPAC unlocking described above for 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 part of the DPAC unlocking described above, universal life excess death benefit reserves were also unlocked. The effect of this prospective unlocking was to decrease reserves by $6.1 million during the period which served to concurrently reduce contract interest expense.

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 March 31,
 20212020
 (In thousands)
Premiums and other revenues:  
Premiums and contract revenues$3,930 4,650 
Net investment income119,724 10,632 
Other revenues1,374 4 
Total premiums and other revenues125,028 15,286 
Benefits and expenses:  
Life and other policy benefits10,001 8,189 
Amortization of deferred transaction costs16,447 19,021 
Annuity contract interest20,425 4,504 
Other operating expenses12,930 6,867 
Total benefits and expenses59,803 38,581 
Segment earnings (loss) before Federal income taxes65,225 (23,295)
Provision (benefit) for Federal income taxes13,476 (5,319)
Segment earnings (loss)$51,749 (17,976)
 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 income114,123
 97,384
 346,031
 261,579
Other revenues26
 139
 90
 145
        
Total revenues119,442
 102,914
 362,704
 279,131
        
Benefits and expenses: 
  
  
  
Life and other policy benefits9,095
 7,054
 25,377
 20,153
Amortization of deferred policy acquisition costs37,790
 21,430
 85,566
 75,872
Annuity contract interest84,568
 46,694
 221,415
 139,094
Other operating expenses8,714
 7,526
 28,588
 23,044
        
Total benefits and expenses140,167
 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'sCompany's lapse rate for annuity contracts in the first ninethree months of 20172021 was 6.3%9.7% which was marginally lower thanslightly higher compared to the 6.7%9.5% rate during the same period in 2016.2020. In the first three 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 as contracts approach the end of their surrender charge period and in periods of rising interest rates, which was the backdrop of the first quarter of 2021.


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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 months endedSeptember 30, 2017 March 31, 2021 and 20162020 are detailed below.


 Three Months Ended March 31,
 20212020
 (In thousands)
Fixed-index annuities$118,120 76,268 
Other deferred annuities1,194 1,688 
Immediate annuities11,852 4,577 
Totals$131,166 82,533 
 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 annuities4,617
 7,555
 19,917
 31,767
Immediate annuities1,918
 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'sCompany's existing fixed interest rate annuity products. Fixed-index annuity deposits as a percentage of total annuity deposits were 95%90% and 93%92% for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The percentage of fixed-index products to total annuity sales reflects the low interest rate environment and the ongoing bull marketoverall uptrend in equities.the equities market.


As a selling inducement, someSome 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%rate, which is credited to the account balance when premiums are applied. These bonus ratessales inducements are deferred in conjunction with other capitalized policy acquisition costs. The amounts currently deferred to be amortized over future periods amounted to approximately $13.7$5.7 million and $13.6$1.5 million during the first ninethree months of 20172021 and 2016,2020, 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 March 31,
 20212020
 (In thousands)
Net investment income (excluding derivatives and trading securities)$52,821 71,160 
Index option derivative gain (loss)10,485 (60,528)
Embedded derivative liability decrease70,370 — 
Trading securities market adjustment(13,952)— 
Net investment income$119,724 10,632 
 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


In the quarter ended March 31, 2021, net investment income was reduced by $13.1 million for amounts ceded to the reinsurer in the funds withheld reinsurance transaction executed December 31, 2020.

As previously described, derivatives are callseen in the above table, net investment income also includes the derivative gains and losses on index options purchased to hedgeback the equity return componentindex crediting mechanism on fixed-index universal products. The derivative gain or loss on index options follows the movement of National Western's fixed-index annuity productsthe reference indice with anyrealized gains or losses frombeing recognized on the sale oranniversary 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.

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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.



The funds withheld reinsurance agreement executed December 31, 2020 introduced embedded derivative accounting with respect to the annuity policyholder obligations reinsured. During the quarter ended March 31, 2021, the embedded derivative liability decreased by $70.4 million which was recorded as investment income. Debt securities supporting the funds withheld policyholder obligations classified as trading securities incurred a $14.0 million market value decline which was also recorded as a component of net investment income. The net of these two amounts, or $56.4 million, increased net investment income for the Annuity segment during the quarter ended March 31, 2021.

Other revenues in the quarter ended March 31, 2021 include $1.4 million of maintenance expense allowance revenue. Under terms of the funds withheld reinsurance contract, National Western earns from the reinsurer a monthly expense allowance equal to the average policy count of the funds withheld reinsured block of business multiplied by a stated amount per policy.

Included in amortization of deferred transaction costs is DPAC amortization. Consistent with the domestic and international life segments, the companyCompany 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 months endedSeptember 30, 2017 March 31, 2021 and 2016.2020.


Amortization of deferred transaction costsThree Months Ended March 31,
 20212020
(In thousands)
Unlocking adjustments$— — 
DPAC amortization expense12,580 19,021 
COR amortization expense3,867 — 
Totals$16,447 19,021 
Amortization of DPACThree 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 components22,710
 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 DPAC balance was unlocked during the three and nine months ended September 30, 2017, for crediting rate spreads and surrender/annuitization assumptions. The effectEGPs of the prospectiveblock of annuity policies have been steadily decreasing with the declining amount of policies in force, as well as DPAC unlocking was toin recent years for unfavorable experience. In addition, experience which deviates from the EGPs assumed, such as the amounts of assets fees collected, can similarly increase or decrease the amortization of DPAC. In the quarter ended March 31, 2021, amortization expense was reduced by $1.4 million for DPAC balance by $15.1 million (and increaseceded to a reinsurer under the funds withheld reinsurance agreement entered into at December 31, 2020.

Amortization of deferred transaction costs for the quarter ended includes amortization expense). During 2016 the company unlocked the DPAC balance for surrender and annuitization rates. The effect of the prospective unlockingcost of reinsurance recorded at year-end 2020 associated with the funds withheld reinsurance agreement. At December 31, 2020, the Company recorded as an asset on the Consolidated Balance Sheet a deferred Cost of Reinsurance ("COR") amount of $102.8 million associated with the funds withheld reinsurance transaction. This represents the amount of assets transferred at the closing date of the funds withheld agreement (debt securities, policy loans, and cash) in this period wasexcess of the GAAP liability ceded plus a $48 million ceding commission paid to decrease the DPACreinsurer. The COR balance by $3.7is amortized commensurate with the runoff of the ceded block of funds withheld business. In the quarter ended March 31, 2021, COR amortization expense of $3.9 million (and increase amortization expense).is included in Amortization of deferred transaction costs.

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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 March 31,
 20212020
 (In thousands)
Fixed-index annuities$23,499 (12,997)
All other annuities(817)14,141 
Gross contract interest22,682 1,144 
Bonus interest deferred and capitalized(5,704)(1,507)
Bonus interest amortization3,447 4,867 
Total contract interest$20,425 4,504 
 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 annuities26,852
 18,140
 65,269
 63,590
        
Gross contract interest78,860
 44,920
 211,725
 131,963
Bonus interest deferred and capitalized(4,772) (4,243) (13,651) (13,587)
Bonus interest amortization10,480
 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 monthssection, collection of 2017 led to an increase in collected asset management fees by National Western which areon positive returns of expiring options is subtracted from contract interest credited to policyholders and lessenspolicyholders. 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 months ended September 30, 2017March 31, 2021 were $7.5$3.9 million and $24.3 million, respectively, compared to $2.5 million and $3.5$10.2 million in the corresponding period of 2020.

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 due to the Company's historical practice of purchasing options priced to incorporate an expected probability of collecting asset management fees (referred to as "at the money hedging"). This projection for the embedded derivative liability is based upon the most recent performance of the reference equity index. Increases in projected asset management fees to be collected reduce contract interest expense while decreases in projected asset management fees to be collected increase contract interest expense. In the three month periods ended March 31, 2021 and 2020, contract interest was increased $4.4 million and decreased $29.3 million, respectively, for the projected change in asset management fees to be collected. In the second quarter of 2016.2020, the Company changed its embedded derivative hedging process to incorporate "out of the money" hedging which reduces option costs and eliminates probability projections of collected asset management fees going forward. As the current remaining inventory of the annual hedges roll over, the embedded derivative liability component due to the projected asset management fees to be collected will be eliminated.



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 of $12.1 million 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 subsequent quarter ended June 30, 2020, the Company updated this out of date embedded derivative option budget assumption to reflect the Company's current investment portfolio yield. This update 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.

Annuity contract interest includes unlockingtrue-up adjustments for the deferred sales inducement balance and annuity reserves. In conjunctionwhich are done each period similar to that done with respect to DPAC balances with the DPACadjustment reflected in current period contract interest expense. To the extent required, the Company may also record unlocking during the three and nine months ended September 30, 2017, as discussed previously, the company unlocked itsadjustments to deferred sales inducement balances in conjunction with DPAC balance decreasing itunlockings. The Company had no unlocking adjustments in the first quarters of 2021 and 2020.
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ONL & Affiliates

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 are combined into a separate segment "ONL & Affiliates" 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 ONL & Affiliates segment is detailed below.

 Three Months Ended March 31,
 20212020
 (In thousands)
Premiums and other revenues:  
Premiums and contract charges$19,465 20,083 
Net investment income6,574 6,301 
Other revenues2,926 2,422 
Total premiums and other revenues28,965 28,806 
Benefits and expenses:  
Life and other policy benefits17,403 16,237 
Amortization of deferred transaction costs2,690 2,391 
Other operating expenses4,746 4,069 
Total benefits and expenses24,839 22,697 
Segment earnings (loss) before Federal income taxes4,126 6,109 
Provision (benefit) for Federal income taxes857 1,222 
Segment earnings (loss)$3,269 4,887 

Revenues from ONL & Affiliates 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 March 31,
 20212020
 (In thousands)
Traditional life insurance premiums$20,067 20,682 
Other insurance premiums and considerations112 118 
Reinsurance premiums(714)(717)
Totals$19,465 20,083 

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Ozark National's traditional life block of business at March 31, 2021 included approximately 177,800 policies in force representing nearly $6.0 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 4.7% through March 31, 2021 as compared to the 4.6% rate experienced in the first three months of 2020. Traditional life premiums by $4.3first year and renewal are detailed below.

 Three Months Ended March 31,
 20212020
 (In thousands)
Traditional life insurance premiums:  
First year premiums$730 1,215 
Renewal premiums19,337 19,467 
Totals$20,067 20,682 

Other revenues consists primarily of brokerage revenue of NIS. Brokerage revenues of $2.9 million (and increasing contract interest expense). Similarly, National Western also unlocked its deferred sales inducementand $2.4 million for the three months ended March 31, 2021 and 2020, respectively, had associated brokerage expense of $1.4 million and $1.2 million which is included in Other operating expenses.

The average face value of Ozark National's policies in force at March 31, 2021 was approximately $33,600. 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 three months of 2021 were $11.6 million representing an average net claim of $17,600. Incurred net death claims in the three month period ended March 31, 2020 were $7.7 million representing a net average claim of $15,700. Included in the activity for 2021 were reported COVID-19 net claims of approximately $3.9 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 second quarterquarters ended March 31, 2021 and 2020 consisted of 2016increases in insurance reserves and payments of other policy benefits.

Amortization of deferred transaction costs for surrenderthis segment includes amortization of DPAC and annuitization ratesthe value of business acquired ("VOBA"). VOBA represents the difference between the acquired assets and liabilities of Ozark National at the acquisition date measured in accordance with the prospective unlocking reducingCompany's accounting policies and the sales inducementfair 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. 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 $1.6 millionNational Western. The following table identifies the amortization expense of Ozark National's DPAC and increasing contract interest expense.VOBA for the three months ended March 31, 2021 and 2020.


These unlocking adjustments also increased two-tier annuity reserves in each respective period the change
Amortization of deferred transaction costsThree Months Ended March 31,
 20212020
 (In thousands)
Unlocking$— — 
VOBA amortization expense2,550 2,193 
DPAC amortization expense140 198 
Totals$2,690 2,391 
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Table 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.Contents


Other Operations


The Company's primary business encompasses its domestic and international life insurance operations, and its annuity operations, of National Western.and ONL & Affiliates. However, NWLGI and National Westernthe Company also have smallhas real estate nursing home, and other investment operations through theirits wholly owned subsidiaries. Nursing

Pre-tax operating amounts include the results of BP III, the entity owning and operating the Company's home operations generated $0.9office facility in Austin, Texas. BP III incurred pre-tax losses of $(0.1) million and $(0.1)$(0.3) million for the three months ended March 31, 2021 and 2020, respectively. National Western maintains its home office in this facility leasing approximately 40% of pre-tax operating earningsthe space available. The lease payments made by National Western to BP III have been eliminated in the first nine months of 2017 and 2016, respectively. consolidation.

The remaining pre-tax earnings of $19.4$3.8 million and $16.2$(2.0) million in Other Operations during the nine monththree-month periods representincludes investment income from real estate, municipal bonds, and common and preferred equities held in subsidiary company portfolios principally for tax advantagetax-advantage purposes. IncludedThe Company holds a modest portfolio of equity securities, primarily in NWL Financial, Inc., whose fair value changes are recorded in net investment income. For the three months ended March 31, 2021 and 2020, the market value changes for these amounts are semi-annual distributions from a life interest in the Libby Shearn Moody Trust which is held in NWLSM, Inc. Pretax distributions from this trustsecurities were $3.1$1.4 million and $2.9$(6.0) million, in the nine month periods ended September 30, 2017 and 2016, respectively. The remaining increase in investment income during the first nine months of 2017 compared to 2016 reflects payoffs on certain loans having profit participation provisions in the agreements with borrowers.




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.


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.


 March 31, 2021December 31, 2020
Carrying
Value		%Carrying
Value		%
(In thousands)(In thousands)
Debt securities available-for-sale$10,014,351 88.0 $10,770,923 94.2 
Debt securities trading654,333 5.7 — — 
Mortgage loans377,495 3.3 332,521 2.9 
Policy loans72,832 0.6 74,083 0.6 
Derivatives, index options137,130 1.2 132,821 1.2 
Real estate33,639 0.3 33,783 0.3 
Equity securities19,120 0.2 17,744 0.2 
Other82,191 0.7 70,330 0.6 
Totals$11,391,091 100.0 $11,432,205 100.0 

Invested assets at March 31, 2021 include Ozark National and NIS amounts as follows: Debt securities of $790.3 million; Policy loans of $24.7 million; and Real estate of $4.6 million. These invested asset amounts at December 31, 2020 were: Debt securities of $811.6 million; Policy loans of $25.5 million; and Real Estate of $4.6 million.

76
 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 loans188,623
 1.8 174,534
 1.6
Policy loans57,466
 0.5 58,699
 0.6
Derivatives, index options163,536
 1.5 120,644
 1.1
Real estate31,298
 0.3 31,761
 0.3
Equity securities19,976
 0.2 18,313
 0.2
Other17,635
 0.2 22,193
 0.2
        
Totals$10,769,156
 100.0 $10,627,453
 100.0
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Debt and Equity Securities


GAAP accounting requires investments in debt securities to be classified into one of three categories: (a) trading securities; (b) securities available-for-sale; or (c) securities held-to-maturity. The Company generally purchases securities with the intent to hold to maturity and has historically classified its debt securities into either the held-to-maturity or available-for-sale categories. As an outcome of the funds withheld reinsurance agreement executed December 31, 2020, the Company reclassified all of its debt security holdings into the available-for-sale category. The discussion that follows reflects this category classification.

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 30, 2017March 31, 2021 and December 31, 2016,2020, the Company's available-for-sale debt securities portfolio consisted of the following classes of securities:


 March 31, 2021December 31, 2020
Carrying
Value		%Carrying
Value		%
(In thousands)(In thousands)
Corporate$7,444,688 74.4 $8,098,973 75.2 
Residential mortgage-backed securities877,773 8.8 953,788 8.9 
Public utilities852,134 8.5 909,910 8.4 
State and political subdivisions515,307 5.1 566,089 5.3 
U.S. agencies57,452 0.6 75,441 0.7 
Asset-backed securities213,814 2.1 120,524 1.1 
Commercial mortgage-backed31,285 0.3 31,471 0.3 
Foreign governments18,643 0.2 11,449 0.1 
U.S. Treasury3,255 — 3,278 — 
Totals$10,014,351 100.0 $10,770,923 100.0 
 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 securities1,316,921
 12.8 1,396,426
 13.7
Public utilities1,217,939
 11.8 1,218,870
 11.9
State and political subdivisions456,021
 4.4 456,643
 4.5
Asset-backed securities17,188
 0.2 20,009
 0.2
Foreign governments10,413
 0.1 10,336
 0.1
U.S. Treasury1,336
 — 1,333
 —
        
Totals$10,290,622
 100.0 $10,201,309
 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.
Substantially all
The Company has de-emphasized mortgage-backed securities for a number of years given the Company's investable cash flows are directed towardlow interest rate environment and the purchaselack of long-termincremental 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 qualityA-
 BBB+
Effective annual yield3.57% 3.38%
Spread to treasuries1.20% 1.54%
Effective duration8.2 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.


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The majority of the Company's investable cash flows are directed toward the purchase of long-term debt securities. The Company's investment practice has been to invest 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.

Three Months Ended March 31,Year Ended December 31,
20212020
($ In thousands)
Cost of acquisitions$417,627 $727,947 
Average credit qualityBBB+BBB+
Effective annual yield2.90 %3.33 %
Spread to treasuries1.26 %2.1 %
Effective duration9.9 years12.2 years

Over the past several years, the Company has been 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 30, 2017,March 31, 2021, held in investment grade securities. In the table below, investments in available-for-sale debt securities are classified according to credit ratings by nationally recognized statistical rating organizations.


 March 31, 2021December 31, 2020
Carrying
Value		%Carrying
Value		%
(In thousands)(In thousands)
AAA$107,706 1.1 $116,147 1.1 
AA1,689,104 16.9 1,818,879 16.9 
A3,044,172 30.4 3,188,008 29.6 
BBB4,942,724 49.3 5,344,412 49.6 
BB and other below investment grade230,645 2.3 303,477 2.8 
Totals$10,014,351 100.0 $10,770,923 100.0 

78
 September 30, 2017 December 31, 2016
 
Carrying
Value
 % 
Carrying
Value
 %
 (In thousands)   (In thousands)  
        
AAA$108,963
 1.1 $97,421
 1.0
AA2,128,202
 20.7 2,225,606
 21.8
A3,232,971
 31.4 3,288,882
 32.2
BBB4,692,405
 45.6 4,409,873
 43.2
BB and other below investment grade128,081
 1.2 179,527
 1.8
        
Totals$10,290,622
 100.0 $10,201,309
 100.0

TheAlthough the Company's investment guidelines, do notas well as state insurance law, allow for the purchase of below investment grade securities.securities, 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 available-for-sale debt securities below investment grade are the result of subsequent downgrades of the securities. These holdings are further summarized below.


 Available-for-Sale Below Investment Grade Debt Securities
Amortized
Cost		Carrying
Value		Fair
Value		% of
Invested
Assets
 (In thousands, except percentages)
March 31, 2021$228,352 230,645 230,645 2.0 %
December 31, 2020$300,417 303,477 303,477 2.7 %
 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 30, 2017March 31, 2021 compared with the percentage at December 31, 20162020 decreased mostly due to the maturity and disposal of several below investment grade securities and credit rating upgradesin the first quarter of certain holdings.2021. 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 30, 2017March 31, 2021 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, 2017.2020. The Company continually monitors developments in these industries for issues that may affect security valuation.


 Available-for-Sale Below Investment Grade Debt Securities
Amortized CostCarrying ValueFair ValueFair Value
Industry CategoryMarch 31, 2021March 31, 2021March 31, 2021December 31, 2020
 (In thousands)
Retail$11,466 11,773 11,773 11,460 
Asset-backed securities4,822 5,029 5,029 5,022 
Residential mortgage-backed620 460 460 473 
Oil & gas105,673 103,978 103,978 104,072 
Manufacturing69,264 71,655 71,655 71,770 
Utilities15,982 17,072 17,072 17,526 
Other20,525 20,678 20,678 20,473 
Total before Allowance for credit losses228,352 230,645 230,645 230,796 
Allowance for credit losses— — — — 
Totals$228,352 230,645 230,645 230,796 
  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. 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 furtherfuture allowances or write-downs.


In the energy sector, oil prices declined over the past several years. Since then, prices have bottomed and come off
79

Generally accepted accounting principles require that investments in debt securities be written down to fair value when declines in value are 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 months ended September 30, 2017 the Company recorded no other-than-temporary impairment credit related write-downs on debt or equity securities. See Note 9, Investments, of the accompanying Condensed Consolidated Financial Statements for further discussion. Since the Company's adoption of theUnder prior GAAP guidance onpertaining to the recognition and accounting for other-than-temporary impairments due toand their classification as either a credit loss versusor 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.



The Company isadopted 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. This method applied 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 quarter ended March 31, 2020.

Three Months Ended March 31,
2020
(In thousands)
Debt Securities Allowance for Credit Losses:
Balance, beginning of the period$— 
Provision at January 1, 2020 for adoption of new accounting guidance3,334 
(Releases)/provision during the period2,705 
Balance, end of period$6,039 

As described previously, at December 31, 2020, the Company was required to classifyreclassify all of its investments inheld-to-maturity debt and equity securities into one of three categories: (a) trading securities; (b) securities availableto the available-for-sale category eliminating the need 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 shownan allowance in the table below, 28.9% of thecurrent period.

The Company's total debt and equity securities, based on fair values, were classified as securities available for sale at September 30, 2017. These holdings in available for saleavailable-for-sale provide flexibility to the Company(a) to react to market opportunities and conditions and (b) to practice active management within the portfolio to provide adequate liquidity to meet policyholder obligations and other cash needs.
March 31, 2021
Fair
Value		Amortized
Cost		Allowance for Credit LossesUnrealized
Gains (Losses)
 (In thousands)
Debt securities available-for-sale$10,014,351 9,447,267 — 567,084 
Debt securities trading654,333 668,285 — (13,952)
Totals$10,668,684 10,115,552 — 553,132 
 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 securities3,025,627
 2,927,787
 97,840
Equity securities19,976
 14,807
 5,169
      
Totals$10,544,525
 10,207,589
 336,936


Asset-Backed Securities

TheUnder terms of the funds withheld reinsurance agreement, effective December 31, 2020, the Company, holds approximately $17.2 million in asset-backedon behalf of the reinsurer, transferred debt securities approximating $1.7 billion to a funds withheld account. Due to the nature of the reinsurance transaction, these debt securities remained as of September 30, 2017. This portfolio includes $1.1 million of manufactured housing bondsinvested assets on the Company's financial statements 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' prioritywere included in the issuer's capital structure,available-for-sale category. In accordance with the adequacyterms of and abilitythe agreement, the reinsurer, or their appointed sub-advisor, was granted investment management authority with respect to realize proceeds from collateral andthese securities following agreed upon investment guidelines defined in the potential for prepayments. Credit risks include corporate credit risks or consumer credit risks for financing such as subprime mortgages. Capital market risks includereinsurance agreement. During the general level of interest rates andquarter ended March 31, 2021, the liquidity for thesereinsurer actively engaged in selling debt securities in the marketplace.funds withheld account and purchasing other debt securities. The debt securities acquired by the reinsurer remain as invested assets on the Company's financial statements and have been classified as trading debt securities. The designation as trading debt securities allows the market value fluctuation of these securities to be recorded directly in the Condensed Consolidated Statements of Earnings (Loss). This results in offsetting the embedded derivative liability change due to market value fluctuations which is also recorded directly in the Condensed Consolidated Statements of Earnings (Loss).


The
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At March 31, 2021, the Company's exposuretrading debt securities portfolio consisted of the following classes of securities:

 March 31, 2021December 31, 2020
Carrying
Value		%Carrying
Value		%
(In thousands)(In thousands)
Corporate$307,522 47.0$— —
Residential mortgage-backed securities53,433 8.2— —
State and political subdivisions8,511 1.3— —
Asset-backed securities223,415 34.1— —
Commercial mortgage-backed61,452 9.4— —
Totals$654,333 100.0$— —

In the table below, investments in trading debt securities are classified according to the subprime sector has been limited tocredit ratings by nationally recognized statistical rating organizations.

March 31, 2021December 31, 2020
Carrying
Value		%Carrying
Value		%
(In thousands)(In thousands)
AAA$— —$— —
AA34,002 5.2— —
A203,961 31.2— —
BBB372,555 56.9— —
BB and other below investment grade43,815 6.7— —
Totals$654,333 100.0$— —

The 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 subprimetrading debt 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 tablebelow investment grade are summarized below.


 Below Investment Grade Trading Debt Securities
Amortized
Cost		Carrying
Value		Fair
Value		% of
Invested
Assets
 (In thousands, except percentages)
March 31, 2021$44,483 43,815 43,815 0.4 %
  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.

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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, hasalong with a competitive marketplace, resulted in fewer loan opportunities being available that meetmet the Company's required rate of return. Beginning in 2016,During the Company initiated a concerted effort to grow this partfirst half of 2020, mortgage loan originations were further impeded by the COVID-19 pandemic and its investment portfolio.effects upon the commercial real estate market. Mortgage loans originated by the Company totaled $84.6$49.5 million for the quarter ended March 31, 2021 and $80.2 million for the year ended December 31, 2016 and $38.2 million for the nine months ended September 30, 2017. Principal repayments on mortgage loans for the nine months ended September 30, 2017 were $24.2 million.2020.


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 intoin 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.days. As a result of the economic climate change induced by the COVID-19 virus, various mortgage loan borrowers of the Company requested a temporary forbearance of principal payments on loans in the range of three to nine months. During the year ended December 31, 2020 there were eight loans representing an aggregate principal balance of $29.2 million with borrowers meeting specified criteria of the Company that forbearance terms were agreed to. As of March 31, 2021 all forbearance loans have returned to the terms of the original loan agreements.


The Company held net investments in mortgage loans, after allowances for possible losses, totaling $188.6$377.5 million and $174.5$332.5 million at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. The diversification of the portfolio by geographic region and by property type was as follows:


 March 31, 2021December 31, 2020
Amount%Amount%
 (In thousands) (In thousands) 
Mortgage Loans by Geographic Region:
West South Central$233,278 61.3 $201,501 60.1 
South Atlantic52,976 13.9 51,857 15.5 
East North Central16,341 4.3 16,478 4.9 
West North Central12,390 3.3 12,423 3.7 
East South Central27,456 7.2 27,590 8.2 
Pacific6,173 1.6 6,228 1.9 
Middle Atlantic15,043 4.0 1,975 0.6 
Mountain16,871 4.4 16,955 5.1 
Gross balance380,528 100.0 335,007 100.0 
Allowance for credit losses(3,033)(0.8)(2,486)(0.7)
Totals$377,495 99.2 $332,521 99.3 


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 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 Central31,066
 16.4
 26,717
 15.3
East South Central14,373
 7.6
 6,512
 3.7
South Atlantic13,796
 7.3
 14,130
 8.1
Pacific8,065
 4.3
 9,872
 5.6
Middle Atlantic2,234
 1.2
 2,288
 1.3
Mountain1,616
 0.8
 1,646
 0.9
New England—
 —
 11,488
 6.6
Gross balance189,273
 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
 March 31, 2021December 31, 2020
Amount%Amount%
 (In thousands) (In thousands) 
Mortgage Loans by Property Type:
Retail$133,060 35.0 $92,173 27.5 
Office111,119 29.1 111,735 33.3 
Storage facility53,505 14.1 53,591 16.0 
Apartments29,613 7.8 29,743 8.9 
Industrial34,751 9.1 29,131 8.7 
Hotel8,262 2.2 8,372 2.5 
Land/Lots4,685 1.2 4,680 1.4 
All other5,533 1.5 5,582 1.7 
Gross balance380,528 100.0 335,007 100.0 
Allowance for credit losses(3,033)(0.8)(2,486)(0.7)
Totals$377,495 99.2 $332,521 99.3 



As noted previously, the Company adopted new accounting guidance for credit loss recognition criteria for certain financial assets, including mortgage loans. For mortgage loan investments the Company employed the Weighted Average Remaining Maturity ("WARM") method in estimating current expected losses with respect to mortgage loan investments as of January 1, 2020 and each succeeding calendar quarter-end. 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. Under this accounting guidance, at January 1, 2020, a balance of $1.2 million was recorded which incorporated the previous year-end balance under the prior accounting method. The adjustment resulted in a charge to retained earnings as a change in accounting, net of tax, of $0.4 million. Subsequent changes in the allowance for current expected credit losses are reported in net investment income in the Consolidated Statements of Earnings.

 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
Office56,299
 29.7
 57,095
 32.6
Hotel/Motel13,734
 7.3
 9,708
 5.6
Land/Lots10,537
 5.6
 4,946
 2.8
All other22,595
 11.9
 13,488
 7.7
Gross balance189,273
 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
March 31, 2021December 31, 2020
Mortgage Loans Allowance for Credit Losses:
Balance, beginning of the period$2,486 675 
Provision January 1, 2020 for adoption of new accounting guidance— 504 
Provision during the period547 1,307 
Releases— — 
Balance, end of period$3,033 2,486 


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 investconsist 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$33.6 million and $31.8$33.8 million at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.


The Company recognized operating income of approximately $2.1$0.7 million and $2.0$0.7 million on real estate properties in the first ninethree months of 20172021 and 2016,2020, 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.


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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 Westernthe 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. Shouldportfolio 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.



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


March 31,
2021		December 31,
2020
 (In thousands except percentages)
Debt securities - fair value$10,014,351 10,770,923 
Debt securities - amortized cost$9,447,267 9,874,543 
Fair value as a percentage of amortized cost106.00 %109.08 %
Net unrealized gain (loss) balance$567,084 896,380 
Ten-year U.S. Treasury bond – (decrease) increase in yield for the period0.82 %(1.00)%

The Company's unrealized gain (loss) balance for debt securities held at March 31, 2021 and December 31, 2020 is shown in the following table. The change in unrealized balance pertaining to debt securities available-for-sale is recorded in Other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income (Loss) while the change in unrealized balance pertaining to debt securities trading is recorded in net investment income in the Condensed Consolidated Statements of Earnings (Loss).
 Net Unrealized Gain (Loss) Balance
At March 31, 2021At
December 31,
2020		Year-to-date Change in
Unrealized
Balance
(In thousands)
Debt securities available-for-sale$567,084 896,380 (329,296)
Debt securities trading(13,952)— (13,952)
Totals$553,132 896,380 (343,248)
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 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 cost103.25% 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 period0.03% (0.08)% 0.18%


.

 Net Unrealized Gain 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
          
Debt securities held to maturity$233,927
 235,953
 178,352
 (2,026) 55,575
Debt securities available for sale97,840
 94,322
 65,030
 3,518
 32,810
          
Totals$331,767
 330,275
 243,382
 1,492
 88,385

Changes in interest rates typicallycan 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 12increased 82 basis points from 2.45%0.92% at year-end 20162020 to 2.33%1.74% by the end of the first ninethree months of 2017 and2021. Therefore the Company'sdecrease in the unrealized gain balance position increased $88.4 million on ais an expected portfolio with an amortized cost basis of approximately $10.2 billion. 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 effect on the Company's Condensed Consolidated Balance Sheet.value movement.


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.


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 havepersistency, 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, 2016,2020, for its interest rate-sensitive assets and liabilities. The changes in market values of the Company's debt securities in the first ninethree months of 20172021 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'sthe 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’sNational 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.




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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 bankNational Western maintains a line of credit facility of $75 million which it may access for short-term cash needs. There were no borrowings outstanding under the line of credit at September 30, 2017.during the three months ended March 31, 2021 and 2020.


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 towhich 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, before reinsurance, for the three and nine months ended September 30, for each respective year,March 31, 2021 and 2020, are noted in the table below.


 Three Months Ended March 31,
 20212020
 (In thousands)
Product Line:  
Traditional Life$4,041 4,633 
Universal Life19,349 28,597 
Annuities161,586 175,963 
Total$184,976 209,193 
 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 Life28,488
 27,831
 93,121
 82,781
Annuities122,697
 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 andneed to undergo a new underwriting process in order to obtain a new insurance policy. The increase in Universal Life payments year-to-date reflectspolicy elsewhere. Annuity dollar outflows are generally more sensitive to economic conditions, interest rate levels, and the increased termination activity associated with policyholder residentslevel of international countries from which the Company ceased accepting new applications from in the fourth quarter of 2015.surrender charges assessed upon withdrawal or termination. Cash flow projections and tests under various market interest rate scenarios and assumptions are also performed to assist in evaluating liquidity needs and adequacy. TheWith the economic decline precipitated by the COVID-19 pandemic, Company management conducted additional liquidity scenario testing during 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$55.9 million and $246.2$105.7 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, 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$386.1 million and $438.4$281.3 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, 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 $(140.1)$(68.5) million and $(49.3)$(144.7) million during the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. The lower net outflow in the first quarter of 2021 reflects a higher level of annuity sales.


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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 30, 2017,March 31, 2021, the Company had nomaintained normal commitments beyondfor its normal operating and investment activities. As previously repoted, National Western became a member of the Federal Home Loan Bank of Dallas (FHLB) during the first quarter of 2020 through an initial minimum required stock investment of $4.3 million. Through this membership, National Western is able to create 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.

As the largest subsidiary of NWLGI, National Western serves as the primary funding source for NWLGI. 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, 2020, the maximum amount legally available for distribution without further regulatory approval is $10.0 million. National Western has not paid a dividend since the year ended December 31, 2019.


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, 20162020 for a discussion of reserving methods.



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


 Payment Due by Period
TotalLess Than
1 Year		1 - 3
Years		3 - 5
Years		More Than
5 Years
 (In thousands)
Loan commitments$— — — — — 
Commitments for capital calls to investment funds (3)210,146 60,082 120,164 — 29,900 
Lease obligations743 419 324 — — 
Claims payable (1)88,394 88,394 — — — 
Other long-term reserve liabilities reflected on the balance sheet (2)12,848,201 1,033,566 1,905,215 1,700,498 8,208,922 
Total$13,147,484 1,182,461 2,025,703 1,700,498 8,238,822 
 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 obligations844
 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 claimsClaims 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.

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(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.



(3) Amounts reflect commitments to alternative investment funds which have not been called by the fund managers as of the current balance sheet date.

The Company, through its wholly owned subsidiary Braker P III, LLC ("BP III"), owns a commercial office building for which it has entered into lease agreements with various tenants for space not occupied by the Company. Total revenues recorded pertaining to these leases for the three-month periods ended March 31, 2021 and 2020 amounted to $1.3 million and $1.2 million, respectively. Under their respective terms these leases expire at various dates from 2023 through 2026.

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
TotalLess Than
1 Year		1 - 3
Years		3 - 5
Years		More Than
5 Years
(In thousands)
Real estate revenue$42,632 6,384 12,093 9,984 14,171 


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 as of that date. 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 effortsactions 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,National Western and Ozark National's current statutory capital and surplus isare each significantly in excess of the current threshold RBC requirements.

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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.




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 30, 2017, management continuedMarch 31, 2021 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 ongoing COVID-19 pandemic crisis, while the Company has adopted working remote for a sizable portion of its home office employees, existing internal controls over financial reporting such thathave been maintained and augmented where necessary given the information required to reported and disclosedunique 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 theThe risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2020 included a discussion of the potential ramifications of natural or man-made disasters and catastrophes including pandemic disease. Although the majority of our home office staff have been redeployed to remote work sites following social distancing protocols during the COVID-19 pandemic, our companies and businesses have retained normal operations and business hours throughout accepting applications for insurance, issuing policies, investing and managing assets, paying policy benefits and expenses, maintaining information technology operations, and adhering to a sound system of internal controls over financial reporting. Since operations have not been interrupted or suspended, the Company did not activate 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. The exposure to financial service companies has principally manifested in 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.



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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 stock 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 associatedprovides Option Holders with the company's 1995 Stock Option and Incentive Plan. Option Holders mayability to elect to sell such acquired shares back to the companyCompany at any time within ninety (90) days after the exercise of stock 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 toAs of March 31, 2021, there are no stock 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 30, 2017.At December 31, 2020 and March 31, 2021 there were no stock options vested or unvested and outstanding under these plans.


PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May yet Be Purchased Under the Plans or Programs
JulyJanuary 1, 20172021 through JulyJanuary 31, 20172021—
—$
— 		N/AN/A
AugustFebruary 1, 20172021 through August 31, 2017February 28, 2021—
—$
— 		N/AN/A
SeptemberMarch 1, 20172021 through September 30, 2017March 31, 2021—
—$
— 		N/AN/A
Total—
—$
— 		N/AN/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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ITEM 4.  Removed and Reserved.




ITEM 6.  EXHIBITS


(a) Exhibits
(a)Exhibits
-Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
-Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
-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:May 10, 2021/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:May 10, 2021Chief 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)




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