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 Services, Inc., and N.I.S. Financial Services, Inc. ("NIS"). National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., Braker P III, LLC, and Ozark National 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) goodwill, (6) allowances for credit losses on debt securities and mortgage loans, and (7) commitments and contingencies.

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 six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020.~~March 31, 2021.

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.

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 ~~June 30, 2021.~~March 31, 2022. 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 limited 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, or 10% of statutory surplus of National Western as of the previous year-end. Under these guidelines, the maximum dividend payment which may be made without prior approval in ~~2021~~2022 is ~~$10.0~~$64.4 million. National Western did not declare or pay cash dividends to NWLGI during the three months ended March 31, 2022 and 2021.

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~~2022 without prior approval is ~~$20.0~~$18.6 million. All dividends declared by Ozark National are payable entirely to NWLIC as the sole owner and are eliminated in consolidation.

NWLGI ~~also~~ did 0tnot declare or pay cash dividends on its common shares during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Basic earnings per share of common stock are computed by dividing net earnings available to each class of common stockholders on an as if distributed basis by the weighted-average number of common shares outstanding for the period. Diluted earnings per share, by definition, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, that then shared in the distributed earnings of each class of common stock. U.S. GAAP requires a two-class presentation for the Company's ~~two~~2 classes of common stock. The Company currently has no share-based compensation awards outstanding that could be redeemed for shares of common stock.

Net earnings for the periods shown below 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~~2 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).

National Western sponsors a qualified defined benefit pension plan covering employees enrolled prior to 2008. The plan provides benefits based on the participants' years of service and compensation. The Company 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 year. The following table summarizes the components of net periodic benefit cost.

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

The Company's minimum required contribution for the ~~2021~~2022 plan year is $0.0 million. There was ~~$0.7~~$0.3 million in planned contributions remaining for the ~~2020~~2021 plan year as of ~~June 30, 2021.~~March 31, 2022. There was up to $0.3 million in planned contributions remaining for the 2022 plan year as of March 31, 2022. As of ~~June 30, 2021,~~March 31, 2022, the Company has made ~~$0.2~~$0.0 million in contributions to the plan for the ~~2020~~2021 plan year and $0.0 million in contributions to the plan for the ~~2021~~2022 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.

Effective July 1, 2005, National Western established a second non-qualified defined benefit plan for the benefit of the then Chairman of the 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. 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 non-qualified defined benefit plans.

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 $2.0 million to these plans in ~~2021.~~2022. As of ~~June 30, 2021,~~March 31, 2022, the Company has contributed ~~$0.9~~$0.4 million to the 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.

Ozark National and NIS have no defined benefit plans.

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

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.~~2022. 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.

The Company defines its reportable operating segments as domestic life insurance, international life insurance, annuities, and ONL and ~~Affiliates (previously referred to as "Acquired Businesses").~~Affiliates. These segments are organized based on product types, geographic marketing 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. In accordance with GAAP guidance for segment reporting, the Company excludes or segregates realized investment gains and losses.

A summary of segment information as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 for the Condensed Consolidated Balance Sheet items and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~ for the Condensed Consolidated Statements of Earnings is provided below.

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

~~Effective June 20, 2008, the~~The Company's shareholders approved ~~a 2008~~an Incentive Plan ~~(“2008 Plan”)~~in 2016 which ~~provided~~provides 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 number of shares of Class A, $1.00 par value, common stock ~~which were~~ allowed to be issued under the ~~2008~~Incentive Plan, or as to which SARs or other awards ~~were~~are allowed to be granted, ~~could not~~cannot exceed 300,000. This plan was assumed by NWLGI from National Western pursuant to the terms of the holding company reorganization in 2015. On June 15, 2016, stockholders of NWLGI approved an amended and restated 2008 Plan ("Incentive Plan"), which extended the term of the 2008 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~~can be used in the issuance of the fourth type of award noted above (performance awards). The term of the Incentive Plan is for ten years from the date of stockholder approval.

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. ~~At the end of 2018, all stock options granted under the 2008 Plan had been exercised, forfeited, or expired.~~ SARs granted prior to 2016 vest 20% annually following three years of service following the grant date. Employee SARs granted 2016 and thereafter vest 33.3% annually following one year of service from the date of the grant. Directors' SARs grants vest 20% annually following one year of service from the date of grant.

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") provide solely for cash settlement based upon the market price of the Company's Class A common shares, often referred to as "phantom stock-based awards" in equity compensation plans. Unlike share-settled awards, which have a fixed grant-date fair value, the fair value of unsettled or unvested liability awards is remeasured at the end of each reporting period based on the change in fair value of a share. The liability and corresponding expense are adjusted accordingly until the award is settled. For employees, the vesting period for RSUs is 100% at the end of 3 years from the grant date. RSUs granted prior to 2019 ~~are~~were payable in cash at the vesting date equal to the closing price of the Company's Class A common share on the three ~~years~~year 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.

PSU awards covering the three year measurement period ended December 31, ~~2019~~2021 were paid out in the first quarter of ~~2020.~~2022. The performance factor during the measurement period used to determine compensation payouts was ~~101.19%~~110.19% 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. Unlike RSUs granted to officers, the RSUs granted to directors vest one year from the date of ~~grant. 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 at that time. RSUs granted in 2019~~grant and ~~forward~~ are payable in cash at the vesting date equal to the 20-day moving average closing price of the Company’s Class A common share at that time.

~~NaN~~No awards were granted to officers and directors during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Liability Awards
SAR RSU PSU
Other Share/Unit Awards:
Balance at January 1, 2021 144,248 16,449 24,282
Exercised (10,800) 0 (3,863)
Forfeited (730) (157) 0
Granted 0 0 0
Balance at June 30, 2021 132,718 16,292 20,419
The Company uses the current fair value method to measure compensation costs for awards granted under the share-based plans. As of March 31, 2022 and December 31, 2021, the liability balance was $8.4 million and $7.9 million, respectively. A summary of awards by type and related activity is detailed below.

SARs, RSUs, and PSUs shown as forfeited in the above tables represent vested and unvested awards not exercised by plan participants upon their termination from the Company in accordance with the expiration provisions of the awards.

The total intrinsic value of share-based compensation exercised and paid was ~~$2.0~~$1.0 million and ~~$1.9~~$0.7 million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The total fair value of SARs, RSUs, and PSUs vested during the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was $0.0 million and ~~$1.8~~$0.0 million, respectively. ~~NaN~~No cash amounts were received from the exercise of stock options under the Plans during the periods reported.

The following table summarizes information about SARs ~~shown~~outstanding at March 31, 2022.

The aggregate intrinsic value in the table above ~~with exercise~~is based on the closing Class A stock price of $132.56 have a remaining contractual life of less than one year. The holders for this grant have until the end of the contractual life of December 14, 2021 to exercise these holdings or otherwise forfeit the SAR grants held.$210.40 per share on March 31, 2022.

In estimating the fair value of the SARs outstanding at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company employed the Black-Scholes option pricing model with assumptions detailed below.

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

The pre-tax compensation cost/(benefit) recognized in the financial statements related to these plans was ~~$(0.5)~~$1.6 million and ~~$3.9~~$4.4 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and $2.4 million and $(3.8) million for the three and six months ended June 30, 2020,~~ respectively. The related tax expense/(benefit) recognized was ~~$0.1~~$(0.3) million and ~~$(0.8)~~$(0.9) million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and $(0.5) million and $0.8 million for the three and six months ended June 30, 2020,~~ respectively.

As of ~~June 30, 2021,~~March 31, 2022, the total pre-tax compensation expense related to non-vested share-based awards not yet recognized was ~~$7.4~~$10.0 million. This amount is expected to be recognized over a weighted-average period of 1.3 years. The Company recognizes compensation cost over the graded vesting periods.

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.

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 NWLIC to provide information relating to such possible violations. National Western cooperated with the relevant governmental authorities in regard to this matter. 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 has been cooperating with the relevant governmental authorities in regard to this matter.~~

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 ~~$26.0 million~~no commitments to fund new loans and 0no commitments to extend credit relating to existing loans at ~~June 30, 2021.~~March 31, 2022. The Company evaluates each customer's creditworthiness on a case-by-case basis. The Company had commitments to make capital contributions to alternative investment debt and equity funds of ~~$210.2~~$355.6 million as of ~~June 30, 2021.~~March 31, 2022. The Company had no commitments to extend credit relating to revolving credit facilities at March 31, 2022.

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

For the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ the percentage of total gains on bonds due to the call of securities was 100.0% and ~~99.9%, respectively. For the six months ended June 30, 2021 and 2020 the percentage of gains on bonds due to the call of securities was~~ 100.0% ~~and 99.8%~~, respectively.

The ~~Company transferred all of its debt securities to the available-for-sale classification as of December 31, 2020. The~~ table below presents amortized costs and fair values of debt securities available-for-sale at ~~June 30, 2021.~~March 31, 2022.

The table below presents amortized costs and fair values of debt securities available-for-sale at December 31, ~~2020.~~2021.

Unrealized losses for debt securities available-for-sale increased at March 31, 2022 from comparable balances at December 31, 2021 primarily due to increases in interest rate levels during the first quarter of 2022.

~~Unrealized losses for debt securities available-for-sale increased at June 30, 2021 from comparable balances at December 31, 2020 primarily due to increases in interest rate levels during the period.~~

The following table shows the gross unrealized losses and fair values of the Company's available-for-sale debt securities by investment category and length of time the individual securities have been in a continuous unrealized loss position at ~~June 30, 2021.~~March 31, 2022.

The following table shows the gross unrealized losses and fair values of the Company's available-for-sale debt securities by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, ~~2020.~~2021.

The amortized cost and fair value of investments in debt securities available-for-sale at ~~June 30, 2021,~~March 31, 2022, 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.

The following table presents the current expected credit loss allowance for debt securities for the three months ended March 31, 2022 and 2021.

Provisions to and releases from the allowance for credit losses are recorded in net investment income in the Condensed Consolidated Statements of Earnings.

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 ~~June 30, 2021~~March 31, 2022 or ~~2020.~~2021. 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.

During the three months ended March 31, 2022 and 2021, the Company made no transfers between debt securities available-for-sale and trading. 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 transferreddoes not classify any debt securities was added to a funds withheld account for which the reinsurer provides investment management services and does not intend to hold the securities until maturity. Consequently, the Company determined that its continued classification of held-to-maturity debt securities was not appropriate and transferred the entire balance at that time to available-for-sale.as held-to-maturity.

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. The Company's mortgage, participation and mezzanine loans on real estate are the only financing receivables included in the Condensed Consolidated Balance Sheets.

Credit and default risk are 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~~supported by the lease payments. This approach has ~~proved~~proven 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~~A low interest rate environment and a competitive marketplace, have resulted in fewer loan opportunities being available that ~~met~~meet the Company's required rate of return. ~~During the first half of 2020, mortgage~~Mortgage loan originations were further impeded by the COVID-19 pandemic and its effects upon the commercial real estate market. As stabilization returned to the commercial real estate market, the Company directed resources and effort towards expanding its mortgage loan investment portfolio. Mortgage loans originated by the Company totaled ~~$70.3~~$26.4 million ~~for~~in the ~~six~~three months ended ~~June 30,~~March 31, 2022 compared with $49.5 million in the three months ended March 31, 2021 and ~~$80.2~~$183.6 million ~~for~~in the year ended December 31, ~~2020.~~2021.

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. 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 ~~June 30,~~March 31, 2022 or 2021 ~~or 2020~~ and as a result all interest income was recognized at ~~June 30,~~March 31, 2022 and 2021.

Included in the mortgage loan investment balance at March 31, 2022 and December 31, 2021 ~~and 2020. As a result of the economic climate change induced~~are mortgage loan investments made by the ~~COVID-19 virus, various mortgage loan borrowers of~~reinsurer under the ~~Company requested a temporary forbearance of principal payments on~~funds withheld reinsurance agreement totaling $11.1 million and $8.5 million, respectively. Similar to trading debt securities, these loans are reported at fair market values in order to allow the market value fluctuation to be recorded directly in the ~~range~~Condensed Consolidated Statements of ~~three~~Earnings and to ~~nine months. During 2020 there were 8 loans representing an aggregate principal balance of $29.2 million with borrowers meeting specified criteria of~~offset the ~~Company that forbearance terms were agreed~~embedded derivative liability change due to ~~by the Company. As of June 30, 2021 all forbearance loans have returned to the terms of the original loan agreements.~~market value fluctuations.

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

(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.

Market value adjustments are recorded for mortgage loan investments for which the Company has elected to measure the loan at fair value. ~~During the quarter ended June 30,~~Beginning in 2021, the investment manager associated with the funds withheld coinsurance arrangement executed a mortgage loan ~~investment~~investments for the funds withheld assets under the reinsurance treaty. The Company elected fair value measurement for ~~this~~these mortgage ~~loan,~~loans, which ~~will be~~are included in the funds withheld ~~assets, for financial reporting purposes.~~portfolio.

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.” 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.

~~Effective January 1, 2020, the~~The Company ~~implemented FASB ASU 2016-13,~~ ~~Financial Instruments-Credit Losses, which revised the~~employs a current expected credit ~~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”). on its mortgage loans held at amortized cost for purposes of establishing a valuation allowance. The objective of the CECL 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. 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 changesChanges in the allowance for current expected credit losses for mortgage loans are reported in net investment income in the Condensed Consolidated Statements of Earnings.

The following table represents the mortgage loan allowance for credit losses.

The Company's direct investments in real estate are not a significant portion of its total investment portfolio and totaled approximately ~~$33.5~~$28.4 million and ~~$33.8~~$28.6 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively. During the second quarter~~2021, respectively, and consist primarily of ~~2021, Ozark~~income-producing properties which are being operated by a wholly owned subsidiary of National recorded an impairment of $1.4 million on certain real estate and home office property located in Kansas City, Missouri which was re-classified as "held-for-sale" at its combined asset group's fair value less cost to sell of $12.2 million.Western. The Company recognized operating income on real estate properties of approximately ~~$1.4~~$0.7 million and ~~$1.5~~$0.7 million for the first ~~six~~three months of ~~2021~~2022 and ~~2020,~~2021, respectively.

Net real estate gains for the three months ended March 31, 2022, are related to the sale of land located in Freeport, Texas and Houston, Texas which generated a net realized gain of $0.3 million.

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") and the lowest priority to unobservable inputs ("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:

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:

During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, the Company made 0no transfers from Level 2 to Level 3 for debt securities available-for-sale.

(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.

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

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

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:

Realized gains (losses) on debt securities are reported in the Condensed Consolidated Statements of Earnings as ~~net~~Net realized 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. Unrealized gains (losses) on trading debt securities are reported in the Condensed Consolidated Statements of Earnings as Net investment income.

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.

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

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.

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 Company 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 Company depending on the performance of the underlying index or indices and terms of the contract.

Although there is credit risk in the event of nonperformance by counterparties to the index options, the Company 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'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~~account. While the assets are withheld, the associated interest and credit risk of these assets ~~has been~~are transferred to the reinsurer, ~~representing a total return swap with a floating rate leg.~~creating an embedded derivative on reinsurance in the funds withheld liability. Accordingly, the Company ~~bifurcates~~is required to bifurcate the embedded derivative ~~for reinsurance~~ from the host contract in accordance with GAAP. The fair value of the embedded derivative ~~funds withheld liability~~on reinsurance is computed as the unrealized gain (loss) on the underlying funds withheld ~~assets and~~assets. This amount is included inas a component of the funds withheld liability balance on the Condensed Consolidated Balance Sheets with changes in the ~~change~~embedded derivative on reinsurance reported in ~~net~~Net investment income in the Condensed Consolidated Statements of Earnings. 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The table below presents the effect of derivative instruments in the Condensed Consolidated Statements of Earnings for the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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, 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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the change in the embedded derivative liability due to the expected collectability of asset management fees increased/(decreased) contract interest expense by ~~$2.1~~$0.0 million and ~~$(3.7)~~$4.4 million, respectively. For the six months ended June 30, 2021 and 2020, contract interest expense was increased/(decreased) by $6.5 million and $25.6 million, respectively, for the expected collectability of asset management fees.

Beginning in the second quarter of 2020, the Company changed its budget for purchasing these options to match the collection of asset management fees with the payoff from out-of-the-money options, thereby removing the option premium that was previously being paid for the probability or expectation of collecting asset management fees ("~~out of the money"~~out-of-the-money" hedging). Consequently, the remaining one year options purchased under the prior method expired and ~~have been~~were replaced by out-of-the-money hedges as of June 30, 2021. ~~In future reporting periods,~~Accordingly, the embedded derivative liability component due to the projected collectability of asset management fees ~~will~~ no longer ~~exist.~~exists.

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 ~~June 30, 2021,~~March 31, 2022, expected amortization expense relating to purchased intangible assets for each of the next 5 years and thereafter is as follows:

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:

Estimated future amortization of VOBA, net of interest (in thousands), as of ~~June 30, 2021,~~March 31, 2022, is as follows:

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

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 Securities 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 six~~ months ended ~~June 30, 2021~~March 31, 2022 follows. Where appropriate, discussion specific to the insurance operations of National Western Life Insurance Company is denoted by "National Western" or "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 ~~2020~~2021 Annual Report filed on Form 10-K with the SEC.

National Western provides life insurance products for the savings and protection needs of policyholders and annuity contracts for the asset accumulation and retirement needs of contract holders. The Company accepts funds from policyholders or contract holders and establishes a liability representing future obligations to pay the policy or contract holders and their beneficiaries. To ensure the Company 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. National Western maintains its home office in Austin, Texas where substantially all of its ~~285~~266 employees at ~~June 30, 2021~~March 31, 2022 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’s overall business and profitability include the following:

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 three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, incorporating required disclosures in accordance with the rules and regulations of the SEC.

National Western is currently licensed to do business in all states, except New York, and the District of Columbia. Products marketed are annuities, universal life insurance, fixed-index universal life, and traditional life insurance, which include both term and whole life products. Domestic sales in terms of premium levels have historically been more heavily weighted toward annuities. Most of these annuities can be sold either as tax qualified or non-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, nearly all of National Western's domestic life premium sales come from single premium life products. At ~~June 30, 2021,~~March 31, 2022, National Western maintained approximately ~~109,400~~104,320 annuity contracts in force and ~~46,500~~45,840 domestic life insurance policies in force representing ~~$3.6~~$3.7 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 Company in recruiting, contracting, and managing independent agents. National Western's agents are independent contractors who are compensated on a commission basis. It currently has approximately ~~29,800~~30,320 domestic independent ~~agents contracted.~~agent contracts.

Effective January 31, 2019, the Company ~~completed its previously announced acquisition of~~acquired 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 currently 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 unique distribution system to market 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 hold a securities license in addition to an insurance license. At ~~June 30, 2021,~~March 31, 2022, Ozark National maintained ~~approximately 177,000~~174,840 life insurance policies in force representing $5.9 billion in face amount of coverage. It maintains its home office facility in Kansas City, Missouri along with NIS where most of their combined employees are located.

National Western's international operations ~~consist~~consists of a closed block of in force ~~policies as it~~policies. The Company had progressively discontinued accepting applications from various countries ultimately ceasing applications for new policies from all remaining countries in 2018. At ~~June 30, 2021,~~March 31, 2022, National Western had approximately ~~43,300~~40,360 international life insurance policies in force representing ~~over $11.8~~nearly $11.1 billion in face amount of coverage. The Company did not conduct business or maintain offices or employees in any other country, but historically did accept applications at its home office in Austin, Texas, and issued policies from there to foreign nationals in upper socioeconomic classes of other countries. Insurance products, issued primarily to residents of countries in South America, consisted almost entirely of universal life and traditional life insurance products not available in the local markets.

Issuing universal life and traditional life insurance policies to residents of countries in different regions provided diversification that helped to minimize large fluctuations that could arise due to various economic, political, and competitive pressures occurring from one country to another. These policies also provided diversification of earnings relative to the Company's domestic life insurance segment. Although there were some inherent risks of accepting international applications not present within the domestic market, they were reduced substantially by the Company in several ways. Most notably National Western's customer profile consisted of foreign nationals of other countries in upper socioeconomic classes who had substantial financial resources. This, coupled with National Western's conservative underwriting practices, has historically resulted in claims experience, due to natural causes, similar to that in the United States. Foreign currency risks were minimized by requiring payment of premiums and claims in United States dollars. 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 the above served to minimize risks.

The following table sets forth information regarding life insurance sales activity as measured by total premium for single premium life insurance products and annualized first year 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 an 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.

Life insurance sales, as measured by total and annualized first year premiums, ~~increased 43%~~decreased (27)% in the ~~second~~first quarter of ~~2021~~2022 as compared to the ~~second~~first quarter of ~~2020~~2021 reflecting a pullback in consumer spending in the ~~continuing recovery in new sales activity from the contraction in 2020 due to the COVID-19 pandemic.~~current period. Sales for the three months ended ~~June 30, 2021,~~March 31, 2022, included ~~$1.1~~$0.9 million from Ozark National, exceeding the ~~$0.5~~$0.8 million reported in the ~~second~~first quarter of ~~2020,~~2021, representing their traditional life sales activity. Ozark National's business model, which is heavily dependent upon in person contact for agent recruiting and obtaining applications for coverage from prospective policyholders, has been ~~been~~ steadily recovering from the disruption of the pandemic effects upon its business. For the six months ended June 30, 2021, total life insurance sales increased 23% from the level in 2020. Included in these six month amounts were $1.9 million and $1.3 million in sales from Ozark National for 2021 and 2020, respectively.

National 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 have been the predominant product sold in the domestic life 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 years ago~~ targeting the accumulated savings of the segment of the population entering their retirement years. The wealth transfer life products have been valuable offerings for the Company's distributors as evidenced by their comprising ~~over~~nearly 98% of total life sales in the first ~~six~~three months of ~~2021.~~2022.

The average new policy face amounts, excluding insurance riders, since ~~2017~~2018 are as shown in the following table.

Contracts 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 were directed toward accepting applications from upper socioeconomic residents of international countries. 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 strategy for domestic life sales.

At ~~June 30, 2021,~~March 31, 2022, National Western’s face amount of life insurance in force was comprised of ~~$11.8~~$11.1 billion from the international line of business and ~~$3.6~~$3.7 billion from the domestic line of business. At December 31, ~~2020,~~2021, these amounts were ~~$12.4~~$11.3 billion and ~~$3.5~~$3.7 billion for the international and domestic lines of business, respectively.

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

Annuity sales ~~increased 49%~~decreased (31)% in the ~~second~~first quarter of ~~2021~~2022 compared to ~~2020 and were 56% higher~~2021. Sales activity in the ~~six months ended June 30, 2021 relative to the comparable period in 2020. Second~~first quarter ~~and year-to-date 2020 sales activity~~of 2022 was dampened by ~~the onset of the COVID-19 pandemic at that time,~~current economic conditions including increasing inflation and expectations for rising interest rates, 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.~~demand as the economy emerged from the COVID-19 constraints present in 2020.

The Company's mix of annuity sales has historically shifted with interest rate levels and the relative performance of the equity market. With the decline in interest rates subsequent to the subprime crisis, fixed-index products have comprised the majority of annuity sales, generally accounting for 90% or more of all annuity sales over this span. During the first ~~six~~three months of ~~2021,~~2022, this percentage approximated ~~93%~~97% reflecting ~~both~~ the ongoing narrative of historically low levels in interest rates and the overall continuing upward trend in equities. For all fixed-index products, the Company purchases over the counter call options to hedge the equity return feature. The options are purchased relative to the issuance of the annuity contracts in such a manner to minimize timing risk. Generally, the index return during the indexing period (if the underlying index increases) becomes a component in a formula (set forth in the annuity), the result of which is credited as interest to contract holders electing the index formula crediting method at the beginning of the indexing period. The formula result can never be less than zero with these products. The Company 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.

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 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 time were reinsured with a third 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 by developing products targeting new channels of distribution to supplement its current partnerships with national marketing organizations and focusing its offerings away from fixed interest rate products.

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.

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

~~While~~Since the ~~morbidity exposure~~Great Recession in 2008-2009, the Federal Reserve has acted to maintain interest rates at historically depressed levels in order to promote liquidity and support economic recovery and growth. With the emergence of inflationary pressures in the economy, the Federal Reserve has initiated what is believed to be a series of increases in interest rate levels in order to ward off the harmful effects of inflation. A consumer price index measure issued by the U.S. Bureau of Labor Statistics in the first quarter of 2022 reported a current annual inflation rate approaching 8%. The Federal Reserve has previously disclosed that its long-term inflation target is 2%. Adding to the complexities of the economic environment are the lingering effects of COVID-19 toand related social/political policies, supply chain disruptions, and potential economic fallout from the ~~life insurance industry~~conflict in Ukraine. Uncertainty is ~~uncertain at this point, it is not expected to result~~further exacerbating with inversion of the yield curve as two-year Treasury note yield recently surpassed yields of ten-year Treasury notes, a frequent harbinger of imminent contractions in significant excess mortality claims. During the first six months of 2021, the Company (National Western and Ozark National) incurred approximately $13.6 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.economic activity.

In recent years, in the attempt to acquire additional investment yield in the low rate environment, life insurers substantially increased allocations to BBB- rated bonds. In a recession, many of these investment grade corporate credits are at risk for downgrades, as well as the potential to default. Risk-based capital (RBC) formulas assess higher required capital charges as investment quality declines. A meaningful shift of BBB- rated debt securities to non-investment grade categories could have significant implications in terms of required capital levels which would depress RBC ratios of impacted insurers. Life insurance companies also have a large exposure to real estate in its investment portfolios through commercial mortgage, direct real estate investment, and mortgage-backed securities. These investments are highly dependent upon occupancy and payment of rent and lease obligations. The quarantine and shelter-at-home lockdown affect the ability to meet these payment obligations.

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 focused on maintaining capital levels substantially above regulatory and rating agency requirements. ~~Our~~In addition, its business model is predicated upon steady growth in invested assets while managing the block of business within profitability objectives. A key premise of ~~our~~the Company's 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.

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.

Cost of insurance charges were ~~$24.1~~$23.9 million in the quarter ended ~~June 30, 2021~~March 31, 2022 compared to ~~$24.6~~$24.3 million in the ~~second~~first quarter of ~~2020, and were $48.4 million for the six months ended June 30, 2021 compared to $49.6 million for the same period in 2020.~~2021. 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. The volume of universal life insurance in force at ~~June 30, 2021~~March 31, 2022 declined to ~~$13.1~~$12.5 billion from approximately $12.7 billion at December 31, 2021 and $13.5 billion at December 31, ~~2020 and $14.4 billion at December 31, 2019.~~2020. Administrative charges pertaining to new business issued increased to ~~$6.6~~$6.7 million for the three months ended ~~June 30, 2021~~March 31, 2022 from ~~$6.1~~$6.3 million for the same period in ~~2020, and to $12.9 million for the first six months of 2021 compared to $12.5 million for the first six months of 2020, reflecting higher sales activity in the current periods.~~2021.

Surrender charges assessed against policyholder account balances upon withdrawal decreased in the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 versus the comparable prior year ~~periods.~~period. While the Company earns surrender charge income that is assessed upon policy terminations, the Company's overall profitability is enhanced when policies remain in force and additional contract revenues are realized and the Company continues to make an interest rate spread equivalent to the difference it earns on its investments and the amount that it credits to policyholders. In the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, lapse rates on annuity products were higher than the prior year periods. However, surrender charge income recognized is also dependent upon the duration of policies at the time of surrender (i.e. later duration policy surrenders have lower surrender charges assessed and earlier policy surrenders having a higher surrender 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. These products have become a substantial portion of domestic life insurance sales and current period activity reflects the net of amortization of accumulated deferrals against the current period level of premium loads deferred.

For the six months ended June 30, 2021, debt and equity securities generated approximately 91% of total 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~~a substantial portion of its cash flows in fixed debt securities within its guidelines for credit quality, duration, and diversification. National Western's debt and equities securities investment income continues to experience higher yielding debt securities maturing or being called by borrowers and being replaced with lower yielding securities in the current interest rate environment. Investment yields on new bond purchases during the first ~~six~~three months of ~~2021~~2022 approximated ~~3.00%~~3.52% as compared to the ~~3.33%~~3.02% yield achieved during the full year ~~2020.~~2021. During the first ~~six months~~quarter of ~~2021,~~2022, the ten-year treasury bond, ~~increased approximately 50 basis points, however~~a proxy for National Western's corporate bond ~~credit spreads narrowed substantially.~~purchases, increased nearly 80 basis points. National Western's weighted average bond portfolio yield was ~~3.63%~~3.61% at ~~June 30,~~March 31, 2022 declining slightly from 3.62% at December 31, 2021 ~~declining from~~and 3.68% at December 31, ~~2020 and 3.78% at December 31, 2019.~~2020. Ozark National's weighted average portfolio yield at ~~June 30, 2021~~March 31, 2022 was ~~3.64%~~3.63%.

Changes in fair values of equity securities are included in net investment income in the Condensed Consolidated Statements of Earnings. For the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ unrealized ~~gains~~gains/(losses) of ~~$2.0~~$(0.7) million and ~~$1.8~~$1.4 million, respectively, are included in investment ~~income. For~~income reflecting the ~~six months ended June 30th, unrealized gains~~change in fair value of ~~$3.4 million are included in net investment income in 2021 while unrealized losses of $(4.1) million are netted in investment income in~~equity securities during the ~~same period for 2020.~~periods. The carrying value of the Company's portfolio of equity securities was ~~$21.1~~$27.6 million at ~~June 30, 2021.~~March 31, 2022.

~~As disclosed~~In order to obtain incremental investment yield, the Company expanded its invested asset vehicles to include alternative investments. These assets are typically syndicated, targeted capital pools with specific investment objectives managed by investment firms having specific expertise in designated asset opportunities. The Company held balances of $79.1 million, $67.7 million, and $28.9 million at March 31, 2022, December 31, 2021, and December 31, 2020, respectively, in this investment category, excluding any associated structured note amounts. Investment income in the ~~accompanying Notes~~quarter ended March 31, 2022 includes a non-recurring $6.8 million profit participation payment on a mezzanine loan.

Effective January 1, 2021, the Company's net investment income is reduced for amounts ceded to ~~Condensed Consolidated Financial Statements included in this report,~~the reinsurer under the funds withheld reinsurance agreement associated with funds withheld assets. In the quarters ended March 31, 2022 and 2021, the Company ~~adopted new accounting guidance~~ceded net investment income of $12.7 million and $13.1 million, respectively.

The Company is required to maintain an allowance 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.~~ under GAAP. Remeasurement of the CECL allowance for mortgage loans is performed quarterly and for the quarter ended ~~June 30, 2021~~March 31, 2022 resulted in ~~an increase~~a decrease in the allowance of ~~$0.2~~$(0.2) million which is included in gross investment income. The ~~provision~~change for the quarter ended ~~June 30, 2020~~March 31, 2021 was an increase in the mortgage loan CECL allowance of ~~$0.3~~$0.5 million. ~~For the six months ended June 30, 2021 and 2020, the increase in the allowance included in gross investment income for mortgage loans was $0.8 million and $1.0 million, respectively.~~

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~~and a full recovery of the investment principal is not expected. Credit loss allowances are recorded through net investment income in the Condensed Consolidated Statements of Earnings. No credit loss allowances for available-for-sale debts securities were recorded ~~during the~~ for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 or ~~2020.~~2021.

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:

The increase in average invested asset yield, excluding derivatives and trading securities, for the first ~~six~~three months of 2022 compared to 2021 is due to the Company obtaining incremental yields on newly invested cash flows into mortgage loans ~~as well as lower yielding debt securities being transferred~~and alternative investments. In addition, the first quarter of 2022 includes the $6.8 million non-recurring profit participation payment related to ~~the funds withheld account at year-end 2020.~~a mezzanine loan.

The average yield on bond purchases during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 to fund National Western insurance operations was ~~3.00%~~3.52% representing a ~~1.23%~~1.54% spread over treasury rates. The weighted average quality of new purchases during the first three months of ~~2021~~2022 was ~~"BBB+~~"A-" which was consistent with purchases during ~~2020.~~2021. The composite duration of purchases during the first ~~six~~three months of ~~2021 continued to be longer~~2022 was 8.5 years which is less than ~~that~~the duration of purchases ~~prior~~made in 2019 through 2021. As National Western has increased its investments in commercial mortgage loans and alternative investments, these longer duration investments have helped to ~~2019 as~~extend the ~~Company purchased a higher proportion~~overall duration of ~~investments for~~its invested assets backing its life insurance line of business which has a longer liability duration than that 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 ~~2020~~2021 at a rate of ~~0.92%~~1.51%, the daily closing yield of the ten-year treasury bond ~~ranged as low as 0.91%~~steadily increased during the first ~~six~~three months of ~~2021 and as high as 1.74% before~~2022 finishing the period at ~~1.47%~~2.34%.

The pattern in average invested asset yield, including derivatives and trading securities, incorporates increases and decreases in the fair value of index options purchased by National Western to support its fixed-index ~~products.~~products as well as net investment income from the embedded derivative funds withheld liability. Fair values of the purchased call options recorded a net ~~gain~~loss during the first ~~six~~three months of ~~2021~~2022 while a net ~~loss~~gain was recorded during the first ~~six~~three months of ~~2020,~~2021, corresponding to the movement in the S&P 500 Index during these periods (the primary index the fixed-index products employ). Refer to the derivatives discussion below for a more detailed explanation. In addition, the funds withheld reinsurance agreement executed December 31, 2020 introduced embedded derivative accounting with respect to the policyholder obligations reinsured. During the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, the embedded derivative liability for reinsurance decreased by ~~$72.3~~$90.9 million and $70.4 million, respectively, which was recorded as investment income. Debt securities supporting the funds withheld policyholder obligations classified as trading incurred a ~~$10.3~~$(72.9) million and $(14.0) million market value ~~increase~~decline in the first quarter of 2022 and 2021, respectively, which was also recorded as a component of net investment income. The ~~sum~~net of these two amounts ~~or $82.6 million,~~ increased net investment income during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022 and 2021 by $18.0 million and $56.4 million, respectively.

~~Revenues associated with~~ NIS revenues were $3.2 million and ~~$2.3~~$2.9 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively. For the six months ended June 30, 2021 and 2020, NIS revenues were $6.1 million and $4.7 million,~~ respectively.

~~Revenues~~Third party revenues associated with BP III were $1.3 million and ~~$1.1~~$1.3 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~For the six months ended June 30, 2021 and 2020 revenues were $2.6 million and $2.3 million, respectively.~~Rental income received from National Western has been eliminated in reporting consolidated results. The facility is currently fully leased.

Under terms of the funds withheld reinsurance contract, National Western earns 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. In the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, the Company reported ~~$1.4~~$1.2 million and ~~$2.8~~$1.4 million, respectively, as maintenance expense allowance revenue.

Gains and losses from index options are substantially due to changes in equity market conditions. Index options are intended to act as hedges to match the returns on the product's underlying reference index and the rise or decline in the index relative to the index level at the time of the option purchase which causes option values to likewise rise or decline. As income from index options fluctuates with the underlying index, the contract interest expense to policyholder accounts for the Company's fixed-index products also fluctuates in a similar manner and direction. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company recorded realized and unrealized gains/(losses) from index options as shown below.

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 contract holders, is subject to variations from option performance during any given period. For example, many of the Company's equity-index annuity products provide for the collection of asset management fees. These asset management fees are assessed when returns on expiring options are positive, and they are collected prior to passing any additional returns above the assessed management fees to the policy contractholders. During periods of positive returns, the collected asset management fees serve to increase the financial statement spread by increasing option realized gains reported as investment income in an amount greater than interest credited to policy contractholders which is reported as contract interest expense. Asset management fees collected in the first quarter of 2022 and 2021 were approximately $0.0 million and $3.9 million, respectively. The Company changed its option hedging to an "out-of-the-money" basis during 2020 for those annuity products containing asset management fee provisions and as of the end of the second quarter of 2021, ~~and 2020~~all options outstanding were ~~approximately $1.9 million and $7.8 million, respectively. For the six months ended June 30, 2021 and 2020,~~acquired on an out-of-the-money basis. Accordingly, no asset management fees have been collected were $5.8 million and $17.9 million, respectively. The lower amounts in the 2021 periods compared to 2020 are the result of the Company's change in option hedging to an "out of the money" basis during 2020.since that time. While asset management fees are no longer being collected, ~~decline,~~ the costs to purchase the out-of-the-money options ~~incurs a similar decrease.~~similarly decreases.

Both National Western and Ozark National have established specific coding to track the death claim experience associated with COVID-19. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, National Western incurred ~~115~~30 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 ~~$8.8~~$2.1 million. For the comparable ~~six-month~~three-month period in ~~2020,~~2021, National Western incurred 1994 COVID-19 related death claims on life insurance policies totaling a net amount after reinsurance of ~~$0.9~~$5.2 million. The industry has noted that designation of COVID-19 as the cause of death has not been consistent during the pandemic. Accordingly, the Company's disclosures reporting death claims due to COVID-19 are updated as more information is obtained. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, Ozark National incurred ~~201~~61 confirmed COVID-19 death claims aggregating to a net claim amount of approximately ~~$4.8~~$1.7 million. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, Ozark National reported 18236 COVID-19 death claims totaling to a net claim amount of ~~$0.2~~$3.9 million. The Company's COVID-19 death claim experience peaked in the third quarter of 2021 and has incurred successive quarterly decrements in activity since that time. The COVID-19 claim activity is included in the claim disclosures made in the preceding paragraph.

Life and other policy benefits also includes policy liabilities held associated with the Company's traditional life products, policies with life contingencies, and riders such as the guaranteed minimum withdrawal benefit rider ("WBR"), a popular rider to National Western's equity-indexed annuity products. The increases in these liabilities for National Western were ~~$5.1~~$9.9 million and ~~$9.9~~$4.5 million in the quarters ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $13.2 million and $19.7 million, respectively, for~~respectively. The increase in the ~~six months then ended.~~2022 first quarter pertains to increased WBR liabilities.

Life and other policy benefits in the quarters ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ includes changes in traditional life reserves and miscellaneous benefit payments associated with Ozark National's operations of ~~$7.3~~$7.1 million and ~~$8.5~~$5.9 million, respectively, ~~and $13.2 million and $17.0 million, respectively, for the six months then ended.~~reflecting normal business conditions.

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 six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Amortization expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 was comprised of DPAC amortization by National Western of ~~$19.4~~$23.7 million ~~and $42.9 million, respectively,~~ and by Ozark National of $0.2 ~~million and $0.3~~ million, respectively. Amortization expense for National Western for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, was reduced by ~~$2.0~~$1.1 million and ~~$3.4~~$1.4 million, respectively, for amounts pertaining to the policies ceded under the funds withheld reinsurance agreement.

The Company's practice is to annually review ~~its actuarial assumptions~~ 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~~Accordingly, during the ~~three~~quarters ended March 31, 2022 and ~~six months ended June 30,~~ 2021, ~~and 2020,~~ the Company did not unlock its DPAC 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 are reflective of actual experience.

As the DPAC balance is an asset on the Company's Condensed Consolidated Balance Sheets, GAAP provides for an earned interest return on the unamortized balance each period. The earned interest serves to increase the DPAC balance and reduce other amortization component expense. The rate at which the DPAC balance earns interest is the average credited interest rate on the Company's universal life and annuity policies in force, including credited interest on equity-indexed policies. The amount of earned interest on DPAC balances recorded for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was ~~$10.9~~$7.0 million and ~~$2.4~~$4.6 million, respectively, decreasing other amortization component expense. The ~~amount of interest earned on DPAC balances for the six months ended June 30, 2021 and 2020 was $15.5 million and $10.6 million, respectively. The~~ increased interest amount in ~~2021~~the first three months of 2022 compared to ~~2020~~2021 reflects higher ~~crediting rate~~ returns on equity-index products, particularly life insurance products.

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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company's VOBA amortization expense was ~~$2.3~~$2.0 million and ~~$1.6~~$2.6 million, ~~respectively, and $4.8 million and $3.8 million, respectively, for the six months then ended.~~respectively.

At December 31, 2020, the Company recorded as an asset on its 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 three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, COR amortization expense of ~~$3.3~~$3.1 million and ~~$7.1~~$3.9 million, respectively, is included in Amortization of deferred transaction costs.

Contract interest reported in financial statements also encompasses the performance of the index options associated with the Company's fixed-index products. As previously noted, the market value changes of these derivative features resulted in net realized and unrealized gains/(losses) of ~~$68.2~~$(38.2) million and ~~$(66.4)~~$28.0 million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. These amounts consisted of realized gains of ~~$69.5~~$19.8 million and unrealized losses of ~~$(1.3)~~$(58.0) million for the year-to-date ~~2021~~2022 period, and realized gains of $26.8 million and unrealized losses of $(93.2) million for the comparable 2020 time frame. In the second quarter of 2021, the figure was comprised of realized gains of $57.0 million and unrealized losses of $(16.8) million. In the second quarter of 2020, this amount was made up of realized losses of $(4.7)$12.5 million and unrealized gains of ~~$45.0 million.~~$15.5 million for the comparable 2021 time frame. These returns similarly increased/(decreased) the computed average credited rates for the periods shown above. Policyholders of equity-indexed products cannot receive an interest credit below 0% according to the policy contract terms.

Contract interest expense includes other items which ~~may~~ increase or decrease reported contract interest in a particular reporting period. ~~For~~for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ these other items include the amounts shown in the table below.

Contract interest expense includes gross reserve changes for immediate annuities, two tier annuities, excess death benefit reserves, excess annuitizations, and amortization of deferred sales inducement balances. These gross reserve 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 gross reserve changes for the first ~~six~~three months of ~~2021~~2022 is ~~$12.8~~$7.3 million for assessed WBR policy charges compared to ~~$11.8~~$5.8 million in the same period for ~~2020.~~2021.

Beginning in 2021, reserve changes associated with ~~the~~ funds withheld annuity policies are ceded ~~are~~to the reinsurer and no longer ~~liabilities~~reflected in the financial statements of the Company. Accordingly, contract interest expense is adjusted to remove these expense items which are shown in the above table for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021. In addition to these amounts, the Company also cedes the fixed interest credited on the funds withheld annuity policies. For the three months ended March 31, 2022 and 2021, the fixed interest credited ceded was $8.0 million and $7.8 million, respectively.

Generally, the impact of the market value change of index options on asset values aligns closely with the movement of the embedded derivative liability held for the Company's 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. As noted in the discussion of net investment income, the collection of asset management fees in a period can cause investment income to increase marginally higher than contract interest expense since these collected fees are deducted from indexed interest credited to policyholders. As shown in the table above, the collection of asset management fees are deductions from contract interest expense.

~~Accounting~~The Company's historical practice was to purchase options priced to incorporate an expected probability of collecting asset management fees (referred to as "at-the-money hedging"). With this practice accounting rules required 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").~~year. This projection ~~for the embedded derivative liability is~~was based upon the most recent performance of the reference equity index. Increases in projected asset management fees to be collected ~~reduce~~reduced contract interest expense while decreases in projected asset management fees to be collected ~~increase~~increased contract interest expense. InThe Company converted to an "out-of-the-money" hedging practice during 2020 which eliminated the ~~six month periods ended June 30, 2021 and 2020 contract interest was increased by $6.5 million and $25.6 million, respectively, for the projected change in~~need to project collection of future asset management fees ~~to be collected. In~~as part of the ~~second quarter of 2020, the Company changed its~~ embedded derivative ~~hedging process to incorporate "out of~~liability when the ~~money" hedging which reduces option costs and eliminates the requirement for estimating probability projections of collected asset management fees. The~~ remaining inventory of annual ~~at the money~~at-the-money option hedges completed its roll over to ~~out of the money~~out-of-the-money hedges during the second quarter of 2021. Consequently, the embedded derivative liability component for projected asset management fees to be collected progressively diminished and iswas phased out as of the end of the 2021 second quarter.

Another contract interest expense component is the amortization of deferred sales inducements (included in ~~Reserve~~Gross reserve changes above). Similar to deferred policy acquisition costs, the Company defers sales inducements in the form of first year credited interest bonuses on annuity products that are directly related to the production of new business. These bonus interest charges are deferred and amortized using the same methodology and assumptions used to amortize other capitalized acquisition costs and the amortization is included in contract interest. In addition, deferred sales inducement balances ("DSI") 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. No unlocking adjustments were made in the ~~three~~quarters ended March 31, 2022 and ~~six months ended June 30, 2021 and 2020.~~2021.

General ~~insurance~~administrative expenses include software amortization expense associated with National Western's proprietary policy administration systems as well as other acquired software. Expenses pertaining to these items were ~~$3.8~~$3.4 million and ~~$3.1 million in the second quarter of 2021 and 2020, respectively and $7.4 million and $6.1~~$3.6 million in the first half of 2021 and 2020, respectively. This category of expenses also includes employee benefit plan expenses for the various employee health and retirement plans the Company sponsors. Related expenses for the second quarter of ~~2021~~2022 and ~~2020 were $3.1 million and $3.2 million, respectively, and $5.8 million and $6.6 million in the first half of~~ 2021, ~~and 2020,~~ respectively. This category of expenses also includes legal fees and expenses which were $1.1 million and ~~$0.3~~$0.8 million in the quarters ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1.8 million and $0.8 million, respectively, for the six months year-to-date. The 2021 legal~~respectively. Legal fees and expenses include amounts pertaining to the security incident reported in Part II. Item 1. of this filing. Other costs associated with the incident include consulting fees and information services associated costs. Total expenses in these categories for consulting fees and information services, including those for the security incident, were $5.5 million and $3.0 million for the three months ended March 31, 2022 and 2021, respectively. The 2022 amounts further include incremental contractor service charges in lieu of vacated information technology positions at National Western.

Compensation expenses include share-based compensation costs related to outstanding vested and nonvested stock appreciation rights ("SARs"), restricted stock units ("RSUs") and performance share units ("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 SARs, RSUs, and PSUs to fair value under the liability method of accounting. Consequently, the related expense amount varies ~~positive~~positively or ~~negative~~negatively in any given period. In the amounts shown above, share-based compensation expense totaled ~~$(0.5)~~$1.6 million in the ~~second~~first quarter of ~~2021~~2022 and ~~$2.4~~$4.4 million in the ~~second~~first quarter of ~~2020. For the six-month periods shown, share-based compensation expense was $3.9 million in 2021 and $(3.8) million in 2020.~~2021. The Company's Class A common share price ~~increased~~decreased from $214.44 at December 31, 2021 to $210.40 at March 31, 2022, compared to increasing from $206.44 at December 31, 2020 to ~~$224.39~~$249.00 at ~~June 30, 2021, compared to $290.88 at December~~March 31, ~~2019 and $203.19 at June 30, 2020.~~2021. No performance share awards were granted in the first ~~six~~three months of ~~2021~~2022 and ~~2020.~~2021. Ozark National compensation expenses were $1.0 million and $0.9 million in the ~~second~~first quarter of 2022 and 2021, respectively.

Taxes, licenses and fees include premium taxes and licensing fees paid to state insurance departments, the company portion of social security and Medicare taxes, state income taxes, and other state and municipal taxes. Taxes, licenses and fees in the quarter ended March 31, 2021 were reduced by $1.2 million for the release of a tax liability accrual no longer needed. Taxes, licenses and fees in the quarter ended March 31, 2022 include National Western premium tax expenses of $2.0 million compared to $1.2 million in the comparable quarter of 2021 ~~and 2020, respectively, and $1.9 million and $1.7 million~~which reflects the increased retaliatory tax burden imposed by a change in ~~the six months ended 2021 and 2020, respectively.~~Colorado laws with respect to premium taxes.

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.

A summary of segment earnings for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ is provided below. The segment earnings exclude realized gains and losses on investments, net of taxes.

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.

National Western's domestic life insurance in force, in terms of policy count, has been declining for some time. The pace of new policies issued has lagged the number of policies terminated from death or surrender causing a declining level of policies in force from which contract revenue is received. Consequently, the number of domestic life insurance policies in force has declined from ~~47,900 at December 31, 2019 to 46,900~~46,940 at December 31, 2020 to 46,060 at December 31, 2021, and to ~~46,500~~45,840 at ~~June 30, 2021.~~March 31, 2022. Policy lapse rates in the first ~~six~~three months of 2022 approximated 5.4% compared to 6.0% and 8.4% in the first three months of 2021 ~~approximated 6.0% compared to 7.0%~~ and ~~6.2% in the first six months of~~ 2020, ~~and 2019,~~ respectively. The elevated lapse rate in the first ~~six months~~quarter of 2020 ~~includes~~reflects the ~~effect~~liquidity demand by policyholders during the emergence of the ~~pandemic induced economic crisis which caused consumers to access available sources of liquidity.~~COVID-19 pandemic. 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 ~~$3.6~~$3.7 billion at ~~June 30, 2021.~~both December 31, 2021 and March 31, 2022.

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 ~~six~~three months of ~~2021~~2022 was ~~25% higher~~17% lower than in the comparable period for ~~2020~~2021 and the volume of insurance issued was ~~23% higher~~29% lower than that in ~~2020.~~2021.

Universal life insurance revenues also include surrender charge income realized on terminating policies and, in the case of domestic universal life, amortization into income of the premium load on single premium policies which is deferred. The net premium load amortization was ~~$3.4~~$1.8 million and ~~$3.3~~$2.7 million in the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

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

Domestic life insurance sales for some time have ~~been~~consisted substantially of single premium policies which do not have much in the way of recurring premium payments. These products ~~are targeting~~utilize 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 generally not been exhibiting ~~a corresponding level of increase.~~substantial increases.

Net investment income for this segment of business, excluding derivative gain/(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.~~purchases. 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.

As seen in the above table, reported net investment income 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~~more exposed to variation from period to period. Claim count activity during the first ~~six~~three months of ~~2021~~2022 decreased 5%13% compared to the first ~~six~~three months of ~~2020~~2021 while the average net claim amount (after reinsurance) increased to ~~$33,400~~$34,900 from ~~$25,900.~~$29,000. Reported claims in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 for which the cause of death was identified as COVID-19 were ~~$3.0~~$0.8 million after ~~reinsurance.~~reinsurance, a decrease from $2.1 million reported in the first quarter of 2021. 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 consisting of final expense type products (i.e. purchased to cover funeral costs) which typically had smaller face amounts of insurance coverage. Claims on these older blocks of policies are more susceptible to COVID-19 mortality given the higher attained ages of this business. GAAP reporting requires that claims be recorded net of any cash value amounts that have been accumulated in the policies. The Company's overall mortality experience for this segment has been consistent with pricing assumptions.

Included in amortization of deferred transaction costs is DPAC amortization. As noted previously in the discussion of Results of Operations, the Company records true-up adjustments to DPAC balances each period to reflect current policy lapse or termination rates, expense levels and credited rates on policies as compared to anticipated experience with the adjustment reflected in current period amortization expense. To the extent required, unlocking adjustments may also be recorded to DPAC balances. The following table identifies the effects of unlocking adjustments on domestic life insurance DPAC balances recorded through amortization expense separate from recurring amortization expense components for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

In the Consolidated Operations discussion of amortization of deferred acquisition costs it was noted that interest earned on DPAC balances serves to offset (decrease) amortization expense and that the interest rate used is the crediting rate experience during the period. The decrease in amortization expense in ~~2021~~2022 relative to ~~2020~~2021 reflects higher interest earned on universal life DPAC balances due to increased realized gains from index options. Credited interest rates during the ~~second~~first quarter of ~~2021~~2022 approximated ~~10%~~6.7% on ~~indexed~~ universal life as compared to 2%3.7% in the ~~second~~first quarter of ~~2020.~~2021.

Contract interest expense includes the 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. For liability purposes, the embedded option in the Company's policyholder obligations for this feature is bifurcated and reserved for separately. Accordingly, the 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.

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.

Universal life revenues and operating earnings are largely generated from the amount of life insurance in force. The volume of in force for this segment, primarily universal life, has contracted from ~~$13.7 billion at December 31, 2019 to~~ $12.4 billion at December 31, 2020 to $11.3 billion at December 31, 2021 and to ~~$11.8~~$11.1 billion at ~~June 30, 2021.~~March 31, 2022.

Another component of international universal life revenues includes surrender charges assessed upon surrender of contracts by policyholders. In addition to termination rates trending lower, the resulting surrender charge fee revenue has been less due to policy contract provisions which provide for lower surrender charge fees to be assessed later in the contract term. The following table illustrates National Western's recent international life termination experience.

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

National Western's most popular international products were its fixed-index universal life products in which the policyholder could elect to have the interest rate credited to their policy account values linked in part to the performance of an outside equity index. These products issued were not generally available in the local markets when sold. Included in the totals in the above table are collected renewal premiums for fixed-index universal life products of approximately ~~$14.4~~$6.9 million and ~~$16.0~~$7.6 million for the first ~~six~~three months of ~~2021~~2022 and ~~2020,~~2021, respectively. The declining trend in renewal premiums during these periods corresponds with the decline in policies in force due to ~~increased~~elimination of new sales and the 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 relatively large size of the fixed-index universal life block of business, the period-to-period changes in fair values of the underlying options have a significant effect on net investment income and universal life contract interest. A detail of net investment income (loss) for international life insurance operations is provided below.

The gain or loss on index options follows the movement of the reference indice with realized gains or losses being recognized on the anniversary of each index option based upon the reference indice level at expiration date relative to the index level at the time the index option was purchased. Unrealized gains and losses are recorded for index options outstanding based upon their fair values, largely determined by the reference indice level, at the balance sheet reporting date as compared to the original purchase cost of each respective 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 historically tended to be larger amounts. Life and policy benefit expense for the international life segment reflects the larger policies historically purchased, however mortality due to natural causes is comparable to that in the United States. The Company's 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 ~~six~~three months of ~~2021~~2022 increased to ~~$170,700~~$243,600 from ~~$133,800~~$158,900 in the first ~~six~~three months of ~~2020~~2021 while the number of claims incurred ~~increased 49%~~decreased 18%. ~~Of the increase in number of claims, approximately three-fourths were from deaths due to COVID-19.~~ Net claims, after reinsurance, associated with COVID-19 were ~~$5.7~~$1.3 million in the ~~six~~three months ended ~~June 30,~~March 31, 2022 as compared to $3.2 million reported in the first quarter of 2021.

Included in amortization of deferred transaction costs is DPAC amortization. The Company records true-up adjustments to DPAC balances each period to reflect current policy lapse or termination rates, expense levels, and credited rates on policies as compared to anticipated experience as well as unlocking adjustments as necessary. The following table identifies the effects of unlocking adjustments on international life insurance DPAC balances recorded through amortization expense separate from recurring amortization expense components for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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

A comparative analysis of results of operations for National Western's annuity segment is detailed below.

Premiums and contract charges primarily consist of surrender charge income recognized on terminated policies. The amount of the surrender charge income recognized is determined by the volume of surrendered contracts as well as the duration of each contract at the time of surrender given the pattern of declining surrender charge rates over time that is common to most annuity contracts. The Company's lapse rate for annuity contracts in the first ~~six~~three months of ~~2021~~2022 was ~~9.3%~~8.9% which ~~was slightly higher~~remained elevated compared to historical measures but was lower than the ~~8.9%~~9.7% rate during the same period in ~~2020.~~2021. An outcome of the COVID-19 pandemic crisis has been a movement ofby consumers toward fortifying liquidity positions. This has 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.

Deposits collected on annuity contracts are not reflected as revenues in the Company's Condensed Consolidated Statements of Earnings in accordance with GAAP. Actual annuity deposits collected for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ are detailed below.

Fixed-index products are attractive for consumers when interest rate levels remain low and equity markets produce positive returns. Since National Western does not offer variable products or mutual funds, fixed-index products provide an important alternative to the Company's existing fixed interest rate annuity products. Fixed-index annuity deposits as a percentage of total annuity deposits were ~~92%~~94% and 90% for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The percentage of fixed-index products to total annuity sales reflects the low interest rate environment and the overall positive performance in the equities market.

Some of the Company's deferred products, including fixed-index annuity products, contain a first year interest bonus, in addition to the base first year interest rate, which is credited to the account balance when premiums are applied. These sales inducements are deferred in conjunction with other capitalized policy acquisition costs. The amounts currently deferred to be amortized over future periods amounted to approximately ~~$10.7~~$3.1 million and ~~$2.9~~$5.7 million during the first ~~six~~three months of ~~2021~~2022 and ~~2020,~~2021, 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.

InFor the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, net investment income was reduced by ~~$14.1~~$12.7 million and ~~$27.2~~$13.1 million, respectively for amounts ceded to the reinsurer in the funds withheld reinsurance transaction executed December 31, 2020.

As seen in the above table, net investment income also includes the derivative gains and losses on index options purchased to back the index crediting mechanism on fixed-index products. The derivative gain or loss on index options follows the movement of the reference indice with realized gains or losses being recognized on the anniversary of each index option based upon the reference indice at the expiration date relative to the index level at the time the index option was purchased. Unrealized gains and losses are recorded for index options outstanding based upon their fair value, largely determined by the reference indice level, at the balance sheet reporting date as compared to the original purchase cost of each respective option.

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

The funds withheld reinsurance agreement executed December 31, 2020 introduced embedded derivative accounting with respect to the annuity policyholder obligations reinsured. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, the embedded derivative liability decreased by ~~$2.0~~$90.9 million and ~~$72.3~~$70.4 million, respectively, which was recorded as a component of investment income. Debt securities supporting the funds withheld policyholder obligations classified as trading securities incurred a ~~$24.2~~$(72.9) million market value ~~increase~~decrease in the ~~quarter~~three months ended ~~June 30, 2021~~March 31, 2022 and a ~~$10.3~~$(14.0) million market value ~~increase~~decline in the ~~six~~three months ended ~~June 30,~~March 31, 2021, which ~~was~~were also recorded as a component of net investment income. The ~~total~~net of these two amounts, ~~or $26.2~~the embedded liability decrease and the change in market value of trading securities, increased net investment income in the Annuity segment by $18.0 million and ~~$82.6~~$56.4 million in the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~increased net investment income for the Annuity segment.~~respectively.

Other revenues in the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 include ~~$1.3~~$1.2 million and ~~$2.7~~$1.4 million, respectively, 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 Company records true-up adjustments to DPAC balances each period to reflect current policy lapse orand 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 six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Amortization of DPAC balances is proportional to estimated expected gross profits ("EGPs") for a line of business. The EGPs of the block of annuity ~~policies have been steadily decreasing with~~in the ~~declining amount~~first quarter of ~~policies~~2022 increased over that of the first quarter of 2021 resulting in ~~force, as well as~~greater DPAC ~~unlocking in recent years for unfavorable experience.~~amortization expense. In addition, experience which deviates from the EGPs assumed, such as the amounts of ~~assets~~asset fees collected, can similarly increase or decrease the amortization of DPAC. In the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, amortization expense was reduced by ~~$2.0~~$1.1 million and ~~$3.4~~$1.4 million, respectively, for DPAC ceded to a reinsurer under the funds withheld reinsurance agreement entered into at December 31, 2020.

Amortization of deferred transaction costs includes amortization of the cost 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 excess of the GAAP liability ceded plus a ~~$48~~$48.0 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 three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, COR amortization expense of ~~$3.3~~$3.1 million and ~~$7.1~~$3.9 million, respectively, is included in Amortization of deferred transaction costs.

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:

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, the 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 section, collection~~Collection of asset management fees on positive returns of expiring options is subtracted from contract interest credited to policyholders. This offset serves to lessen the increase in contract interest expense relative to the option gains reported in the Company's net investment income. Asset management fees collected during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 were ~~$1.9 million and $5.8~~$0.0 million compared to ~~$7.8 million and $17.9~~$3.9 million in the corresponding periods of ~~2020.~~2021. As noted in the discussion in the Consolidated Operations section, the Company changed its option hedging methodology during 2020 to an "out-of-the-money" approach for those annuity products having the ability to assess asset management fees. By the end of the second quarter of 2021, all outstanding options had been converted to this methodology which no longer hedges for the collection of asset management fees. As a result, there were no asset management fees collected subsequent to the second quarter of 2021.

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~~under 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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ contract interest was increased ~~$2.1~~$0.0 million and ~~decreased $(3.7)~~$4.4 million, respectively, for the projected change in asset management fees to be collected. In the six month periods ended June 30, 2021 and 2020, contract interest was increased $6.5 million and $25.6 million, respectively, for the projected change in asset management fees to be collected. In the second quarter of 2020,Since the Company changed its embedded derivative hedging process to incorporate ~~"out of the money"~~"out-of-the-money" hedging, ~~which reduces option costs and eliminates~~ probability projections of collected asset management ~~fees. As of the end of~~fees are no longer applicable subsequent to the second quarter of 2021 (as the inventory of annual at the money hedges rolled over to only ~~out of the money hedges. Accordingly, the embedded derivative liability component due to the projected asset management fees to be collected will no longer be applicable.~~out-of-the-money hedges).

Annuity contract interest includes true-up adjustments for the deferred sales inducement balance which are done each period similar to that done with respect to DPAC balances with the adjustment reflected in current period contract interest expense. To the extent required, the Company may also record unlocking adjustments to deferred sales inducement balances in conjunction with DPAC balance unlockings. ~~The Company had no~~No unlocking adjustments were made in the ~~first six months of 2021~~quarters ended March 31, 2022 and ~~2020.~~2021.

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.

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.

Ozark National's traditional life block of business at ~~June 30, 2021~~March 31, 2022 included ~~approximately 177,000~~174,840 policies in force representing ~~over~~nearly $5.9 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 ~~4.4%~~3.8% through ~~June 30, 2021~~March 31, 2022 as compared to the ~~4.1%~~4.7% rate experienced in the first ~~six~~three months of ~~2020.~~2021. Traditional life premiums by first year and renewal are detailed below.

Other revenues consists primarily of brokerage revenue of NIS. Brokerage revenues of $6.1 million and $4.7 million for the six months ended June 30, 2021 and 2020, respectively, had associated brokerage expense of $3.0 million and $2.4 million which is included in Other operating expenses. Brokerage revenues of $3.2 million and ~~$2.3~~$2.9 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, had associated brokerage expense of $1.6 million and ~~$1.2 million.~~$1.4 million which is included in Other operating expenses.

The average face value of Ozark National's policies in force at ~~June 30, 2021~~March 31, 2022 was approximately ~~$33,600.~~$33,500. Life and policy benefits ~~for smaller face amounts~~ are subject to variation from quarter to quarter. Incurred net death claims, after reinsurance, for the first ~~six~~three months of ~~2021~~2022 were ~~$20.0~~$9.7 million representing an average net claim of ~~$17,100.~~$14,000. Incurred net death claims in the ~~six~~three month period ended ~~June 30, 2020~~March 31, 2021 were ~~$15.9~~$11.6 million representing a net average claim of ~~$14,700.~~$17,600. Included in the activity for 2022 and 2021 were reported COVID-19 net claims of approximately ~~$4.8 million.~~$1.7 million and $3.9 million, respectively. 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 three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ consisted of increases in insurance reserves and payments of other policy benefits.

Amortization of deferred transaction costs for this segment includes amortization of DPAC and the 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 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. Subsequent to its acquisition effective January 31, 2019, Ozark National began deferring policy acquisition costs and amortizing these deferrals similar to the methodology employed by National Western. The following table identifies the amortization expense of Ozark National's DPAC and VOBA for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

The Company's primary business encompasses its domestic and international life insurance operations, its annuity operations, and ONL & Affiliates. However, the Company also has real estate and other investment operations through its wholly owned subsidiaries.

Pre-tax operating amounts include the results of BP III, the entity owning and operating the Company's home office facility in Austin, Texas. BP III incurred pre-tax losses of ~~$(0.4)~~$(0.2) million and ~~$(0.6)~~$(0.1) million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. National Western maintains its home office in this facility leasing approximately 40% of the space available. The lease payments made by National Western to BP III have been eliminated in consolidation.

The remaining pre-tax earnings of ~~$11.3~~$9.2 million and ~~$11.0~~$3.8 million in Other Operations during the ~~six-month~~three-month periods includes investment income from real estate, municipal bonds, and common and preferred equities held in subsidiary company portfolios principally for tax-advantage purposes. Included in ~~these amounts are semi-annual distributions from~~the pre-tax earnings for the quarter ended March 31, 2022, is a ~~life interest in the Libbie Shearn Moody Trust which is held in NWLSM, Inc. Pre-tax distributions from this trust were $2.7~~$6.8 million ~~and $2.8 million in the six-month periods ended June 30, 2021 and 2020, respectively.~~non-recurring profits participation payment received on a mezzanine loan. The 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 ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the market value changes for these securities were ~~$2.0~~a decrease of $(0.7) million and ~~$1.8 million, respectively, and for the six months there ended were $3.4 million and $(4.1)~~an increase of $1.4 million, respectively.

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.

Invested assets at ~~June 30, 2021~~March 31, 2022 include Ozark National and NIS amounts as follows: Debt securities of ~~$810.3 million;~~$770.1 million and Policy loans of ~~$24.1 million; and Real estate of $4.6~~$22.9 million. These invested asset amounts at December 31, ~~2020~~2021 were: Debt securities of ~~$811.6 million;~~$823.0 million and Policy loans of ~~$25.5 million; and Real Estate of $4.6~~$23.3 million. The decrease in the debt securities balance from December 31, 2021 to March 31, 2022 is due to recording these investments at fair market values which decreased during the period with the rise in interest rates.

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 at that time into the available-for-sale category. The discussion that follows reflects this category classification.

The Company maintains a diversified debts security 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company's available-for-sale debt securities portfolio consisted of the following classes of securities:

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

~~The majority~~A substantial portion 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.

~~Over~~In the past several years, the Company has ~~been purchasing~~purchased a ~~greater proportion~~higher level 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 ~~98.1%~~98.3%, as of ~~June 30, 2021,~~March 31, 2022, 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.

~~Although~~Historically, the Company's investment guidelines ~~as well as state insurance law, allow for~~have not permitted the purchase of below investment grade ~~securities, it has been the Company's practice~~securities. Recently, these guidelines were amended to ~~only purchase debt securities which are~~allow for purchases of below investment grade ~~at the time~~securities that are part of ~~acquisition.~~an alternative investment ("Schedule BA assets"). The ~~investments~~Company continues its longstanding practice of not purchasing any other below investment grade securities. Investments held in available-for-sale debt securities may become below investment grade ~~are the~~as a result of subsequent downgrades of the securities. These below investment grade holdings, including structured notes associated with the Schedule BA assets category, are further summarized below.

~~The~~As shown, the Company's percentage of below investment grade securities as of ~~June 30, 2021~~March 31, 2022 compared with the percentage at December 31, ~~2020 decreased mostly due to the disposal of several below investment grade securities~~2021 remained level in the first ~~six~~three months of ~~2021.~~2022. 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 as of ~~June 30, 2021~~March 31, 2022 are summarized below by category, including their comparable fair value as of December 31, ~~2020.~~2021. The Company continually monitors developments in these industries for issues that may affect security valuation.

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 future allowances or write-downs.

Under prior GAAP guidance pertaining to the recognition and accounting for other-than-temporary impairments and their classification as either a credit loss or non non-credit loss, the Company recognized a cumulative total of $7.8 million of other-than-temporary impairments of which $7.8 million was deemed credit related and recognized as realized investment losses in earnings, and $0.0 million, net of amortization, which was deemed non-credit related and recognized in other comprehensive income.

Under terms of the funds withheld reinsurance agreement, effective December 31, 2020, the Company, on 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 invested assets on the Company's financial statements and were included in the available-for-sale category. In accordance with the terms of the agreement, the reinsurer, or their appointed sub-advisor, was granted investment management authority with respect to these securities following agreed upon investment guidelines defined in the reinsurance agreement. ~~During~~Since inception, the ~~first six months of 2021, the~~ reinsurer has actively engaged in selling debt securities in the 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. 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.

93

In the table below, investments in trading debt securities are classified according to credit ratings by nationally recognized statistical rating organizations.

The investments in the trading debt securities below investment grade are summarized below.

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, 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~~further supported by the lease payments. This approach has proved over time to result in quality mortgage loans with few defaults. Mortgage loan interest income is recognized on an accrual basis with any premium or discount amortized over the life of the loan. Prepayment and late fees are recorded on the date of collection.

The Company targets a minimum specified yield on mortgage loan investments determined by reference to currently available debt security instrument yields, plus a desired amount of incremental basis points. ~~During the past several years, the~~A low interest rate environment, along with a competitive marketplace, have resulted in fewer loan opportunities being available that ~~met~~meet the Company's required rate of return. ~~During the first half of 2020, mortgage~~Mortgage loan originations were further impeded by the COVID-19 pandemic and its effects upon the commercial real estate market. As stabilization returned to the commercial real estate market, the Company directed resources and effort towards expanding its mortgage loan investment portfolio. Mortgage loans originated by the Company totaled ~~$70.3~~$26.4 million in the three months ended March 31, 2022 compared to $49.5 million for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and ~~$80.2~~$183.6 million for the year ended December 31, ~~2020.~~2021.

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 ininto the Condensed Consolidated Statements of Earnings. 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. 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. All forbearance loans returned to the terms of the original loan agreements during the first quarter of 2021.days which are accruing interest.

The Company held net investments in mortgage loans, after allowances for possible losses, totaling ~~$394.1~~$511.0 million and ~~$332.5~~$487.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The diversification of the portfolio by geographic region and by property type was as follows:

June 30, 2021 December 31, 2020
Amount % Amount %
(In thousands) (In thousands)
Mortgage Loans by Property Type:
Retail $ 133,081 33.5 $ 92,173 27.5
Office 120,488 30.3 111,735 33.3
Storage facility 61,478 15.5 53,591 16.0
Apartments 29,481 7.4 29,743 8.9
Industrial 34,574 8.7 29,131 8.7
Hotel 8,134 2.0 8,372 2.5
Land/Lots 4,595 1.2 4,680 1.4
All other 5,483 1.4 5,582 1.7
Gross balance 397,314 100.0 335,007 100.0
Market value adjustment 36 — % — — %
Allowance for credit losses (3,238) (0.8) (2,486) (0.7)
Totals $ 394,112 99.2 $ 332,521 99.3
Included in the mortgage loan investment balance at March 31, 2022 and December 31, 2021 were mortgage loan investments made by the reinsurer under the funds withheld reinsurance agreement totaling $11.1 million and $8.5 million, respectively. Similar to trading debt securities, these loans are reported at fair market values in order to allow the market value fluctuation to be recorded directly in the Condensed Consolidated Statements of Earnings and to offset the embedded derivative liability change due to market value fluctuations.

~~As noted previously, the~~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~~employs the Weighted Average Remaining Maturity ("WARM") method in estimating current expected credit losses with respect to mortgage loan ~~investments as of January 1, 2020 and each succeeding calendar quarter-end.~~investments. 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 changesChanges in the allowance for current expected credit losses are reported in net investment income in the Condensed Consolidated Statements of Earnings.

The Company's direct investments in real estate are not a significant portion of its total investment portfolio and consist primarily of income-producing properties which are being operated by a wholly owned subsidiary of National Western. The Company's real estate investments totaled approximately ~~$33.5~~$28.4 million and ~~$33.8~~$28.6 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. During the ~~second quarter of 2021~~three months ended March 31, 2022, the Company ~~recorded an impairment of $1.4 million on certain real estate and home office property~~sold land located in ~~Kansas City, Missouri which was re-classified as "held-for-sale" at its combined asset group's fair value less cost to sell~~Freeport, Texas and Houston, Texas for a net realized gain of ~~$12.2 million~~$0.3 million.

The Company recognized operating income of approximately ~~$1.4~~$0.7 million and ~~$1.5~~$0.7 million on real estate properties in the first ~~six~~three months of ~~2021~~2022 and ~~2020,~~2021, respectively. The Company monitors the conditions and market values of these properties on a regular basis and makes repairs and capital improvements to keep the properties in good condition.

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

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 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 movement of interest rates and fair values of available-for-sale debt securities isfor the quarter ended March 31, 2022 and the year ended December 31, 2021 are reflected in the tables below.

The Company's trading debt securities, which are exclusively in the funds withheld assets managed by the reinsurer, are recorded at fair value upon purchase. While the recorded value of these trading debt securities subsequently fluctuates with market prices, the fair value movement of the securities is entirely offset by an identical fair value movement of the associated funds withheld liabilities.

The Company's unrealized gain (loss) balance for available-for-sale and trading debt securities held at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 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 while the change in the unrealized balance pertaining to trading debt securities ~~trading~~ is recorded in net investment income in the Condensed Consolidated Statements of Earnings.

Changes in interest rates ~~can~~typically 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 increased 5583 basis points from ~~0.92%~~1.51% at year-end ~~2020~~2021 to ~~1.47 %~~2.34% by the end of the first ~~six~~three months of ~~2021.~~2022. Therefore the decrease in the unrealized gain balance position at December 31, 2021 is anthe expected portfolio 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 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, 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, ~~2020,~~2021, for its interest rate-sensitive assets and liabilities. The changes in market values of the Company's debt securities in the first ~~six~~three months of ~~2021~~2022 were reasonable given the expected range of results of this analysis.

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 the Company's Board of Directors.

98

The Company follows the industry practice of reinsuring (ceding) portions of its insurance risks with a variety of reinsurance companies on either a coinsurance or a modified coinsurance basis in order to limit risk. Use of reinsurance does not relieve the Company of its primary liability to pay the full amount of the insurance benefit in the event the reinsurer (counterparty) fails to honor its contractual obligation. Consequently, the Company avoids concentrating reinsurance counterparty credit risk with any one reinsurer and only maintains reinsurance agreements with reputable carriers which are well-capitalized and highly rated by independent rating agencies. With respect to the funds withheld coinsurance arrangement entered into by National Western, assets backing the reserves for the policyholder obligations under the agreement are retained by the Company and are available to meet benefit payment commitments. In addition, National Western is the beneficiary of an incremental collateral trust account provided by the reinsurer providing additional security for the payment of all amounts due under the reinsurance agreement.

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

Liquidity 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. National Western maintains a line of credit facility of $75 million which it may access for short-term cash needs. There were no borrowings under the line of credit as of ~~June 30, 2021.~~March 31, 2022. In addition, as previously reported, National Western is a member of the Federal Home Loan Bank of Dallas (FHLB) through an initial minimum required stock investment of $4.3 million. Through this membership, National Western is able to create a specified borrowing capacity based upon the amount of collateral it elects to establish. At March 31, 2022, securities in the amount of $57.5 million (fair value of $57.9 million) were pledged as collateral to the FHLB.

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

99

The above contractual withdrawals, as well as the level of surrenders experienced, and the associated cash outflows did not have an adverse impact on overall liquidity. The amounts shown includes funds withheld policyholder obligations and Ozark National cash outflows. Individual life insurance policies are typically less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may need to undergo a new underwriting process in order to obtain a new insurance policy elsewhere. Annuity dollar outflows are generally more sensitive to economic conditions, interest rate levels, and the level of surrender charges assessed upon withdrawal or termination. Cash flow projections and tests under various market interest rate scenarios and assumptions are performed to assist in evaluating liquidity needs and adequacy. With 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 ~~$5.8~~$72.7 million and ~~$208.6~~$55.9 million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The Company also has significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows totaled ~~$790.1~~$295.1 million and ~~$532.2~~$386.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Operating and investing activity cash flow items could be reduced if interest rates rise at an accelerated rate in the future. Net cash inflows/(outflows) from the Company's universal life and investment annuity deposit product operations totaled ~~$(17.7)~~$(113.1) million and ~~$(285.0)~~$(68.5) million during the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The ~~lower~~higher negative net outflow in the first ~~six~~three months of ~~2021~~2022 reflects ~~reinsurance of negative cash flows of fixed-rate and payout annuities under the funds withheld reinsurance agreement as well as~~ a ~~higher~~lower level of fixed-index annuity and life sales.

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 ~~June 30, 2021,~~March 31, 2022, the Company maintained ~~normal~~ commitments for its normal operating and investment activities. As previously reported, National Western became a member of the Federal Home Loan Bank of Dallas (FHLB) during 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.

~~100~~

It is 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 National Western and Ozark National.

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

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

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

(3) ~~Amounts reflect commitments~~Commitments for capital calls to alternative investment funds reflect amounts 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 non-Company leases for the three-month periods ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ amounted to $1.3 million and ~~$1.1 million, respectively, and for the six months ended amounted to $2.6 million and $2.3~~$1.3 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.

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

The NAIC established risk-based capital ("RBC") ~~requirements~~standards for U.S. life insurers as well as a risk-based capital model act ("RBC Model Act"). The RBC Model Act requires that life insurers annually submit a report 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 isregarding their RBC amounts 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~~upon four ~~major areas~~categories 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. The capital requirement for each is determined by applying factors that vary based upon the degree of risk to various asset, premium, insurance in force, and policy benefit reserve items. The formula is an early warning tool used by regulators to identify potential weakly capitalized companies for purposes of initiating further regulatory action. Independent rating agencies utilize proprietary versions similar to the NAIC RBC model incorporating additional risk factors identified in their respective rating methodologies. National Western and Ozark National's current statutory capital and surplus are each ~~significantly~~substantially in excess of ~~the current threshold~~applicable statutory RBC requirements.

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

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.

There 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, during the quarter ended ~~June 30, 2021~~March 31, 2022 that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

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.

The risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 included a discussion of the potential ramifications of natural or man-made disasters and catastrophes including pandemic disease. ~~Although~~There have been no substantial changes relative to the majority of our home office staff were redeployed to remote work sites, staff remaining onsite followed social distancing protocols and precautions during the COVID-19 pandemic. Our companies and businesses 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 were not interrupted or suspended, the Company did not activate the business continuity plans that it hasrisk factors disclosed in place. Both National Western and Ozark National/NIS have recently brought its remote-working employees back into their respective home office facilities. The exposure to adverse mortality experience has been monitored and 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.Annual Report.

~~Effective August 22, 2008, National Western adopted and implemented~~The Company maintains a limited stock buy-back program associated with ~~the 2008~~its Incentive Plan which provides Option Holders the additional alternative of selling shares acquired through the exercise of stock options directly back to the 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 provides Option Holders with the ability to elect to sell such acquiredPurchased shares, ~~back to the Company at~~if 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. As of June 30, 2021, there are no stock options outstanding under the plan.


Delaware									47-3339380
(State or Other Jurisdiction of Incorporation)									(IRS Employer Identification No.)


TABLE OF CONTENTS
			Page

Part I. Financial Information:			3

Item 1. Financial Statements			3

Condensed Consolidated Balance Sheets ~~June 30, 2021~~March 31, 2022 (Unaudited) and December 31, ~~2020~~2021			3

Condensed Consolidated Statements of Earnings For the Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)			5



~~Condensed Consolidated Statements of Earnings~~ ~~For the Six Months Ended June 30, 2021 and 2020 (Unaudited)~~			6

~~Condensed Consolidated Statements of Comprehensive Income~~ ~~For the Three Months Ended June 30, 2021 and 2020 (Unaudited)~~			7



Condensed Consolidated Statements of Comprehensive Income ( ~~For the Six Months Ended June 30, 2021 and 2020 (Unaudited)~~			8L

~~Condensed Consolidated Statements of Changes in Stockholders' Equity~~oss ) For the Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)			96





Condensed Consolidated Statements of Changes in Stockholders' Equity For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)			117





Condensed Consolidated Statements of Cash Flows For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)			138

Notes to Condensed Consolidated Financial Statements (Unaudited)			1510

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			5851

Item 3. Quantitative and Qualitative Disclosures About Market Risk			~~102~~95

Item 4. Controls and Procedures			~~103~~95

Part II. Other Information:			~~103~~95

Item 1. Legal Proceedings			~~103~~95

Item 1A. Risk Factors			~~103~~95

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			~~104~~96

Item 4. Removed and Reserved			~~105~~97

Item 6. Exhibits			~~105~~97

Signatures			~~106~~98


		(Unaudited)				(Unaudited)
ASSETS	ASSETS	June 30, 2021		December 31, 2020	ASSETS	March 31, 2022		December 31, 2021

Investments:	Investments:				Investments:

Debt securities available-for-sale, at fair value (cost: $8,973,860 and $9,874,543)		$	9,617,027	10,770,923
Debt securities trading, at fair value (cost: $1,056,183 and $0)		1,066,454		0
Mortgage loans, net of allowance for credit losses ($3,238 and $2,486), ($2,729 and $0 at fair value)		394,112		332,521
Debt securities available-for-sale, at fair value (cost: $8,809,594 and $8,604,250)					Debt securities available-for-sale, at fair value (cost: $8,809,594 and $8,604,250)	$	8,715,874	9,068,946
Debt securities trading, at fair value (cost: $1,076,517 and $1,066,108)					Debt securities trading, at fair value (cost: $1,076,517 and $1,066,108)	1,014,904		1,077,438
Mortgage loans, net of allowance for credit losses ($2,816 and $2,987), ($11,120 and 8,469 at fair value)					Mortgage loans, net of allowance for credit losses ($2,816 and $2,987), ($11,120 and 8,469 at fair value)	510,995		487,304
Policy loans	Policy loans	71,640		74,083	Policy loans	71,620		71,286
Derivatives, index options	Derivatives, index options	114,840		132,821	Derivatives, index options	44,861		101,622
Equity securities, at fair value (cost: $12,079 and $12,069)		21,132		17,744
Equity securities, at fair value (cost: $16,569 and $16,549)					Equity securities, at fair value (cost: $16,569 and $16,549)	27,585		28,217
Other long-term investments	Other long-term investments	126,604		104,113	Other long-term investments	145,507		137,670

Total investments	Total investments	11,411,809		11,432,205	Total investments	10,531,346		10,972,483

Cash and cash equivalents	Cash and cash equivalents	395,833		581,059	Cash and cash equivalents	499,754		714,624
Deferred policy acquisition costs	Deferred policy acquisition costs	470,382		382,080	Deferred policy acquisition costs	740,024		569,839
Deferred sales inducements	Deferred sales inducements	64,189		43,845	Deferred sales inducements	103,584		78,136
Value of business acquired	Value of business acquired	158,167		162,968	Value of business acquired	152,462		154,499
Cost of reinsurance	Cost of reinsurance	95,709		102,840	Cost of reinsurance	86,571		89,686
Accrued investment income	Accrued investment income	87,856		88,323	Accrued investment income	91,190		84,394
Federal income tax receivable	Federal income tax receivable	0		10,408	Federal income tax receivable	2,761		—

Amounts recoverable from reinsurer	Amounts recoverable from reinsurer	1,629,857		1,709,232	Amounts recoverable from reinsurer	1,494,764		1,539,919
Other assets	Other assets	156,337		135,310	Other assets	121,580		126,609

Total assets	Total assets	$	14,470,139	14,648,270	Total assets	$	13,824,036	14,330,189


		(Unaudited)				(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY	June 30, 2021		December 31, 2020	LIABILITIES AND STOCKHOLDERS’ EQUITY	March 31, 2022		December 31, 2021

LIABILITIES:	LIABILITIES:				LIABILITIES:

Future policy benefits:	Future policy benefits:				Future policy benefits:
Universal life and annuity contracts	Universal life and annuity contracts	$	9,029,419	9,035,316	Universal life and annuity contracts	$	8,890,352	9,003,275
Traditional life reserves	Traditional life reserves	899,855		898,103	Traditional life reserves	912,302		909,712
Other policyholder liabilities	Other policyholder liabilities	134,417		138,480	Other policyholder liabilities	145,192		134,338
Funds withheld liability	Funds withheld liability	1,594,020		1,697,591	Funds withheld liability	1,349,050		1,485,267
Deferred Federal income tax liability	Deferred Federal income tax liability	114,736		145,126	Deferred Federal income tax liability	41,440		101,166
Federal income tax payable	Federal income tax payable	6,030		0	Federal income tax payable	—		2,331
Other liabilities	Other liabilities	151,818		193,904	Other liabilities	187,719		154,409

Total liabilities	Total liabilities	11,930,295		12,108,520	Total liabilities	11,526,055		11,790,498

COMMITMENTS AND CONTINGENCIES (Note 8)	COMMITMENTS AND CONTINGENCIES (Note 8)	0		0	COMMITMENTS AND CONTINGENCIES (Note 8)	0		0

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:				STOCKHOLDERS’ EQUITY:

Common stock:	Common stock:				Common stock:
Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2021 and 2020		34		34
Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2021 and 2020		2		2
Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2022 and 2021					Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2022 and 2021	34		34
Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2022 and 2021					Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2022 and 2021	2		2
Additional paid-in capital	Additional paid-in capital	41,716		41,716	Additional paid-in capital	41,716		41,716
Accumulated other comprehensive income		283,487		395,421
Accumulated other comprehensive income (loss)					Accumulated other comprehensive income (loss)	(61,941)		215,953
Retained earnings	Retained earnings	2,214,605		2,102,577	Retained earnings	2,318,170		2,281,986

Total stockholders’ equity	Total stockholders’ equity	2,539,844		2,539,750	Total stockholders’ equity	2,297,981		2,539,691

Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	14,470,139	14,648,270	Total liabilities and stockholders' equity	$	13,824,036	14,330,189


		2021		2020			2022		2021

Premiums and other revenues:	Premiums and other revenues:					Premiums and other revenues:
Universal life and annuity contract charges	Universal life and annuity contract charges	$	34,060	36,869		Universal life and annuity contract charges	$	32,651	34,889
Traditional life premiums	Traditional life premiums	22,112		22,741		Traditional life premiums	22,333		22,584
Net investment income	Net investment income	156,544		145,694		Net investment income	69,724		166,075
Other revenues	Other revenues	6,034		7,586		Other revenues	5,797		5,414
Net realized investment gains:	Net realized investment gains:					Net realized investment gains:
Total other-than-temporary impairment (“OTTI”) gains		0		2
Portion of OTTI (gains) recognized in other comprehensive income		0		(2)
Net OTTI recognized in earnings		0		0

Other net investment gains	Other net investment gains	3,415		3,125		Other net investment gains	3,794		1,416
Total net realized investment gains	Total net realized investment gains	3,415		3,125		Total net realized investment gains	3,794		1,416

Total revenues	Total revenues	222,165		216,015		Total revenues	134,299		230,378

Benefits and expenses:	Benefits and expenses:					Benefits and expenses:
Life and other policy benefits	Life and other policy benefits	35,904		33,431		Life and other policy benefits	41,899		37,889
Amortization of deferred transaction costs	Amortization of deferred transaction costs	25,123		31,100		Amortization of deferred transaction costs	29,016		29,989
Universal life and annuity contract interest	Universal life and annuity contract interest	69,973		61,772		Universal life and annuity contract interest	(14,805)		52,845
Other operating expenses	Other operating expenses	28,468		29,154		Other operating expenses	32,582		31,335

Total benefits and expenses	Total benefits and expenses	159,468		155,457		Total benefits and expenses	88,692		152,058

Earnings before Federal income taxes	Earnings before Federal income taxes	62,697		60,558		Earnings before Federal income taxes	45,607		78,320

Federal income taxes	Federal income taxes	12,798		12,145		Federal income taxes	9,423		16,191

Net earnings	Net earnings	$	49,899	48,413		Net earnings	$	36,184	62,129

Basic earnings per share:	Basic earnings per share:					Basic earnings per share:
Class A	Class A	$	14.11	$	13.69	Class A	$	10.23	$	17.57
Class B	Class B	$	7.06	$	6.85	Class B	$	5.12	$	8.79

Diluted earnings per share:	Diluted earnings per share:					Diluted earnings per share:
Class A	Class A	$	14.11	$	13.69	Class A	$	10.23	$	17.57
Class B	Class B	$	7.06	$	6.85	Class B	$	5.12	$	8.79


NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued) For the Three Months Ended June 30, 2021 and 2020 (Unaudited) (In thousands)
						2022		2021

Common stock:					Common stock:
Balance at beginning of period					Balance at beginning of period	$	36	36

Balance at end of period					Balance at end of period	36		36

Additional paid-in capital:					Additional paid-in capital:
Balance at beginning of period					Balance at beginning of period	41,716		41,716

Balance at end of period					Balance at end of period	41,716		41,716

Accumulated other comprehensive income (loss):					Accumulated other comprehensive income (loss):
Unrealized gains (losses) on debt securities available-for-sale:					Unrealized gains (losses) on debt securities available-for-sale:
Balance at beginning of period					Balance at beginning of period	226,220		418,741
Change in unrealized gains (losses) during period, net of tax					Change in unrealized gains (losses) during period, net of tax	(279,341)		(153,314)

Balance at end of period					Balance at end of period	(53,121)		265,427

		2021		2020

Foreign currency translation adjustments:	Foreign currency translation adjustments:				Foreign currency translation adjustments:
Balance at beginning of period	Balance at beginning of period	5,111		5,062	Balance at beginning of period	5,100		5,116
Change in translation adjustments during period	Change in translation adjustments during period	(71)		(92)	Change in translation adjustments during period	313		(5)

Balance at end of period	Balance at end of period	5,040		4,970	Balance at end of period	5,413		5,111

Benefit plan liability adjustment:	Benefit plan liability adjustment:				Benefit plan liability adjustment:
Balance at beginning of period	Balance at beginning of period	(26,501)		(17,718)	Balance at beginning of period	(15,367)		(28,436)
Amortization of net prior service cost and net gain (loss), net of tax		1,935		(2,067)
Amortization of net prior service cost and net gain, net of tax					Amortization of net prior service cost and net gain, net of tax	1,134		1,935

Balance at end of period	Balance at end of period	(24,566)		(19,785)	Balance at end of period	(14,233)		(26,501)

Accumulated other comprehensive income at end of period		283,487		83,089
Accumulated other comprehensive income (loss) at end of period					Accumulated other comprehensive income (loss) at end of period	(61,941)		244,037

Retained earnings:	Retained earnings:				Retained earnings:
Balance at beginning of period	Balance at beginning of period	2,164,706		2,009,476	Balance at beginning of period	2,281,986		2,102,577

Net earnings	Net earnings	49,899		48,413	Net earnings	36,184		62,129

Balance at end of period	Balance at end of period	2,214,605		2,057,889	Balance at end of period	2,318,170		2,164,706

Total stockholders' equity	Total stockholders' equity	$	2,539,844	2,182,730	Total stockholders' equity	$	2,297,981	2,450,495


Affected Line Item in the Statements of Earnings		Amount Reclassified From Accumulated Other Comprehensive Income
Affected Line Item in the Condensed Consolidated Statements of Earnings							Affected Line Item in the Condensed Consolidated Statements of Earnings	Amount Reclassified From Accumulated Other Comprehensive Income
		Three Months Ended June 30,			Six Months Ended June 30,			Three Months Ended March 31,
		2021		2020	2021	2020		2022		2021

		(In thousands)						(In thousands)

Other net investment gains	Other net investment gains	$	4,823	1,729	6,239	2,491	Other net investment gains	$	3,458	1,416

Earnings before Federal income taxes	Earnings before Federal income taxes	4,823		1,729	6,239	2,491	Earnings before Federal income taxes	3,458		1,416
Federal income taxes	Federal income taxes	1,013		363	1,310	523	Federal income taxes	726		297

Net earnings	Net earnings	$	3,810	1,366	4,929	1,968	Net earnings	$	2,732	1,119


		Three Months Ended			Six Months Ended			Three Months Ended
		June 30,			June 30,			March 31,
		2021		2020	2021	2020		2022		2021

		(In thousands)						(In thousands)

Service cost	Service cost	$	30	27	60	54	Service cost	$	33	30
Interest cost	Interest cost	131		169	263	337	Interest cost	145		132
Expected return on plan assets	Expected return on plan assets	(356)		(316)	(712)	(631)	Expected return on plan assets	(394)		(356)

Amortization of net loss	Amortization of net loss	135		145	269	290	Amortization of net loss	34		134

Net periodic benefit cost	Net periodic benefit cost	$	(60)	25	(120)	50	Net periodic benefit cost	$	(182)	(60)


		June 30, 2021								March 31, 2022
		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals

		(In thousands)								(In thousands)

Deferred transaction costs	Deferred transaction costs	$	112,847	130,696	377,369	167,535	0	788,447	Deferred transaction costs	$	181,937	212,510	523,456	164,738	—	1,082,641
Total segment assets	Total segment assets	1,716,487		1,021,962	9,626,473	1,108,040	381,901	13,854,863	Total segment assets	1,777,815		992,491	8,945,973	1,061,728	351,950	13,129,957
Future policy benefits	Future policy benefits	1,443,093		783,053	6,929,958	773,170	0	9,929,274	Future policy benefits	1,537,059		732,265	6,746,899	786,431	—	9,802,654
Other policyholder liabilities	Other policyholder liabilities	17,991		12,695	89,115	14,616	0	134,417	Other policyholder liabilities	22,662		12,290	93,674	16,566	—	145,192
Funds withheld liability	Funds withheld liability	0		0	1,594,020	0	0	1,594,020	Funds withheld liability	—		—	1,349,050	—	—	1,349,050


		December 31, 2020								December 31, 2021
		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals

		(In thousands)								(In thousands)

Deferred transaction costs	Deferred transaction costs	$	94,100	124,480	302,397	170,756	0	691,733	Deferred transaction costs	$	150,688	152,340	423,318	165,814	—	892,160
Total segment assets	Total segment assets	3,242,794		1,034,280	7,976,588	1,117,509	382,149	13,753,320	Total segment assets	1,791,017		975,942	9,187,610	1,115,380	356,716	13,426,665
Future policy benefits	Future policy benefits	1,337,174		798,952	7,028,860	768,433	0	9,933,419	Future policy benefits	1,537,482		749,537	6,843,457	782,511	—	9,912,987
Other policyholder liabilities	Other policyholder liabilities	16,378		11,086	94,049	16,967	0	138,480	Other policyholder liabilities	20,950		14,268	82,650	16,470	—	134,338
Funds withheld liability	Funds withheld liability	0		0	1,697,591	0	0	1,697,591	Funds withheld liability	—		—	1,485,267	—	—	1,485,267


		Three Months Ended June 30, 2021								Three Months Ended March 31, 2022
		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals

		(In thousands)								(In thousands)

Premiums and contract revenues	Premiums and contract revenues	$	12,475	20,656	3,742	19,299	0	56,172	Premiums and contract revenues	$	14,889	17,111	3,552	19,432	—	54,984
Net investment income	Net investment income	28,247		13,847	100,199	6,780	7,471	156,544	Net investment income	(2,344)		(4,247)	60,211	6,928	9,176	69,724
Other revenues	Other revenues	31		44	1,389	3,273	1,297	6,034	Other revenues	26		17	1,233	3,215	1,306	5,797

Total revenues	Total revenues	40,753		34,547	105,330	29,352	8,768	218,750	Total revenues	12,571		12,881	64,996	29,575	10,482	130,505

Life and other policy benefits	Life and other policy benefits	5,007		5,302	9,829	15,766	0	35,904	Life and other policy benefits	6,388		4,701	14,044	16,766	—	41,899
Amortization of deferred transaction costs	Amortization of deferred transaction costs	153		6,163	16,378	2,429	0	25,123	Amortization of deferred transaction costs	2,830		5,150	18,816	2,220	—	29,016
Universal life and annuity contract interest	Universal life and annuity contract interest	25,466		12,226	32,281	0	0	69,973	Universal life and annuity contract interest	(5,420)		(5,721)	(3,664)	—	—	(14,805)
Other operating expenses	Other operating expenses	5,482		4,646	11,864	4,933	1,543	28,468	Other operating expenses	7,053		4,860	14,170	4,981	1,518	32,582
Federal income taxes	Federal income taxes	958		1,268	7,115	1,258	1,481	12,080	Federal income taxes	356		806	4,480	1,128	1,857	8,627

Total expenses	Total expenses	37,066		29,605	77,467	24,386	3,024	171,548	Total expenses	11,207		9,796	47,846	25,095	3,375	97,319

Segment earnings	Segment earnings	$	3,687	4,942	27,863	4,966	5,744	47,202	Segment earnings	$	1,364	3,085	17,150	4,480	7,107	33,186


	Six Months Ended June 30, 2021
	Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals

	(In thousands)

Premiums and contract revenues	$	26,373	40,836	7,672	38,764	0	113,645
Net investment income	52,090		25,963	219,923	13,354	11,289	322,619
Other revenues	52		72	2,763	6,199	2,362	11,448

Total revenues	78,515		66,871	230,358	58,317	13,651	447,712

Life and other policy benefits	11,117		9,677	19,830	33,169	0	73,793
Amortization of deferred transaction costs	5,613		11,555	32,825	5,119	0	55,112
Universal life and annuity contract interest	47,087		23,025	52,706	0	0	122,818
Other operating expenses	12,929		9,420	24,794	9,679	2,981	59,803
Federal income taxes	364		2,711	20,591	2,115	2,193	27,974

Total expenses	77,110		56,388	150,746	50,082	5,174	339,500

Segment earnings	$	1,405	10,483	79,612	8,235	8,477	108,212


		Three Months Ended June 30, 2020								Three Months Ended March 31, 2021
		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals		Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals

		(In thousands)								(In thousands)

Premiums and contract revenues	Premiums and contract revenues	$	12,009	23,061	4,699	19,841	0	59,610	Premiums and contract revenues	$	13,898	20,180	3,930	19,465	—	57,473
Net investment income	Net investment income	21,475		11,153	97,666	6,549	8,851	145,694	Net investment income	23,843		12,116	119,724	6,574	3,818	166,075
Other revenues	Other revenues	1		(6)	(8)	2,319	5,280	7,586	Other revenues	21		28	1,374	2,926	1,065	5,414

Total revenues	Total revenues	33,485		34,208	102,357	28,709	14,131	212,890	Total revenues	37,762		32,324	125,028	28,965	4,883	228,962

Life and other policy benefits	Life and other policy benefits	4,169		3,684	8,880	16,698	0	33,431	Life and other policy benefits	6,110		4,375	10,001	17,403	—	37,889
Amortization of deferred transaction costs	Amortization of deferred transaction costs	3,209		6,844	19,344	1,703	0	31,100	Amortization of deferred transaction costs	5,460		5,392	16,447	2,690	—	29,989
Universal life and annuity contract interest	Universal life and annuity contract interest	19,172		9,492	33,108	0	0	61,772	Universal life and annuity contract interest	21,621		10,799	20,425	—	—	52,845
Other operating expenses	Other operating expenses	5,643		4,517	12,715	4,794	1,485	29,154	Other operating expenses	7,447		4,774	12,930	4,746	1,438	31,335
Federal income taxes	Federal income taxes	172		934	6,173	1,918	2,292	11,489	Federal income taxes	(594)		1,443	13,476	857	712	15,894

Total expenses	Total expenses	32,365		25,471	80,220	25,113	3,777	166,946	Total expenses	40,044		26,783	73,279	25,696	2,150	167,952

Segment earnings		$	1,120	8,737	22,137	3,596	10,354	45,944
Segment earnings (loss)									Segment earnings (loss)	$	(2,282)	5,541	51,749	3,269	2,733	61,010


	Six Months Ended June 30, 2020
	Domestic Life Insurance		International Life Insurance	Annuities	ONL & Affiliates	All Others	Totals

	(In thousands)

Premiums and contract revenues	$	23,237	45,928	9,349	39,924	0	118,438
Net investment income	2,092		2,153	108,297	12,850	6,823	132,215
Other revenues	30		48	(4)	4,741	6,425	11,240

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

Life and other policy benefits	10,046		7,015	17,069	32,935	0	67,065
Amortization of deferred transaction costs	5,782		12,896	38,365	4,094	0	61,137
Universal life and annuity contract interest	(2,521)		(1,345)	37,612	0	0	33,746
Other operating expenses	9,938		7,613	19,582	8,863	2,980	48,976
Federal income taxes	360		3,738	854	3,140	1,748	9,840

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

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


		June 30,		December 31,		March 31,		December 31,
		2021		2020		2022		2021

		(In thousands)				(In thousands)

Assets:	Assets:				Assets:
Total segment assets	Total segment assets	$	13,854,863	13,753,320	Total segment assets	$	13,129,957	13,426,665
Other unallocated assets	Other unallocated assets	615,276		894,950	Other unallocated assets	694,079		903,524

Total condensed consolidated assets	Total condensed consolidated assets	$	14,470,139	14,648,270	Total condensed consolidated assets	$	13,824,036	14,330,189


		Stock Options Outstanding
	Shares Available For Grant	Shares	Weighted- Average Exercise Price

Stock Options:
Balance at January 1, 2021	291,000	0	$	0
Exercised	0	0	$	0
Forfeited	0	0	$	0
Expired	0	0	$	0
Stock options granted	0	0	$	0

Balance at June 30, 2021	291,000	0	$	0


	Liability Awards
	SAR	RSU	PSU

Other Share/Unit Awards:
Balance at January 1, 2021	144,248	16,449	24,282
Exercised	(10,800)	0	(3,863)
Forfeited	(730)	(157)	0
Granted	0	0	0

Balance at June 30, 2021	132,718	16,292	20,419


	Liability Awards
	SAR	RSU	PSU

Other Share/Unit Awards:
Balance at January 1, 2022	186,994	18,955	24,485
Exercised	—	—	(4,213)
Forfeited	(1,342)	(256)	(805)
Granted	—	—	—

Balance at March 31, 2022	185,652	18,699	19,467


	SARs Outstanding
	Number Outstanding		Weighted- Average Remaining Contractual Life	Number Exercisable

Exercise prices:
$132.56	8,318		0.5 years	8,318
$210.22	23,450		2.4 years	23,450
$216.48	11,149		4.6 years	11,149
$311.16	9,531		5.6 years	9,531
$310.55	203		5.8 years	203
$334.34	9,018		6.4 years	9,018
$303.77	11,178		7.4 years	7,483
$252.91	19,323		8.4 years	6,509
$192.10	40,548		9.4 years	0

Totals	132,718			75,661

Aggregate intrinsic value (in thousands)	$	2,494		$	1,184


	SARs Outstanding
	Number Outstanding		Weighted- Average Remaining Contractual Life	Number Exercisable

Exercise prices:
$210.22	22,750		1.7 years	22,750
$216.48	11,086		3.9 years	11,086
$311.16	9,295		4.9 years	9,295
$310.55	203		5.1 years	203
$334.34	8,880		5.7 years	8,880
$303.77	10,764		6.7 years	10,764
$252.91	18,852		7.6 years	12,637
$192.10	39,917		8.6 years	13,504
$218.44	63,905		9.7 years	—

Totals	185,652			89,119

Aggregate intrinsic value (in thousands)	$	735		$	251


		Debt Securities Available-for-Sale							Debt Securities Available-for-Sale
		Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Allowance for Credit Losses		Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Allowance for Credit Losses

		(In thousands)							(In thousands)

U.S. agencies	U.S. agencies	$	50,251	1,715	0	51,966	0	U.S. agencies	$	31,436	253	—	31,689	—
U.S. Treasury	U.S. Treasury	3,160		71	0	3,231	0	U.S. Treasury	2,473		6	—	2,479	—
States and political subdivisions	States and political subdivisions	473,414		32,317	(378)	505,353	0	States and political subdivisions	491,323		9,872	(17,613)	483,582	—
Foreign governments	Foreign governments	48,103		1,072	(435)	48,740	0	Foreign governments	62,977		12	(6,972)	56,017	—
Public utilities	Public utilities	792,134		58,495	(9)	850,620	0	Public utilities	776,673		6,574	(13,543)	769,704	—
Corporate	Corporate	6,569,365		518,303	(7,849)	7,079,819	0	Corporate	6,407,197		89,809	(136,925)	6,360,081	—
Commercial mortgage-backed	Commercial mortgage-backed	27,061		1,311	0	28,372	0	Commercial mortgage-backed	27,001		13	(379)	26,635	—
Residential mortgage-backed	Residential mortgage-backed	736,313		33,665	0	769,978	0	Residential mortgage-backed	454,206		4,047	(2,448)	455,805	—
Asset-backed	Asset-backed	274,059		5,021	(132)	278,948	0	Asset-backed	556,308		151	(26,577)	529,882	—

Totals	Totals	$	8,973,860	651,970	(8,803)	9,617,027	0	Totals	$	8,809,594	110,737	(204,457)	8,715,874	—


		Debt Securities Available-for-Sale								Debt Securities Available-for-Sale
		Less than 12 Months			12 Months or Greater		Total			Less than 12 Months			12 Months or Greater		Total
		Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses		Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses

		(In thousands)								(In thousands)

States and political subdivisions	States and political subdivisions	$	14,124	(276)	1,788	(102)	15,912	(378)	States and political subdivisions	$	158,698	(15,417)	14,058	(2,196)	172,756	(17,613)
Foreign governments	Foreign governments	7,436		(435)	0	0	7,436	(435)	Foreign governments	48,387		(5,648)	6,524	(1,324)	54,911	(6,972)
Public utilities	Public utilities	635		(9)	0	0	635	(9)	Public utilities	252,793		(13,439)	538	(104)	253,331	(13,543)
Corporate	Corporate	331,777		(7,264)	21,845	(585)	353,622	(7,849)	Corporate	1,689,816		(101,061)	245,820	(35,864)	1,935,636	(136,925)

Commercial mortgage-backed									Commercial mortgage-backed	21,616		(379)	—	—	21,616	(379)
Residential mortgage-backed									Residential mortgage-backed	197,247		(2,448)	—	—	197,247	(2,448)
Asset-backed	Asset-backed	23,382		(132)	0	0	23,382	(132)	Asset-backed	483,948		(25,591)	10,564	(986)	494,512	(26,577)

Totals	Totals	$	377,354	(8,116)	23,633	(687)	400,987	(8,803)	Totals	$	2,852,505	(163,983)	277,504	(40,474)	3,130,009	(204,457)


		Debt Securities Available-for-Sale				Debt Securities Available-for-Sale
		Amortized Cost		Fair Value		Amortized Cost		Fair Value

		(In thousands)				(In thousands)

Due in 1 year or less	Due in 1 year or less	$	626,098	635,508	Due in 1 year or less	$	188,676	189,234
Due after 1 year through 5 years	Due after 1 year through 5 years	3,370,526		3,610,011	Due after 1 year through 5 years	3,121,279		3,155,586
Due after 5 years through 10 years	Due after 5 years through 10 years	2,223,148		2,426,553	Due after 5 years through 10 years	2,232,161		2,217,928
Due after 10 years	Due after 10 years	1,716,655		1,867,657	Due after 10 years	2,229,963		2,140,804
		7,936,427		8,539,729		7,772,079		7,703,552

Mortgage and asset-backed securities	Mortgage and asset-backed securities	1,037,433		1,077,298	Mortgage and asset-backed securities	1,037,515		1,012,322

Totals before allowance for credit losses	Totals before allowance for credit losses	8,973,860		9,617,027	Totals before allowance for credit losses	8,809,594		8,715,874

Allowance for credit losses	Allowance for credit losses	0		—	Allowance for credit losses	—		—

Totals	Totals	$	8,973,860	9,617,027	Totals	$	8,809,594	8,715,874


	March 31, 2022
	Assets
	Debt Securities, Available-for-Sale		Trading Securities	Derivatives, Index Options	Mortgage Loans	Total Assets

	(In thousands)

Beginning balance, January 1, 2022	$	326,962	74,822	101,622	8,469	511,875
Total realized and unrealized gains (losses):
Included in net earnings	—		(3,368)	(38,198)	(457)	(42,023)
Included in other comprehensive income (loss)	(15,004)		—	—	—	(15,004)
Purchases, sales, issuances and settlements, net:
Purchases	38,005		30,050	12,456	3,140	83,651
Sales	—		—	—	—	—
Issuances	—		—	—	—	—
Settlements	(11,762)		—	(31,019)	(32)	(42,813)
Transfers into (out of) Level 3	—		—	—	—	—

Balance at end of period	$	338,201	101,504	44,861	11,120	495,686

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	$	—	(3,368)	(32,407)	(457)	(36,232)
Benefits and expenses	—		—	—	—	—

Total	$	—	(3,368)	(32,407)	(457)	(36,232)


		For the Three Months Ended June 30, 2021									March 31, 2022
		Assets				Liabilities				Other Liabilities
		Derivatives, Index Options		Mortgage Loans	Total Assets	Policyholder Account Balances	Stock Options	Total Liabilities				Embedded Derivative on Funds Withheld Liability		Policyholder Account Balances	Share-based Comp	Total Other Liabilities

		(In thousands)									(In thousands)

Beginning balance, April 1, 2021		$	137,130	0	137,130	168,902	9,899	178,801
Beginning balance, January 1, 2022									Beginning balance, January 1, 2022			$	—	142,761	7,869	150,630
Total realized and unrealized gains (losses):	Total realized and unrealized gains (losses):								Total realized and unrealized gains (losses):
Included in net earnings	Included in net earnings	40,166		35	40,201	48,819	(461)	48,358	Included in net earnings			(3,805)		(39,304)	1,575	(37,729)
Included in other comprehensive income		0		0	0	0	0	0
Included in other comprehensive income (loss)									Included in other comprehensive income (loss)			—		—	—	—
Purchases, sales, issuances and settlements, net:	Purchases, sales, issuances and settlements, net:								Purchases, sales, issuances and settlements, net:
Purchases	Purchases	10,974		2,694	13,668	10,974	0	10,974	Purchases			—		12,456	—	12,456
Sales	Sales	0		0	0	0	0	0	Sales			—		—	—	—
Issuances	Issuances	0		0	0	0	0	0	Issuances			—		—	—	—
Settlements	Settlements	(73,430)		0	(73,430)	(73,430)	(1,294)	(74,724)	Settlements			—		(31,019)	(1,000)	(32,019)
Transfers into (out of) Level 3	Transfers into (out of) Level 3	0		0	0	0	0	0	Transfers into (out of) Level 3			1,169		—	—	—

Balance at end of period	Balance at end of period	$	114,840	2,729	117,569	155,265	8,144	163,409	Balance at end of period			$	(2,636)	84,894	8,444	93,338

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:	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:								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	Net investment income	24,767		35	24,802	0	0	0	Net investment income			$	(3,805)	—	—	—
Benefits and expenses	Benefits and expenses	0		0	0	24,767	(461)	24,306	Benefits and expenses			—		(32,407)	1,575	(30,832)

Total	Total	$	24,767	35	24,802	24,767	(461)	24,306	Total			$	(3,805)	(32,407)	1,575	(30,832)


		For the Three Months Ended June 30, 2020								For the Three Months Ended March 31, 2021
		Assets			Liabilities					Assets			Liabilities
		Derivatives, Index Options		Total Assets	Policyholder Account Balances	Stock Options	Contingent Consideration	Total Liabilities		Derivatives, Index Options		Total Assets	Policyholder Account Balances	Stock Options	Total Liabilities

		(In thousands)								(In thousands)

Beginning balance, April 1, 2020		$	24,335	24,335	61,625	3,081	4,174	68,880
Beginning balance, January 1, 2021									Beginning balance, January 1, 2021	$	132,821	132,821	161,351	6,202	167,553
Total realized and unrealized gains (losses):	Total realized and unrealized gains (losses):								Total realized and unrealized gains (losses):
Included in net earnings	Included in net earnings	40,243		40,243	23,790	2,444	(4,174)	22,060	Included in net earnings	28,024		28,024	31,266	4,378	35,644
Included in other comprehensive income	Included in other comprehensive income	0		0	—	0	0	0	Included in other comprehensive income	—		—	—	—	—
Purchases, sales, issuances and settlements, net:	Purchases, sales, issuances and settlements, net:								Purchases, sales, issuances and settlements, net:
Purchases	Purchases	16,458		16,458	16,458	0	0	16,458	Purchases	11,210		11,210	11,210	—	11,210
Sales	Sales	0		0	0	0	0	0	Sales	—		—	—	—	—
Issuances	Issuances	0		0	0	0	0	0	Issuances	—		—	—	—	—
Settlements	Settlements	(14,298)		(14,298)	(14,300)	(28)	0	(14,328)	Settlements	(34,925)		(34,925)	(34,925)	(681)	(35,606)
Transfers into (out of) Level 3	Transfers into (out of) Level 3	0		0	0	0	0	0	Transfers into (out of) Level 3	—		—	—	—	—

Balance at end of period	Balance at end of period	$	66,738	66,738	87,573	5,497	0	93,070	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:	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:								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	Net investment income	$	62,328	62,328	0	0	0	0	Net investment income	$	26,594	26,594	—	—	—
Benefits and expenses	Benefits and expenses	0		0	62,328	2,444	(4,174)	60,598	Benefits and expenses	—		—	26,594	4,378	30,972

Total	Total	$	62,328	62,328	62,328	2,444	(4,174)	60,598	Total	$	26,594	26,594	26,594	4,378	30,972



	For the Six Months Ended June 30, 2021
	Assets						Other Liabilities
		Derivatives, Index Options		Mortgage Loans		Total Assets	Policyholder Account Balances	Stock Options	Total Other Liabilities

	(In thousands)

Beginning balance, January 1, 2021		$	132,821	0		132,821	161,351	6,202	167,553
Total realized and unrealized gains (losses):
Included in net earnings		68,190		35		68,225	80,085	3,918	84,003
Included in other comprehensive income		0		0		0	0	0	0
Purchases, sales, issuances and settlements, net:
Purchases		22,183		2,694		24,877	22,183	0	22,183
Sales		0		0		0	0	0	0
Issuances		0		0		0	0	0	0
Settlements		(108,354)		0		(108,354)	(108,354)	(1,976)	(110,330)
Transfers into (out of) Level 3		0		0		0	0	0	0

Balance at end of period		$	114,840	2,729		117,569	155,265	8,144	163,409

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		$	51,361	35		51,396	0	0	0
Benefits and expenses		0		0		0	51,361	3,917	55,278

Total		$	51,361	$	35	51,396	51,361	3,917	55,278



	For the Six Months Ended June 30, 2020
	Assets			Other Liabilities
	Derivatives, Index Options		Total Assets	Policyholder Account Balances	Stock Options	Contingent Consideration	Total Other Liabilities

	(In thousands)

Beginning balance, 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	(66,386)		(66,386)	(43,865)	(3,849)	(4,076)	(51,790)
Included in other comprehensive income	0		0	0	0	0	0
Purchases, sales, issuances and settlements, net:
Purchases	38,861		38,861	38,861	0	0	38,861
Sales	0		0	0	0	0	0
Issuances	0		0	0	0	0	0
Settlements	(63,325)		(63,325)	(63,325)	(1,879)	0	(65,204)
Transfers into (out of) Level 3	0		0	0	0	0	0

Balance at end of period	$	66,738	66,738	87,573	5,497	0	93,070

Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets/liabilities held at the end of the reporting period:
Net investment income	$	(43,670)	(43,670)	0	0	0	0
Benefits and expenses	0		0	(43,670)	(3,849)	(4,076)	(51,595)

Total	$	(43,670)	(43,670)	(43,670)	(3,849)	(4,076)	(51,595)


	June 30, 2021
				Fair Value Hierarchy Level
	Carrying Values		Fair Values	Level 1	Level 2	Level 3

	(In thousands)
ASSETS

Debt securities, available-for-sale	$	9,617,027	9,617,027	0	9,617,027	0
Debt securities, trading	1,066,454		1,066,454	0	1,066,454	0

Cash and cash equivalents	395,833		395,833	395,833	0	0
Mortgage loans	394,112		408,450	0	0	408,450
Real estate	33,495		51,627	0	4,600	47,027
Policy loans	71,640		111,658	0	0	111,658
Other loans	26,818		27,102	0	0	27,102
Derivatives, index options	114,840		114,840	0	0	114,840
Equity securities	21,132		21,132	21,132	0	0

Life interest in Libbie Shearn Moody Trust	9,083		12,775	0	0	12,775
Other investments	4,513		24,852	0	0	24,852

LIABILITIES
Deferred annuity contracts	$	6,551,387	5,192,886	0	0	5,192,886
Immediate annuity and supplemental contracts	421,952		461,871	0	0	461,871


			June 30, 2021		June 30, 2020			March 31, 2022		March 31, 2021
Derivatives Not Designated As Hedging Instruments	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			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)					(In thousands)

Equity index options	Equity index options	Net investment income	$	40,166	40,243	Equity index options	Net investment income	$	(38,198)	28,024

Fixed-index products	Fixed-index products	Universal life and annuity contract interest	(48,819)		(23,790)	Fixed-index products	Universal life and annuity contract interest	2,181		(31,266)
Embedded derivative on reinsurance contract	Embedded derivative on reinsurance contract	Net investment income	1,970		0	Embedded derivative on reinsurance contract	Net investment income	90,905		70,370

			$	(6,683)	16,453			$	54,888	67,128


		Expected Amortization			Expected Amortization
		(In thousands)			(In thousands)
Remainder of 2021		$	365
2022		730
Remainder of 2022				Remainder of 2022	$	547
2023	2023	730		2023	730
2024	2024	730		2024	730
2025	2025	730		2025	730
2026				2026	232
Thereafter	Thereafter	1,552		Thereafter	1,322


		Expected Amortization			Expected Amortization
		(In thousands)			(In thousands)

Remainder of 2021		$	5,114
2022		9,753
Remainder of 2022				Remainder of 2022	$	6,351
2023	2023	9,368		2023	8,117
2024	2024	9,015		2024	7,789
2025	2025	8,804		2025	7,587
2026				2026	7,436


●			the level of sales and premium revenues collected
●			the volume of life insurance and annuity business in force
●			persistency of policies and contracts
●			the 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


		Average New Policy Face Amount				Average New Policy Face Amount
		NWLIC Domestic	Ozark National	NWLIC International		NWLIC Domestic	Ozark National	NWLIC International

Year ended December 31, 2017		148,100	—	299,300
Year ended December 31, 2018	Year ended December 31, 2018	162,600	—	290,900	Year ended December 31, 2018	162,600	—	290,900
Year ended December 31, 2019	Year ended December 31, 2019	179,900	45,200	—	Year ended December 31, 2019	179,900	45,200	—
Year ended December 31, 2020	Year ended December 31, 2020	209,900	46,230	—	Year ended December 31, 2020	209,900	46,230	—
Six Months Ended June 30, 2021		188,700	44,810	—
Year ended December 31, 2021					Year ended December 31, 2021	221,300	47,620	—
Three Months Ended March 31, 2022					Three Months Ended March 31, 2022	218,700	48,310	—


		Insurance In Force as of				Insurance In Force as of
		June 30,		December 31,		March 31,		December 31,
		2021		2020		2022		2021

		($ in thousands)				($ in thousands)

National Western	National Western				National Western

Universal life:	Universal life:				Universal life:
Number of policies	Number of policies	29,920		31,150	Number of policies	28,116		28,640
Face amounts	Face amounts	$	4,151,280	4,354,530	Face amounts	$	3,883,969	3,966,160

Traditional life:	Traditional life:				Traditional life:
Number of policies	Number of policies	25,350		26,260	Number of policies	24,042		24,500
Face amounts	Face amounts	$	2,339,130	2,409,110	Face amounts	$	2,217,956	2,257,490

Fixed-index life:	Fixed-index life:				Fixed-index life:
Number of policies	Number of policies	34,560		35,060	Number of policies	34,046		34,200
Face amounts	Face amounts	$	8,943,040	9,157,010	Face amounts	$	8,655,120	8,772,280

Total life insurance:	Total life insurance:				Total life insurance:
Number of policies	Number of policies	89,830		92,470	Number of policies	86,204		87,340
Face amounts	Face amounts	$	15,433,450	15,920,650	Face amounts	$	14,757,045	14,995,930

Ozark National	Ozark National				Ozark National

Total life insurance (all traditional):	Total life insurance (all traditional):				Total life insurance (all traditional):
Number of policies	Number of policies	176,980		179,000	Number of policies	174,840		175,610
Face amounts	Face amounts	$	5,944,290	6,033,510	Face amounts	$	5,851,892	5,892,500