OHIO | 6311 | 31-4156830 |
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
of registrant's principal executive offices)
One Nationwide Plaza
Large accelerated filer | □ |
Accelerated filer | □ |
Non-accelerated filer (Do not check if a smaller reporting company) | ☑ |
Smaller reporting company | □ |
Emerging growth company | □ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. | □ |
are referred to as Target Term Options)
Certain state insurance laws applicable to these investment options may preclude, or be interpreted to preclude, Nationwide Life Insurance Company ("Nationwide") from providing a contractual guarantee in conjunction with the Specified Interest Rate. In such jurisdictions, the investment options are referred to as "Target Term Options" as opposed to "Guaranteed Term Options."Despite this distinction in terminology, Nationwide will administer all obligations described in this prospectus, regardless of the jurisdiction, in precisely the same manner. Thus, there will be no difference between the calculation, crediting, and administration of Specified Interest Rates in "Guaranteed Term Options" issued in states permitting a contractual guarantee, and the calculation, crediting, and administration of Specified Interest Rates in "Target Term Options" issued in states not permitting a contractual guarantee. |
For information on how to contact Nationwide, seeNationwide Life Insurance Company. |
Guaranteed Term – The period corresponding to a 1, 3, 5, 7 or 10 year GTO. Amounts allocated to a GTO will be credited with a Specified Interest Rate over the corresponding Guaranteed Term, so long as such amounts are not withdrawn from the GTO prior to the Maturity Date. Because every Guaranteed Term will end on the final day of a calendar quarter, the Guaranteed Term may last for up to three months beyond the 1, 3, 5, 7 or 10 year anniversary of the allocation to the GTO. |
Guaranteed Term Option or GTO – An investment option offered under variable contracts that provides a Specified Interest Rate over Guaranteed Terms, so long as certain conditions are met. In some jurisdictions the GTO is referred to as a Target Term Option or TTO. |
Market Value Adjustment – The upward or downward adjustment in value of amounts allocated to a GTO that are withdrawn from the GTO for any reason prior to the Maturity Date. |
Maturity Date – The date on which a GTO matures. The date will be the last day of the calendar quarter during or within 30 days after the first, third, fifth, seventh or tenth anniversary on which amounts are allocated to a 1, 3, 5, 7 or 10 year GTO, respectively. |
Maturity Period – The period during which the value of amounts allocated under a GTO may be withdrawn without any Market Value Adjustment. The Maturity Period will begin on the day following the Maturity Date and will end on the 30th day after the Maturity Date. |
MVA Interest Rate – The rate of interest used in the Market Value Adjustment formula. Depending on the variable contracts under which the GTO is offered, the interest rate will be the Constant Maturity Treasury ("CMT") rates, or interest rate swaps, for maturity durations of 1, 3, 5, 7 and 10 years, as published, on a regular basis, by a commercially reasonable and publicly available source based on treasury bond yields. |
Specified Interest Rate – The interest rate guaranteed to be credited to amounts allocated to a GTO as long as the allocations are not withdrawn prior to the Maturity Date. The Specified Interest Rate will not be less than the minimum required by applicable state law. |
Specified Value – The amount of a GTO allocation, plus interest accrued at the Specified Interest Rate, minus any other amounts withdrawn. The Specified Value is subject to a Market Value Adjustment at all times other than during the Maturity Period. |
(1) | the MVA Interest Rate for the period coinciding with the Guaranteed Term of the GTO at investment; |
(2) | the MVA Interest Rate for the number of years remaining in a Guaranteed Term when the withdrawal from the GTO occurs; and |
(3) | the number of days remaining in the Guaranteed Term of the GTO. |
(1) | surrender the GTO, in part or in whole, without a Market Value Adjustment during the Maturity Period; however, any surrender charges that may be applicable under the variable contract will be assessed; |
(2) | transfer (all or part) of the GTO, without a Market Value Adjustment, to any other permitted investment option under the variable contract, including any permitted underlying mutual fund sub-accounts, or another GTO of the same or different duration during the Maturity Period. A confirmation of any such transfer will be sent immediately after the transfer is processed; or |
(3) | elect not to transfer or surrender all or a portion of the GTO, in which case the GTO will be automatically transferred to the available money market sub-account of the contract at the end of the Maturity Period. A confirmation will be sent immediately after the automatic transfer is executed. |
(1) | the MVA Interest Rate for the period of time coinciding with the Guaranteed Term of the GTO; |
(2) | the MVA Interest Rate for a period coinciding with the time remaining in the Guaranteed Term of a GTO when a withdrawal giving rise to a Market Value Adjustment occurs; and |
(3) | the number of days remaining in the Guaranteed Term of the GTO. |
[ | ] | t | |
1 + a | |||
1 + b + .0025 | |||
a | = | the MVA Interest Rate for a period equal to the Guaranteed Term at the time of deposit in the GTO; |
b | = | the MVA Interest Rate at the time of withdrawal for a period of time equal to the time remaining in the Guaranteed Term. In determining the number of years to maturity, any partial year will be counted as a full year, unless it would cause the number of years to exceed the Guaranteed Term; and |
t | = | the number of days until the Maturity Date, divided by 365.25. |
• | In writing: P.O. Box 182021, Columbus, Ohio 43218-2021 |
• | By telephone: 1-800-848-6331, TDD 1-800-238-3035 |
• | By the internet: http://www.nationwide.com/nw/investor-relations/index.htm |
[ | ] | d | |||
1 + a | 365.25 | ||||
MVA Factor | = | 1 + b + 0.0025 | |||
[ | ] | 985 | |||
1 + 0.08 | 365.25 | ||||
MVA Factor | = | 1 + 0.07 + 0.0025 | |||
MVA Factor | = | 1.01897 | |||
Surrender Value | = | Specified Value | x | MVA Factor | |
Surrender Value | = | $12,067.96 | x | 1.01897 | |
*Surrender Value | = | $12,296.89 |
* | Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not permitted in the denominator, the Surrender Value is $12,374.52. |
a | = | The CMT rate published on Friday, and placed in effect by Nationwide for allocations made to the GTO on the following Wednesday through Tuesday. |
b | = | The CMT rate published on Friday, and placed in effect by Nationwide for withdrawals, transfers or other distributions giving rise to a Market Value Adjustment on the following Wednesday through Tuesday. |
d | = | The number of days remaining in the Guaranteed Term. |
[ | ] | d | |||
1 + a | 365.25 | ||||
MVA Factor | = | 1 + b + 0.0025 | |||
[ | ] | 985 | |||
1 + 0.08 | 365.25 | ||||
MVA Factor | = | 1 + 0.09 + 0.0025 | |||
MVA Factor | = | 0.96944 | |||
Surrender Value | = | Specified Value | x | MVA Factor | |
Surrender Value | = | $12,067.96 | x | 0.96944 | |
*Surrender Value | = | $11,699.17 |
* | Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not permitted in the denominator, the Surrender Value is $11,771.69. |
a | = | The CMT rate published on Friday, and placed in effect by Nationwide for allocations made to the GTO on the following Wednesday through Tuesday. |
b | = | The CMT rate published on Friday, and placed in effect by Nationwide for withdrawals, transfers or other distributions giving rise to a Market Value Adjustment on the following Wednesday through Tuesday. |
d | = | The number of days remaining in the Guaranteed Term. |
[ | ] | d | |||
1 + a | 365.25 | ||||
MVA Factor | = | 1 + b + 0.0025 | |||
[ | ] | 985 | |||
1 + 0.08 | 365.25 | ||||
MVA Factor | = | 1 + 0.07 + 0.0025 | |||
MVA Factor | = | 1.01897 | |||
Surrender Value | = | Specified Value | x | MVA Factor | |
Surrender Value | = | $12,067.96 | x | 1.01897 | |
*Surrender Value | = | $12,296.89 |
* | Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not permitted in the denominator, the Surrender Value is $12,374.52. |
a | = | The interest rate swap published two days before the date the allocation to the GTO was made. If no interest rate swap is available for this date, then the most recent available rate prior to that date will be used. |
b | = | The interest rate swap published two days before the date of withdrawal, transfer or other distribution giving rise to a Market Value Adjustment. If no interest rate swap is available for this date, then the most recent available rate prior to that date will be used. |
d | = | The number of days remaining in the Guaranteed Term. |
[ | ] | d | |||
1 + a | 365.25 | ||||
MVA Factor | = | 1 + b + 0.0025 | |||
[ | ] | 985 | |||
1 + 0.08 | 365.25 | ||||
MVA Factor | = | 1 + 0.09 + 0.0025 | |||
MVA Factor | = | 0.96944 | |||
Surrender Value | = | Specified Value | x | MVA Factor | |
Surrender Value | = | $12,067.96 | x | 0.96944 | |
*Surrender Value | = | $11,699.17 |
* | Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not permitted in the denominator, the Surrender Value is $11,771.69. |
a | = | The interest rate swap published two days before the date the allocation to the GTO was made. If no interest rate swap is available for this date, then the most recent available rate prior to that date will be used. |
b | = | The interest rate swap published two days before the date of the withdrawal, transfer or other distribution giving rise to a Market Value Adjustment. If no interest rate swap is available for this date, then the most recent available rate prior to that date will be used. |
d | = | The number of days remaining in the Guaranteed Term. |
Current Yield | Time Remaining to the End of the Guaranteed Term | Specified Value | Market Value Adjustment | Market Value | ||||
12.00% | 9 Years | $10,850 | -29.35% | $7,665 | ||||
7 Years | $12,776 | -23.68% | $9,751 | |||||
5 Years | $15,040 | -17.56% | $12,399 | |||||
2 Years | $19,215 | -7.43% | $17,786 | |||||
180 Days | $21,733 | -1.88% | $21,323 | |||||
10.00% | 9 Years | $10,850 | -16.94% | $9,012 | ||||
7 Years | $12,776 | -13.44% | $11,059 | |||||
5 Years | $15,040 | -9.80% | $13,566 | |||||
2 Years | $19,215 | -4.04% | $18,438 | |||||
180 Days | $21,733 | -1.01% | $21,513 | |||||
9.00% | 9 Years | $10,850 | -9.84% | $9,782 | ||||
7 Years | $12,776 | -7.74% | $11,787 | |||||
5 Years | $15,040 | -5.59% | $14,199 | |||||
2 Years | $19,215 | -2.28% | $18,777 | |||||
180 Days | $21,733 | -0.57% | $21,610 | |||||
8.00% | 9 Years | $10,850 | -2.06% | $10,627 | ||||
7 Years | $12,776 | -1.61% | $12,571 | |||||
5 Years | $15,040 | -1.15% | $14,867 | |||||
2 Years | $19,215 | -0.46% | $19,126 | |||||
180 Days | $21,733 | -0.11% | $21,708 | |||||
7.00% | 9 Years | $10,850 | 6.47% | $11,552 | ||||
7 Years | $12,776 | 5.00% | $13,414 | |||||
5 Years | $15,040 | 3.55% | $15,573 | |||||
2 Years | $19,215 | 1.40% | $19,484 | |||||
180 Days | $21,733 | 0.34% | $21,808 | |||||
6.00% | 9 Years | $10,850 | 15.84% | $12,569 | ||||
7 Years | $12,776 | 12.11% | $14,324 | |||||
5 Years | $15,040 | 8.51% | $16,321 | |||||
2 Years | $19,215 | 3.32% | $19,853 | |||||
180 Days | $21,733 | 0.81% | $21,909 | |||||
4.00% | 9 Years | $10,850 | 37.45% | $14,914 | ||||
7 Years | $12,776 | 28.07% | $16,362 | |||||
5 Years | $15,040 | 19.33% | $17,948 | |||||
2 Years | $19,215 | 7.32% | $20,623 | |||||
180 Days | $21,733 | 1.76% | $22,115 |
December 31, | ||||||
(in millions) | 2017 | 2016 | 2015 | |||
Total revenues | $4,546 | $4,196 | $3,966 | |||
Pre-tax operating earnings | $1,295 | $1,181 | $1,164 | |||
Account values as of year end | $93,282 | $77,059 | $71,134 | |||
Life insurance policy reserves as of year end | $33,810 | $29,839 | $27,794 | |||
Life insurance in force as of year end | $213,979 | $198,407 | $182,548 |
December 31, | ||||||
(in millions) | 2017 | 2016 | 2015 | |||
Total revenues | $952 | $898 | $863 | |||
Pre-tax operating earnings | $195 | $182 | $199 | |||
Account values as of year end | $34,754 | $31,661 | $30,093 |
December 31, | ||||||
(in millions) | 2017 | 2016 | 2015 | |||
Total revenues | $104 | $62 | $79 | |||
Pre-tax operating loss | $(121) | $(75) | $(57) | |||
FHLB funding agreements | $2,005 | $2,346 | $2,281 |
• | Fixed maturity securities, except those considered trading securities, are primarily classified as available-for-sale and are reported at their fair value. Unrealized gains and losses on these securities are recorded as a separate component of other comprehensive income or loss, net of deferred policy acquisition costs, policyholder related amounts and deferred income taxes. |
• | Trading securities are reported based on mark-to-market accounting and changes in fair value are recognized in net realized investment gains and losses. |
• | Short-term investments include investments with remaining maturities of one year or less at the time of acquisition and are reported at fair value. |
• | Commercial mortgage loans are recorded at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses and allowances. |
• | Policy loans are carried at unpaid principal balances. |
• | Alternative investments are generally reported based on the equity method of accounting. |
• | Title I of the Dodd-Frank Act. Title I of the Dodd-Frank Act established the FSOC, which has authority to designate non-bank financial companies as systemically important financial institutions ("non-bank SIFIs"), thereby subjecting them to enhanced prudential standards and supervision by the Federal Reserve. The prudential standards for non-bank SIFIs include enhanced RBC requirements, leverage limits, liquidity requirements, single counterparty exposure limits, governance requirements for risk management, stress test requirements, special debt-to-equity limits for certain companies, early remediation procedures and recovery and resolution planning. If FSOC were to determine that NMIC is a non-bank SIFI, NMIC would become subject to certain of these enhanced prudential standards, which could adversely affect the Company. The Federal Reserve also indicated that it may apply certain of these enhanced prudential standards to savings and loan holding companies ("SLHCs"), like NMIC and NFS, as the safety and soundness regulator for these institutions. It remains unclear if or the extent to which any of these enhanced prudential standards will be extended to SLHCs. |
❍ | Under Section 171 of the Dodd-Frank Act, the Federal Reserve is also required to establish consolidated RBC and leverage capital requirements for SLHCs. In June 2016, the Federal Reserve issued an advance notice of proposed rulemaking regarding approaches to regulatory capital requirements for institutions supervised by the Federal Reserve that are significantly engaged in insurance activities. The advance notice invited comments on a "building block approach" and a "consolidated approach" for determining capital requirements for Federal Reserve-supervised insurers, including which approach is appropriate for SLHCs. The building block approach would aggregate capital resources and requirements across different legal entities to calculate combined qualifying and required capital for the insurance group. The consolidated approach would categorize insurance liabilities, assets and certain other exposures into risk segments, determine consolidated required capital by applying risk factors to the amounts in each segment, define qualifying capital for the consolidated firm, and then compare consolidated qualifying capital to consolidated required capital. The building block approach and the consolidated approach as described in the advance notice of proposed rulemaking are high-level concepts for capital standards, and will ultimately need to be defined in detail in any final standards. The comment period for the advance notice closed on September 16, 2016, and at this point, it is not possible to predict the impact this may have on NMIC and the Company. |
❍ | As a financial company with total consolidated assets greater than $10 billion, the Dodd-Frank Act requires that NMIC be subject to stress testing requirements developed by the Federal Reserve to determine whether, on a consolidated basis, NMIC has the capital necessary to absorb losses as a result of adverse |
economic conditions. NMIC anticipates being subject to a requirement to conduct company-run annual stress tests based on scenarios developed by the Federal Reserve. The Company cannot predict the manner in which the stress tests will ultimately be designed, conducted, and disclosed with respect to NMIC, or whether the results of such stress tests will cause an alteration to the Company’s business practices or affect the perceptions of regulators, rating agencies, customers, counterparties or investors. |
❍ | FSOC may recommend that state insurance regulators or other regulators apply new or heightened safeguards for activities or practices in which the Company or other financial services companies engage if the FSOC determines those activities or practices could create or increase the risk that significant liquidity, credit or other problems might spread among financial companies. |
• | Title II of the Dodd-Frank Act. Title II of the Dodd-Frank Act provides that a financial company may be subject to a special orderly liquidation process outside the federal bankruptcy code, administered by the Federal Deposit Insurance Corporation as receiver, upon a determination that the company is in default or danger of default and presents a threat to the financial stability of the U.S. The Company cannot predict how its creditors will evaluate this potential or whether it will impact financing or hedging costs. |
• | Title III of the Dodd-Frank Act. Title III of the Dodd-Frank Act transferred to the Federal Reserve the supervisory and regulatory authority of the Office of Thrift Supervision over SLHCs. As registered SLHCs, NMIC and NFS are now subject to the rulemaking authority of the Federal Reserve and the supervision and examination authority of the Federal Reserve under the Home Owners’ Loan Act of 1933 ("HOLA"). The Federal Reserve uses a consolidated supervisory framework to supervise SLHCs with over $50 billion in total consolidated assets. This framework consists of on-site inspections and continuous monitoring activities related to capital and liquidity planning and positions, corporate governance, recovery planning, management of core business lines, and support of banking offices. The Federal Reserve has also extended to SLHCs certain of its Regulation Y reporting obligations, which were previously only required of bank holding companies. |
• | Title V of the Dodd-Frank Act. Title V of the Dodd-Frank Act established the Federal Insurance Office ("FIO") within the U.S. Department of the Treasury ("Treasury"), which has the authority to participate on behalf of the U.S. in the negotiations of international insurance agreements with foreign regulators, as well as to collect information about the insurance industry and recommend prudential standards, and, along with the U.S. Trade Representative ("USTR"), to enter into covered agreements with one or more foreign governments which have the ability to preempt inconsistent state insurance measures. While not having general supervisory or regulatory authority over the business of insurance, the director of the FIO will perform various functions with respect to insurance (other than health insurance), including serving as a non-voting member of FSOC and making recommendations to FSOC regarding insurers to be designated for more stringent regulation. On December 12, 2013, the FIO issued a report to Congress setting forth recommendations for modernization of the system of insurance regulation in the U.S. The report raised the possibility of a greater role for the federal government if states do not achieve greater uniformity in their laws and regulations. On September 22, 2017, the Secretary of the Treasury, the USTR and the European Union ("EU") signed a Covered Agreement designed to (1) obtain treatment of the U.S. insurance regulatory system by the EU as "equivalent" to allow for a level playing field for U.S. insurers and reinsurers operating in the EU; (2) facilitate the exchange of confidential regulatory information between lead supervisors across national borders; and (3) eliminate reinsurance collateral requirements for EU-based foreign reinsurers in all states that meet certain conditions. The terms of the Covered Agreement provide states with 60 months from the effective date of the Covered Agreement to modify their state-based regulatory requirements to comply with the terms of the Covered Agreement. In accordance with the terms of the Covered Agreement, and consistent with the authorities set forth in Dodd-Frank, after 42 months from the effective date of the Covered Agreement, the U.S. is to begin a process of notifying states of potential preemption for any state insurance measure that is inconsistent with the terms of the Covered Agreement. After 60 months from the effective date of the Covered Agreement, the U.S. is to complete any preemption determinations with respect to any U.S. State insurance measures subject to evaluation. The Company cannot predict what impact the Covered Agreement will have on the Company’s business, financial condition or results of operations. |
• | Title VI of the Dodd-Frank Act. Title VI of the Dodd-Frank Act introduced Section 619, which amended the Bank Holding Company Act of 1956 (together with applicable regulations, the "Volcker Rule"). The Volcker Rule, among other things, generally prohibits institutions affiliated with depository institutions from engaging in proprietary trading and acquiring or retaining an ownership interest in and having certain relationships with covered funds, including, but not limited to, hedge funds and private equity funds, subject to certain exceptions. As a result of their status as regulated insurance companies engaging in otherwise permitted activities, NLIC and NLAIC’s investment activities from its general and separate accounts are permissible under the Volcker Rule, but the future value and liquidity of such investments may be impacted by market conditions. |
• | Title VII of the Dodd-Frank Act. |
❍ | Title VII of the Dodd-Frank Act created a new framework for regulation of the over-the-counter derivatives markets, which impacts NLIC and NLAIC’s derivative activities. Under this new regulatory regime, the Commodity Futures Trading Commission ("CFTC") regulates "swaps," the SEC regulates "security-based swaps" and both commissions jointly regulate "mixed swaps" (collectively referred to herein as "swaps"). |
❍ | The Dodd-Frank Act generally requires swaps, subject to a determination by the CFTC or the SEC as to which swaps are covered, entered into by all counterparties except certain non-financial end users to be cleared through a regulated clearinghouse. In addition, certain swaps subject to the mandatory clearing requirement may be required to be executed through regulated exchanges or execution facilities. The CFTC has made a determination that certain categories of swaps, including certain types of interest rate swaps and credit default swaps, are required to be cleared, and it is anticipated that other categories of swaps will become subject to this requirement in the future. The CFTC has also made a determination that a subset of these swaps must be executed on a registered swap execution facility or derivatives contract market; additional categories of swaps may become subject to this requirement in the future |
❍ | Swap dealers and major swap participants ("MSPs") are required to be registered and are subject to significant regulatory requirements, including requirements relating to capital and margin (i.e., collateral), business conduct and reporting. NLIC and NLAIC should not be considered swap dealers or MSPs and therefore will not be directly subject to the requirements applicable to these categories of registered entities; however, many of NLIC and NLAIC’s counterparties are swap dealers and as such will be subject to these requirements. These requirements have increased and may continue to increase our counterparties’ costs, and these increased costs may be passed on to NLIC and NLAIC. |
❍ | The SEC and CFTC have issued regulations defining "swaps" and are required by the Dodd-Frank Act to determine whether "stable value contracts" ("SVCs") fall within the definition of a "swap," and, if so, whether it would be appropriate to exempt SVCs from such definition. To date, neither the SEC nor the CFTC have issued any such determination, and it is impossible to predict if and when each may do so. In addition, various other products offered by NLIC and NLAIC insurance subsidiaries might be treated as swaps, although the Company believes such treatment is unlikely. If these products are regulated as swaps, NLIC and NLAIC cannot predict how the rules would be applied to such products or the effect on their profitability or attractiveness to its clients. |
❍ | Finally, the regulatory structures of the global derivatives and swaps markets continue to evolve. These global regulations may increase the costs of hedging generally. NLIC and NLAIC cannot predict the effect of the foregoing on its hedging costs, its hedging strategy or implementation thereof, or whether it will need or choose to increase and/or change the composition of the risks it does not hedge. The Company continues to monitor the potential hedging costs impact of initial margin requirements NLIC and NLAIC will be required to comply with in 2020. |
• | Title IX of the Dodd-Frank Act. In June 2016, the Federal Reserve, along with other federal regulators, issued a notice of proposed rulemaking regarding incentive-based compensation arrangements for certain covered financial institutions, including SLHCs. The proposed rules implement Section 956 of the Dodd-Frank Act, which requires that the Federal Reserve prohibit incentive-based compensation arrangements that could lead to excessive compensation or material financial loss at covered financial institutions that have $1 billion or more of average total consolidated assets. The comment period for these proposed rules closed on July 22, 2016. At this time, it is not possible to predict the extent of any compliance and other costs associated with this proposed rule. |
• | Title X of the Dodd-Frank Act. The Dodd-Frank Act established the Consumer Financial Protection Bureau ("CFPB") as an independent agency within the Federal Reserve to supervise and regulate institutions that provide certain financial products and services to consumers. Although consumer financial products and services generally exclude the business of insurance, the CFPB does have authority to regulate non-insurance consumer products and services. |
Year ended or as of December 31, | ||||||||||
(in millions) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||
Statements of Operations Data | ||||||||||
Total revenues | $5,613 | $5,039 | $5,080 | $3,729 | $5,117 | |||||
Net income | $1,309 | $778 | $935 | $16 | $1,028 | |||||
Net income attributable to NLIC | $1,405 | $869 | $1,031 | $110 | $1,110 | |||||
Balance Sheets Data | ||||||||||
Total assets | $181,189 | $155,638 | $144,178 | $143,524 | $133,445 | |||||
Long-term debt | $793 | $707 | $707 | $709 | $707 | |||||
Shareholder's equity | $10,733 | $8,878 | $7,750 | $7,396 | $6,824 |
(a) | Fluctuations in the results of operations or financial condition; |
(b) | changes in underwriting and actual experience; |
(c) | difficult economic and business conditions, including financial, capital and credit market conditions as a result of changes in interest rates or prolonged periods of low interest rates, equity prices, volatility, yields and liquidity in the equity and credit markets, as well as geopolitical conditions and the impact of political, regulatory, judicial, economic or financial events, including terrorism, epidemics or pandemics, impacting financial markets generally and companies in the Company’s investment portfolio specifically; |
(d) | the degree to which the Company chooses not to hedge risks, or the potential ineffectiveness or insufficiency of hedging or risk management strategies the Company does implement; |
(e) | changes in certain accounting and/or financial reporting standards issued by the FASB, SEC or other standard-setting bodies; |
(f) | the ability to maintain the availability of systems and facilities in the event of a disaster, natural or man-made catastrophe, blackout, terrorist attack or war; |
(g) | heightened competition that affects the cost of, and demand for, the Company’s products, specifically including the intensification of price competition, the entry of new competitors, consolidation and the development of new products by competitors; |
(h) | adverse state and federal legislation and regulation, including, among other things, tax law changes impacting the federal estate tax and tax treatment of life insurance and investment products; limitations on premium levels; increases in minimum capital and reserves and other financial viability requirements; restrictions on mutual fund service fee payments; changes affecting sales practices, including investigations and/or claims handling and escheat investigations; and regulatory actions of the DOL under ERISA, in particular proposed rule-making with respect to fiduciary obligations, rule-making adopted by regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act; |
(i) | the ability to mitigate the capital impact associated with statutory reserving and capital requirements; |
(j) | failure to maintain or expand distribution channels; |
(k) | possible difficulties in executing, integrating and realizing projected results of acquisitions, divestitures and restructurings; |
(l) | loss of key vendor relationships or failure of a vendor to protect confidential and proprietary information; |
(m) | changes in interest rates and the equity markets causing a reduction in the market value of the Company’s investment portfolio, investment income and/or asset fees; an acceleration of the amortization of DAC and other expenses; a reduction in separate account assets or a reduction in the demand for the Company’s products; increased liabilities related to living benefits and death benefit guarantees; or an impact on ultimate realizability of deferred tax assets; |
(n) | outlook changes and downgrades in the financial strength and claims-paying ability ratings of the Company assigned by NRSROs; |
(o) | deviations from assumptions regarding future persistency, mortality and morbidity rates (including as a result of natural and man-made catastrophes, pandemics, epidemics, malicious acts, terrorist acts and climate change), and interest rates used in calculating reserve amounts and in pricing products; |
(p) | adverse results and/or resolution of litigation, arbitration, regulatory investigation and/or inquiry; |
(q) | the availability, pricing and effectiveness of reinsurance; |
(r) | the effectiveness of policies and procedures for managing risk; |
(s) | interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; |
(t) | adverse consequences, including financial and reputational costs, regulatory problems and potential loss of customers resulting from data or other security breaches, a failure to meet privacy regulations, or the inability to protect the Company’s or customers’ confidential information; |
(u) | the inability to protect intellectual property and defend against claims of infringement; |
(v) | realized losses with respect to impairments of assets in the investment portfolio of the Company; |
(w) | exposure to losses related to guarantee benefits on annuities, including from downturns and volatility in equity markets; |
(x) | statutory reserve requirements associated with terms and universal life insurance policies under Regulation XXX, Guideline AXXX and principles-based reserving requirements; |
(y) | lack of liquidity in certain investments, access to credit facilities, or other inability to access capital; and |
(z) | defaults on commercial mortgages and volatility in their performance. |
December 31, | |||
2017 | 2016 | ||
Independent pricing services | 85% | 86% | |
Pricing matrices | 12% | 10% | |
Broker quotes | 1% | 2% | |
Internal pricing models | 1% | 1% | |
Other sources | 1% | 1% | |
Total | 100% | 100% |
(in millions) | DAC | Other expenses | Total | |||
Segment | ||||||
Individual Products & Solutions | $70 | 13 | 83 | |||
Retirement Plans | (1) | - | (1) | |||
Total | $69 | $13 | $82 |
(in millions) | DAC | Other expenses | Total | |||
Segment | ||||||
Individual Products & Solutions | (21) | 75 | 54 |
(in millions) | DAC | Other expenses | Total | |||
Total | $(21) | $75 | $54 |
(in millions) | DAC | Other expenses | Total | |||
Segment | ||||||
Individual Products & Solutions | $259 | 21 | 280 | |||
Retirement Plans | (1) | - | (1) | |||
Total | $258 | $21 | $279 |
December 31, | ||||||
(in millions) | 2017 | 2016 | Change | |||
Revenues | ||||||
Policy charges: | ||||||
Asset fees | $1,089 | $975 | 12% | |||
Cost of insurance charges | 636 | 598 | 6% | |||
Administrative fees | 777 | 747 | 4% | |||
Surrender fees | 43 | 41 | 5% | |||
Total policy charges | $2,545 | $2,361 | 8% | |||
Premiums | 633 | 642 | (1%) | |||
Net investment income | 2,414 | 2,139 | 13% | |||
Net realized investment gains (losses), including other-than-temporary impairment losses | 12 | (111) | 111% | |||
Other revenues | 9 | 8 | 13% | |||
Total revenues | $5,613 | $5,039 | 11% | |||
Benefits and expenses | ||||||
Interest credited to policyholder account values | $1,844 | $1,406 | 31% | |||
Benefits and claims | 1,283 | 1,298 | (1%) | |||
Amortization of deferred policy acquisition costs | 392 | 433 | (9%) | |||
Other expenses, net of deferrals | 1,193 | 998 | 20% | |||
Total benefits and expenses | $4,712 | $4,135 | 14% | |||
Income before federal income taxes and noncontrolling interests | $901 | $904 | (0%) | |||
Federal income tax benefit (expense) | 408 | (126) | 424% | |||
Net income | $1,309 | $778 | 68% | |||
Loss attributable to noncontrolling interests, net of tax | 96 | 91 | 5% |
December 31, | ||||||
(in millions) | 2017 | 2016 | Change | |||
Net income attributable to NLIC | $1,405 | $869 | 62% |
December 31, | ||||||
(in millions) | 2016 | 2015 | Change | |||
Revenues | ||||||
Policy charges: | ||||||
Asset fees | $975 | $991 | (2%) | |||
Cost of insurance charges | 598 | 556 | 8% | |||
Administrative fees | 747 | 631 | 18% | |||
Surrender fees | 41 | 38 | 8% | |||
Total policy charges | $2,361 | $2,216 | 7% | |||
Premiums | 642 | 786 | (18%) | |||
Net investment income | 2,139 | 1,982 | 8% | |||
Net realized investment (losses) gains, including other-than-temporary impairment losses | (111) | 82 | (235%) | |||
Other revenues | 8 | 14 | (43%) | |||
Total revenues | $5,039 | $5,080 | (1%) | |||
Benefits and expenses | ||||||
Interest credited to policyholder account values | $1,406 | $1,078 | 30% | |||
Benefits and claims | 1,298 | 1,662 | (22%) | |||
Amortization of deferred policy acquisition costs | 433 | 68 | 537% | |||
Other expenses, net of deferrals | 998 | 1,044 | (4%) | |||
Total benefits and expenses | $4,135 | $3,852 | 7% | |||
Income before federal income taxes and noncontrolling interests | $904 | $1,228 | (26%) | |||
Federal income tax expense | (126) | (293) | 57% | |||
Net income | $778 | $935 | (17%) | |||
Loss attributable to noncontrolling interests, net of tax | 91 | 96 | (5%) | |||
Net income attributable to NLIC | $869 | $1,031 | (16%) |
December 31, | ||||||
(in millions) | 2017 | 2016 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Policy charges: | ||||||
Asset fees | $985 | $881 | 12% | |||
Cost of insurance charges | 636 | 598 | 6% | |||
Administrative fees | 764 | 734 | 4% | |||
Surrender fees | 43 | 41 | 5% | |||
Total policy charges | $2,428 | $2,254 | 8% | |||
Premiums | 596 | 605 | (1%) | |||
Net investment income | 1,522 | 1,337 | 14% | |||
Total revenues | $4,546 | $4,196 | 8% | |||
Benefits and expenses | ||||||
Interest credited to policyholder account values | $783 | $684 | 14% | |||
Benefits and claims | 1,395 | 1,245 | 12% | |||
Amortization of deferred policy acquisition costs | 332 | 432 | (23%) | |||
Other expenses, net of deferrals | 741 | 654 | 13% | |||
Total benefits and expenses | $3,251 | $3,015 | 8% | |||
Pre-tax operating earnings | $1,295 | $1,181 | 10% |
December 31, | ||||||
(in millions) | 2016 | 2015 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Policy charges: | ||||||
Asset fees | $881 | $893 | (1%) | |||
Cost of insurance charges | 598 | 556 | 8% | |||
Administrative fees | 734 | 618 | 19% | |||
Surrender fees | 41 | 38 | 8% | |||
Total policy charges | $2,254 | $2,105 | 7% | |||
Premiums | 605 | 751 | (19%) | |||
Net investment income | 1,337 | 1,193 | 12% | |||
Other revenues | - | (83) | (100%) | |||
Total revenues | $4,196 | $3,966 | 6% | |||
Benefits and expenses | ||||||
Interest credited to policyholder account values | $684 | $564 | 21% | |||
Benefits and claims | 1,245 | 1,405 | (11%) | |||
Amortization of deferred policy acquisition costs | 432 | 128 | 238% | |||
Other expenses, net of deferrals | 654 | 705 | (7%) | |||
Total benefits and expenses | $3,015 | $2,802 | 8% | |||
Pre-tax operating earnings | $1,181 | $1,164 | 1% |
December 31, | ||||||
(in millions) | 2017 | 2016 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Policy charges: | ||||||
Asset fees | $104 | $94 | 11% | |||
Administrative fees | 13 | 13 | 0% | |||
Total policy charges | $117 | $107 | 9% | |||
Net investment income | 835 | 791 | 6% | |||
Total revenues | $952 | $898 | 6% | |||
Benefits and expenses | ||||||
Interest credited to policyholder account values | $557 | $531 | 5% | |||
Amortization of deferred policy acquisition costs | 6 | 4 | 50% | |||
Other expenses, net of deferrals | 194 | 181 | 7% | |||
Total benefits and expenses | $757 | $716 | 6% | |||
Pre-tax operating earnings | $195 | $182 | 7% |
December 31, | ||||||
(in millions) | 2016 | 2015 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Policy charges: | ||||||
Asset fees | $94 | $98 | (4%) | |||
Administrative fees | 13 | 13 | 0% | |||
Total policy charges | $107 | $111 | (4%) | |||
Net investment income | 791 | 752 | 5% | |||
Total revenues | $898 | $863 | 4% | |||
Benefits and expenses | ||||||
Interest credited to policyholder account values | $531 | $494 | 7% | |||
Amortization of deferred policy acquisition costs | 4 | 7 | (43%) | |||
Other expenses, net of deferrals | 181 | 163 | 11% | |||
Total benefits and expenses | $716 | $664 | 8% |
December 31, | ||||||
(in millions) | 2016 | 2015 | Change | |||
Pre-tax operating earnings | $182 | $199 | (9%) |
December 31, | ||||||
(in millions) | 2017 | 2016 | Change | |||
Results of Operations | ||||||
Operating revenues | ||||||
Premiums | $37 | $37 | 0% | |||
Net investment income | 58 | 11 | 427% | |||
Other revenues | 9 | 14 | (36%) | |||
Total operating revenues | $104 | $62 | 68% | |||
Benefits and operating expenses | ||||||
Interest credited to policyholder account values | $36 | $30 | 20% | |||
Other expenses, net of deferrals | 189 | 107 | 77% | |||
Total benefits and operating expenses | $225 | $137 | 64% | |||
Pre-tax operating loss | $(121) | $(75) | (61%) | |||
Add: certain non-operating changes in variable annuity liabilities and net realized investment gains (losses)1 | $(318) | $(299) | (6%) | |||
Add: adjustment to amortization of DAC and other related expenses related to non-operating changes in variable annuities and net realized gains and losses | (54) | 6 | (1000%) | |||
Add: net loss attributable to noncontrolling interests | (96) | (91) | (5%) | |||
Loss from continuing operations before federal income tax benefit (expense) | $(589) | $(459) | (28%) |
1 | Excluding operating items (trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to certain product hedges). |
December 31, | ||||||
(in millions) | 2016 | 2015 | Change | |||
Results of Operations | ||||||
Operating revenues | ||||||
Premiums | $37 | $35 | 6% | |||
Net investment income | 11 | 37 | (70%) | |||
Other revenues | 14 | 7 | 100% | |||
Total operating revenues | $62 | $79 | (22%) | |||
Benefits and operating expenses | ||||||
Interest credited to policyholder account values | $30 | $20 | 50% | |||
Other expenses, net of deferrals | 107 | 116 | (8%) | |||
Total benefits and operating expenses | $137 | $136 | 1% | |||
Pre-tax operating loss | $(75) | $(57) | (32%) | |||
Add: certain non-operating changes in variable annuity liabilities and net realized investment losses1 | $(299) | $(56) | (434%) | |||
Add: adjustment to amortization of DAC and other related expenses related to non-operating changes in variable annuities and net realized gains and losses | 6 | 74 | (92%) | |||
Add: net loss attributable to noncontrolling interests | (91) | (96) | 5% | |||
Loss from continuing operations before federal income tax (expense) benefit | $(459) | $(135) | (240%) |
1 | Excluding operating items (trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to certain product hedges). |
December 31, | ||||||
(in millions) | 2017 | 2016 | 2015 | |||
Long-term debt | $793 | $707 | $707 | |||
Shareholder's equity, excluding accumulated other comprehensive income | $9,425 | $8,252 | $7,383 | |||
Accumulated other comprehensive income | 1,308 | 626 | 367 | |||
Total shareholder's equity | $10,733 | $8,878 | $7,750 | |||
Total capital | $11,526 | $9,585 | $8,457 |
Payments due by period | Amount per balance sheet | |||||||||||
(in millions) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||
Debt1: | ||||||||||||
Short-term | $- | $- | $- | $- | $- | $- | ||||||
Long-term | 55 | 140 | 132 | 1,247 | 1,574 | 793 | ||||||
Subtotal | $55 | $140 | $132 | $1,247 | $1,574 | $793 | ||||||
Purchase and lending commitments: | ||||||||||||
Fixed maturity securities | $117 | $- | $- | $- | $117 | $- | ||||||
Mortgage loans | 149 | - | - | - | 149 | - | ||||||
Limited partnerships2 | 787 | - | - | - | 787 | 26 | ||||||
Equity securities | 24 | - | - | - | 24 | - | ||||||
Subtotal | $1,077 | $- | $- | $- | $1,077 | $26 | ||||||
Future policy benefits and claims3,4,5,6 | ||||||||||||
Fixed annuities and fixed option guarantees on variable annuities | $3,865 | $4,528 | $3,204 | $10,789 | $22,386 | $18,610 | ||||||
Life insurance | 1,284 | 2,644 | 2,737 | 40,581 | 47,246 | 15,782 | ||||||
Single premium immediate annuities | 536 | 989 | 830 | 3,858 | 6,213 | 4,139 | ||||||
Group pension deferred fixed annuities | 2,200 | 4,280 | 2,908 | 10,213 | 19,601 | 18,773 | ||||||
Funding agreements and accident & health insurance7 | 975 | 1,236 | 389 | 165 | 2,765 | 2,581 | ||||||
Subtotal | $8,860 | $13,677 | $10,068 | $65,606 | $98,211 | $59,885 |
Payments due by period | Amount per balance sheet | |||||||||||
(in millions) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||
Cash collateral8,9 | ||||||||||||
Cash collateral on securities lending | $313 | $- | $- | $- | $313 | $313 | ||||||
Cash collateral on derivative transactions | 998 | - | - | - | 998 | 998 | ||||||
Subtotal | $1,311 | $- | $- | $- | $1,311 | $1,311 | ||||||
Total | $11,303 | $13,817 | $10,200 | $66,853 | $102,173 | $62,015 |
1 | No contractual provisions exist that could create, increase or accelerate those obligations presented. The amount presented includes contractual principal payments and interest based on rates in effect on December 31, 2017. |
2 | Limited partnerships are primarily related to investments in low-income housing tax credit partnerships. Call dates for the obligations presented are either date- or event- specific. For date-specific obligations, the Company is required to fund a specified amount on a stated date provided there are no defaults under the agreement. For event-specific obligations, the Company is required to fund a specified amount of its capital commitment when properties in a fund become fully stabilized. For event-specific obligations, the call date of these commitments may extend beyond one year but has been reflected in payments due in less than one year due to the call features. The Company’s capital typically is called within one to four years, depending on the timing of events. |
3 | A significant portion of policy contract benefits and claims to be paid do not have stated contractual maturity dates and may not result in any ultimate payment obligation. Amounts reported represent estimated undiscounted cash flows out of the Company’s general account related to death, surrender, annuity and other benefit payments under policy contracts in force at December 31, 2017. Separate account payments are not reflected due to the matched nature of these obligations and because the contract owners bear the investment risk of such deposits. Estimated payment amounts were developed based on the Company’s historical experience and related contractual provisions. Significant assumptions incorporated in the reported amounts include future policy lapse rates (including the impact of customer decisions to make future premium payments to keep the related policies in force); coverage levels remaining unchanged from those provided under contracts in force at December 31, 2017; future interest crediting rates; and estimated timing of payments. Actual amounts will vary, potentially by a significant amount, from the amounts indicated due to deviations between assumptions and actual results and the addition of new business in future periods. |
4 | Contractual provisions exist which could adjust the amount and/or timing of those obligations reported. Key assumptions related to payments due by period include customer lapse and withdrawal rates (including timing of death), exchanges to and from the fixed and separate accounts of the variable annuities, claim experience with respect to guarantees, and future interest crediting levels. Assumptions for future interest crediting levels were made based on processes consistent with the Company’s past practices, which are at the discretion of the Company, subject to guaranteed minimum crediting rates in many cases and/or subject to contractually obligated increases for specified time periods. Many of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of deposits made and are assessed at declining rates during the first seven years after a deposit is made. Amounts disclosed include an estimate of those accelerated payments, net of applicable surrender charges. See Note 2 to the audited consolidated financial statements, included in the F pages of this report for a description of the Company’s method, for establishing life and annuity reserves in accordance with GAAP. |
5 | Certain assumptions have been made about mortality experience and retirement patterns in the amounts reported. Actual deaths and retirements may differ significantly from those projected, which could cause the timing of the obligations reported to vary significantly. In addition, contractual surrender provisions exist on an immaterial portion of these contracts that could accelerate those obligations presented. Amounts disclosed do not include an estimate of those accelerated payments. Most of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of the commuted value of the remaining term certain benefit payments and are assessed at declining rates during the first seven policy years. |
6 | Contractual provisions exist that could increase those obligations presented. The process for determining future interest crediting rates, as described in Note 4 above, was used to develop the estimates of payments due by period. |
7 | Health reserves are immaterial and are reflected in the less than one year column. |
8 | Since the timing of the return is uncertain, these obligations have been reflected in payments due in less than one year. |
9 | The table above excludes certain derivative liabilities. For more information on these instruments seeCharacteristics of Interest Rate Sensitive Financial Instruments. Reserves on guaranteed benefit annuity programs and indexed annuity and insurance products are included in future policy benefits and claims in the table above. |
December 31, 2017 | December 31, 2016 | |||||||
(in millions) | Carrying value | % of total | Carrying value | % of total | ||||
Fixed maturity securities, available-for-sale | $50,201 | 77% | $43,690 | 76% | ||||
Mortgage loans, net of allowance | 10,929 | 17% | 9,760 | 17% | ||||
Policy loans | 1,030 | 2% | 989 | 2% | ||||
Short-term investments | 1,406 | 2% | 1,944 | 3% | ||||
Other investments | 1,493 | 2% | 1,111 | 2% | ||||
Total | $65,059 | 100% | $57,494 | 100% |
(in millions) | Amortized cost | Fair value | % of fair value total | |||
Government agency | $1,936 | $1,991 | 69% | |||
Prime | 208 | 212 | 7% | |||
Alt-A | 400 | 414 | 14% | |||
Sub-prime | 244 | 255 | 10% | |||
Total | $2,788 | $2,872 | 100% |
Alt-A | Sub-prime | |||||||||||
(in millions) | Amortized cost | Fair value | % of fair value total | Amortized cost | Fair value | % of fair value total | ||||||
AAA | $7 | $7 | 2% | $11 | $12 | 5% | ||||||
AA | 183 | 200 | 48% | 208 | 223 | 88% | ||||||
A | 62 | 63 | 15% | 3 | 3 | 1% | ||||||
BBB | 7 | 7 | 2% | 2 | 1 | 1% | ||||||
BB and below | 141 | 137 | 33% | 20 | 16 | 5% | ||||||
Total | $400 | $414 | 100% | $244 | $255 | 100% | ||||||
Pre-2005 | $227 | $230 | 56% | $211 | $216 | 85% | ||||||
2005 | 107 | 116 | 28% | 29 | 36 | 14% | ||||||
2006 | 64 | 66 | 16% | 4 | 3 | 1% | ||||||
2007 | - | - | 0% | - | - | 0% | ||||||
2008-2017 | 2 | 2 | 0% | - | - | 0% | ||||||
Total | $400 | $414 | 100% | $244 | $255 | 100% |
(in millions) | Amortized cost | Fair value | % of fair value total | |||
Government agency | $2,175 | $2,257 | 69% | |||
Prime | 217 | 220 | 7% | |||
Alt-A | 486 | 479 | 15% | |||
Sub-prime | 283 | 292 | 9% | |||
Total | $3,161 | $3,248 | 100% |
Alt-A | Sub-prime | |||||||||||
(in millions) | Amortized cost | Fair value | % of fair value total | Amortized cost | Fair value | % of fair value total | ||||||
AAA | $- | $- | 0% | $21 | $21 | 7% | ||||||
AA | 240 | 246 | 51% | 212 | 223 | 77% | ||||||
A | 53 | 53 | 11% | 34 | 36 | 12% | ||||||
BBB | 46 | 44 | 9% | 5 | 4 | 1% | ||||||
BB and below | 147 | 136 | 29% | 11 | 8 | 3% | ||||||
Total | $486 | $479 | 100% | $283 | $292 | 100% | ||||||
Pre-2005 | $62 | $63 | 13% | $161 | $158 | 54% | ||||||
2005 | 226 | 220 | 46% | 74 | 80 | 27% |
Alt-A | Sub-prime | |||||||||||
(in millions) | Amortized cost | Fair value | % of fair value total | Amortized cost | Fair value | % of fair value total | ||||||
2006 | 121 | 123 | 26% | 43 | 50 | 17% | ||||||
2007 | 75 | 71 | 14% | 4 | 2 | 1% | ||||||
2008-2016 | 2 | 2 | 1% | 1 | 2 | 1% | ||||||
Total | $486 | $479 | 100% | $283 | $292 | 100% |
Amortized cost | Fair value | |||||||||||||||
(in millions) | AAA | AA | A and below | Total | AAA | AA | A and below | Total | ||||||||
December 31, 2017: | ||||||||||||||||
Commercial mortgage-backed securities | $823 | 149 | 182 | $1,154 | $832 | 146 | 183 | $1,161 | ||||||||
Asset-backed securities | 1,354 | 579 | 533 | 2,466 | 1,359 | 579 | 548 | 2,486 | ||||||||
Total | $2,177 | $728 | $715 | $3,620 | $2,191 | $725 | $731 | $3,647 | ||||||||
December 31, 2016: | ||||||||||||||||
Commercial mortgage-backed securities | $733 | $220 | $307 | $1,260 | $748 | $221 | $310 | $1,279 | ||||||||
Asset-backed securities | 1,265 | 412 | 290 | 1,967 | 1,266 | 413 | 278 | 1,957 | ||||||||
Total | $1,998 | $632 | $597 | $3,227 | $2,014 | $634 | $588 | $3,236 |
(in millions) | Office | Industrial | Retail | Apartment | Hotel | Other | Total | |||||||
December 31, 2017 | ||||||||||||||
Mortgage loans: | ||||||||||||||
New England | $86 | $4 | $149 | $100 | $- | $25 | $364 | |||||||
Middle Atlantic | 155 | 102 | 442 | 280 | 65 | 1 | 1,045 | |||||||
East North Central | 512 | 196 | 425 | 729 | 24 | 39 | 1,925 | |||||||
West North Central | 33 | 65 | 129 | 306 | - | - | 533 | |||||||
South Atlantic | 206 | 224 | 812 | 954 | 43 | 111 | 2,350 | |||||||
East South Central | 55 | 86 | 106 | 143 | - | - | 390 | |||||||
West South Central | 54 | 166 | 236 | 638 | - | - | 1,094 | |||||||
Mountain | 151 | 203 | 215 | 291 | 17 | - | 877 | |||||||
Pacific | 500 | 537 | 485 | 763 | 96 | 4 | 2,385 | |||||||
Total amortized cost | $1,752 | $1,583 | $2,999 | $4,204 | $245 | $180 | $10,963 | |||||||
Total valuation allowance | $(6) | $(4) | $(7) | $(14) | $(2) | $(1) | $(34) | |||||||
Total mortgage loans, net of allowance | $10,929 | |||||||||||||
December 31, 2016 | ||||||||||||||
Mortgage loans: | ||||||||||||||
New England | $88 | $1 | $140 | $86 | $- | $26 | $341 | |||||||
Middle Atlantic | 189 | 89 | 459 | 229 | 25 | 2 | 993 | |||||||
East North Central | 461 | 146 | 436 | 702 | 46 | 40 | 1,831 | |||||||
West North Central | 7 | 69 | 125 | 264 | - | - | 465 |
(in millions) | Office | Industrial | Retail | Apartment | Hotel | Other | Total | |||||||
South Atlantic | 102 | 286 | 766 | 668 | 29 | 64 | 1,915 | |||||||
East South Central | 56 | 19 | 97 | 132 | - | - | 304 | |||||||
West South Central | 67 | 159 | 173 | 553 | - | - | 952 | |||||||
Mountain | 135 | 204 | 212 | 315 | 17 | - | 883 | |||||||
Pacific | 468 | 500 | 472 | 565 | 99 | 4 | 2,108 | |||||||
Total amortized cost | $1,573 | $1,473 | $2,880 | $3,514 | $216 | $136 | $9,792 | |||||||
Total valuation allowance | $(7) | $(6) | $(6) | $(10) | $(2) | $(1) | $(32) | |||||||
Total mortgage loans, net of allowance | $9,760 |
(in millions) | Office | Industrial | Hotel | Other high-risk | Total portfolio | % of total | ||||||
December 31, 2017 | ||||||||||||
Total valuation allowance | $6 | $4 | $2 | $2 | $34 | 41% | ||||||
Refinanced loans1 | $233 | $228 | $10 | $- | $1,102 | 43% | ||||||
Modified loans2 | $- | $18 | $- | $- | $19 | 99% | ||||||
December 31, 2016 | ||||||||||||
Total valuation allowance | $7 | $6 | $2 | $1 | $32 | 50% | ||||||
Refinanced loans1 | $249 | $250 | $10 | $- | $1,207 | 42% | ||||||
Modified loans2 | $- | $9 | $4 | $- | $14 | 93% |
1 | Includes all loans refinanced at any time during the term of the loan. |
2 | Includes all loans modified at any time during the term of the loan. |
Office | Industrial | Hotel | Other high-risk | |||||||||||||
(in millions) | Amortized cost | Average LTV | Amortized cost | Average LTV | Amortized cost | Average LTV | Amortized cost | Average LTV | ||||||||
December 31, 2017 | ||||||||||||||||
New England | $86 | 59% | $4 | 35% | $- | - | $- | - | ||||||||
Middle Atlantic | 155 | 54% | 102 | 51% | 65 | 65% | - | - | ||||||||
East North Central | 512 | 59% | 196 | 60% | 24 | 75% | 73 | 91% | ||||||||
West North Central | 33 | 71% | 65 | 58% | - | - | - | - | ||||||||
South Atlantic | 206 | 58% | 224 | 59% | 43 | 62% | 22 | 96% | ||||||||
East South Central | 55 | 64% | 86 | 62% | - | - | - | - | ||||||||
West South Central | 54 | 68% | 166 | 55% | - | - | 11 | 95% | ||||||||
Mountain | 151 | 58% | 203 | 58% | 17 | 40% | - | - | ||||||||
Pacific | 500 | 50% | 537 | 53% | 96 | 47% | - | - | ||||||||
Total | $1,752 | 56% | $1,583 | 56% | $245 | 58% | $106 | 93% | ||||||||
December 31, 2016 | ||||||||||||||||
New England | $88 | 63% | $1 | 65% | $- | - | $- | - | ||||||||
Middle Atlantic | 189 | 56% | 89 | 45% | 25 | 63% | 30 | 92% | ||||||||
East North Central | 461 | 60% | 146 | 56% | 46 | 61% | 11 | 97% | ||||||||
West North Central | 7 | 48% | 69 | 57% | - | - | - | - | ||||||||
South Atlantic | 102 | 49% | 286 | 63% | 29 | 50% | - | - | ||||||||
East South Central | 56 | 62% | 19 | 61% | - | - | - | - | ||||||||
West South Central | 67 | 61% | 159 | 54% | - | - | - | - | ||||||||
Mountain | 135 | 64% | 204 | 57% | 17 | 53% | - | - | ||||||||
Pacific | 468 | 52% | 500 | 55% | 99 | 53% | - | - | ||||||||
Total | $1,573 | 57% | $1,473 | 57% | $216 | 56% | $41 | 93% |
Individual Products & Solutions1 | Retirement Plans2 | |||||||
(in millions) | Account value | Weighted average crediting rate | Account value | Weighted average crediting rate | ||||
December 31, 2017 | ||||||||
Minimum guaranteed crediting rate of 3.51% or greater | $1,023 | 4.13% | $105 | 4.06% | ||||
Minimum guaranteed crediting rate of 3.01% to 3.50% | $418 | 3.55% | $13,923 | 3.32% | ||||
Minimum guaranteed crediting rate of 2.01% to 3.00% | $7,969 | 3.09% | $2,145 | 2.94% | ||||
Minimum guaranteed crediting rate of 0.01% to 2.00% | $3,141 | 1.85% | $1,414 | 2.06% | ||||
No minimum guaranteed crediting rate3 | $782 | 3.43% | $1,169 | 1.99% | ||||
December 31, 2016 | ||||||||
Minimum guaranteed crediting rate of 3.51% or greater | $802 | 4.03% | $162 | 4.22% | ||||
Minimum guaranteed crediting rate of 3.01% to 3.50% | $417 | 3.55% | $12,375 | 3.50% | ||||
Minimum guaranteed crediting rate of 2.01% to 3.00% | $7,870 | 3.13% | $2,089 | 2.77% | ||||
Minimum guaranteed crediting rate of 0.01% to 2.00% | $3,715 | 1.85% | $776 | 2.04% | ||||
No minimum guaranteed crediting rate3 | $802 | 3.42% | $2,025 | 2.84% |
1 | Includes individual fixed annuity products, universal life products and the fixed investment options selected within variable annuity, variable life and indexed products. |
2 | Includes group fixed annuity products. |
3 | Includes certain products with a stated minimum guaranteed crediting rate of 0%. |
Estimated year of maturities/repayments | Fair Value | |||||||||||||||||
(in millions) | 2018 | 2019 | 2020 | 2021 | 2022 | There- after | Total | 2017 | 2016 | |||||||||
Assets | ||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||
Corporate bonds: | ||||||||||||||||||
Principal | $1,294 | $1,941 | $1,747 | $2,387 | $2,504 | $27,770 | $37,643 | $39,441 | $33,865 | |||||||||
Weighted average interest rate | 4.96% | 5.06% | 4.27% | 4.06% | 3.83% | 4.09% | 4.16% | |||||||||||
Mortgage and other asset-backed securities: | ||||||||||||||||||
Principal | $44 | $8 | $87 | $36 | $39 | $6,194 | $6,408 | $6,519 | $6,484 | |||||||||
Weighted average interest rate | 1.46% | 5.45% | 5.00% | 3.43% | 2.70% | 3.58% | 3.56% | |||||||||||
Other fixed maturity securities: | ||||||||||||||||||
Principal | $96 | $129 | $72 | $74 | $110 | $3,310 | $3,791 | $4,241 | $3,341 | |||||||||
Weighted average interest rate | 5.47% | 6.64% | 3.06% | 5.23% | 5.59% | 4.91% | 4.97% | |||||||||||
Mortgage loans: | ||||||||||||||||||
Principal | $173 | $311 | $262 | $491 | $600 | $9,126 | $10,963 | $10,876 | $9,589 | |||||||||
Weighted average interest rate | 4.67% | 5.18% | 4.43% | 4.50% | 4.45% | 4.04% | 4.14% | |||||||||||
Liabilities | ||||||||||||||||||
Individual deferred fixed annuities: | ||||||||||||||||||
Principal | $2,925 | $1,968 | $1,527 | $1,240 | $1,090 | $6,069 | $14,819 | $15,124 | $10,906 | |||||||||
Weighted average crediting rate | 2.56% | 2.50% | 2.53% | 2.53% | 2.48% | 2.50% | ||||||||||||
Group pension deferred fixed annuities: | ||||||||||||||||||
Principal | $2,173 | $2,496 | $1,632 | $1,443 | $1,273 | $9,461 | $18,478 | $16,648 | $15,557 | |||||||||
Weighted average crediting rate | 2.92% | 2.47% | 2.46% | 2.34% | 2.33% | 2.36% | ||||||||||||
Funding agreements: |
Estimated year of maturities/repayments | Fair Value | |||||||||||||||||
(in millions) | 2018 | 2019 | 2020 | 2021 | 2022 | There- after | Total | 2017 | 2016 | |||||||||
Principal | $81 | $555 | $863 | $420 | $45 | $78 | $2,042 | $2,009 | $2,365 | |||||||||
Weighted average crediting rate | 1.66% | 1.79% | 1.89% | 2.21% | 2.70% | 2.95% | ||||||||||||
Immediate annuities: | ||||||||||||||||||
Principal | $218 | $169 | $126 | $91 | $66 | $182 | $852 | $930 | $908 | |||||||||
Weighted average crediting rate | 4.75% | 4.77% | 4.80% | 4.82% | 4.86% | 4.85% | ||||||||||||
Short-term debt: | ||||||||||||||||||
Principal | $- | $- | $- | $- | $- | $- | $- | $- | $300 | |||||||||
Weighted average interest rate | ||||||||||||||||||
Long-term debt: | ||||||||||||||||||
Principal | $- | $19 | $12 | $19 | $4 | $739 | $793 | $1,070 | $927 | |||||||||
Weighted average interest rate | 6.92% | 7.05% | 7.12% | 7.28% | 7.34% | 7.14% |
Estimated year of maturities/repayments | 2017 Fair value | 2016 Fair value | ||||||||||||||||
(in millions, except settlement prices) | 2018 | 2019 | 2020 | 2021 | 2022 | There- after | Total | |||||||||||
Derivative Financial Instruments | ||||||||||||||||||
Interest rate swaps: | ||||||||||||||||||
Pay fixed/receive variable: | ||||||||||||||||||
Notional value | $65 | $- | $80 | $167 | $7 | $1,911 | $2,230 | $(73) | $(37) | |||||||||
Weighted average pay rate | 2.80% | 1.80% | 1.80% | 5.30% | 2.50% | 2.40% | ||||||||||||
Weighted average receive rate1 | 0.40% | 0.30% | 0.80% | 0.30% | 0.80% | 0.80% | ||||||||||||
Pay variable/receive fixed: | ||||||||||||||||||
Notional value | $42 | $52 | $15 | $41 | $13 | $1,616 | $1,779 | $33 | $31 | |||||||||
Weighted average pay rate1 | 0.30% | 0.90% | 1.40% | 0.60% | 0.50% | 0.60% | 0.60% | |||||||||||
Weighted average receive rate | 2.90% | 1.40% | 1.90% | 2.40% | 2.10% | 2.60% | 2.60% | |||||||||||
Pay fixed/receive fixed: | ||||||||||||||||||
Notional value | $- | $- | $- | $67 | $64 | $1,456 | $1,587 | $(41) | $88 | |||||||||
Weighted average pay rate | 4.90% | 1.80% | 2.50% | 2.50% | ||||||||||||||
Weighted average receive rate | 5.40% | 3.60% | 3.90% | 4.00% | ||||||||||||||
Credit default swaps purchased: | ||||||||||||||||||
Notional value | $2 | $- | $- | $- | $- | $- | $2 | $- | $- | |||||||||
Weighted average pay rate | 2.10% | 2.10% | ||||||||||||||||
Embedded derivatives2: | $- | $- | $- | $- | $- | $- | $- | $(996) | $(348) | |||||||||
Option contracts | ||||||||||||||||||
Long positions: | ||||||||||||||||||
Contract amount/notional value | $3,755 | $2,848 | $4,414 | $3,871 | $- | $201 | $15,089 | $1,070 | $633 | |||||||||
Weighted average settlement price | $1,025 | $272 | $346 | $1 | $- | $1 | $1,645 | |||||||||||
Future contracts: | ||||||||||||||||||
Treasury futures | ||||||||||||||||||
Longs: | ||||||||||||||||||
Contract amount/notional value | $526 | $- | $- | $- | $- | $- | $526 | $- | $- | |||||||||
Weighted average transaction price | $112 | $- | $- | $- | $- | $- | $112 | |||||||||||
Shorts: | ||||||||||||||||||
Contract amount/notional value | $127 | $- | $- | $- | $- | $- | $127 | $- | $- | |||||||||
Weighted average transaction price | $128 | $- | $- | $- | $- | $- | $128 | |||||||||||
Equity futures | ||||||||||||||||||
Longs: | ||||||||||||||||||
Contract amount/notional value | $600 | $- | $- | $- | $- | $- | $600 | $- | $- | |||||||||
Weighted average transaction price | $2,460 | $- | $- | $- | $- | $- | $2,460 | |||||||||||
Shorts: | ||||||||||||||||||
Contract amount/notional value | $2,129 | $- | $- | $- | $- | $- | $2,129 | $- | $- | |||||||||
Weighted average transaction price | $2,303 | $- | $- | $- | $- | $- | $2,303 |
1 | Variable rates are generally based on 1, 3, or 6-month U.S. LIBOR and reflect the effective rate as of December 31, 2017. |
2 | Amounts include indexed interest credit options that have maturities ranging from one to three years. |
Name | Age | Date Service Began | ||
John L. Carter | 54 | February 2013 | ||
Timothy G. Frommeyer | 53 | January 2009 | ||
Eric S. Henderson | 55 | March 2012 | ||
Stephen S. Rasmussen | 65 | January 2009 | ||
Mark R. Thresher | 61 | January 2009 | ||
Kirt A. Walker | 54 | December 2009 |
Name | Age | Position with NLIC | ||
Stephen S. Rasmussen | 65 | NMIC Chief Executive Officer1 | ||
Kirt A. Walker | 54 | President and Chief Operating Officer | ||
Michael C. Keller | 58 | Executive Vice President-Chief Information Officer | ||
Gale V. King | 61 | Executive Vice President-Chief Administrative Officer | ||
Mark R. Thresher | 61 | Executive Vice President | ||
Tina Ambrozy | 47 | Senior Vice President-NF Sales and Distribution | ||
Ann S. Bair | 55 | Senior Vice President-Chief Digital Officer | ||
Pamela A. Biesecker | 56 | Senior Vice President-Head of Taxation | ||
Michael A. Boyd | 55 | Senior Vice President-Enterprise Brand Marketing | ||
John L. Carter | 54 | Senior Vice President-Nationwide Retirement Plans | ||
Rae Ann Dankovic | 50 | Senior Vice President-Nationwide Financial Services Legal | ||
Timothy G. Frommeyer | 53 | Senior Vice President-Chief Financial Officer | ||
Peter A. Golato | 64 | Senior Vice President-Nationwide Financial Network | ||
Harry H. Hallowell | 57 | Senior Vice President-Chief Investment Officer | ||
Eric S. Henderson | 55 | Senior Vice President-Individual Products & Solutions | ||
Tiffanie Hiibner | 47 | Senior Vice President-NF Sales and Distribution | ||
David LaPaul | 52 | Senior Vice President and Treasurer | ||
Jennifer B. MacKenzie | 48 | Senior Vice President, Marketing Nationwide Financial | ||
Steven C. Power | 60 | Senior Vice President-Nationwide Financial Services Financial Solution & Support Services | ||
Rondal L. Ransom | 46 | Senior Vice President-Integrated Relationship Strategies | ||
Sandra L. Rich | 57 | Senior Vice President | ||
Michael A. Richardson | 49 | Senior Vice President-Chief Information Officer Nationwide Financial Systems | ||
Michael S. Spangler | 51 | Senior Vice President-Investment Management Group | ||
Joseph D. Sprague | 57 | Senior Vice President-Nationwide Financial Network |
• | our financial planning process leads to financial and individual objectives; |
• | we translate financial and individual objectives into incentive opportunities; |
• | we consider individual performance and use other non-financial factors to create flexibility in our compensation programs; and |
• | we think about both the level and form of these rewards, which we believe helps us to attract and retain the executive talent that is necessary to create and maintain stakeholder value. |
• | establishment of an overall compensation philosophy; |
• | oversight and review of human resources programs for directors, executive officers and associates; |
• | responsibility for approval of salaries, incentive compensation plans and awards under such plans for certain executive officers, including those named in the "Summary Compensation Table," whom we refer to as the "named executive officers;" and |
• | oversight of people and culture risk position and risk management practices, including risk policy, strategy, tolerance and control. Key areas of risk oversight focus include key person risk and succession planning, employment practices, workplace safety, organizational culture and compensation design. |
• | align the interests of executives with those of stakeholders; |
• | maintain a strong link between pay and performance; |
• | ensure an appropriate percentage of executive compensation is contingent upon both our performance and each executive officer's individual performance; and |
• | attract, retain and motivate top-caliber executive officers with compensation that is competitive in level and form. |
Compensation element | Description | Purpose | ||
Base Salary | Cash compensation that is a fixed component of total compensation. | • attract and retain top-caliber executive talent • recognize executive officers’ skills, competencies, experience and job responsibilities | ||
Short-term Incentive | Cash payments awarded after the completion of a one-year performance period. | • reward executives for achieving objective annual performance goals • recognize performance on individual objectives, as well as performance relative to the performance of other executive officers | ||
Long-term Incentive | Cash awards based on performance over multiple years and subject to forfeiture. | • reward executives for sustained long-term performance • retain and motivate executives to ensure business stability and success • recognize the achievement of performance objectives that drive long-term success and financial stability and create value for our customers • create a link between NFS and NMIC, our ultimate parent company, to better facilitate a shared business model | ||
Executive Benefits and Perquisites | Includes pension plans, deferred compensation plans and personal perquisites. | • attract and retain top-caliber executive talent • provide income after retirement and enable saving of income for retirement |
• | companies in three comparator groups that the NMIC human resources committee identified in order to provide a holistic view of the competitive market, consisting of: |
❍ | twenty-one companies in the insurance and broader financial services industry ("Industry Comparator Group"); and |
❍ | a general industry comparator group consisting of forty-four public companies above and below NMIC's Fortune 500 ranking based on NMIC’s statutory revenue. |
• | companies that participate in commercially available financial services industry and general industry compensation surveys. |
• | American International Group, Inc. |
• | The Hartford Financial Services Group, Inc. |
• | The Allstate Corporation |
• | Chubb Limited |
• | The Travelers Companies, Inc. |
• | Progressive Corp. |
• | MetLife, Inc. |
• | Prudential Financial, Inc. |
• | Manulife Financial Corporation |
• | Aflac Incorporated |
• | Lincoln National Corporation |
• | Principal Financial Group Inc. |
• | Voya Financial, Inc. |
• | Unum Group |
• | Wells Fargo & Company |
• | American Express Company |
• | Capital One Financial Corporation |
• | U.S. Bancorp |
• | The PNC Financial Services Group, Inc. |
• | Anthem, Inc. |
• | Aetna Inc. |
• | Diversified Insurance Study of Executive Compensation, Towers Watson, 2016 |
• | US Property & Casualty Insurance Compensation Survey (PCICS) Report, Mercer HR Consulting, 2016 |
• | Global Financial Services Studies Executive Database, Towers Watson, 2016 |
• | TrueView Direct, Insurance/Financial Services, Equilar, 2016 |
• | General Industry compensation surveys from Towers Watson, Mercer, and Equilar, 2016 |
• | anticipate talent demands and identify implications; |
• | identify critical roles; |
• | conduct talent assessments; and |
• | identify successors for critical roles. |
Name | Targeted market positioning | Current positioning of incumbent executive | Rationale | |||
Kirt A. Walker, President and Chief Operating Officer | Market median | Between the 25th percentile and median | Market matches for this role were revised in 2015 and competitive positioning is continuing to approach market competitive levels over time. |
Name | Targeted market positioning | Current positioning of incumbent executive | Rationale | |||
Timothy G. Frommeyer, Senior Vice President—Chief Financial Officer | Up to the 75th percentile | Between the median and 75th percentile | The complexity of Mr. Frommeyer's role as our Chief Financial Officer and board member and his responsibilities to the NMIC board of directors and many internal and external stakeholders led NMIC to apply benchmark plus principles and target his compensation at up to the 75th percentile, consistent with NMIC's talent management guidelines. | |||
Stephen S. Rasmussen, NMIC Chief Executive Officer | Market median | Near median | This is a competitive level of compensation relative to the market data. | |||
John L. Carter, Senior Vice President—Nationwide Retirement Plans | Up to the 75th percentile | Near the 75th percentile | This is a competitive level of compensation relative to the market data based on the size of our retirement plans business in the industry compared to our peers in the market surveys. Nationwide Retirement Plans is one of the largest retirement plans providers. | |||
Eric S. Henderson, Senior Vice President—Individual Products and Solutions | Market Median | Near the median | This is a competitive level of compensation relative to the market data. |
• | the degree to which the market data consists of sources of executive talent for NMIC; |
• | the comparability of Mr. Walker's job responsibilities to benchmark job responsibilities; |
• | Mr. Walker's experience, tenure and performance; and |
• | the responsibilities of Mr. Walker's position, internal equity and strategic importance to NMIC. |
• | their current compensation levels and relative market competitive pay levels; |
• | the identification of Messrs. Carter and Frommeyer as occupying benchmark plus roles as well as summaries of their accomplishments and Mr. Henderson's accomplishments in 2016; |
• | recommendations from Mr. Walker, for Messrs. Carter and Henderson, and from NMIC's Chief Financial Officer for Mr. Frommeyer, in considering 2017 base salary adjustments and incentive target levels; and |
• | approval of Mr. Carter's sales incentive plan for 2017. |
• | recruiting needs based on compensation received by a candidate in previous positions; |
• | year-to-year variation in the market data, indicating the market data may be volatile; |
• | differences between the specific responsibilities of our executives’ positions and the positions represented in the market data; and |
• | a desire to change the alignment of our incentives between short-term and long-term goals for particular positions. |
Name | Base salary (percentage of target total compensation)1 | Target short-term incentive as a percent of base salary (percentage of target total compensation) | Target long-term incentive (percentage of target total direct compensation) | Target total direct compensation2 | Percentage of target total direct compensation attributed to target incentives | |||||
Kirt A. Walker | $389,291 | 120% | $711,563 | $1,510,714 | 77% | |||||
(23%) | (28%) | (49%) | ||||||||
Timothy G. Frommeyer | $248,834 | 80% | $98,347 | $403,567 | 69% | |||||
(31%) | (25%) | (44%) | ||||||||
Stephen S. Rasmussen | $163,917 | 200% | $1,278,514 | $1,803,037 | 90% | |||||
(10%) | (20%) | (70%) | ||||||||
John L. Carter | $181,509 | 150% | $311,993 | $940,544 | 72% | |||||
(28%) | (42%) | (30%) | ||||||||
Eric S. Henderson | $342,950 | 75% | $280,794 | $804,371 | 66% |
Name | Base salary (percentage of target total compensation)1 | Target short-term incentive as a percent of base salary (percentage of target total compensation) | Target long-term incentive (percentage of target total direct compensation) | Target total direct compensation2 | Percentage of target total direct compensation attributed to target incentives | |||||
(34%) | (26%) | (40%) |
1 | Dollar amounts shown represent the amounts allocated to us under the cost-sharing agreement. Percentages are calculated based on the total compensation elements, including unallocated amounts that are not shown in the table. |
2 | Target total direct compensation equals base salary plus target short-term incentives plus target long-term incentives |
• | Consistent with market practices, a relatively small percentage of the target total direct compensation is provided as base salary, as the NMIC human resources committee believes compensation should be delivered to our named executive officers based on performance. |
• | A substantial percentage of the target total direct compensation is comprised of variable incentives, delivered through a mix of short-term incentive programs, which are more focused on short-term financial results, and long-term incentive programs, which are focused on achievements over multiple years and most closely align with building sustained value for our stakeholders. The NMIC Chief Executive Officer's pay mix is more heavily weighted toward long-term incentives, consistent with his role. |
Name | Base salary change %1 | Target total annual cash change % | Target long-term incentive change % | Target total direct compensation change % | Rationale | |||||
Kirt A. Walker | 4.0% | 20.4% | 44.4% | 31.0% | Mr. Walker's performance was strong compared to his 2016 pre-established objectives. Adjustments to base salary and short-term and long-term incentive targets were intended to position his target total direct compensation near to the median of the market data for his position. | |||||
Timothy G. Frommeyer | 4.9% | 7.9% | 20.0% | 12.9% | Mr. Frommeyer's performance was exceptional compared to his 2016 pre-established objectives with respect to his leadership in organizing his team around a key acquisition, an operating plan in a dynamic environment, and managing significant product and underwriting challenges. His leadership contributes to his team maintaining top engagement, and he focuses on talent management and people development in addition to maintaining sharp focus on keeping NFS on track from all financial and risk management aspects. Mr. Frommeyer is viewed as critical talent and a successor candidate for senior positions. | |||||
Stephen S. Rasmussen | 0.0% | 0.0% | 15.6% | 10.4% | Mr. Rasmussen's pay increase was a market adjustment to intended positioning near the median of the market data. The increase was delivered through increase to his long-term incentive targets, enhancing the pay for performance relationship. |
Name | Base salary change %1 | Target total annual cash change % | Target long-term incentive change % | Target total direct compensation change % | Rationale | |||||
John L. Carter | 6.0% | 20.5% | 14.0% | 18.4% | Mr. Carter's performance was exceptional compared to his 2016 pre-established objectives with respect to acquisition of several new plans and significant increases to participants to Nationwide, achievement of his sales goals via extensive collaboration with his peers, achievement of many prestigious awards, and offering many Department of Labor programs and industry articles. | |||||
Eric S. Henderson | 4.8% | 4.8% | 14.0% | 8.3% | Mr. Henderson's performance was strong compared to his 2016 pre-established objectives with respect to achievement of sales goals, underwriting initiatives, and significant increases to associate engagement. Base salary, short-term, and long-term incentive target adjustments were also intended to move Mr. Henderson’s target total direct compensation closer to the market median target total direct compensation. |
1 | Percentages are calculated based on the total compensation elements, including amounts that are not allocated to us. |
• | what we intend to accomplish with our compensation programs; |
• | how we determine the amount for each element of compensation; and |
• | the impact of performance on compensation. |
• | salaries for comparable positions in the marketplace, taking scope of responsibility into account; |
• | NMIC and NFS's recent financial performance, both overall and with respect to key financial indicators; |
• | the annual performance evaluation of each executive officer compared to previously established objectives; |
• | internal pay equity; and |
• | management recommendations. |
• | Allocation of base salaries for Messrs. Walker, Frommeyer and Rasmussen reflect a blend of factors used to allocate ongoing NFS operating expenses, using forecasted revenue and headcount projections as applicable. The revenue and headcount ratios are applied against specific operating expenses for allocation to legal entity, statutory and managed products and expense group. |
• | Base salary allocation for Mr. Carter reflects factors that were developed using new policy counts and premium from various NFS business segments including Nationwide Individual Products and Solutions, Nationwide Retirement Plans, and Nationwide Investment Management Group. |
• | Base salary for Mr. Henderson was allocated using policy in-force counts from the Nationwide Financial Individual Products and Solutions business segment. |
• | emphasizes a one-company culture while recognizing the need to maintain some business unit focus; |
• | focuses on the Nationwide customer experience; and |
• | aligns incentive plans between associates and management. |
• | changes in industry and competitive conditions that occur after target setting; |
• | execution and achievement of key performance indicators that have a longer-term financial impact; and |
• | performance on key performance indicators, such as customer experience, associate engagement and agency ratings, that may not be reflected in the financial results. |
• | Gains and losses from the acquisition or divestiture of businesses and/or operations and related deferred costs; |
• | Non-recurring, unanticipated tax adjustments; and |
• | Errors and/or omissions during target calculations. |
• | We define Consolidated Net Operating Income, or "CNOI," as a non-GAAP financial measure which highlights NMIC's results from continuing operations. CNOI excludes the impact of realized gains and losses on sales of investments and hedging instruments, certain hedged items, other than temporary impairments, discontinued operations and extraordinary items, net of tax. |
• | We define the Enterprise expense metric as a blend of the Property and Casualty, or "P&C," business adjusted statutory expense ratio, comprised of the loss adjustment expense ratio plus the underwriting expense ratio net of incentives and contingent suits, with the NFS adjusted general operating expenses, comprised of general operating expenses net of incentives and contingent suits. |
• | We determine direct written premium, or "DWP," growth by measuring the increase or decrease in the current performance year-ending business unit direct written premium over the prior performance year-ending business unit direct written premium as a percentage. |
• | We define the non-weather loss ratio as net calendar year incurred losses from non-weather peril, excluding contingent suits, divided by earned insurance premiums in the current year. |
• | We calculate NFS Return on Capital by dividing NFS net operating income for the year, excluding interest income on excess capital and adding back debt expense, by the total NFS GAAP equity plus long-term debt at the beginning of the year, excluding excess capital. |
• | We define NFS Sales as new and renewal production premiums and deposits, previously referred to as "sales," that are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP, including sales as it relates to non-insurance companies. Management believes that the presentation of new and renewal production premiums and deposits enhances the understanding of the Company's business and helps depict longer-term trends that may not be apparent in the results of operations due to differences between the timing of sales and revenue recognition. Life insurance premiums determined on a GAAP basis are significantly different than statutory premiums and deposits. On a GAAP basis, premiums for traditional life insurance products are generally recognized as revenue when due. For certain annuities with life contingencies, any excess of gross premium over the net premium is deferred and recognized with the amount of expected future benefits. In addition, many life insurance and annuity products involve an initial deposit or a series of deposits from customers. These deposits are accounted for as such on a GAAP basis and therefore are not reflected in the GAAP income statement. On a statutory basis, life insurance premiums are recognized as revenue over the premium paying period of the related policies. Annuity considerations are recognized as revenue when received. Health insurance premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. |
As calculated and analyzed by management, statutory premiums and deposits on individual and group annuities and life insurance products calculated in accordance with accounting practices prescribed or permitted by regulatory authorities and deposits on administration-only group retirement plans and the advisory services program are adjusted as described below to arrive at new and renewal production premiums and deposits. | |
We report new and renewal production premiums and deposits as net of internal replacements, which we believe provides a more meaningful disclosure of production in a given period. In addition, our definition of new and renewal production premiums and deposits excludes asset transfers associated with large case BOLI and large |
• | the competitive environment of each market segment; |
• | the outlook for sales growth in each market segment; |
• | the level of maturity of each market segment; |
• | historical rates of sales growth; and |
• | our expectation as to the difficulty of achieving the planned rates of sales growth in each market segment. |
Weights (%) | ||||||||||
Metric ($ in millions) | Messrs. Walker and Henderson | Mr. Frommeyer | Mr. Rasmussen | 2017 established business goals | 2017 incentive performance results2 | |||||
Enterprise Consolidated Net Operating Income1 | 45.00 | 45.00 | 39.38 | $1,474.5 | $601.2 | |||||
Nationwide Experience Program (NEP) Customer Enthusiasm Monitor | 3.33 | 3.33 | 2.92 | 8.34 | 8.33 | |||||
NEP Retained Ratio-Assets Under Management | 3.33 | 3.33 | 2.92 | 91.20% | 91.34% | |||||
NEP Net Relationships with Retained Households | 3.33 | 3.33 | 2.92 | 1.997 | 1.978 | |||||
Enterprise Expense Metric (P&C adjusted statutory expense ratio) | 10.50 | 10.50 | 9.19 | 40.06% | 39.43% | |||||
Enterprise Expense Metric (NFS adjusted general operating expenses) | 4.50 | 4.50 | 3.94 | $1,115.7 | $1,099.6 | |||||
P&C DWP Growth | - | 7.50 | 6.56 | 0.71% | -0.05% | |||||
P&C Non-weather Loss Ratio | - | 7.50 | 6.56 | 53.35% | 53.27% | |||||
NFS Return on Capital | 20.00 | 10.00 | 8.75 | 12.10% | 13.42% | |||||
NFS Sales | 10.00 | 5.00 | 4.38 | $23,832.1 | $27,349.0 | |||||
Strategic Nonfinancial Objectives | 12.50 | Discussed below in "Determination of the Final Short-term Incentive Payments" | 162.5% of target amount |
1 | For 2017, performance on CNOI of $350.0 must be achieved in order for payment to be earned on the enterprise expense, NEP and business unit metrics. |
2 | These amounts are unaudited. |
Performance Criteria ($ in millions) | Weights (%) | 2017 established goals | 2017 incentive performance results2 | |||
Retirement Plans Group (SIP): | ||||||
Private Sector 1st year | 12.00 | $1,515.0 | $1,841.1 | |||
Private Sector Recurring | 8.00 | $4,035.0 | $4,030.3 | |||
Public Sector 1st year | 10.00 | $1,982.6 | $1,817.0 | |||
Public Sector Recurring | 10.00 | $4,273.6 | $4,501.3 | |||
NFS and Enterprise Metrics (PIP) | ||||||
Enterprise Consolidated Net Operating Income1 | 27.00 | $1,474.5 | $601.2 | |||
Nationwide Experience Program (NEP) Customer Enthusiasm Monitor | 2.00 | 8.34 | 8.33 | |||
NEP Retained Ratio-Assets Under Management | 2.00 | 91.20% | 91.34% | |||
NEP Net Relationships with Retained Households | 2.00 | 1.997 | 1.978 | |||
Enterprise Expense Metric (P&C statutory expense ratio) | 6.30 | 40.06% | 39.43% | |||
Enterprise Expense Metric (NFS adjusted general operating expenses) | 2.70 | $1,115.7 | $1,099.6 | |||
NFS Return on Capital | 12.00 | 12.10% | 13.42% | |||
NFS Sales Growth | 6.00 | $23,832.1 | $27,349.0 |
1 | For 2017, performance on CNOI of $350.0 must be achieved in order for payment to be earned on the enterprise expense, NEP, NFS return on capital, and NFS sales metrics. |
2 | These amounts are unaudited. |
• | delivering results through highly engaged associates, with regard to creating an engaging work experience by improving leadership effectiveness, ensuring a diverse pipeline for senior leadership talent, ensuring qualified successors are identified for key management roles and effectively leading the organization through NMIC’s brand integration initiative; |
• | enabling execution of Nationwide's strategy with accountability, with regard to balancing growth, capital, and brand initiatives, executing a transformational agenda, activating the One Nationwide initiative, and competitor analysis initiatives; and |
• | building an accountable and transparent organization, with regard to continuing board engagement with senior line and functional leaders, adhering to and reinforcing Nationwide's code of conduct, maintaining effective relationships with sponsor and community organizations, and maintaining quality communications with associates and key stakeholders. |
Name | Comparison of short-term incentive payment to target before discretion | Comparison of short-term incentive payment to target after discretion | Summary of rationale | |||
Kirt A. Walker | 79% of target | 100% of target | Performance compared to the PIP objectives and discretion | |||
Timothy G. Frommeyer | 70% of target | 80% of target | Performance compared to the PIP objectives and discretion | |||
Stephen S. Rasmussen | 82% of target | n/a | Performance compared to the PIP objectives | |||
John L. Carter | 79% of target | 100% of target | Performance compared to the PIP objectives and discretion | |||
150% of target | n/a | Performance compared to the SIP objectives | ||||
Eric S. Henderson | 79% of target | 100% of target | Performance compared to the PIP objectives and discretion |
• | reward sustained long-term value creation with appropriate consideration of risk capacity, tolerance and limits; |
• | deliver market-competitive target compensation consistent with organizational performance; and |
• | retain and motivate executives to ensure business stability and success. |
• | NFS Sales and P&C Direct Written Premium growth; and |
• | Capital strength, which is determined by combining our internal economic capital calculation (50%) and Standard & Poor's capital calculation (50%). |
Metric | Weight | 2017 established business goals | 2017 incentive performance results | |||
NFS Sales/DWP Growth | 50% | 1.19% | 9.14% | |||
Internal Economic Capital | 25% | AA+ | AA+ | |||
S&P Capital | 25% | AA+ | AA+ |
Activate One Nationwide Initiative | Focus on Advantaged Growth | Strengthen Our Foundation | ||
Advance a recommended portfolio to drive "One Nationwide" capabilities | Launch new products and implement large retirement plan cases | Meet Department of Labor driven business process changes for all channels | ||
Launch and expand fee-based distribution and product strategies | Deliver releases per roadmap | |||
Deliver and enhance commercial lines capabilities | Deliver foundational capabilities for the retirement plan business line | |||
Deliver Financial Services New Product Innovation | Implement transformational initiatives | |||
Achieve expense reduction committments |
• | The amount of any incentive award under the PIP, SIP or LTPP to the extent the restatement impacts the amount awarded; |
• | The total amount of awards granted to the extent the restatement impacts the amounts that would have been granted, with such awards valued in good faith in the discretion of the NMIC board of directors, and; |
• | Any other amount determined by the NMIC board of directors, in its sole discretion, to have been improperly awarded. |
Name and principal position (a) | Year (b) | Salary (c) | Bonus (d) | Non-equity incentive plan compensation (g) | Change in pension value and non- qualified deferred compensation earnings3 (h) | All other compensation (i) | Total (j) | |||||||
Kirt A. Walker, President & Chief Operating Officer | 2017 | $385,260 | $86,0701 | $982,2592 | $533,264 | $23,8024 | $2,010,655 | |||||||
2016 | $378,254 | $– | $832,905 | $363,749 | $28,563 | $1,603,471 | ||||||||
2015 | $424,423 | $43,913 | $781,640 | $276,588 | $24,281 | $1,550,845 | ||||||||
Timothy G. Frommeyer, Senior Vice President– Chief Financial Officer | 2017 | $245,718 | $5,6391 | $157,4872 | $390,898 | $11,8245 | $811,566 | |||||||
2016 | $238,370 | $– | $123,060 | $274,682 | $13,353 | $649,465 | ||||||||
2015 | $232,042 | $6,201 | $121,797 | $105,284 | $12,216 | $477,540 |
Name and principal position (a) | Year (b) | Salary (c) | Bonus (d) | Non-equity incentive plan compensation (g) | Change in pension value and non- qualified deferred compensation earnings3 (h) | All other compensation (i) | Total (j) | |||||||
Stephen S. Rasmussen, NMIC Chief Executive Officer | 2017 | $163,916 | $– | $1,776,7042 | $343,685 | $28,5006 | $2,312,805 | |||||||
2016 | $169,081 | $– | $1,586,510 | $311,728 | $25,019 | $2,092,338 | ||||||||
2015 | $173,217 | $– | $1,588,052 | $293,742 | $27,069 | $2,082,080 | ||||||||
John L. Carter, Senior Vice President- Nationwide Retirement Plans | 2017 | $178,743 | $54,8291 | $824,4992 | $189,396 | $12,6707 | $1,260,137 | |||||||
2016 | $171,436 | $13,270 | $661,562 | $144,934 | $16,395 | $1,007,597 | ||||||||
2015 | $165,771 | $39,988 | $640,793 | $59,534 | $8,502 | $914,588 | ||||||||
Eric S. Henderson, Senior Vice President–Individual Products and Solutions | 2017 | $338,753 | $37,9311 | $454,2692 | $597,144 | $20,2098 | $1,448,306 | |||||||
2016 | $334,221 | $– | $420,542 | $526,891 | $20,294 | $1,301,948 | ||||||||
2015 | $329,063 | $28,281 | $403,855 | $306,699 | $19,114 | $1,087,012 |
1 | Represents the amount paid under the PIP that was attributed to a discretionary adjustment. |
2 | Represents the amount determined under the PIP for Messrs. Walker, Frommeyer, Rasmussen and Henderson, and under the PIP and SIP for Mr. Carter, that was paid in 2018 for the 2017 performance year and attributed to financial, or for Mr. Rasmussen, financial and non-financial, metrics; and the amounts earned in 2017 and paid in 2018 under the three-year performance cycle and the EBTP under the LTPP, as follows: Mr. Walker—$323,790 (PIP) and $551,735 (three-year cycle) and $106,734 (EBTP); Mr. Frommeyer—$39,470 (PIP) and $103,265 (three-year cycle) and $14,752 (EBTP); Mr. Rasmussen—$294,120 (PIP) and $1,290,807 (three-year cycle) and $191,777 (EBTP); Mr. Carter—$467,349 (PIP and SIP) and $310,351 (three-year cycle) and $46,799 (EBTP); and Mr. Henderson—$142,696 (PIP) and $269,454 (three-year cycle) and $42,119 (EBTP). |
3 | Represents the change in pension value for all named executive officers. There were no above-market earnings on deferred compensation. |
4 | Includes tax gross-ups totaling $2,616 for amenities received at company events and the contribution we made on behalf of Mr. Walker in the amount of $13,794 under the Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000. |
5 | Includes a tax gross-up in the amount of $811 for the company-paid cost of an executive physical. Aggregate value of perquisites and personal benefits is less than $10,000. |
6 | Includes the value of amenities received at company events, tax gross-ups totaling $228 for such amenities, the value of personal use of the company’s contracted suite for a sporting event, the actual incremental cost of Mr. Rasmussen's personal use of the company plane in the amount of $12,599, the contribution we made on behalf of Mr. Rasmussen in the amount of $13,595 under the Nationwide Supplemental Defined Contribution Plan and the company-paid portion for parking expenses and automotive service in the executive parking garage. |
7 | Includes a tax gross-up of $418 for amenities received at company events. Aggregate value of perquisites and personal benefits is less than $10,000. |
8 | Includes tax gross-ups totaling $276 for amenities received at company events and the contribution we made on behalf of Mr. Henderson in the amount of $11,436 under the Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000. |
• | the median of the annual total compensation of all employees of our company (other than our PEO) was $38,807; and |
• | the annual total compensation of our PEO, as reported in the Summary Compensation Table above, was $2,010,655; and |
• | our PEO’s annual compensation was 52 times that of the median of the annual total compensation of all of our employees. |
1. | We determined that, as of October 23, 2017, which was the last payroll effective date in the month of October, our employee population consisted of 3,138 associates who report organizationally to our PEO. The population excluded approximately 108 employees of the Jefferson National acquisition which occurred in 2017. |
2. | To identify the median employees, we calculated Target Total Direct Compensation, which is calculated by adding annual base salary (which is determined based on the actual number of hours all employees are scheduled to work in a year), target annual incentive opportunity dollars, and target long-term incentive opportunity dollars. We used this method to determine the median employee because it enabled us to identify an employee based on a measure that approximated total annual compensation of all employees in a typical year. |
3. | Based on this methodology, we identified two median employees due to the even number of our population. Once these two employees were identified, we reviewed the allocation percentages of both employees, which would be used to determine the amount of the annual total compensation allocated to us based on our cost-sharing agreement with NMIC. We selected the employee whose allocation percentages were closest to our PEO’s allocation percentages. |
4. | Once we identified our median employee, we identified all elements of annual compensation as required by the Summary Compensation Table calculations, which included only the portion of compensation allocated to us under the cost-sharing agreement, resulting in the amount shown above. With respect to the annual total compensation of our PEO, we used the number reported in column (j) of the Summary Compensation Table shown above. |
Estimated future payouts under non-equity incentive plan awards1 | ||||||||
Name (a) | Grant date (b) | Threshold (c) | Target (d) | Maximum (e) | ||||
Kirt A. Walker | 2/14/20172,3 | $204,930 | $409,860 | $942,678 | ||||
2/14/20174 | $0 | $711,563 | $1,423,126 | |||||
2/14/20175 | $0 | $106,734 | $213,469 | |||||
Timothy G. Frommeyer | 2/14/20172,3 | $28,193 | $56,386 | n/a | ||||
2/14/20174 | $0 | $98,347 | $196,694 | |||||
2/14/20175 | $0 | $14,752 | $29,504 | |||||
Stephen S. Rasmussen | 2/14/20172,3 | $180,303 | $360,606 | $829,395 | ||||
2/14/20174 | $0 | $1,278,514 | $2,557,027 | |||||
2/14/20175 | $0 | $191,777 | $383,554 | |||||
John L. Carter | 2/14/20172,3 | $217,574 | $435,148 | $870,296 | ||||
2/14/20174 | $0 | $311,993 | $623,986 | |||||
2/14/20175 | $0 | $46,799 | $93,598 | |||||
Eric S. Henderson | 2/14/20172,3 | $90,314 | $180,627 | n/a | ||||
2/14/20174 | $0 | $280,794 | $561,587 | |||||
2/14/20175 | $0 | $42,119 | $84,238 |
1 | Values are the amounts allocated to us pursuant to the cost-sharing agreement. |
2 | We calculated thresholds for certain metrics other than CNOI separately after a $350.0 million performance level was achieved on CNOI. Actual payment may be less than the amount shown. |
3 | Represents a PIP, or for Mr. Carter, a PIP and SIP, award. |
4 | Represents an LTPP award using NFS Sales and P&C DWP growth, and capital strength, as metrics. |
5 | Represents an EBTP award under the LTPP. |
Name (a) | Plan name (b) | Number of years credited service (c) | Present value of accumulated benefit1 (d) | Payments during last fiscal year (e) | ||||
Stephen S. Rasmussen | Nationwide Retirement Plan | 19.0 | $14,338 | $– | ||||
Nationwide Supplemental Retirement Plan | 19.0 | $297,425 | $– | |||||
Kirt A. Walker | Nationwide Retirement Plan | 19.0 | $191,238 | $– | ||||
Nationwide Supplemental Retirement Plan | 19.0 | $1,063,224 | $– | |||||
Timothy G. Frommeyer | Nationwide Retirement Plan | 30.3 | $583,140 | $– | ||||
Nationwide Supplemental Retirement Plan | 30.3 | $832,718 | $– | |||||
John L. Carter | Nationwide Retirement Plan | 11.2 | $44,886 | $– | ||||
Nationwide Supplemental Retirement Plan | 11.2 | $306,094 | $– | |||||
Eric S. Henderson | Nationwide Retirement Plan | 30.8 | $1,077,735 | $– | ||||
Nationwide Supplemental Retirement Plan | 30.8 | $1,738,855 | $– |
1 | These amounts are unaudited. |
• | 1.25% of the participant's final average compensation, as defined below, multiplied by the number of years of service, up to a maximum of thirty-five years subject to the limitations set forth in the Internal Revenue Code; plus |
• | 0.50% of the participant's final average compensation in excess of Social Security covered compensation, as defined below, multiplied by the number of years of service, up to a maximum of thirty-five years and subject to the limitations set forth in the Internal Revenue Code. |
• | severance pay and other amounts following the later of: (i) the pay period that includes the participant's date of termination, or (ii) the pay period in which the participant's date of termination is posted to Nationwide's payroll system; |
• | company car value or subsidy or reimbursement for loss of company car; |
• | a lump-sum payment for vacation days made upon termination of employment or pursuant to an election by the participant; |
• | imputed income, executive officer perquisites and benefits paid under any long-term performance or equity plan; |
• | income imputed to any participant as a result of the provisions of health or other benefits to members of the participant's household; |
• | any payment made to a participant to offset the tax cost of other amounts Nationwide paid that are included in the participant's income for federal tax purposes; |
• | any payment of deferred compensation made prior to the participant's severance date; |
• | expense reimbursement or expense allowances including reimbursement for relocation expenses; |
• | retention payments made on or after January 1, 2002; |
• | all gross-up payments, including the related compensation payment, made on or after January 1, 2002; and |
• | compensation earned following the date on which a participant's employment status changes from eligible to ineligible and during the period he or she is ineligible. |
• | Opening Balance Amount: We determined the accrued benefit under the FAP formula as of December 31, 2001, and converted this accrued benefit into a lump sum that reflected the current value of that benefit; plus |
• | Pay Credits: We add amounts to the account every pay period based on the participant's years of service and compensation. The pay credits range from 3% of pay if the participant has up to thirty-five months of service, plus 3% of pay over the Social Security wage base for the year in question, to 7% of pay for those with over twenty-two years of service, plus 4% of pay over the Social Security wage base for the year in question; plus |
• | Interest Credits: We add interest amounts to the account on a biweekly basis based on the thirty-year United States Treasury bill rate in effect from the second month preceding the current quarter. The minimum interest rate is 3.25%. |
• | 1.25% of the participant's final average compensation, as defined in the "Qualified Pension Plans" section above, multiplied by the number of years of service, up to a maximum of forty years; plus |
• | 0.75% of the participant's final average compensation in excess of Social Security-covered compensation, as defined in "Qualified Pension Plans" above, multiplied by the number of years of service, up to a maximum of forty years; less |
• | benefits the executive accrued under the NRP. |
• | his or her SRP benefit as of December 31, 2007, with the subsidized early retirement factors; |
• | his or her total benefit as of December 31, 2009 minus the benefits accrued under the NRP at date of termination, with the subsidized early retirement factors; or |
• | his or her SRP benefit without subsidized early retirement factors at the date of termination. |
• | severance pay and other amounts following the later of (i) the pay period that includes the participant's date of termination, and (ii) the pay period in which the participant's date of termination is posted to Nationwide's payroll system; |
• | company car value or subsidy or reimbursement for loss of a company car; |
• | a lump-sum payment for vacation days made upon termination of employment or pursuant to an election by the participant; |
• | imputed income, executive officer perquisites and benefits paid under any long-term performance or equity plan; |
• | income imputed to any participant as a result of the provision of health or other benefits to members of the participant's household; |
• | any payment made to a participant to offset the tax cost of other amounts Nationwide paid that are included in the participant's income for federal tax purposes; |
• | any payment of deferred compensation made prior to the participant's severance date or on account of a participant's severance date; |
• | expense reimbursement or expense allowances including reimbursement for relocation expenses; |
• | retention payments made on or after January 1, 2002; |
• | all gross-up payments, including the related compensation payment, made on or after January 1, 2002; and |
• | compensation earned following the date a participant’s employment status changes from eligible to ineligible and during the period he or she is employed in an ineligible status. |
• | credits made for plan years prior to 1996, and earnings on those amounts, are paid in January of the year following the year the participant’s employment terminates; |
• | unless otherwise elected in accordance with the terms of the plan, credits made to the plan for plan years after 1995, and earnings on those amounts, are paid in 10 installments for participants who qualify for a benefit from the NRP and whose account balance exceeds $25,000, and in a single lump sum payment for all other participants. |
Name (a) | Executive contributions in last fiscal year1 (b) | Registrant contributions in last fiscal year2 (c) | Aggregate earnings in last fiscal year3 (d) | Aggregate withdrawals/ distributions4 (e) | Aggregate balance at last fiscal year end5 (f) | |||||
Kirt A. Walker | $104,020 | $17,873 | $155,855 | $99,793 | $1,426,726 | |||||
Timothy G Frommeyer | $0 | $7,653 | $3,249 | $0 | $100,299 | |||||
Stephen S. Rasmussen | $0 | $13,002 | $54,325 | $0 | $295,600 | |||||
John L. Carter | $9,740 | $11,740 | $26,644 | $0 | $288,704 | |||||
Eric S. Henderson | $0 | $12,913 | $3,160 | $0 | $91,394 |
1 | Amount represents voluntary deferrals to the Nationwide Individual Deferred Compensation Plan. These amounts are reported in the Salary, Bonus and Non-equity Incentive Compensation columns of the Summary Compensation Table. |
2 | Amount represents company contributions to the Nationwide Supplemental Defined Contribution Plan. These amounts are reported in the "All other compensation" column of the Summary Compensation Table. |
3 | Amount represents investment gain from applicable nonqualified deferred compensation plans attributable to all prior year deferrals in the plans. Investment gains or losses are attributable to the notional investment selections the executive officer makes. Executive officers may choose from approximately fifty investment options. These amounts are not reported in the Summary Compensation Table. |
4 | Amount represents distributions from the Nationwide Individual Deferred Compensation Plan. These amounts are not reported in the Summary Compensation Table. |
5 | Represents balances in the following plans: the Nationwide Individual Deferred Compensation Plan, the Nationwide Supplemental Defined Contribution Plan and the Nationwide Economic Value Incentive Plan. The Nationwide Economic Value Incentive Plan is a terminated plan that provided for involuntarily deferred compensation we may still pay to an executive officer based on his or her distribution election. These amounts were reported in the Summary Compensation Table for previous years. |
• | vested amounts contributed, plus related earnings under, the Nationwide Savings Plan, the Nationwide Individual Deferred Compensation Plan, and the Nationwide Supplemental Defined Contribution Plan; |
• | amounts accrued and vested under the Nationwide Retirement Plan and the Nationwide Supplemental Retirement Plan; and |
• | unused paid time off, up to specified limits and subject to certain limitations as specified within our paid time off plan. |
• | a lump-sum cash payment equal to six to twelve months, depending on the circumstances of departure, of the annual base salary in effect on the date of termination; |
• | paid leave of absence of twenty-one days for executive officers over the age of forty to permit the executive officer time to seek legal advice regarding the terms of the severance agreement; |
• | short-term incentive payments earned under the PIP, prorated to the date of termination; |
• | up to one year of executive placement services, or a lump-sum payment of $6,800 in lieu of such services; and |
• | payout of the current year earned but unused paid time off. |
• | a lump-sum cash payment equal to one times, as applicable, the annual base salary in effect immediately before the termination, payable within 30 days following the executive's termination; |
• | a lump-sum cash payment equal to one times, as applicable, the short-term incentive compensation that would have been earned pursuant to the PIP or SIP during the fiscal year in which the executive officer's termination date occurs payable based on actual performance over the full year, payable when annual bonuses are paid to our other executives; |
• | a lump-sum cash payment equal to the cost, including a gross-up payment to cover income and FICA taxes on the payment, to the executive officer of continuing the medical and dental coverage under COBRA, or under the retiree medical provisions of NMIC's medical plan, if applicable, for the executive officer, his spouse and dependents, for a specified period of time following the executive's termination date; |
• | supplemental benefits equal to the benefits the executive officer would have been entitled to receive on the termination date under certain retirement and deferred compensation plans, had the executive officer been fully vested in those plans on the termination date, less any benefits the executive officer actually receives under those plans, paid at the time the executive's benefits are otherwise paid under the applicable plans; |
• | in the event that the executive officer's termination date occurs within three years of the date on which the executive officer would have been first eligible to retire under the Nationwide Retirement Plan, a supplemental benefit equal to the benefits the executive officer would have received under the Nationwide Retirement Plan and the Nationwide Supplemental Retirement Plan, had the executive officer earned service and age credit for the period ending on the earlier of three years after the executive officer's termination date or the earliest date the executive officer would have been eligible to retire under the Nationwide Retirement Plan and had the executive officer been fully vested under those plans, less any benefits the executive officer actually receives under those plans, paid at the time the executive's benefits are otherwise paid under the applicable plans; |
• | a lump-sum cash payment equal to the matching contributions that NMIC would have made for the executive officer under the Nationwide Savings Plan and the Nationwide Supplemental Defined Contribution Plan during the severance period defined in the agreement, as if the executive officer's contributions had continued in the same amount and at the same rate in effect immediately prior to the executive officer's termination date, payable within 30 days following the executive's termination date; |
• | service and age credits for the purpose of eligibility under NMIC's retiree medical plan, as if the executive officer had continued employment through the executive severance agreement's specified severance period; |
• | the right to retain certain computer and office equipment and furniture used at the executive officer's home; and |
• | amounts earned, accrued or owed but not paid and benefits owed under employee benefit plans and programs. |
• | a material diminution in the executive’s authority, duties or responsibilities, as reasonably determined by the board of directors of NMIC; |
• | a material change in the geographic location at which the executive must perform services; |
• | a material diminution in the executive’s base salary, other than due to a change in base salary for all senior executives in NMIC; or |
• | any action or inaction of NMIC that constitutes a material breach by NMIC of the severance agreement. |
• | the executive has been convicted of a felony; |
• | the executive neglects, refuses or fails to perform his material duties to NMIC, which failure has continued for a period of at least 30 days after notice from NMIC; |
• | the executive engages in misconduct in the performance of his duties; |
• | the executive engages in public conduct that is harmful to the reputation of NMIC; |
• | the executive breaches his non-competition, non-disclosure or non-solicitation covenants; or |
• | the executive breaches NMIC's written code of business conduct and ethics. |
• | Normal Retirement Age; |
• | age fifty-five and completed 120 months of vesting service; or |
• | age sixty-two and completed sixty months of vesting service, |
Benefits and payments upon termination | Voluntary termination | Termination without cause | For cause termination | Death, disability, or retirement | ||||
Short-term incentives: | ||||||||
Annual incentives1 | $– | $– | $– | $409,860 | ||||
Long-term incentives: | ||||||||
LTPP 15-17 award2 | $551,735 | $551,735 | $– | $551,735 | ||||
LTPP 16-18 award3 | $– | $426,959 | $– | $426,959 | ||||
LTPP 17-19 award3 | $– | $313,056 | $– | $313,056 | ||||
EBTP award4 | $106,734 | $106,734 | $106,734 | |||||
Life insurance proceeds | $– | $– | $– | $1,871,700 | ||||
Cash severance5 | $– | $829,470 | $– | $– | ||||
Total compensation | $658,469 | $2,227,954 | $– | $3,680,044 |
1 | Reflects the amount Mr. Walker would receive with respect to the 2017 short-term incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2017. Mr. Walker would not be eligible to receive a PIP award payment upon a voluntary termination on December 31, 2017. The PIP requires that plan participants be employed on the date PIP awards are paid. The "Termination without cause" column does not include the 2017 short-term incentive opportunity as the severance agreement provides that the short-term incentive payment under the agreement is in lieu of the payments that would be made under the PIP. The amounts were not reduced to their present value. |
2 | Reflects the amount Mr. Walker would receive with respect to the 2015-2017 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2017. |
3 | Reflects the amount Mr. Walker would receive with respect to the 2016-2018 and 2017-2019 awards under the LTPP upon termination without cause, or for death, disability or retirement (not eligible), on December 31, 2017. Mr. Walker would not have qualified for retirement under the LTPP and would forfeit the target award opportunity granted in the year of termination unless termination is due to death or disability or if the termination is without cause. Accordingly, the amounts shown assume a two-thirds |
distribution of the total 2016-2018 award, which would have been paid in 2018, and a one-third distribution of the total 2017-2019 award, which would have been paid in 2020, using a performance score that was estimated as of December 31, 2017. The amounts were not reduced to their present value. | |
4 | Reflects the amount Mr. Walker would receive with respect to the 2017 award under the LTPP upon a termination, except for cause, on December 31, 2017. |
5 | Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2017 matching amounts in the Nationwide Savings Plan and Nationwide Supplemental Defined Contribution Plan; one times the 2017 short-term incentive bonus; and one times the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Walker and his family. The amounts were not reduced to their present value. |
Benefits and payments upon termination | Voluntary termination | Termination without cause | For cause termination | Death, disability, or retirement | ||||
Short-term incentives: | ||||||||
Annual incentives1 | $– | $-- | $– | $45,109 | ||||
Long-term incentives: | ||||||||
LTPP 15-17 award2 | $103,265 | $103,265 | $– | $103,265 | ||||
LTPP 16-18 award3 | $– | $71,032 | $– | $71,032 | ||||
LTPP 17-19 award3 | $– | $43,268 | $– | $43,268 | ||||
EBTP award4 | $14,752 | $14,752 | $- | $14,752 | ||||
Life insurance proceeds | $– | $– | $– | $554,977 | ||||
Cash severance5 | $– | $322,170 | $– | $– | ||||
Total compensation | $118,017 | $554,487 | $– | $832,403 |
1 | Reflects the amount Mr. Frommeyer would receive with respect to the 2017 short-term incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2017. Mr. Frommeyer would not be eligible to receive a PIP award payment upon a voluntary termination on December 31, 2017. The PIP requires that plan participants be employed on the date PIP awards are paid. The "Termination without cause" column does not include the 2017 short-term incentive opportunity as the severance agreement provides that the short-term incentive payment under the agreement is in lieu of the payments that would be made under the PIP. The amounts were not reduced to their present value. |
2 | Reflects the amount Mr. Frommeyer would receive with respect to the 2015-2017 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2017. |
3 | Reflects the amount Mr. Frommeyer would receive with respect to the 2016-2018 and 2017-2019 awards under the LTPP upon termination without cause, or for death, disability or retirement (not eligible), on December 31, 2017. Mr. Frommeyer would not have qualified for retirement under the LTPP and would forfeit the target award opportunity granted in the year of termination unless termination is due to death or disability or if the termination is without cause. Accordingly, the amounts shown assume a two-thirds distribution of the total 2016-2018 award, which would have been paid in 2019, and a one-third distribution of the total 2017-2019 award, which would have been paid in 2020, using a performance score that was estimated as of December 31, 2017. The amounts were not reduced to their present value. |
4 | Reflects the amount Mr. Frommeyer would receive with respect to the 2017 award under the LTPP upon a termination, except for cause, on December 31, 2017. |
5 | Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2017 matching amounts in the Nationwide Savings Plan and Nationwide Supplemental Defined Contribution Plan; one times the 2017 short-term incentive bonus; and one times the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Frommeyer and his family. The amounts were not reduced to their present value. |
Benefits and payments upon termination | Voluntary termination | Termination without cause or resignation for good reason following a substantial reorganization | For cause termination | Death, disability, or retirement | ||||
Short-term incentives: | ||||||||
Annual incentive1 | $294,120 | $– | $– | $294,120 | ||||
Long-term incentives: | ||||||||
LTPP 15-17 award2 | $1,290,807 | $1,290,807 | $– | $1,290,807 | ||||
LTPP 16-18 award3 | $958,933 | $958,933 | $– | $958,933 | ||||
LTPP 17-19 award3 | $562,490 | $562,490 | $– | $562,490 | ||||
EBTP award4 | $191,777 | $191,777 | $-- | $191,777 |
Benefits and payments upon termination | Voluntary termination | Termination without cause or resignation for good reason following a substantial reorganization | For cause termination | Death, disability, or retirement | ||||
Life insurance proceeds | $– | $– | $– | $447,000 | ||||
Cash severance5 | $– | $164,930 | $– | $– | ||||
Total compensation | $3,298,127 | $3,168,937 | $– | $3,745,127 |
1 | Reflects the amount Mr. Rasmussen would receive with respect to the 2017 short-term incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2017. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Rasmussen would have qualified for retirement on December 31, 2017, he would receive the PIP payment. The amounts were not reduced to their present value. |
2 | Reflects the amount Mr. Rasmussen would receive with respect to the 2015-2017 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2017. |
3 | Reflects the amount Mr. Rasmussen would receive with respect to the 2016-2018 and 2017-2019 awards under the LTPP upon termination on December 31, 2017. Mr. Rasmussen would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2016-2018 award, which would be paid in 2019, and a one-third distribution of the total 2017-2019 award, which would be paid in 2020, using a performance score that was estimated as of December 31, 2017. The amounts were not reduced to their present value. |
4 | Reflects the amount Mr. Rasmussen would receive with respect to the 2017 award under the LTPP upon a termination, except for cause, on December 31, 2017. |
5 | Includes an estimate of the amount we would pay under the severance plan guidelines for executives described above. For purposes of this table, we assumed a payment based on twelve months of base salary and $6,800, in lieu of outplacement services. |
Benefits and payments upon termination | Voluntary termination | Termination without cause | For cause termination | Death, disability, or retirement | ||||
Short-term incentives: | ||||||||
Sales Incentive1 | $– | $– | $– | $522,178 | ||||
Long-term incentives: | ||||||||
LTPP 15-17 award2 | $310,351 | $310,351 | $– | $310,351 | ||||
LTPP 16-18 award3 | $– | $237,199 | $– | $237,199 | ||||
LTPP 17-19 award3 | $– | $137,263 | $– | $137,263 | ||||
EBTP award4 | $46,799 | $46,799 | $-- | $46,799 | ||||
Life insurance proceeds | $– | $– | $– | $1,027,500 | ||||
Cash severance5 | $– | $721,170 | $– | $– | ||||
Total compensation | $357,150 | $1,452,782 | $– | $2,281,290 |
1 | Reflects the amount Mr. Carter would receive with respect to the 2017 short-term incentive payment under the SIP upon a termination of employment, except for cause, on December 31, 2017. Mr. Carter would not be eligible to receive a SIP award payment upon a voluntary termination on December 31, 2017. We require that SIP participants be employed on the date SIP awards are paid. The "Termination without cause" column does not include the 2017 short-term incentive opportunity, as the severance agreement provides that the short-term incentive payment under the agreement is in lieu of the payment that would be made under the SIP. The amounts were not reduced to their present value. |
2 | Reflects the amount Mr. Carter would receive with respect to the 2015-2017 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2017. |
3 | Reflects the amount Mr. Carter would receive with respect to the 2016-2018 and 2017-2019 awards under the LTPP upon termination without cause, or for death, disability or retirement (not eligible), on December 31, 2017. Mr. Carter would not have qualified for retirement under the LTPP and would forfeit the target award opportunity granted in the year of termination unless termination is due to death or disability or if the termination is without cause. Accordingly, the amounts shown assume a two-thirds distribution of the total 2016-2018 award, which would have been paid in 2019, and a one-third distribution of the total 2017-2019 award, which would have been paid in 2020, using a performance score that was estimated as of December 31, 2017. The amounts were not reduced to their present value. |
4 | Reflects the amount Mr. Carter would receive with respect to the 2017 award under the LTPP upon a termination, except for cause, on December 31, 2017. |
5 | Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2017 matching amounts in the Nationwide Savings Plan and Nationwide Supplemental Defined Contribution Plan; one times the 2017 short-term incentive bonus; and one times the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Carter and his family. The amounts were not reduced to their present value. |
Benefits and payments upon termination | Voluntary termination | Termination without cause | For cause termination | Death, disability, or retirement | ||||
Short-term incentives: | ||||||||
Annual incentive1 | $180,627 | $-- | $– | $180,627 | ||||
Long-term incentives: | ||||||||
LTPP 15-17 award2 | $269,454 | $269,454 | $– | $269,454 | ||||
LTPP 16-18 award3 | $213,480 | $213,480 | $– | $213,480 | ||||
LTPP 17-19 award3 | $123,537 | $123,537 | $– | $123,537 | ||||
EBTP award4 | $42,119 | $42,119 | $-- | $42,119 | ||||
Life insurance proceeds | $– | $– | $– | $2,337,000 | ||||
Cash severance5 | $– | $564,487 | $– | $– | ||||
Total compensation | $829,217 | $1,213,077 | $– | $3,166,217 |
1 | Reflects the amount Mr. Henderson would receive with respect to the 2017 short-term incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2017. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Henderson would have qualified for retirement on December 31, 2017, he would receive the PIP payment. The "Termination without cause" column does not include the 2017 short-term incentive opportunity as the severance agreement provides that the short-term incentive payment under the agreement is in lieu of the payments that would be made under the PIP. The amounts were not reduced to their present value. |
2 | Reflects the amount Mr. Henderson would receive with respect to the 2015-2017 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2017. |
3 | Reflects the amount Mr. Henderson would receive with respect to the 2016-2018 and 2017-2019 operating revenue growth/capital strength awards under the LTPP upon termination without cause, or for death, disability or retirement, on December 31, 2017. Mr. Henderson would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2016-2018 award, which would be paid in 2019, and a one-third distribution of the total 2017-2019 award, which would be paid in 2020, using a performance score that was estimated as of December 31, 2017. The amounts were not reduced to their present value. |
4 | Reflects the amount Mr. Henderson would receive with respect to the 2017 award under the LTPP upon a termination, except for cause, on December 31, 2017. |
5 | Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2017 matching amounts in the Nationwide Savings Plan and Nationwide Supplemental Defined Contribution Plan; one times the 2017 short-term incentive bonus; and one times the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Henderson and his family. The amounts were not reduced to their present value. |
Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class | ||
Nationwide Financial Services, Inc. 1 Nationwide Plaza Columbus, Ohio 43215 | 3,814,779 shares | 100% |
• | using position at Nationwide or affiliation with any Nationwide company for personal gain or advantage; and |
• | any interest or association that interferes with independent exercise of judgment in the best interest of Nationwide. |
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
Page | ||||
F-1 | ||||
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F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Schedule I – Consolidated Summary of Investments – Other Than Investments in Related Parties | F-49 | |||
F-50 | ||||
F-51 | ||||
F-52 |
KPMG LLP | ||
Suite 500 191 West Nationwide Blvd. Columbus, OH 43215-2568 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholder
Nationwide Life Insurance Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedules I, III, IV, and V (collectively, the “consolidated financial statements”) of the Company as listed in the accompanying table of contents. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 1968.
Columbus, Ohio
February 28, 2018
KPMG LLP is a Delaware limited liability partnership and the U.S.
member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity.
F-1
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Operations
Year ended December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Revenues | ||||||||||||
Policy charges | $ | 2,545 | $ | 2,361 | $ | 2,216 | ||||||
Premiums | 633 | 642 | 786 | |||||||||
Net investment income | 2,414 | 2,139 | 1,982 | |||||||||
Net realized investment gains (losses), including other-than-temporary impairment losses | 12 | (111 | ) | 82 | ||||||||
Other revenues | 9 | 8 | 14 | |||||||||
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Total revenues | $ | 5,613 | $ | 5,039 | $ | 5,080 | ||||||
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Benefits and expenses | ||||||||||||
Interest credited to policyholder account values | $ | 1,844 | $ | 1,406 | $ | 1,078 | ||||||
Benefits and claims | 1,283 | 1,298 | 1,662 | |||||||||
Amortization of deferred policy acquisition costs | 392 | 433 | 68 | |||||||||
Other expenses, net of deferrals | 1,193 | 998 | 1,044 | |||||||||
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Total benefits and expenses | $ | 4,712 | $ | 4,135 | $ | 3,852 | ||||||
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Income before federal income taxes and noncontrolling interests | $ | 901 | $ | 904 | $ | 1,228 | ||||||
Federal income tax benefit (expense) | 408 | (126 | ) | (293 | ) | |||||||
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Net income | $ | 1,309 | $ | 778 | $ | 935 | ||||||
Loss attributable to noncontrolling interests, net of tax | 96 | 91 | 96 | |||||||||
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Net income attributable to Nationwide Life Insurance Company | $ | 1,405 | $ | 869 | $ | 1,031 | ||||||
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See accompanying notes to consolidated financial statements.
F-2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Comprehensive Income
Year ended December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Net income | $ | 1,309 | $ | 778 | $ | 935 | ||||||
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Other comprehensive income (loss), net of tax | ||||||||||||
Changes in: | ||||||||||||
Net unrealized gains (losses) onavailable-for-sale securities | $ | 550 | $ | 237 | $ | (720 | ) | |||||
Net unrealized (losses) gains on derivatives used in cash flow hedging relationships | (100 | ) | 22 | 43 | ||||||||
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Total other comprehensive income (loss), net of tax | $ | 450 | $ | 259 | $ | (677 | ) | |||||
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Total comprehensive income | $ | 1,759 | $ | 1,037 | $ | 258 | ||||||
Comprehensive loss attributable to noncontrolling interests, net of tax | (96 | ) | (91 | ) | (96 | ) | ||||||
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Total comprehensive income attributable to Nationwide Life Insurance Company | $ | 1,855 | $ | 1,128 | $ | 354 | ||||||
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See accompanying notes to consolidated financial statements.
F-3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
December 31, | ||||||||
(in millions, except for share and per share amounts) | 2017 | 2016 | ||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securities,available-for-sale | $ | 50,201 | $ | 43,690 | ||||
Mortgage loans, net of allowance | 10,929 | 9,760 | ||||||
Policy loans | 1,030 | 989 | ||||||
Short-term investments | 1,406 | 1,944 | ||||||
Other investments | 1,493 | 1,111 | ||||||
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Total investments | $ | 65,059 | $ | 57,494 | ||||
Cash and cash equivalents | 95 | 92 | ||||||
Accrued investment income | 549 | 514 | ||||||
Deferred policy acquisition costs | 5,676 | 5,432 | ||||||
Other assets | 4,203 | 3,035 | ||||||
Separate account assets | 105,607 | 89,071 | ||||||
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Total assets | $ | 181,189 | $ | 155,638 | ||||
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Liabilities and equity | ||||||||
Liabilities | ||||||||
Future policy benefits and claims | $ | 59,885 | $ | 52,911 | ||||
Short-term debt | — | 300 | ||||||
Long-term debt | 793 | 707 | ||||||
Other liabilities | 3,433 | 3,104 | ||||||
Separate account liabilities | 105,607 | 89,071 | ||||||
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Total liabilities | $ | 169,718 | $ | 146,093 | ||||
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Shareholder’s equity | ||||||||
Common stock ($1 par value; authorized - 5,000,000 shares, issued and outstanding - 3,814,779 shares) | $ | 4 | $ | 4 | ||||
Additionalpaid-in capital | 1,718 | 1,718 | ||||||
Retained earnings | 7,703 | 6,530 | ||||||
Accumulated other comprehensive income | 1,308 | 626 | ||||||
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Total shareholder’s equity | $ | 10,733 | $ | 8,878 | ||||
Noncontrolling interests | 738 | 667 | ||||||
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Total equity | $ | 11,471 | $ | 9,545 | ||||
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Total liabilities and equity | $ | 181,189 | $ | 155,638 | ||||
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See accompanying notes to consolidated financial statements.
F-4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Equity
(in millions) | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Total shareholder’s equity | Non-controlling interest | Total equity | |||||||||||||||||||||
Balance as of December 31, 2014 | $ | 4 | $ | 1,718 | $ | 4,630 | $ | 1,044 | $ | 7,396 | $ | 640 | $ | 8,036 | ||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net income (loss) | $ | — | $ | — | $ | 1,031 | $ | — | $ | 1,031 | $ | (96 | ) | $ | 935 | |||||||||||||
Other comprehensive (loss) | — | — | — | (677 | ) | (677 | ) | — | (677 | ) | ||||||||||||||||||
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Total comprehensive income (loss) | $ | — | $ | — | $ | 1,031 | $ | (677 | ) | $ | 354 | $ | (96 | ) | $ | 258 | ||||||||||||
Change in noncontrolling interest | — | — | — | — | — | 100 | 100 | |||||||||||||||||||||
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Balance as of December 31, 2015 | $ | 4 | $ | 1,718 | $ | 5,661 | $ | 367 | $ | 7,750 | $ | 644 | $ | 8,394 | ||||||||||||||
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Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net income (loss) | $ | — | $ | — | $ | 869 | $ | — | $ | 869 | $ | (91 | ) | $ | 778 | |||||||||||||
Other comprehensive income | — | — | — | 259 | 259 | — | 259 | |||||||||||||||||||||
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Total comprehensive income (loss) | $ | — | $ | — | $ | 869 | $ | 259 | $ | 1,128 | $ | (91 | ) | $ | 1,037 | |||||||||||||
Change in noncontrolling interest | — | — | — | — | — | 114 | 114 | |||||||||||||||||||||
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Balance as of December 31, 2016 | $ | 4 | $ | 1,718 | $ | 6,530 | $ | 626 | $ | 8,878 | $ | 667 | $ | 9,545 | ||||||||||||||
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Comprehensive income (loss): | ||||||||||||||||||||||||||||
Net income (loss) | $ | — | $ | — | $ | 1,405 | $ | — | $ | 1,405 | $ | (96 | ) | $ | 1,309 | |||||||||||||
Other comprehensive income | — | — | — | 450 | 450 | — | 450 | |||||||||||||||||||||
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Total comprehensive income (loss) | $ | — | $ | — | $ | 1,405 | $ | 450 | $ | 1,855 | $ | (96 | ) | $ | 1,759 | |||||||||||||
Cumulative effect of adoption of accounting principle1 | — | — | (232 | ) | 232 | — | — | — | ||||||||||||||||||||
Change in noncontrolling interest | — | — | — | — | — | 167 | 167 | |||||||||||||||||||||
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Balance as of December 31, 2017 | $ | 4 | $ | 1,718 | $ | 7,703 | $ | 1,308 | $ | 10,733 | $ | 738 | $ | 11,471 | ||||||||||||||
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1 | Includes the reclassification of accumulated other comprehensive income on net unrealized gains onavailable-for-sale securities into retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act, as discussed in Note 2. |
See accompanying notes to consolidated financial statements.
F-5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
Year ended December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 1,309 | $ | 778 | $ | 935 | ||||||
Adjustments to net income: | ||||||||||||
Net realized investment (gains) losses, including other-than-temporary impairment losses | (12 | ) | 111 | (82 | ) | |||||||
Interest credited to policyholder account values | 1,844 | 1,406 | 1,078 | |||||||||
Capitalization of deferred policy acquisition costs | (923 | ) | (823 | ) | (870 | ) | ||||||
Amortization of deferred policy acquisition costs | 392 | 433 | 68 | |||||||||
Amortization and depreciation | 99 | 81 | 107 | |||||||||
Changes in: | ||||||||||||
Future policy benefits and claims | (934 | ) | (680 | ) | (249 | ) | ||||||
Derivatives, net | (486 | ) | (247 | ) | (141 | ) | ||||||
Other, net | (319 | ) | (77 | ) | (63 | ) | ||||||
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Net cash provided by operating activities | $ | 970 | $ | 982 | $ | 783 | ||||||
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Cash flows from investing activities | ||||||||||||
Proceeds from maturities ofavailable-for-sale securities | $ | 4,471 | $ | 3,007 | $ | 2,828 | ||||||
Proceeds from sales ofavailable-for-sale securities | 1,857 | 852 | 466 | |||||||||
Purchases ofavailable-for-sale securities | (11,648 | ) | (8,938 | ) | (7,106 | ) | ||||||
Proceeds from repayments and sales of mortgage loans | 651 | 792 | 1,027 | |||||||||
Issuances of mortgage loans | (1,807 | ) | (2,163 | ) | (2,155 | ) | ||||||
Net sales (purchases) of short-term investments | 543 | (1,174 | ) | 169 | ||||||||
Collateral received, net | 378 | 217 | 48 | |||||||||
Purchase of Jefferson National Financial Corp, net of cash assumed | (186 | ) | — | — | ||||||||
Other, net | (355 | ) | (231 | ) | (136 | ) | ||||||
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Net cash used in investing activities | $ | (6,096 | ) | $ | (7,638 | ) | $ | (4,859 | ) | |||
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Cash flows from financing activities | ||||||||||||
Net change in short-term debt | $ | (300 | ) | $ | (100 | ) | $ | (260 | ) | |||
Investment and universal life insurance product deposits | 10,442 | 10,894 | 8,224 | |||||||||
Investment and universal life insurance product withdrawals | (5,034 | ) | (4,132 | ) | (3,884 | ) | ||||||
Other, net | 21 | 19 | (14 | ) | ||||||||
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Net cash provided by financing activities | $ | 5,129 | $ | 6,681 | $ | 4,066 | ||||||
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Net increase (decrease) in cash and cash equivalents | $ | 3 | $ | 25 | $ | (10 | ) | |||||
Cash and cash equivalents at beginning of year | 92 | 67 | 77 | |||||||||
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Cash and cash equivalents at end of year | $ | 95 | $ | 92 | $ | 67 | ||||||
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See accompanying notes to consolidated financial statements.
F-6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(1) | Nature of Operations |
Nationwide Life Insurance Company (“NLIC,” or collectively with its subsidiaries, “the Company”) was incorporated in 1929 and is an Ohio-domiciled stock life insurance company. The Company is a member of the Nationwide group of companies (“Nationwide”), which is comprised of Nationwide Mutual Insurance Company (“NMIC”) and all of its subsidiaries and affiliates.
All of the outstanding shares of NLIC’s common stock are owned by Nationwide Financial Services, Inc. (“NFS”), a holding company formed by Nationwide Corporation, a majority-owned subsidiary of NMIC.
The Company is a leading provider of long-term savings and retirement products in the United States of America (“U.S.”). The Company develops and sells a wide range of products and services, which include fixed and variable individual annuities, private and public sector group retirement plans, life insurance, investment advisory services and other investment products.
The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Company’s products to their own customer bases include independent broker-dealers, financial institutions, wirehouse and regional firms, pension plan administrators, life insurance agencies, specialists and registered investment advisors. Representatives of affiliates who market products directly to a customer base include Nationwide Retirement Solutions, Inc. and Nationwide Financial Network producers, which includes the agency distribution force of the Company’s ultimate parent company, NMIC.
Wholly-owned subsidiaries of NLIC as of December 31, 2017 include Nationwide Life and Annuity Insurance Company (“NLAIC”) and its wholly-owned subsidiary, Olentangy Reinsurance, LLC (“Olentangy”), Nationwide Investment Services Corporation (“NISC”), Nationwide Investment Advisor (“NIA”), Eagle Captive Reinsurance, LLC (“Eagle”) and Jefferson National Financial Corp (“JNF”) and its wholly-owned subsidiaries, as discussed in Note 4. NLAIC primarily offers universal life insurance, variable universal life insurance, term life insurance, corporate-owned life insurance (“COLI”) and individual annuity contracts on anon-participating basis. Olentangy is a Vermont-domiciled special purpose financial captive insurance company. NISC is a registered broker-dealer. NIA is a registered investment advisor. Eagle is an Ohio-domiciled special purpose financial captive insurance company. JNF is a distributor oftax-advantaged investing solutions for registered investment advisors,fee-based advisors and the clients they serve. See Note 4 for detailed information related to the acquisition of JNF.
As of December 31, 2017 and 2016, the Company did not have a significant concentration of financial instruments in a single investee, industry or geographic region. Also, the Company did not have a concentration of business transactions with a particular customer, lender, distribution source, market or geographic region in which a single event could cause a severe impact on the Company’s financial position, after considering insurance risk that has been transferred to external reinsurers.
(2) | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of NLIC and companies in which NLIC directly or indirectly has a controlling financial interest. The consolidated financial statements include wholly-owned subsidiaries and consolidated variable interest entities (“VIEs”). All intercompany transactions have been eliminated.
Use of Estimates
The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates include the balance and amortization of deferred policy acquisition costs (“DAC”), legal and regulatory reserves, certain investment and derivative valuations, certain future policy benefits and claims, goodwill, provision for income taxes and valuation of net deferred tax assets. Actual results could differ significantly from those estimates.
F-7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Revenues and Benefits
Investment and universal life insurance products.Investment products are long-duration contracts that do not subject the Company to significant risk arising from mortality (the incidence of death) or morbidity (the incidence of disability resulting from disease or physical impairment). These include variable and fixed deferred annuity contracts in the accumulation phase with individuals and groups, as well as certain annuities without life contingencies. Universal life insurance products include long-duration insurance contracts that do not have fixed or guaranteed terms. These include universal life insurance, variable universal life insurance, COLI, bank-owned life insurance (“BOLI”) and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, net realized investment gains and losses, surrender charges and other policy charges earned and assessed against policy account balances during the period. Policy charges are assessed on a daily, monthly or annual basis and are recognized as revenue when earned. Assessments for services provided in future periods are recorded as unearned revenue and recognized as revenue over the periods benefited. Surrender charges are recognized as revenue upon surrender of a contract in accordance with contractual terms.
Traditional life insurance products. Traditional life insurance products include those products with fixed and guaranteed terms, primarily consisting of whole life insurance, term life insurance and certain annuities with life contingencies. Premiums for traditional life insurance products are generally recognized as revenue when due. For certain annuities with life contingencies, any excess of gross premium over the net premium is deferred and recognized with the amount of expected future benefits. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contract. This association is accomplished through the provision for future policy benefits and the deferral and amortization of policy acquisition costs.
Future Policy Benefits and Claims
Investment and universal life insurance products. The Company calculates its liability for future policy benefits and claims for investment products in the accumulation phase and for universal life insurance policies at the policy accrued account balance, which represents participants’ net deposits adjusted for investment performance, interest credited and applicable contract charges. Policy benefits and claims that are charged to expense include interest credited to policyholder accounts and benefits and claims incurred in the period in excess of related policyholder accounts.
The Company offers guarantees on variable and fixed indexed annuity products, which can include a return of no less than the total deposits made on the contract less any customer withdrawals, total deposits made on the contract less any customer withdrawals plus a minimum return, or the highest contract value on a specified anniversary date minus any customer withdrawals following the contract anniversary. These guarantees can also include benefits payable in the event of death, upon annuitization, upon periodic withdrawal or at specified dates during the accumulation period.
As part of its valuation procedures, the Company makes an assumption of the expected utilization of guarantee benefits by participants. Guarantees that include a benefit that is wholly life contingent are accounted for as insurance liabilities that accumulate over time. Guarantees that are expected to be exercised using a net settlement option are accounted for as embedded derivatives, which are required to be separated and valued apart from the host variable annuity contracts.
Guaranteed minimum death benefits (“GMDB”) and certain guaranteed living withdrawal benefits (“GLWB”) on variable annuity and fixed indexed annuity products, as well asno-lapse guarantees on universal life and variable universal life insurance products are accounted for as insurance liabilities. Liabilities for these guarantees are calculated by multiplying the current benefit ratio by the cumulative assessments recorded from contract inception through the balance sheet date, less the cumulative guaranteed benefit payments plus interest. The Company evaluates its experience and assumptions and adjusts the benefit ratio as appropriate. If experience or assumption changes result in a new benefit ratio, the reserves are adjusted to reflect the changes, with a related charge or credit to benefits and claims in the period of evaluation. Determination of the expected benefit payments and assessments are based on a range of scenarios and assumptions, including those related to market rates of return and volatility, contract surrenders and mortality experience. The accounting for these guarantees impacts estimated gross profits used to calculate the balance and amortization of DAC and other expenses.
F-8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Certain GLWB that are expected to net settle on variable annuity products represent embedded derivatives which are held at fair value and include the present value of attributed fees. Subsequent changes in the fair value of the embedded derivatives are recognized in results of operations as a component of net realized investment gains and losses. The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the valuation of the embedded derivatives incorporate numerous, unobservable assumptions including, but not limited to, mortality, lapse rates, index volatility, benefit utilization and discounting. Benefit utilization includes a wait period (the number of years the policyholder is assumed to wait prior to beginning withdrawals once eligible) and efficiency of benefit utilization (the percent of the maximum permitted withdrawal that a policyholder takes). Discounting includes liquidity andnon-performance risk (the risk that the liability will not be fulfilled) and affects the fair value of the liability. The Company derives these inputs, which vary widely by product, attained age, policy duration, benefits in the money and the existence of surrender charges, from experience and industry data.
The Company offers certain indexed life insurance and annuity products for which the policyholders’ interest credits are based on market performance with caps and floors. The interest credits represent embedded derivatives within the insurance contract and therefore are required to be separated and valued apart from the host contracts. The embedded derivatives are held at fair value. Subsequent changes in the fair value of the embedded derivatives are recognized in results of operations as a component of interest credited to policyholder account values. The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the valuation of the embedded derivatives incorporate numerous unobservable assumptions including, but not limited to, mortality, lapse rates and index volatility. The assumptions used to calculate the fair value of embedded derivatives are based on actual experience and industry data and are reviewed as part of an annual comprehensive study of assumptions. Quarterly, consideration is given as to whether adjustments to these assumptions are necessary.
Traditional life and other insurance products. The process of calculating reserve amounts for traditional life insurance products involves the use of a number of assumptions, including those related to persistency (the percentage of insurance policies remainingin-force from year to year), mortality, morbidity, interest rates and certain other expenses.
The liability for future policy benefits and claims for traditional life insurance policies was determined using the net level premium method, with a weighted average interest rate of 6.6% for the years ended December 31, 2017 and 2016 and estimates of mortality, morbidity, investment yields and persistency that were used or being experienced at the time the policies were issued, with a provision for adverse deviation.
The liability for future policy benefits for certain annuities with life contingencies was calculated using the present value of future benefits and certain expenses, discounted using weighted average interest rates of 4.8% and 4.6% for the years ended December 31, 2017 and 2016, respectively, with a provision for adverse deviation.
The Company offers certain short duration traditional insurance, consisting primarily of accident and health contracts. These short duration insurance contracts are subject to an internal modified coinsurance treaty where activity including premiums, investment income, losses paid and adjustments to reserves, dividends paid and expenses incurred are ceded from NLIC to NMIC. The Company’s reserve for short duration contracts was $70 million and $72 million as of December 31, 2017 and 2016, respectively.
Advances under FHLB funding agreements. The Company issues fixed and floating rate funding agreements to the Federal Home Loan Bank of Cincinnati (“FHLB”). The liabilities for such funding agreements are treated as annuities under Ohio law and recorded in future policy benefits and claims. The amount of collateralized funding agreements outstanding with the FHLB as of December 31, 2017 and 2016 was $2.0 billion and $2.3 billion, respectively. In connection with an FHLB requirement for funding agreements, the Company held $47 million of FHLB stock as of December 31, 2017 and 2016.
Reinsurance Ceded
The Company cedes insurance to other companies in order to limit potential losses and to diversify its exposures. The Company obtains reinsurance from a diverse group of reinsurers and monitors concentration as well as financial strength ratings of the reinsurers to minimize counterparty credit risk. Such agreements do not relieve the original insurer from its primary obligation to the policyholder in the event the reinsurer is unable to meet the obligations it has assumed. On an ongoing basis, the Company monitors the financial condition of reinsurers. Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported in the consolidated balance sheets on a gross basis, separately from the related future policy benefits and claims of the Company.
F-9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Amounts recoverable from reinsurers are estimated in a manner consistent with future policy benefits and claims reserves. The Company reports its reinsurance recoverables net of any allowance for estimated uncollectible reinsurance recoverables, if deemed necessary. The Company’s consideration is based upon ongoing reviews of amounts outstanding, changes in reinsurer credit standings and other relevant factors.
Under the terms of contracts held with certain unaffiliated reinsurers, specified assets have been placed in trusts as collateral for the recoveries. The trust assets are invested in investment grade securities, the fair value of which must at all times be greater than or equal to 100% of the reinsured reserves, as outlined in the underlying reinsurance contracts.
Deferred Policy Acquisition Costs
The Company has deferred certain acquisition costs that are directly related to the successful acquisition of new and renewal insurance and investment contracts. The methods and assumptions used to amortize and assess recoverability of the DAC balance depend on the type of product.
Investment and universal life insurance products. For certain investment and universal life insurance products, DAC is amortized with interest over the lives of the policies in relation to the present value of estimated gross profits, which is determined primarily from projected interest margins, policy charges and net realized investment gains and losses, less policy benefits and other expenses. The DAC asset related to investment and universal life insurance products is adjusted to reflect the impact of unrealized gains and losses onavailable-for-sale securities, with the corresponding adjustment recorded in accumulated other comprehensive income (“AOCI”). This adjustment to DAC represents the change in amortization that would have been required as a charge or credit to results of operations had such unrealized amounts been realized. DAC for investment and universal life insurance products is subject to recoverability testing in the year of policy issuance, and DAC for universal life insurance products is also subject to loss recognition testing annually.
The assumptions used in the estimation of gross profits are based on the Company’s current best estimates of future events and are reviewed as part of an annual comprehensive study of assumptions. The most significant assumptions that are involved in the estimation of future gross profits include future net general and separate account investment performance, surrender/lapse rates, interest margins, renewal premiums and mortality. Quarterly, consideration is given as to whether adjustments to these assumptions are necessary. The Company uses a reversion to the mean process to determine the assumption for the future net separate account investment performance. This process assumes different performance levels over the next three years, such that the separate account mean return, measured from the anchor date to the end of the life of the product, equals the long-term assumption. The Company’s long-term assumption for net separate account investment performance is approximately 6.25% growth per year as of December 31, 2017.
Changes in assumptions can have a significant impact on the amount of DAC reported for investment and universal life insurance products and on their related amortization patterns. In the event actual experience differs from assumptions or future assumptions are revised, the Company will record an increase or decrease in DAC amortization expense, which could be significant.
Traditional life insurance products. DAC is amortized with interest over thepremium-paying period of the related policies in proportion to premium revenue recognized. These assumptions are consistent with those used in the calculation of liabilities for future policy benefits at issuance. DAC is evaluated for recoverability in the year of policy issuance, and loss recognition testing is conducted annually.
Refer to Note 6 for discussion regarding DAC amortization and related balances.
Investments
Available-for-sale securities.Available-for-sale securities are reported at fair value, with unrealized gains and losses reported as a separate component of other comprehensive income, net of adjustments for DAC, future policy benefits and claims, policyholder dividend obligations and deferred federal income taxes. Realized gains and losses on sales ofavailable-for-sale securities are recognized in income based on the specific identification method. Interest and dividend income is recognized in net investment income when earned.
As of December 31, 2017 and 2016, 99% of fixed maturity securities were priced using externally sourced data. Independent pricing services are most often utilized (85% and 86% as of December 31, 2017 and 2016, respectively), and compared to pricing from additional sources, to determine the fair value of securities for which market quotations or quotations on comparable securities are available. For these securities, the Company obtains the pricing services’ methodologies and classifies the investments accordingly in the fair value hierarchy.
F-10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
A corporate pricing matrix is used in valuing certain corporate debt securities. The corporate pricing matrix was developed using publicly and privately available spreads for privately placed corporate securities with varying weighted average lives and credit quality ratings. The weighted average life and credit quality rating of a particular fixed maturity security to be priced using this matrix are important inputs into the model and are used to determine a corresponding spread that is added to the appropriate U.S. Treasury yield to create an estimated market yield for that security. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular security.
Non-binding broker quotes are also utilized to determine the fair value of certain fixed maturity securities when deemed appropriate or when quotes are not available from independent pricing services or a corporate pricing matrix. These securities are classified with the lowest priority in the fair value hierarchy as only one broker quote is ordinarily obtained, the investment is not traded on an exchange, the pricing is not available to other entities and/or the transaction volume in the same or similar investments has decreased. Inputs used in the development of prices are not provided to the Company by the brokers, as the brokers often do not provide the necessary transparency into their quotes and methodologies. At least annually, the Company performs reviews and tests to ensure that quotes are a reasonable estimate of the investments’ fair value. Price movements of broker quotes are subject to validation and require approval from the Company’s management. Management uses its knowledge of the investment and current market conditions to determine if the price is indicative of the investment’s fair value.
When the collectability of contractual interest payments on fixed maturity securities is considered doubtful, such securities are placed innon-accrual status and any accrued interest is excluded from investment income. These securities are not restored to accrual status until the Company determines that future payment of principal and interest is probable.
The Company has entered into securities lending agreements with a custodial bank whereby eligible securities are loaned to third parties, primarily major brokerage firms. These transactions are used to generate additional income in the securities portfolio. The Company is entitled to receive from the borrower any payments of interest and dividends received on loaned securities during the loan term. The agreements require a minimum of 102% of the fair value of the loaned securities to be held as collateral. Cash collateral is invested by the custodial bank in investment-grade securities, which are included in the total investments of the Company. Additionally, the Company may receivenon-cash collateral, which would be recordedoff-balance sheet. As of December 31, 2017 and 2016, the fair value of the securities received as collateral and recordedoff-balance sheet is $43 million and $331 million, respectively. The Company recognizes loaned securities inavailable-for-sale investments. A securities lending payable is recorded in other liabilities for the amount of cash collateral received. Net income received from securities lending activities is included in net investment income. As of December 31, 2017 and 2016, the fair value of loaned securities was $348 million and $541 million, respectively.
For investments in certain residential and commercial mortgage-backed securities, the Company recognizes income and amortizes discounts and premiums using the effective-yield method, based on prepayment assumptions and the estimated economic life of the securities. When actual prepayments differ significantly from estimated prepayments, the effective-yield is recalculated to reflect actual payments to date and anticipated future payments. Any resulting adjustment is included in net investment income in the period the estimates are revised. All other investment income is recorded using the effective-yield method without anticipating the impact of prepayments.
The Company periodically reviews itsavailable-for-sale securities to determine if any decline in fair value to below amortized cost is other-than-temporary. Factors considered in determining whether a decline is other-than-temporary include the length of time a security has been in an unrealized loss position, the severity of the unrealized loss, reasons for the decline in value and expectations for the amount and timing of a recovery in fair value.
In assessing corporate debt securities for other-than-temporary impairment (“OTTI”), the Company evaluates the ability of the issuer to meet its debt obligations, the value of the company or specific collateral securing the debt, the Company’s intent to sell the security and whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost basis. The Company evaluates U.S. government and agencies and obligations of states and political subdivisions securities for OTTI by examining similar characteristics.
Mortgage-backed securities are assessed for impairment using default estimates based on loan level data, where available. Where loan level data is not available, a proxy based on collateral characteristics is used. The impairment assessment considers loss severity as a function of multiple factors, including unpaid balance, interest rate, mortgage insurance ratios, assessed property value at origination, change in property value,loan-to-value (“LTV”) ratio at origination and prepayment speeds. Cash flows generated by the collateral are then utilized, along with consideration of the instrument’s position in the overall structure, to determine cash flows associated with the security.
F-11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Certain asset-backed securities are assessed for impairment using expected cash flows based on various inputs, including default estimates based on the underlying corporate securities, historical and forecasted loss severities or other market inputs when recovery estimates are not feasible. When the collateral is regional bank and insurance company trust preferred securities, default estimates used to estimate cash flows are based on U.S. Bank Rating service data and broker research.
The Company evaluates its intent to sell on an individual security basis. OTTI losses on securities when the Company does not intend to sell the security and it is not more likely than not it will be required to sell the security prior to recovery of the security’s amortized cost basis are bifurcated, with the credit related portion of the impairment loss being recognized in results of operations and thenon-credit related portion of the impairment loss and any subsequent changes in the fair value of those debt securities being recognized in other comprehensive income, net of applicable taxes and other offsets. To estimate the credit related portion of an impairment loss recognized in results of operations, the Company considers the present value of the cash flows. To the extent that the present value of cash flows generated by a debt security is less than the amortized cost, an OTTI is recognized through results of operations.
It is possible that further declines in fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further OTTI, which could be significant.
The Company invests in fixed maturity securities that could qualify as VIEs, including corporate securities, mortgage-backed securities and asset-backed securities. The Company is not the primary beneficiary of these securities as the Company does not have the power to direct the activities that most significantly impact the entities’ performance. The Company’s potential loss is limited to the carrying values of these securities. There are no liquidity arrangements, guarantees or other commitments by third parties that affect the fair value of the Company’s interest in these assets.
Mortgage loans, net of allowance. The Company holds commercial mortgage loans that are collateralized by properties throughout the U.S. These mortgage loans are categorized into the following property types: office, industrial, retail, hotel, apartment and other. Mortgage loansheld-for-investment are held at amortized cost less a valuation allowance for losses.
As part of the underwriting process, specific guidelines are followed to ensure the initial quality of each new mortgage loan. Third-party appraisals are obtained to support loaned amounts, as the loans are usually collateral dependent.
The collectability of a mortgage loan is based on the ability of the borrower to repay and/or the value of the underlying collateral. The Company’s commercial mortgage loans are typically structured with balloon payment maturities, exposing the Company to risks associated with the borrower’s ability to make the balloon payment upon maturity of such loan or refinance the property.
Mortgage loans require a loan-specific reserve when, based on current information and events, the value of the property collateral is determined to be less than the current carrying value and it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. When management determines that a mortgage loan requires a loan-specific reserve, a provision for loss is established equal to the difference between the carrying value and either the fair value of the collateral less costs to sell or the present value of expected future cash flows, discounted at such loan’s effective interest rate. Loan-specific reserve charges are recorded in net realized investment gains and losses. In the event a loan-specific reserve charge is reversed, the recovery is also recorded in net realized investment gains and losses.
In addition to the loan-specific reserves, the Company maintains anon-specific reserve based primarily on property type,loan-to-value and loan surveillance categories. Thisnon-specific reserve reflects management’s best estimates of probable losses inherent in the portfolio for mortgage loans without specific reserves as of the balance sheet date. Management’s periodic evaluation of the adequacy of thenon-specific reserve is based on historical loan loss experience, the composition of the loan portfolio, current economic conditions and other relevant factors.Non-specific reserve changes are recorded in net realized investment gains and losses.
Management evaluates the credit quality of individual commercial mortgage loans and the portfolio as a whole through a number of loan quality measurements, including but not limited to LTV and debt service coverage (“DSC”) ratios. The LTV ratio is calculated as a ratio of the amortized cost of a loan to the estimated value of the underlying collateral. DSC is the amount of cash flow generated by the underlying collateral of the mortgage loan available to meet periodic interest and principal payments of the loan. These loan quality measurements contribute to management’s assessment of relative credit risk in the commercial mortgage loan portfolio. Based on underwriting criteria and ongoing assessment of the properties’ performance, management believes the amounts, net of valuation allowance, are collectible. This process identifies the risk profile and potential for loss individually and in the aggregate for the commercial mortgage loan portfolios. These factors are updated and evaluated at least annually.
F-12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Interest income on performing mortgage loans is recognized in net investment income over the life of the loan using the effective-yield method. Loans in default or in the process of foreclosure are placed onnon-accrual status. Interest onnon-accrual status mortgage loans is included in net investment income in the period collected. Loans are restored to accrual status when the principal and interest is current and it is determined the future principal and interest payments are probable or when the loan is modified. Loans are considered delinquent when contractual payments are 90 days past due.
Policy loans. Policy loans, which are collateralized by the related insurance policy, are held at the outstanding principal balance and do not exceed the net cash surrender value of the policy. As such, no valuation allowance for policy loans is required.
Short-term investments. Short-term investments consist primarily of highly liquid mutual funds and government agency discount notes with maturities of twelve months or less at acquisition. The Company and various affiliates maintain agreements with Nationwide Cash Management Company (“NCMC”), an affiliate, under which NCMC acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC for the benefit of the Company are included in short-term investments on the consolidated balance sheets. The Company carries short-term investments at fair value.
Other investments. Other investments consist primarily of alternative investments in hedge funds, private equity funds, private and emerging market debt funds, tax credit funds and real estate partnerships accounted for under the equity method, as well as trading securities, equity securities and capital stock with the FHLB. The Company appliesmark-to-market accounting to trading securities and recognizes changes in fair value in net realized investment gains and losses.
The Company holds alternative investments as described above and applies the equity method of accounting to these investments as it does not have a controlling financial interest. The Company recognizes income or losses from equity method investments in net investment income. These equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the investment might not be recoverable. The Company’s unfunded commitments related to alternative investments were $787 million and $495 million as of December 31, 2017 and 2016, respectively. The carrying value of alternative investments was $582 million and $362 million as of December 31, 2017 and 2016, respectively.
In the normal course of business, the Company has relationships with VIEs. If the Company determines that it has a variable interest and is the primary beneficiary, it consolidates the VIE. The Company is the primary beneficiary if the Company has the power to direct the activities of the VIE that most significantly impact the economic performance of the entity and the obligation to absorb losses or receive benefits from the entity that could be potentially significant to the VIE. This determination is based on a review of the entity’s contract and other deal-related information, such as the entity’s equity investment at risk, decision-making abilities, obligations to absorb economic risks and right to receive economic rewards of the entity.
Consolidated VIEs are primarily made up of tax credit funds whereby the Company serves as the managing member and has guaranteedafter-tax benefits to third party investors. The Company has sold $1.7 billion and $1.5 billion in tax credit funds to unrelated third parties as of December 31, 2017 and 2016, respectively. These guaranteedafter-tax benefits are provided through periods ending in 2036 and are in effect for periods of approximately 15 years each. The tax credit funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. If the tax benefits are not sufficient to provide these cumulativeafter-tax yields, the Company must fund any shortfall. The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $987 million, but the Company does not anticipate making any material payments related to the guarantees. The Company’s risks are mitigated in the following ways: (1) the Company has the right to buyout the equity related to the guarantee under certain circumstances, (2) the Company may replace underperforming properties to mitigate exposure to guarantee payments, (3) the Company oversees the asset management of the deals and (4) changes in tax laws are explicitly excluded from the Company’s guarantees ofafter-tax benefits.
F-13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Net assets (controlling and noncontrolling interests) of all consolidated VIEs totaled $738 million and $667 million as of December 31, 2017 and 2016, respectively, and are included within the consolidated balance sheets primarily as other investments of $680 million, other assets of $189 million and other liabilities of $158 million as of December 31, 2017, and other investments of $614 million, other assets of $77 million and other liabilities of $67 million as of December 31, 2016. The Company’s general credit is not exposed to the creditors or beneficial interest holders of these consolidated VIEs. The results of operations and financial positions of each VIE for which the Company is the primary beneficiary, as well as the corresponding noncontrolling interests, are recorded in the consolidated financial statements. Ownership interests held by unrelated third parties in the consolidated VIEs are presented as noncontrolling interests in the equity section of the consolidated financial statements. Losses attributable to noncontrolling interests are excluded from the net income attributable to the Company on the consolidated statements of operations.
The Company is not required and does not intend to provide financial or other support outside of contractual requirements to any VIE.
Derivative Instruments
The Company uses derivative instruments to manage exposures and mitigate risks primarily associated with interest rates, equity markets and foreign currency. These derivative instruments primarily include interest rate swaps, futures contracts and options. All derivative instruments are held at fair value and are reflected as other assets or liabilities in the consolidated balance sheets.
The fair value of derivative instruments is determined using various valuation techniques relying predominantly on observable market inputs. These inputs include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels. In cases where observable inputs are not available, the Company will utilizenon-binding broker quotes to determine fair value, and these instruments are classified accordingly in the fair value hierarchy. Price movements of these broker quotes are subject to validation and require approval from the Company’s management. Management uses models to internally value the instruments for comparison to the values received through broker quotes.
For derivatives that are not designated for hedge accounting, the gain or loss on the derivative is recognized in net realized investment gains and losses.
For derivative instruments that are designated and qualify for cash flow hedge accounting, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into results of operations in the same period or periods that the hedged transaction impacts results of operations. The ineffective portion of the derivative’s change in value, if any, along with any of the derivative’s change in value that is excluded from the assessment of hedge effectiveness, are recorded in net realized investment gains and losses.
The Company’s derivative transaction counterparties are generally financial institutions. To reduce the credit risk associated with open contracts, the Company enters into master netting agreements, which permit the closeout and netting of transactions with the same counterparty upon the occurrence of certain events. In addition, the Company attempts to reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral vary based on an assessment of the credit risk of the counterparty. The Company accepts collateral in the forms of cash and marketable securities.Non-cash collateral received is recordedoff-balance sheet.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In determining fair value, the Company uses various methods, including market, income and cost approaches.
The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. 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 in its entirety.
F-14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The Company categorizes assets and liabilities held at fair value in the consolidated balance sheets as follows:
Level 1. Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date and mutual funds, where the value per share (unit) is determined and published daily and is the basis for current transactions.
Level 2. Unadjusted quoted prices for similar assets or liabilities in active markets or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable market data through correlation or other means. Primary inputs to this valuation technique may include comparative trades, bid/asks, interest rate movements, U.S. Treasury rates, London Interbank Offered Rate (“LIBOR”), prime rates, cash flows, maturity dates, call ability, estimated prepayments and/or underlying collateral values.
Level 3. Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimates of the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs.
The Company reviews its fair value hierarchy classifications for assets and liabilities quarterly. Changes in the observability of significant valuation inputs identified during these reviews may trigger reclassifications. Reclassifications are reported as transfers at the beginning of the period in which the change occurs.
Fair Value Option.The Company assesses the fair value option election for newly acquired assets or liabilities on a prospective basis. There are no material assets or liabilities for which the Company has elected the fair value option.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of less than three months.
Goodwill
In connection with business acquisitions, the Company recognizes goodwill as the excess of the purchase price or fair value of consideration exchanged over the fair values of tangible assets acquired, liabilities assumed and separately identified intangible assets. Goodwill is not amortized, but is evaluated for impairment at the reporting unit level annually or on an interim basis, in addition to the annual evaluation, if an event occurs or circumstances change which would more likely than not reduce the fair value of a reporting unit below its carrying amount. If a reporting unit’s fair value is less than its carrying value, the Company will calculate implied goodwill. Goodwill is impaired at the reporting unit level if its carrying value exceeds the implied value of its goodwill.
The process of evaluating goodwill for impairment requires several judgments and assumptions to be made to determine the fair value of the reporting units, including the method used to determine fair value, discount rates, expected levels of cash flows, revenues and results of operations, and the selection of comparable companies used to develop market-based assumptions. The carrying value of goodwill was $269 million and $200 million as of December 31, 2017 and 2016, respectively, and is included in other assets in the consolidated balance sheets. There were no impairments to goodwill as of December 31, 2017 and 2016. Total additions to goodwill was $69 million for the year ended December 31, 2017 and there was no addition to goodwill for the year ended December 31, 2016.
Closed Block
In connection with the sponsored demutualization of Provident Mutual Life Insurance Company (“Provident”) prior to its acquisition by the Company, Provident established a closed block for the benefit of certain classes of individual participating policies that had a dividend scale payable in 2001. Assets were allocated to the closed block in an amount that produces cash flows which, together with anticipated revenues from closed block business, is reasonably expected to be sufficient to provide for (1) payment of policy benefits, specified expenses and taxes, and (2) the continuation of dividends throughout the life of the Provident policies included in the closed block based upon the dividend scales payable for 2001, if the experience underlying such dividend scales continues.
Assets allocated to the closed block benefit only the holders of the policies included in the closed block and will not revert to the benefit of the Company. No reallocation, transfer, borrowing or lending of assets can be made between the closed block and other portions of the Company’s general account, any of its separate accounts, or any affiliate of the Company without the approval of the Pennsylvania Insurance Department and the Ohio Department of Insurance (“ODI”). The closed block will remain in effect as long as any policy in the closed block is in force.
F-15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
If, over time, the aggregate performance of the closed block assets and policies is better than was assumed in funding the closed block, dividends to policyholders will increase. If, over time, the aggregate performance of the closed block assets and policies is less favorable than was assumed in the funding, dividends to policyholders could be reduced. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from the Company’s assets outside of the closed block, which are general account assets.
The assets and liabilities allocated to the closed block are recorded in the Company’s consolidated financial statements on the same basis as other similar assets and liabilities. The carrying amount of closed block liabilities in excess of the carrying amount of closed block assets at the date Provident was acquired by the Company represents the maximum future earnings from the assets and liabilities designated to the closed block that can be recognized in income, for the benefit of stockholders, over the period the policies in the closed block remain in force.
If actual cumulative earnings exceed expected cumulative earnings, the expected earnings are recognized in income. This is because the excess actual cumulative earnings over expected cumulative earnings, which represents undistributed accumulated earnings attributable to policyholders, is recorded as a policyholder dividend obligation. Therefore, the excess will be paid to closed block policyholders as an additional policyholder dividend expense in the future, unless it is otherwise offset by future performance of the closed block that is less favorable than originally expected. If actual cumulative performance is less favorable than expected, actual earnings will be recognized in income.
The principal cash flow items that affect the amount of closed block assets and liabilities are premiums, net investment income, purchases and sales of investments, policyholder benefits, policyholder dividends, premium taxes and income taxes. The principal income and expense items excluded from the closed block are management and maintenance expenses, commissions and net investment income and realized gains and losses on investments held outside of the closed block that support the closed block business, all of which enter into the determination of total gross margins of closed block policies. See Note 11 for further disclosure.
Separate Accounts
Separate account assets and liabilities represent contractholders’ funds that have been legally segregated into accounts with specific investment objectives. In the separate account, investment income and gains and losses on investments accrue directly to, and investment risk is borne by, the contractholder. Separate account assets are recorded at fair value, with the value of separate account liabilities set to equal the fair value of separate account assets. Separate account assets are primarily comprised of public, privately-registered andnon-registered mutual funds, whose fair value is primarily based on the funds’ net asset value (“NAV”). Other separate account assets are recorded at fair value based on the methodology that is applicable to the underlying assets.
Federal Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce a deferred tax asset to the amount expected to be realized. Interest expense and any associated penalties which relate to tax years still subject to review by the Internal Revenue Service (“IRS”) are recorded as income tax expenses.
The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to change the provision for federal income taxes recorded in the consolidated financial statements, which could be significant.
Tax reserves are reviewed regularly and are adjusted as events occur that the Company believes impact its liability for additional taxes, such as the lapsing of applicable statutes of limitations, conclusion of tax audits or substantial agreement with taxing authorities on the deductibility/nondeductibility of uncertain items, additional exposure based on current calculations, identification of new issues, release of administrative guidance or rendering of a court decision affecting a particular tax issue. The Company believes its tax reserves reasonably provide for potential assessments that may result from IRS examinations and othertax-related matters for all open tax years.
F-16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was signed into law and is effective January 1, 2018. Impacts to the Company include a reduction in the corporate tax rate from 35% to 21%, repeal of the corporate alternative minimum tax (“AMT”) and other changes to the corporate tax rules. Upon the enactment of these tax law changes, the Company remeasured deferred tax assets and liabilities and assessed its investment portfolio for impairment. As a result of the Act, the Company recognized $530 million of federal income tax benefit and immaterial net realized investment loss in the statement of operations for the year ended December 31, 2017. Additional provisions of the Act will apply to taxable years beginning after December 31, 2017, but were not effective as of the enactment date. Certain of these provisions, which include a reduced dividends received deduction, may adversely affect the Company’s future effective tax rate, taxable income and income tax expense.
Under the Act, the Company can continue to use AMT credit carryforwards to offset tax liability. To the extent that AMT credit carryovers exceed tax liabilities, 50% of the excess AMT credit carryovers are refundable prior to 2021. Any remaining AMT credits will be fully refundable in 2021. As a result, the Company has reclassified $253 million of AMT credit carryforwards, net of government fees of $11 million, as an income tax receivable.
The valuation of deferred tax assets and liabilities related to life insurance reserves based on changes in the Act reflects the Company’s best estimates and assumptions at this time. The Company is in the process of finalizing inputs to these valuations, which includes further analysis on estimates within life insurance reserves; thus, the provisional measurements of deferred tax assets and liabilities are subject to change. These valuations will be finalized in 2018. The Company has recorded $134 million of provisional amounts in both deferred tax assets and deferred tax liabilities. There is no impact to net deferred tax liabilities.
Refer to Note 7 and Note 14 for additional discussion on the impact of the Act on the Company’s investments and federal income taxes, respectively.
The Company files with the NMIC consolidated federal income tax return.
Participating Business
Participating business, which refers to policies that participate in profits through policyholder dividends, represented approximately 3% of the Company’s life insurance in force in 2017, 2016 and 2015 and 31% of the number of life insurance policies in force in 2017 (33% in 2016 and 35% in 2015). The provision for policyholder dividends was based on the respective year’s dividend scales and has been included in future policy benefits and claims in the consolidated balance sheets.
Subsequent Events
The Company evaluated subsequent events through February 27, 2018, the date the consolidated financial statements were issued.
(3) | Recently Issued Accounting Standards |
Adopted Accounting Standards
On January 1, 2017, the Company adopted ASU2015-09,Financial Services- Insurance: Disclosures about Short-Duration Contracts, which amends ASC 944, Financial Services-Insurance, on short duration insurance contracts.This guidance requires additional disclosures of disaggregated incurred and paid claims development information, as well as any significant changes in methodologies or assumptions and claims frequency. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
On January 1, 2017, the Company adopted ASU2016-05,Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.The update clarifies that a change in the hedging derivative’s counterparty does not by itself triggerde-designation of a hedging relationship, provided that all other hedge accounting criteria continue to be met. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
On January 1, 2017, the Company adopted ASU2016-06,Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments.The update clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is required to perform only the four-step decision sequence as amended by the ASU. Consequently, the Company does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. The adoption of this guidance had no impact on the Company’s consolidated financial statements.
F-17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
On January 1, 2017, the Company adopted ASU2016-07,Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting.The update simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualified for such accounting as a result of an increase in the level of ownership interest or degree of influence. Consequently, when an investment qualifies for the equity method, the cost of acquiring the additional interest in the investee is added to the current basis of the investor’s previously held interest, and the equity method is applied subsequently from the date on which the investor obtains the ability to exercise significant influence over the investee. Unrealized holding gains or losses in AOCI related to anavailable-for-sale security that becomes eligible for the equity method are recognized in earnings as of the date on which the investment qualifies for the equity method. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
On January 1, 2017, the Company adopted ASU2016-17,Interests Held through Related Parties That Are under Common Control. The update amends existing GAAP consolidations guidance by requiring a reporting entity to evaluate its indirect economic interest in a VIE held through a related party under common control on a proportionate basis. The adoption of this guidance had no impact on the Company’s consolidated financial statements.
On February 14, 2018, the FASB issued ASU2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for the option to reclassify the stranded tax effects resulting from the Act from AOCI to retained earnings. The Company early adopted this guidance by applying a cumulative effect adjustment to the consolidated balance sheet, effective December 31, 2017. This resulted in an increase in AOCI of $232 million and a decrease in retained earnings of $232 million.
Pending Accounting Standards
In May 2014, the FASB issued ASU2014-09,Revenue from Contracts with Customers. The amended guidance develops a single standard to recognize revenue when the identified performance obligation is satisfied. In August 2015, the FASB issued ASU2015-14,Deferral of the Effective Date, which deferred the effective date of ASU2014-09 by one year for all entities. In March, April and May 2016, the FASB issued ASU2016-08,Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU2016-10,Revenue from Contracts with Customers: Identifying Performance Obligations and Licenses, and ASU2016-12,Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients, respectively. These amendments clarify guidance on transition, collectability, noncash consideration and the presentation of sales taxes and other similar taxes. In December 2016, the FASB issued ASU2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amended guidance provides clarification and correction of unintended application of ASU2014-09,Revenue from Contracts with Customers. The Company will adopt ASU2014-09,2016-08,2016-10,2016-12 and2016-20 for annual periods beginning January 1, 2018. Adoption of the above guidance will not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU2016-01,Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Liabilities.The amended guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses onavailable-for-sale debt securities. The Company will adopt the ASU for annual periods beginning January 1, 2018. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU2016-02,Leases Section A – Leases.The amended guidance introduces a new standard on leases that requires recognition of assets and liabilities arising from all leasing arrangements on the balance sheet. The Company will adopt the ASU for annual periods beginning January 1, 2019. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU2016-13,Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.The guidance introduces a new approach for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. It also modifies the impairment model foravailable-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The Company will adopt the ASU for annual periods beginning January 1, 2020. The Company is currently in the process of determining the impact of adoption.
F-18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
In August 2016, the FASB issued ASU2016-15,Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (a Consensus of the Emerging Issues Task Force). The amended guidance clarifies how certain transactions should be classified in the statement of cash flows. The Company will adopt the ASU for annual periods beginning January 1, 2018. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU2017-12,Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.The amendments expand hedge accounting for nonfinancial and financial risk components and revise the measurement methodologies to better align with an organization’s risk management activities. In addition, the amendments reduce complexity by simplifying the manner in which assessments of hedge effectiveness may be performed. The guidance is effective for interim and annual periods beginning after December 15, 2018 and should be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
(4) | Business Combinations |
On March 1, 2017 (“acquisition date”), the Company completed its acquisition of JNF. The Company acquired 100% of the stock of JNF for a total consideration of $201 million in cash. As a result of the acquisition, JNF and its subsidiaries became wholly-owned subsidiaries of Nationwide. JNF, based in Louisville, Kentucky, is a distributor oftax-advantaged investing solutions for registered investment advisors,fee-based advisors and the clients they serve. JNF’s wholly-owned subsidiaries include Jefferson National Life Insurance Company (“JNL”), Jefferson National Life Insurance Company of New York (“JNLNY”) and Jefferson National Securities Corporation (“JNSC”). JNL and JNLNY are licensed to underwrite both fixed and variable annuity products. JNSC is a registered broker-dealer.
The following table summarizes the consideration paid for JNF and the fair values of the assets acquired and liabilities assumed as of the acquisition date:
(in millions) | ||||
Assets | ||||
Total investments | $ | 512 | ||
Cash and cash equivalents | 15 | |||
Accrued investment income | 4 | |||
Reinsurance recoverables, net of allowance1 | 487 | |||
Goodwill1 | 69 | |||
Other intangibles1,2 | 80 | |||
Other assets | 6 | |||
Separate account assets | 4,349 | |||
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Total assets acquired | $ | 5,522 | ||
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Liabilities | ||||
Future policy benefits and claims | $ | 696 | ||
Long-term debt | 95 | |||
Other liabilities | 181 | |||
Separate account liabilities | 4,349 | |||
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Total liabilities assumed | $ | 5,321 | ||
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Total consideration | $ | 201 | ||
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1 | Included in other assets in the consolidated balance sheets. |
2 | Primarily includes valuation of business acquired. |
As a result of the JNF acquisition, the Company recorded goodwill representing the excess of the fair value of consideration exchanged over the fair value of tangible assets acquired, liabilities assumed and separately identified intangible assets.
The determination of fair value of the assets acquired, liabilities assumed and purchase consideration reflects the Company’s best estimates and assumptions. The Company is in the process of finalizing valuations of certain intangible assets as integration efforts of JNF are not yet completed; thus, the provisional measurements of intangible assets and goodwill are subject to change.
F-19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table presents unaudited financial information regarding JNF operations included in the Company’s consolidated statements of operations from the acquisition date to the period ending December 31, 2017. The following table also presents unaudited pro forma information as if JNF had been included in the consolidated results of the Company for the entire years ended December 31, 2017, 2016 and 2015. The pro forma information combines the historical consolidated results of the Company and JNF for the periods presented.
Actual from acquisition date through | Pro forma for twelve months ended December 31, | |||||||||||||||
(in millions) | December 31, 2017 | 2017 | 2016 | 2015 | ||||||||||||
Revenue | $ | 26 | $ | 5,619 | $ | 5,072 | $ | 5,113 | ||||||||
Net Income (Loss) | (6 | ) | 1,310 | 783 | 935 | |||||||||||
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F-20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(5) | Certain Long-Duration Contracts |
Variable Annuity Contracts
The Company provides various forms of guarantees to benefit the related contractholders of variable annuity contracts issued through general and separate accounts. The primary guarantee types include GMDB and GLWB.
The GMDB, offered on variable annuity contracts, provides a specified minimum return upon death. Many of these death benefits are spousal, whereby a death benefit will be paid upon death of the first spouse. The survivor has the option to terminate the contract or continue it by having the death benefit paid into the contract and having a second death benefit paid upon the survivor’s death.
The GLWB, primarily offered in the Company’s Lifetime Income products, are living benefits that provide for enhanced retirement income security without the liquidity loss associated with annuitization. The withdrawal rates vary based on the age when withdrawals begin and are applied to a benefit base to determine the guaranteed lifetime income amount available to a contractholder. The benefit base is equal to the variable annuity premium at contract issuance and may increase as a result of a feature driven by minimum return and contract duration.
Other guarantee types the Company previously offered include guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum income benefits (“GMIB”). The GMAB is a living benefit that provides the contractholder with a guaranteed return of deposits, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years). The GMIB is a living benefit that provides the contractholder with a guaranteed annuitization stream of income. The separate account value subject to GMAB was $291 million and $359 million for the years ended December 31, 2017 and December 31, 2016, respectively. The net amount at risk, general account value and reserve balances for GMAB were immaterial as of December 31, 2017 and 2016. The separate account value subject to GMIB was $355 million and $347 million for the years ended December 31, 2017 and December 31, 2016, respectively. The general account value subject to GMIB was $46 million and $47 million as of December 31, 2017 and 2016, respectively. The net amount at risk and reserve balances for GMIB were immaterial as of December 31, 2017 and 2016. Paid claims for GMAB and GMIB were immaterial for the years ended December 31, 2017 and 2016.
The following table summarizes information regarding variable annuity contracts with GMDB and GLWB invested in general and separate accounts, as of the dates indicated (a contract may contain multiple guarantees):
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
(in millions) | General account value | Separate account value | Net amount at risk1 | Average age2 | General account value | Separate account value | Net amount at risk1 | Average age2 | ||||||||||||||||||||||||
Contracts with GMDB: | ||||||||||||||||||||||||||||||||
Return of net deposits | $ | 842 | $ | 32,313 | $ | 16 | 67 | $ | 922 | $ | 27,459 | $ | 76 | 66 | ||||||||||||||||||
Minimum return or anniversary contract value | 1,764 | 33,337 | 347 | 71 | 1,813 | 31,380 | 555 | 71 | ||||||||||||||||||||||||
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Total contracts with GMDB | $ | 2,606 | $ | 65,650 | $ | 363 | 69 | $ | 2,735 | $ | 58,839 | $ | 631 | 69 | ||||||||||||||||||
Contracts with GLWB: | ||||||||||||||||||||||||||||||||
Minimum return or anniversary contract value | $ | 84 | $ | 39,183 | $ | 104 | 68 | $ | 149 | $ | 34,974 | $ | 166 | 67 | ||||||||||||||||||
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1 | Net amount at risk is calculated on a policy-level basis and equals the respective guaranteed benefit less the account value (or zero if the account value exceeds the guaranteed benefit). |
2 | Represents the weighted average attained age of contractholders at the respective date. |
The following table summarizes the reserve balances for the primary guarantees on variable annuity contracts, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
GMDB | $ | 164 | $ | 170 | ||||
GLWB | $ | 300 | $ | 297 | ||||
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F-21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
During 2017, the Company recognized an increase in the liability for future policy benefits and claims in conjunction with the annual comprehensive review of assumptions for guarantees on variable annuity contracts, primarily related to the Company’s assumptions related to expected policyholder behavior. For the year ended December 31, 2017, the updated assumptions resulted in an increase to life insurance benefits and claims of $32 million and lower amortization of DAC of $10 million.
During 2016, the Company recognized an increase in the liability for future policy benefits and claims in conjunction with the annual comprehensive review of assumptions for guarantees on variable annuity contracts, primarily related to the Company’s assumptions related to lapses, mortality, interest rates and market rates of return. For the year ended December 31, 2016, the updated assumptions resulted in an increase to life insurance benefits and claims of $62 million and lower amortization of DAC of $21 million.
During 2015, the Company recognized a net decrease in the liability for future policy benefits and claims in conjunction with the annual comprehensive review of assumptions, primarily related to the Company’s assumptions of participant benefit utilization of the net settlement option within the GLWB. The Company updated its estimate to reduce expected utilization of the net settlement option. For the year ended December 31, 2015, the change in estimate resulted in net realized investment gains of $187 million, an increase to life insurance benefits and claims of $164 million and lower amortization of DAC of $28 million.
Paid claims for GMDB were $14 million and $36 million for the years ended December 31, 2017 and 2016, respectively. Paid claims for GLWB were immaterial for the years ended December 31, 2017 and 2016.
The following table summarizes the account balances of deferred variable annuity contracts with guarantees invested in separate accounts, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Mutual funds: | ||||||||
Bond | $ | 7,167 | $ | 5,986 | ||||
Domestic equity | 53,617 | 48,824 | ||||||
International equity | 3,874 | 3,010 | ||||||
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Total mutual funds | $ | 64,658 | $ | 57,820 | ||||
Money market funds | 992 | 1,019 | ||||||
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Total1 | $ | 65,650 | $ | 58,839 | ||||
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1 | Excludes $40.0 billion and $30.2 billion as of December 31, 2017 and 2016, respectively, of separate account assets not related to deferred variable annuity contracts with guarantees, primarily attributable to retirement plan, variable universal life and COLI products. |
Fixed Indexed Annuity Contracts
The Company offers fixed indexed annuity products with an enhanced GMDB and GLWB. As of December 31, 2017 and 2016, the fixed indexed annuity general account value was $9.8 billion and $5.3 billion, respectively. This includes $351 million and $230 million of general account value relating to contracts with the enhanced GMDB and $3.7 billion and $2.5 billion of general account value relating to contracts with GLWB as of December 31, 2017 and 2016, respectively. These enhanced GMDB reserves were immaterial and GLWB reserves were $31 million and $19 million as of December 31, 2017 and 2016, respectively. The net amount at risk for these guarantees was immaterial as of December 31, 2017 and 2016. Paid claims on contracts with these guarantees were immaterial for the years ended December 31, 2017 and 2016.
The Company conducts an annual comprehensive review of assumptions for fixed indexed annuity guarantees. For the years ended December 31, 2017, 2016 and 2015, the updated assumptions resulted in an immaterial change to life insurance benefits and claims and amortization of DAC.
Universal and Variable Universal Life Insurance Contracts
The Company offers certain universal and variable universal life insurance products withno-lapse guarantees. Theseno-lapse guarantees provide that a policy will not lapse so long as the policyholder makes minimum premium payments. The reserve balances on these guarantees were $915 million and $710 million as of December 31, 2017 and 2016, respectively. Paid claims on these guarantees were immaterial for the years ended December 31, 2017 and 2016.
F-22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
During 2017, the Company recognized an increase in the liability for future policy benefits and claims in conjunction with the annual comprehensive review of assumptions for universal and variable universal life insurance contracts withno-lapse guarantees, primarily related to the Company’s assumptions related to expected policyholder renewal premiums. For the year ended December 31, 2017, the updated assumptions resulted in an increase to life insurance benefits and claims of $42 million and lower amortization of DAC and other related balances of $22 million.
During 2016, the Company recognized an increase in the liability for future policy benefits and claims in conjunction with the annual comprehensive review of assumptions for theno-lapse guarantees, primarily related to the Company’s assumptions related to lapses, mortality and economic scenario expectations. For the year ended December 31, 2016, the updated assumptions resulted in an increase to life insurance benefits and claims of $21 million and lower amortization of DAC and other related balances of $9 million.
During 2015, the Company completed its annual comprehensive review of assumptions for universal and variable universal life insurance contracts withno-lapse guarantees. For the year ended December 31, 2015, the updated assumptions resulted in an immaterial change to life insurance benefits and claims and amortization of DAC and other related balances.
The following table summarizes information regarding universal and variable universal life insurance contracts withno-lapse guarantees invested in general and separate accounts, as of the dates indicated:
(in millions) | General account value | Separate account value | Adjusted insurance in force1 | Average age2 | ||||||||||||
December 31, 2017 | $ | 3,637 | $ | 2,350 | $ | 61,489 | 51 | |||||||||
December 31, 2016 | $ | 2,991 | $ | 2,117 | $ | 55,053 | 51 | |||||||||
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1 | The adjusted insurance in force is calculated on a policy-level basis and equals the respective guaranteed death benefit less the account value and reinsurance. |
2 | Represents the weighted average attained age of contractholders at the respective date. |
(6) | Deferred Policy Acquisition Costs |
The following table summarizes changes in the DAC balance, as of the dates indicated:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Balance at beginning of year | $ | 5,432 | $ | 5,200 | $ | 4,063 | ||||||
Capitalization of DAC | 923 | 823 | 870 | |||||||||
Amortization of DAC, excluding unlocks | (461 | ) | (412 | ) | (326 | ) | ||||||
Amortization of DAC related to unlocks | 69 | (21 | ) | 258 | ||||||||
Adjustments to DAC related to unrealized gains and losses on available-for-sale securities | (287 | ) | (158 | ) | 335 | |||||||
|
|
|
|
|
| |||||||
Balance at end of year | $ | 5,676 | $ | 5,432 | $ | 5,200 | ||||||
|
|
|
|
|
|
During 2017, the Company conducted its annual comprehensive review of model assumptions related to financial services operations used to project DAC and other related balances, including valuation of business acquired (“VOBA”) and unearned revenue reserves. As part of this review, the Company recognized a decrease in amortization for DAC of $69 million and a decrease in amortization for other related balances of $13 million. The updated assumptions were primarily related to favorable market rates of return and changes to expected future mortality. This was partially offset by updated assumptions for expected policyholder renewal premiums, persistency and lapse rates.
During 2016, the Company recognized an increase in amortization for DAC of $21 million and a decrease in amortization for other related balances of $75 million. The updated assumptions were primarily related to a decrease in expected lapse rates and mortality performance. This was partially offset by updated assumptions for persistency, interest rates and market rates of return.
During 2015, the Company recognized a decrease in amortization for DAC of $258 million and decrease in amortization for other related balances of $21 million. The updated assumptions were primarily related to revisions made to the Company’s economic hedging strategies in conjunction with the change in estimate to reduce expected utilization of the net settlement option, as well as a decrease in the expected lapse rates for certain variable annuity products.
F-23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(7) | Investments |
Available-for-Sale Securities
The following table summarizes the amortized cost, unrealized gains and losses and fair value ofavailable-for-sale securities, as of the dates indicated:
(in millions) | Amortized cost | Unrealized gains | Unrealized losses | Fair value | ||||||||||||
December 31, 2017 | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. government and agencies | $ | 358 | $ | 39 | $ | 1 | $ | 396 | ||||||||
Obligations of states, political subdivisions and foreign governments | 3,433 | 414 | 2 | 3,845 | ||||||||||||
Corporate securities | 37,643 | 2,018 | 220 | 39,441 | ||||||||||||
Residential mortgage-backed securities | 2,788 | 107 | 23 | 2,872 | ||||||||||||
Commercial mortgage-backed securities | 1,154 | 13 | 6 | 1,161 | ||||||||||||
Asset-backed securities | 2,466 | 44 | 24 | 2,486 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed maturity securities | $ | 47,842 | $ | 2,635 | $ | 276 | $ | 50,201 | ||||||||
Equity securities | 73 | 10 | 4 | 79 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalavailable-for-sale securities | $ | 47,915 | $ | 2,645 | $ | 280 | $ | 50,280 | ||||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2016 | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. government and agencies | $ | 596 | $ | 49 | $ | — | $ | 645 | ||||||||
Obligations of states, political subdivisions and foreign governments | 2,454 | 265 | 23 | 2,696 | ||||||||||||
Corporate securities | 33,086 | 1,276 | 497 | 33,865 | ||||||||||||
Residential mortgage-backed securities | 3,161 | 126 | 39 | 3,248 | ||||||||||||
Commercial mortgage-backed securities | 1,260 | 23 | 4 | 1,279 | ||||||||||||
Asset-backed securities | 1,967 | 30 | 40 | 1,957 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed maturity securities | $ | 42,524 | $ | 1,769 | $ | 603 | $ | 43,690 | ||||||||
Equity securities | 2 | 8 | — | 10 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalavailable-for-sale securities | $ | 42,526 | $ | 1,777 | $ | 603 | $ | 43,700 | ||||||||
|
|
|
|
|
|
|
|
The fair value of the Company’savailable-for-sale securities may fluctuate significantly in response to changes in interest rates, investment quality ratings and credit spreads. The Company believes the unrealized losses on theseavailable-for-sale securities represent temporary fluctuations in economic factors that are not indicative of OTTI.The Company has the ability and intent to hold equity securities until anticipated recovery and does not have the intent to sell, nor is it more likely than not that it will be required to sell, fixed maturity securities in an unrealized loss position.
F-24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table summarizes the amortized cost and fair value of fixed maturity securities, by contractual maturity, as of December 31, 2017. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without early redemption penalties.
(in millions) | Amortized cost | Fair value | ||||||
Fixed maturity securities: | ||||||||
Due in one year or less | $ | 1,391 | $ | 1,408 | ||||
Due after one year through five years | 11,337 | 11,762 | ||||||
Due after five years through ten years | 14,300 | 14,642 | ||||||
Due after ten years | 14,406 | 15,870 | ||||||
|
|
|
| |||||
Subtotal | $ | 41,434 | $ | 43,682 | ||||
Residential mortgage-backed securities | 2,788 | 2,872 | ||||||
Commercial mortgage-backed securities | 1,154 | 1,161 | ||||||
Asset-backed securities | 2,466 | 2,486 | ||||||
|
|
|
| |||||
Total fixed maturity securities | $ | 47,842 | $ | 50,201 | ||||
|
|
|
|
The following table summarizes the components of net unrealized gains and losses, as of the dates indicated:
(in millions) | December 31, | |||||||
2017 | 2016 | |||||||
Net unrealized gains onavailable-for-sale securities, before adjustments and taxes1 | $ | 2,365 | $ | 1,174 | ||||
Adjustment to DAC | (478 | ) | (191 | ) | ||||
Adjustment to future policy benefits and claims | (103 | ) | (68 | ) | ||||
Adjustment to policyholder dividend obligation | (88 | ) | (74 | ) | ||||
Deferred federal income tax expense | (593 | ) | (288 | ) | ||||
Cumulative effect of adoption of accounting principle2 | 232 | — | ||||||
|
|
|
| |||||
Net unrealized gains onavailable-for-sale securities | $ | 1,335 | $ | 553 | ||||
|
|
|
|
1 | Includes net unrealized gains of $38 million and $1 million as of December 31, 2017 and 2016, respectively, related to thenon-credit portion of other-than-temporarily impaired securities. |
2 | Represents impact of reclassifying AOCI related toavailable-for-sale securities into retained earnings for the stranded tax effects resulting from the Act, as discussed in Note 2. |
The following table summarizesthe change in net unrealized gains and losses reported in AOCI, for the years ended:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Balance at beginning of year | $ | 553 | $ | 316 | ||||
Unrealized gains arising during the year: | ||||||||
Net unrealized gains onavailable-for-sale securities before adjustments | 1,191 | 499 | ||||||
Non-credit impairments and subsequent changes in fair value of impaired debt securities | 37 | 21 | ||||||
Net adjustment to DAC and other expense | (287 | ) | (158 | ) | ||||
Net adjustment to future policy benefits and claims | (35 | ) | (52 | ) | ||||
Net adjustment to policyholder dividend obligations | (14 | ) | (7 | ) | ||||
Related federal income tax expense | (318 | ) | (109 | ) | ||||
|
|
|
| |||||
Unrealized gains onavailable-for-sale securities | $ | 574 | $ | 194 | ||||
Less: Reclassification adjustment for net realized gains (losses) and credit related OTTI onavailable-for-sale securities, net of tax (expense) benefit ($(13) and $23 as of December 31, 2017 and 2016, respectively) | 24 | (43 | ) | |||||
|
|
|
| |||||
Increase in net unrealized gains onavailable-for-sale securities | $ | 550 | $ | 237 | ||||
|
|
|
| |||||
Cumulative effect of adoption of accounting principle | 232 | — | ||||||
|
|
|
| |||||
Balance at end of year | $ | 1,335 | $ | 553 | ||||
|
|
|
|
F-25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table summarizes, by asset class,available-for-sale securities, in an unrealized loss position based on the amount of time each type of security has been in an unrealized loss position, as well as the related fair value, as of the dates indicated:
Less than or equal to one year | More than one year | Total | ||||||||||||||||||
(in millions) | Fair value | Unrealized losses | Fair value | Unrealized losses | Unrealized losses1 | |||||||||||||||
December 31, 2017 | ||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||
Corporate securities | $ | 3,363 | $ | 37 | $ | 4,058 | $ | 183 | $ | 220 | ||||||||||
Residential mortgage-backed securities | 370 | 3 | 433 | 20 | 23 | |||||||||||||||
Asset-backed securities | 254 | 1 | 82 | 23 | 24 | |||||||||||||||
Other | 437 | 3 | 238 | 6 | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total fixed maturity securities | 4,424 | 44 | 4,811 | 232 | 276 | |||||||||||||||
Equity securities | 12 | 2 | 30 | 2 | 4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total2 | $ | 4,436 | $ | 46 | $ | 4,841 | $ | 234 | $ | 280 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
December 31, 2016 | ||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||
Corporate securities | $ | 8,762 | $ | 320 | $ | 1,498 | $ | 177 | $ | 497 | ||||||||||
Residential mortgage-backed securities | 303 | 6 | 397 | 33 | 39 | |||||||||||||||
Asset-backed securities | 327 | 1 | 365 | 39 | 40 | |||||||||||||||
Other | 716 | 21 | 94 | 6 | 27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total fixed maturity securities | 10,108 | 348 | 2,354 | 255 | 603 | |||||||||||||||
Equity securities | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total2 | $ | 10,108 | $ | 348 | $ | 2,354 | $ | 255 | $ | 603 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1 | As of December 31, 2017 and 2016, there were $67 million and $118 million, respectively, of unrealized losses related toavailable-for-sale securities with a fair value to amortized cost ratio of less than 80%. |
2 | Represents 775 and 946available-for-sale securities in an unrealized loss position as of December 31, 2017 and 2016, respectively. |
Mortgage Loans, Net of Allowance
The following table summarizes the amortized cost of mortgage loans by method of evaluation for credit loss, and the related valuation allowances by type of credit loss, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Amortized cost: | ||||||||
Loans withnon-specific reserves | $ | 10,963 | $ | 9,775 | ||||
Loans with specific reserves1 | — | 17 | ||||||
|
|
|
| |||||
Total amortized cost | $ | 10,963 | $ | 9,792 | ||||
|
|
|
| |||||
Valuation allowance: | ||||||||
Non-specific reserves | $ | 34 | $ | 28 | ||||
Specific reserves | — | 4 | ||||||
|
|
|
| |||||
Total valuation allowance2 | $ | 34 | $ | 32 | ||||
|
|
|
| |||||
Mortgage loans, net of allowance | $ | 10,929 | $ | 9,760 | ||||
|
|
|
|
1 | Interest income recognized on mortgage loans with a specific reserve was immaterial for the years ended December 31, 2017, 2016 and 2015. The average recorded investment was $8.5 million, $18 million and $14 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
2 | Changes in the valuation allowance are due to current period provisions and recoveries. These changes for the years ended December 31, 2017, 2016 and 2015 were immaterial. |
As of December 31, 2017 and 2016, the Company’s mortgage loans classified as delinquent and/or innon-accrual status were immaterial in relation to the total mortgage loan portfolio. The Company had no mortgage loans 90 days or more past due and still accruing interest.
F-26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table summarizes the LTV and DSC ratios of the mortgage loan portfolio, as of the dates indicated:
LTV ratio | DSC ratio | |||||||||||||||||||||||
(in millions) | Less than 90% | 90% or greater | Total | Greater than 1.00 | Less than 1.00 | Total | ||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
Apartment | $ | 4,102 | $ | 102 | $ | 4,204 | $ | 4,181 | $ | 23 | $ | 4,204 | ||||||||||||
Industrial | 1,573 | 10 | 1,583 | 1,582 | 1 | 1,583 | ||||||||||||||||||
Office | 1,752 | — | 1,752 | 1,738 | 14 | 1,752 | ||||||||||||||||||
Retail | 2,995 | 4 | 2,999 | 2,996 | 3 | 2,999 | ||||||||||||||||||
Other | 425 | — | 425 | 425 | — | 425 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 10,847 | $ | 116 | $ | 10,963 | $ | 10,922 | $ | 41 | $ | 10,963 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Weighted average DSC ratio | 2.06 | 1.31 | 2.05 | n/a | n/a | n/a | ||||||||||||||||||
Weighted average LTV ratio | n/a | n/a | n/a | 59 | % | 81 | % | 59 | % | |||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Apartment | $ | 3,503 | $ | 11 | $ | 3,514 | $ | 3,514 | $ | — | $ | 3,514 | ||||||||||||
Industrial | 1,459 | 14 | 1,473 | 1,439 | 34 | 1,473 | ||||||||||||||||||
Office | 1,570 | 3 | 1,573 | 1,539 | 34 | 1,573 | ||||||||||||||||||
Retail | 2,850 | 30 | 2,880 | 2,866 | 14 | 2,880 | ||||||||||||||||||
Other | 352 | — | 352 | 352 | — | 352 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 9,734 | $ | 58 | $ | 9,792 | $ | 9,710 | $ | 82 | $ | 9,792 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Weighted average DSC ratio | 2.05 | 1.26 | 2.04 | n/a | n/a | n/a | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Weighted average LTV ratio | n/a | n/a | n/a | 58 | % | 74 | % | 59 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities on Deposit, Held in Trust and Pledged as Collateral
Available-for-sale securities with a carrying value of $10 million were on deposit with various regulatory agencies as required by law as of December 31, 2017 and 2016.Available-for-sale securities with a carrying value of $88 million and $260 million were pledged as collateral to secure funding agreements as of December 31, 2017 and 2016, respectively. These securities are primarily included in fixed maturity securities in the consolidated balance sheets.
Net Investment Income
The following table summarizes net investment income, by investment type, for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Fixed maturity securities,available-for-sale | $ | 1,982 | $ | 1,781 | $ | 1,646 | ||||||
Mortgage loans | 450 | 407 | 390 | |||||||||
Alternative investments | 23 | 8 | 3 | |||||||||
Policy loans | 41 | 52 | 51 | |||||||||
Other | 27 | 21 | 12 | |||||||||
|
|
|
|
|
| |||||||
Gross investment income | $ | 2,523 | $ | 2,269 | $ | 2,102 | ||||||
Tax credit fund losses1 | 44 | 68 | 59 | |||||||||
Investment expenses | 65 | 62 | 61 | |||||||||
|
|
|
|
|
| |||||||
Net investment income | $ | 2,414 | $ | 2,139 | $ | 1,982 | ||||||
|
|
|
|
|
|
1 | Represents losses on tax credit funds accounted for under the equity method of accounting. Tax benefits on these tax credit funds are recorded in federal income tax benefit. |
F-27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Net Realized Investment Gains and Losses, Including Other-Than-Temporary Impairments
The following table summarizes net realized investment gains and losses, including OTTI, by source, for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Realized gains on sales1 | $ | 53 | $ | 50 | $ | 15 | ||||||
Realized losses on sales1 | (16 | ) | (90 | ) | (41 | ) | ||||||
Net realized derivative losses | (9 | ) | (42 | ) | 120 | |||||||
Valuation losses and other | (5 | ) | (3 | ) | (11 | ) | ||||||
OTTI losses2,3 | (11 | ) | (26 | ) | (1 | ) | ||||||
|
|
|
|
|
| |||||||
Net realized investment gains (losses) | $ | 12 | $ | (111 | ) | $ | 82 | |||||
|
|
|
|
|
|
1 | Gross gains of $52 million, $49 million and $11 million and gross losses of $11 million, $89 million and $36 million were realized on sales ofavailable-for-sale securities during the years ended December 31, 2017, 2016 and 2015, respectively. |
2 | OTTI on fixed maturity securities excludes $4 million, $6 million and $2 million ofnon-credit losses included in other comprehensive income for the years ended December 31, 2017, 2016 and 2015, respectively. |
3 | Includes impairments on alternative investment tax credit funds due to corporate tax rate reductions set forth in the Act during the year ended December 31, 2017. |
The following table summarizes the cumulative credit losses, for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Cumulative credit losses at beginning of year1 | $ | (195 | ) | $ | (224 | ) | $ | (254 | ) | |||
New credit losses | (3 | ) | (22 | ) | (1 | ) | ||||||
Incremental credit losses | (2 | ) | — | — | ||||||||
Losses related to securities included in the beginning balance sold or paid down during the period | 30 | 51 | 31 | |||||||||
|
|
|
|
|
| |||||||
Cumulative credit losses at end of year1 | $ | (170 | ) | $ | (195 | ) | $ | (224 | ) | |||
|
|
|
|
|
|
1 | Cumulative credit losses are defined as amounts related to the Company’s credit portion of the OTTI losses on debt securities that the Company does not intend to sell and that it is not more likely than not the Company will be required to sell prior to recovery of the amortized cost basis. |
F-28
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(8) | Derivative Instruments |
The Company is exposed to certain risks related to its ongoing business operations which are managed using derivative instruments.
Interest rate risk management. In the normal course of business, the Company enters into transactions that expose the Company to interest rate risk arising from mismatches between assets and liabilities. The Company uses interest rate swaps and futures to reduce or alter interest rate exposure.
Interest rate contracts are used by the Company in association with fixed and variable rate investments to achieve cash flow streams that support certain financial obligations of the Company and to produce desired investment returns. As such, interest rate contracts are generally used to convert fixed rate cash flow streams to variable rate cash flow streams or vice versa. In addition, prior to expiry in June 2015, the Company engaged in an interest rate swap program, which was structured to provide an offset against the negative impact of higher interest rates on the Company’s statutory surplus position and to mitigate the negative impact of lower interest rates on certain guarantees related to variable annuity contracts.
Equity market risk management. The Company issues a variety of insurance products and annuity products with guarantees or indexed crediting features that expose the Company to equity risks. To mitigate these risks, the Company enters into a variety of derivatives including equity index futures, options and total return swaps.
Other risk management. As part of its regular investing activities, the Company may purchase foreign currency denominated investments. These investments and the associated income expose the Company to volatility associated with movements in foreign exchange rates. To mitigate this risk, the Company uses cross-currency swaps, which are included in derivatives designated and qualifying as hedging instruments in the following tables. As foreign exchange rates change, the increase or decrease in the cash flows of the derivative instrument are intended to mitigate the changes in the functional-currency equivalent cash flows of the hedged item.
Credit risk associated with derivatives transactions. The Company periodically evaluates the risks within the derivative portfolios due to credit exposure. When evaluating these risks, the Company considers several factors which include, but are not limited to, the counterparty credit risk associated with derivative receivables, the Company’s own credit as it relates to derivative payables, the collateral thresholds associated with each counterparty and changes in relevant market data in order to gain insight into the probability of default by the counterparty. The Company also considers the impact credit exposure could have on the effectiveness of the Company’s hedging relationships. As of December 31, 2017 and 2016, the impact of the exposure to credit risk on the fair value measurement of derivatives and the effectiveness of the Company’s hedging relationships was immaterial.
F-29
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table summarizes the fair value and related notional amounts of derivative instruments, as of the dates indicated:
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
Derivative assets | Derivative liabilities | Derivative assets | Derivative liabilities | |||||||||||||||||||||||||||||
(in millions) | Fair value | Notional | Fair value | Notional | Fair value | Notional1 | Fair value | Notional1 | ||||||||||||||||||||||||
Derivatives designated and qualifying as hedging instruments | $ | 60 | $ | 654 | $ | 93 | $ | 1,127 | $ | 128 | $ | 942 | $ | 11 | $ | 288 | ||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Interest rate contracts | $ | 25 | $ | 2,131 | $ | 73 | $ | 2,336 | $ | 75 | $ | 2,078 | $ | 110 | $ | 1,681 | ||||||||||||||||
Equity contracts | 1,070 | 15,738 | — | 2,081 | 633 | 10,821 | — | 1,246 | ||||||||||||||||||||||||
Other derivative contracts | — | — | 12 | 2 | — | — | 2 | 2 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Derivatives (gross) | $ | 1,155 | $ | 18,523 | $ | 178 | $ | 5,546 | $ | 836 | $ | 13,841 | $ | 123 | $ | 3,217 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Accrued interest | 9 | 6 | 10 | 11 | ||||||||||||||||||||||||||||
Subject to master netting agreements | (62 | ) | (62 | ) | (71 | ) | (71 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Derivatives (net) | $ | 1,102 | $ | 122 | $ | 775 | $ | 63 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash collateral (received)/pledged2 | (998 | ) | 106 | (660 | ) | 29 | ||||||||||||||||||||||||||
Securities (received)/pledged2,3 | (101 | ) | — | (89 | ) | 30 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Uncollateralized position | $ | 3 | $ | 16 | $ | 26 | $ | 4 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
1 | Prior period balances updated to conform to current period presentation that aligns with regulatory changes and also include all derivatives cleared through an exchange. |
2 | Excludes initial margin posted on derivatives of $114 million and $146 million as of December 31, 2017 and 2016, respectively. |
3 | Securities received as collateral are recordedoff-balance sheet. |
The following table summarizes gains and losses for derivative instruments recognized in net realized investment gains and losses in the consolidated statements of operations, for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||
Interest rate contracts | $ | (9 | ) | $ | 13 | $ | (141 | ) | ||||
Equity contracts | (25 | ) | (81 | ) | (257 | ) | ||||||
Total return swaps | — | — | (44 | ) | ||||||||
Other derivative contracts | 2 | 8 | (6 | ) | ||||||||
Net interest settlements | (9 | ) | (2 | ) | 32 | |||||||
|
|
|
|
|
| |||||||
Total derivative losses1 | $ | (41 | ) | $ | (62 | ) | $ | (416 | ) | |||
Change in embedded derivative liabilities and related fees2 | 32 | 20 | 536 | |||||||||
|
|
|
|
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| |||||||
Net realized derivative (losses) gains | $ | (9 | ) | $ | (42 | ) | $ | 120 | ||||
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1 | Included in total derivative losses are economic hedging losses of $2 million, $2 million and $402 million related to the guaranteed benefit annuity programs for the years ended December 31, 2017, 2016 and 2015, respectively. Included in total derivative losses for the year ended 2015 are economic hedging gains of $52 million related to the program that protected against the negative impact of higher interest rates on the Company’s statutory surplus position through expiry. |
2 | The annual comprehensive review of model assumptions for the individual variable annuity business produced an immaterial impact for the years ended December 31, 2017 and 2016. The annual review produced a favorable impact for the year ended December 31, 2015, attributable to the change in estimate to reduce expected utilization of the net settlement option. |
F-30
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(9) | Fair Value Measurements |
The following table summarizes assets and liabilities held at fair value on a recurring basis as of December 31, 2017:
(in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | ||||||||||||||||
Investments: | ||||||||||||||||
Fixed maturity securities,available-for-sale: | ||||||||||||||||
U.S. government and agencies | $ | 395 | $ | — | $ | 1 | $ | 396 | ||||||||
Obligations of states, political subdivisions and foreign governments | 60 | 3,780 | 5 | 3,845 | ||||||||||||
Corporate securities | — | 38,529 | 912 | 39,441 | ||||||||||||
Residential mortgage-backed securities | 1,190 | 1,682 | — | 2,872 | ||||||||||||
Commercial mortgage-backed securities | — | 1,161 | — | 1,161 | ||||||||||||
Asset-backed securities | — | 2,342 | 144 | 2,486 | ||||||||||||
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Total fixed maturity securities,available-for-sale, at fair value | $ | 1,645 | $ | 47,494 | $ | 1,062 | $ | 50,201 | ||||||||
Other investments at fair value | 401 | 1,157 | 14 | 1,572 | ||||||||||||
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Investments at fair value | $ | 2,046 | $ | 48,651 | �� | $ | 1,076 | $ | 51,773 | |||||||
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Derivative instruments - assets | — | 85 | 1,070 | 1,155 | ||||||||||||
Separate account assets1 | 103,532 | 1,365 | 61 | 104,958 | ||||||||||||
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Assets at fair value | $ | 105,578 | $ | 50,101 | $ | 2,207 | $ | 157,886 | ||||||||
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Liabilities | ||||||||||||||||
Future policy benefits and claims2 | $ | — | $ | — | $ | 984 | $ | 984 | ||||||||
Derivative instruments - liabilities | — | 166 | 12 | 178 | ||||||||||||
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Liabilities at fair value | $ | — | $ | 166 | $ | 996 | $ | 1,162 | ||||||||
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1 | Excludes $649 million of separate account assets that use net asset value (“NAV”) as a practical expedient to estimate fair value. |
2 | Amount primarily represents the fair value of interest credits associated with certain indexed life and annuity products. |
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2017:
(in millions) | Fixed maturity securities2 | Other investments | Derivative assets3 | Separate account assets | Total assets at fair value | Liabilities at fair value3 | ||||||||||||||||||
Balance as of December 31, 2016 | $ | 1,421 | $ | 1 | $ | 633 | $ | 65 | $ | 2,120 | $ | 348 | ||||||||||||
Net gains (losses) | ||||||||||||||||||||||||
In operations1 | 4 | (1 | ) | 307 | (4 | ) | 306 | (648 | ) | |||||||||||||||
In other comprehensive income | 63 | — | — | — | 63 | — | ||||||||||||||||||
Purchases | 74 | 17 | 239 | — | 330 | — | ||||||||||||||||||
Sales | (176 | ) | (3 | ) | (109 | ) | — | (288 | ) | — | ||||||||||||||
Transfers into Level 3 | 91 | — | — | — | 91 | — | ||||||||||||||||||
Transfers out of Level 3 | (415 | ) | — | — | — | (415 | ) | — | ||||||||||||||||
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Balance as of December 31, 2017 | $ | 1,062 | $ | 14 | $ | 1,070 | $ | 61 | $ | 2,207 | $ | 996 | ||||||||||||
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1 | Net gains and losses included in operations are reported in net realized investment gains and losses and interest credited to policyholder accounts. The net unrealized losses on separate account assets are attributable to contractholders and therefore are not included in the Company’s earnings. The change in unrealized (losses) gains included in operations on assets and liabilities still held at the end of the year was $(638) million for future policy benefits and claims, $264 million for derivative assets, $(10) million for derivative liabilities and $(1) million for other investments at fair value. |
2 | Non-binding broker quotes were utilized to determine a fair value of $721 million of the total fixed maturity securities as of December 31, 2017. |
3 | Non-binding broker quotes were utilized to determine a fair value of all Level 3 derivative assets and liabilities. |
Transfers into and out of Level 3 during the year ended December 31, 2017 are primarily due to the change in observability of pricing inputs used for certain corporate securities. There were no material transfers between Levels 1 and 2 during the year ended December 31, 2017.
F-31
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Living Benefit Guarantees
The following table summarizes significant unobservable inputs used for fair value measurements for living benefits liabilities, included in future policy benefits and claims and classified as Level 3 as of December 31, 2017:
Unobservable Inputs | Range | |
Mortality | 0.1% - 10%2 | |
Lapse | 0% - 35%3 | |
Wait period | 0 yrs - 30 yrs5 | |
Efficiency of benefit utilization1 | 60% - 100%6 | |
Discount rate4 | See note 4 below | |
Index volatility | 15% - 25% |
1 | The unobservable input is not applicable to GMABs. |
2 | Represents the mortality for the majority of business with living benefits, with policyholder issue ages ranging from 45 to 85. |
3 | Certain scenarios could drive dynamic lapses outside of the specified range. The range shown represents lapses for the vast majority of scenarios. |
4 | Incorporates the liquidity andnon-performance risk adjustment. The liquidity spread takes into consideration market observables for spreads in illiquid assets. Thenon-performance risk adjustment reflects an additional spread over LIBOR, determined by market observables for similarly rated public bonds. |
5 | A portion of the contractholders could never use the benefit, which would extend the range to an indeterminate period. |
6 | A portion of the contractholders could withdraw more than the benefit guarantee allows. For these policies, the excess withdrawals are assumed to be temporary before reverting back to 100% utilization. |
The following changes in any of the significant unobservable inputs presented in the table above may result in a change in the fair value measurements of the living benefits liability:
Higher mortality rates tend to decrease the value of the liability and lower mortality rates tend to increase the value of the liability.
Higher lapse rates tend to decrease the value of the liability and lower lapse rates tend to increase the value of the liability. Factors that impact the predicted lapse rate can include: age, policy duration, policy size, benefitin-the-moneyness, tax status (i.e. qualified ornon-qualified), interest rate levels, short-term equity market performance, partial withdrawal behavior and applicable surrender charges. All else being equal, policies that arein-the-money will have lower lapse rates than policies that areout-of-the-money, and policies that have a surrender charge present will have lower lapse rates than policies without a surrender charge.
The assumed wait period and the efficiency of utilization determine the timing and amount of living benefits withdrawals. These assumptions vary by the product type, age of the policyholder, policy size and policy duration. Many products have a bonus feature which enhances the guarantee on every policy anniversary for the first ten years, so long as withdrawals have not commenced. All else being equal, policies commencing withdrawals at a time around the year ten bonus will have higher liability values than policies commencing withdrawals 20 years after issue or policies commencing withdrawals only one year after issue. In addition, policies that are assumed to withdraw the maximum permitted amount will have a higher liability value than a policy that is assumed to withdraw less than the maximum allowed amount.
A higher discount rate tends to decrease the value of the liability and a lower discount rate tends to increase the value of the liability.
Higher index volatility tends to increase the value of the liability and lower index volatility tends to decrease the value of the liability.
F-32
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Indexed Products
The following table summarizes significant unobservable inputs used for fair value measurements for indexed universal life and indexed annuity products classified as Level 3 as of December 31, 2017:
Unobservable Inputs | Range | |
Mortality | 0% - 5%¹ | |
Lapse | 0% - 10% | |
Index volatility | 15% - 25%2 |
1 | Represents the mortality for the majority of business, with policyholder issue ages ranging from 0 to 80. |
2 | Certain managed volatility indices utilize a 5% index volatility. |
The following changes in any of the significant unobservable inputs presented in the table above may result in a change in the fair value measurements of the indexed products:
Higher mortality rates tend to decrease the value of the liability and lower mortality rates tend to increase the value of the liability.
Higher lapse rates tend to decrease the value of the liability and lower lapse rates tend to increase the value of the liability. Factors that impact the predicted lapse rate can include: age, policy duration, policy size, and applicable surrender charges. All else being equal, policies with a surrender charge present will have lower lapse rates than policies without a surrender charge.
Higher index volatility tends to increase the value of the liability and lower index volatility tends to decrease the value of the liability.
The following table summarizes assets and liabilities held at fair value on a recurring basis as of December 31, 2016:
(in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | ||||||||||||||||
Investments: | ||||||||||||||||
Fixed maturity securities,available-for-sale: | ||||||||||||||||
U.S. government and agencies | $ | 642 | $ | 1 | $ | 2 | $ | 645 | ||||||||
Obligations of states, political subdivisions and foreign governments | 57 | 2,639 | — | 2,696 | ||||||||||||
Corporate securities | — | 32,592 | 1,273 | 33,865 | ||||||||||||
Residential mortgage-backed securities | 1,385 | 1,857 | 6 | 3,248 | ||||||||||||
Commercial mortgage-backed securities | — | 1,279 | — | 1,279 | ||||||||||||
Asset-backed securities | — | 1,817 | 140 | 1,957 | ||||||||||||
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| |||||||||
Total fixed maturity securities,available-for-sale, at fair value | $ | 2,084 | $ | 40,185 | $ | 1,421 | $ | 43,690 | ||||||||
Other investments at fair value | 1,050 | 957 | 1 | 2,008 | ||||||||||||
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Investments at fair value | $ | 3,134 | $ | 41,142 | $ | 1,422 | $ | 45,698 | ||||||||
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Derivative instruments - assets | — | 203 | 633 | 836 | ||||||||||||
Separate account assets1 | 87,266 | 1,374 | 65 | 88,705 | ||||||||||||
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Assets at fair value | $ | 90,400 | $ | 42,719 | $ | 2,120 | $ | 135,239 | ||||||||
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Liabilities | ||||||||||||||||
Future policy benefits and claims2 | $ | — | $ | — | $ | 346 | $ | 346 | ||||||||
Derivative instruments - liabilities | — | 121 | 2 | 123 | ||||||||||||
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Liabilities at fair value | $ | — | $ | 121 | $ | 348 | $ | 469 | ||||||||
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1 | Excludes $366 million of separate account assets that use NAV as a practical expedient to estimate fair value. |
2 | Amount primarily represents the fair value of interest credits associated with certain indexed life and annuity products. |
F-33
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2016:
(in millions) | Fixed maturity securities2 | Other investments | Derivative assets3 | Separate account assets4 | Total assets at fair value | Liabilities at fair value3 | ||||||||||||||||||
Balance as of December 31, 2015 | $ | 1,228 | $ | 37 | $ | 445 | $ | 361 | $ | 2,071 | $ | 71 | ||||||||||||
Net (losses) gains | ||||||||||||||||||||||||
In operations1 | (12 | ) | 8 | 92 | (13 | ) | 75 | 277 | ||||||||||||||||
In other comprehensive income | 39 | (11 | ) | — | — | 28 | — | |||||||||||||||||
Purchases | 147 | — | 115 | — | 262 | — | ||||||||||||||||||
Sales | (178 | ) | (33 | ) | (19 | ) | (283 | ) | (513 | ) | — | |||||||||||||
Transfers into Level 3 | 261 | — | — | — | 261 | — | ||||||||||||||||||
Transfers out of Level 3 | (64 | ) | — | — | — | (64 | ) | — | ||||||||||||||||
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Balance as of December 31, 2016 | $ | 1,421 | $ | 1 | $ | 633 | $ | 65 | $ | 2,120 | $ | 348 | ||||||||||||
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1 | Net gains and losses included in operations are reported in net realized investment gains and losses and interest credited to policyholder accounts. The net unrealized gains on separate account assets are attributable to contractholders and therefore are not included in the Company’s earnings. The change in unrealized gains (losses) included in operations on assets and liabilities still held at the end of the year was $(157) million for future policy benefits and claims, $145 million for derivative assets, and $(4) million for derivative liabilities and $(2) million for other investments at fair value. |
2 | Non-binding broker quotes were utilized to determine a fair value of $1.0 billion of total fixed maturity securities as of December 31, 2016. |
3 | Non-binding broker quotes were utilized to determine a fair value of all Level 3 derivative assets and liabilities. |
4 | Certain prior period amounts related to separate account assets that use NAV as a practical expedient to estimate fair value have changed to conform with the current period presentation as a result of new guidance. |
Transfers into and out of Level 3 during the year ended December 31, 2016 are primarily due to the change in the observability of pricing inputs used for certain corporate securities. There were no material transfers between Levels 1 and 2 during the year ended December 31, 2016.
Financial Instruments Not Carried at Fair Value
The following table summarizes the carrying value and fair value of the Company’s financial instruments not carried at fair value as of the dates indicated. The valuation techniques used to estimate these fair values are described below.
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||||||||
(in millions) | value | value | Level 2 | Level 3 | value | value | Level 2 | Level 3 | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||
Mortgage loans, net of allowance | $ | 10,929 | $ | 10,876 | $ | — | $ | 10,876 | $ | 9,760 | $ | 9,589 | $ | — | $ | 9,589 | ||||||||||||||||
Policy loans | $ | 1,030 | $ | 1,030 | $ | — | $ | 1,030 | $ | 989 | $ | 989 | $ | — | $ | 989 | ||||||||||||||||
Other investments | $ | 78 | $ | 78 | $ | — | $ | 78 | $ | 72 | $ | 72 | $ | — | $ | 72 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Investment contracts | $ | 36,746 | $ | 34,711 | $ | — | $ | 34,711 | $ | 31,431 | $ | 29,736 | $ | — | $ | 29,736 | ||||||||||||||||
Short-term debt | $ | — | $ | — | $ | — | $ | — | $ | 300 | $ | 300 | $ | — | $ | 300 | ||||||||||||||||
Long-term debt | $ | 793 | $ | 1,070 | $ | 977 | $ | 93 | $ | 707 | $ | 927 | $ | 920 | $ | 7 | ||||||||||||||||
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Mortgage loans, net of allowance. The fair values of mortgage loans are estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit ratings.
Policy loans. The carrying amount reported in the consolidated balance sheets approximates fair value as policy loans are fully collateralized by the cash surrender value of underlying insurance policies.
Other investments. Other investments not held at fair value consist of FHLB stock. The carrying amount reported in the consolidated balance sheets approximates fair value due to ownership restrictions and lack of market.
F-34
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Investment contracts. For investment contracts without defined maturities, fair value is the amount payable on demand, net of surrender charges. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. The fair value of adjustable rate contracts approximates their carrying value.
Short-term debt. The carrying amount reported in the consolidated balance sheets approximates fair value due to the short-term nature of this debt instrument.
Long-term debt. The fair values for long-term debt are based on estimated market prices using observable inputs from similar debt instruments.
(10) | Goodwill |
The following table summarizes changes in the carrying value of goodwill by segment for the years indicated:
(in millions) | Retirement Plans | Individual Products & Solutions | Total | |||||||||
Balance as of December 31, 20151 | $ | 25 | $ | 175 | $ | 200 | ||||||
Adjustments | — | — | — | |||||||||
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Balance as of December 31, 20161 | $ | 25 | $ | 175 | $ | 200 | ||||||
Adjustments | — | 69 | 69 | |||||||||
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Balance as of December 31, 20171 | $ | 25 | $ | 244 | $ | 269 | ||||||
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1 | The goodwill balances have not been previously impaired. |
F-35
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(11) | Closed Block |
The amounts shown in the following tables for assets, liabilities, revenues and expenses of the closed block are those that enter into the determination of amounts that are to be paid to policyholders.
The following table summarizes financial information for the closed block, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Liabilities: | ||||||||
Future policyholder benefits | $ | 1,571 | $ | 1,602 | ||||
Policyholder funds and accumulated dividends | 137 | 138 | ||||||
Policyholder dividends payable | 20 | 20 | ||||||
Policyholder dividend obligation | 110 | 100 | ||||||
Other policy obligations and liabilities | 25 | 38 | ||||||
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| |||||
Total liabilities | $ | 1,863 | $ | 1,898 | ||||
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| |||||
Assets: | ||||||||
Available-for-sale securities | $ | 1,294 | $ | 1,286 | ||||
Mortgage loans, net of allowance | 220 | 223 | ||||||
Policy loans | 128 | 138 | ||||||
Other assets | 77 | 98 | ||||||
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Total assets | $ | 1,719 | $ | 1,745 | ||||
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Excess of reported liabilities over assets | $ | 144 | $ | 153 | ||||
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Portion of above representing other comprehensive income: | ||||||||
Increase in unrealized gain on fixed maturity securities,available-for-sale | $ | 14 | $ | 7 | ||||
Adjustment to policyholder dividend obligation | (14 | ) | (7 | ) | ||||
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Total of above representing other than comprehensive income | $ | — | $ | — | ||||
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Maximum future earnings to be recognized from assets and liabilities | $ | 144 | $ | 153 | ||||
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Other comprehensive income: | ||||||||
Available-for-sale securities: | ||||||||
Fair value | $ | 1,294 | $ | 1,286 | ||||
Amortized cost | 1,206 | 1,212 | ||||||
Shadow policyholder dividend obligation | (88 | ) | (74 | ) | ||||
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Net unrealized appreciation | $ | — | $ | — | ||||
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F-36
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table summarizes closed block operations for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Revenues: | ||||||||||||
Premiums | $ | 53 | $ | 56 | $ | 58 | ||||||
Net investment income | 81 | 84 | 87 | |||||||||
Realized investment (losses) gains | (1 | ) | (3 | ) | 1 | |||||||
Realized losses credited to policyholder benefit obligation | (4 | ) | (1 | ) | (5 | ) | ||||||
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Total revenues | $ | 129 | $ | 136 | $ | 141 | ||||||
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Benefits and expenses: | ||||||||||||
Policy and contract benefits | $ | 115 | $ | 125 | $ | 122 | ||||||
Change in future policyholder benefits and interest credited to policyholder accounts | (32 | ) | (36 | ) | (33 | ) | ||||||
Policyholder dividends | 39 | 40 | 40 | |||||||||
Change in policyholder dividend obligation | (8 | ) | (8 | ) | (4 | ) | ||||||
Other expenses | 1 | 1 | 1 | |||||||||
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Total benefits and expenses | $ | 115 | $ | 122 | $ | 126 | ||||||
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Total revenues, net of benefits and expenses, before federal income tax expense | $ | 14 | $ | 14 | $ | 15 | ||||||
Federal income tax expense | 5 | 5 | 5 | |||||||||
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Revenues, net of benefits and expenses and federal income tax expense | $ | 9 | $ | 9 | $ | 10 | ||||||
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Maximum future earnings from assets and liabilities: | ||||||||||||
Beginning of period | $ | 153 | $ | 162 | $ | 172 | ||||||
Change during period | (9 | ) | (9 | ) | (10 | ) | ||||||
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End of period | $ | 144 | $ | 153 | $ | 162 | ||||||
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Cumulative closed block earnings from inception through December 31, 2017, 2016 and 2015 were higher than expected as determined in the actuarial calculation. Therefore, policyholder dividend obligations (excluding the adjustment for unrealized gains onavailable-for-sale securities) were $22 million, $26 million and $32 million as of December 31, 2017, 2016 and 2015, respectively.
F-37
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(12) | Short-Term Debt |
The Company classifies debt as short-term if the maturity date at inception is less than one year.
In December 2015, the Company renewed an agreement to increase its $600 million commercial paper program to $750 million. The Company had no amounts outstanding under the agreement as of December 31, 2017 and had $300 million outstanding as of December 31, 2016, which had a weighted average interest rate of 0.72%.
In April 2017, the Company renewed an agreement with the FHLB to extend its ability to borrow in order to provide financing for operations. This extension, which expires on March 23, 2018, allows the Company access to borrow up to $250 million, which would be collateralized by pledged securities, at a borrowing rate set by the FHLB. The Company had $6.5 billion and $6.1 billion in eligible collateral and no amounts outstanding under the agreement as of December 31, 2017 and 2016, respectively.
In April 2015, NMIC and the Company replaced their previous $600 million revolving credit facility with a new credit facility of $750 million and a borrowing rate of 0.785% plus a U.S. LIBOR rate, which is based on the repayment date of the draw, which expires on April 2, 2020. The Company had no amounts outstanding under this agreement as of December 31, 2017 and 2016.
The Company has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. The maximum amount available under the agreement is $350 million. The borrowing rate on this program is equal to theone-month U.S. LIBOR. The Company had no amounts outstanding under this agreement as of December 31, 2017 and 2016.
The amount of interest paid on short-term debt was immaterial in 2017, 2016 and 2015.
(13) | Long-Term Debt |
The following table summarizes the carrying value of long-term debt, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
8.15% surplus note, due June 27, 2032, payable to NFS | $ | 300 | $ | 300 | ||||
7.50% surplus note, due December 31, 2031, payable to NFS | 300 | 300 | ||||||
6.75% surplus note, due December 23, 2033, payable to NFS | 100 | 100 | ||||||
Other1 | 93 | 7 | ||||||
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| |||||
Total long-term debt | $ | 793 | $ | 707 | ||||
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|
1 | Includes debt assumed in the JNF acquisition. |
The Company made interest payments to NFS on surplus notes totaling $54 million for the years ended December 31, 2017, 2016 and 2015. Payments of interest and principal under the surplus notes require the prior approval of the ODI.
F-38
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(14) | Federal Income Taxes |
The following table summarizes the components of federal income tax benefit (expense) for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Current tax benefit (expense)1 | $ | 177 | $ | (61 | ) | $ | (76 | ) | ||||
Deferred tax benefit (expense)1 | 231 | (65 | ) | (217 | ) | |||||||
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Total federal income tax benefit (expense) | $ | 408 | $ | (126 | ) | $ | (293 | ) | ||||
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|
|
|
|
1 | Includes reclassification of AMT credit carryforwards from deferred tax assets to an income tax receivable as a result of the Act. |
The following table summarizes how the total federal income tax benefit (expense) differs from the amount computed by applying the U.S. federal income tax rate to net income for the years ended:
December 31, | ||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
(in millions) | Amount | % | Amount | % | Amount | % | ||||||||||||||||||
Income before federal income taxes and noncontrolling interests | $ | 901 | $ | 904 | $ | 1,228 | ||||||||||||||||||
Rate reconciliation: | ||||||||||||||||||||||||
Computed (expected tax expense) | $ | (315 | ) | (35 | )% | $ | (316 | ) | (35 | )% | $ | (430 | ) | (35 | )% | |||||||||
Dividends received deduction | 128 | 14 | % | 144 | 16 | % | 118 | 10 | % | |||||||||||||||
Tax credits | 90 | 10 | % | 81 | 9 | % | 63 | 5 | % | |||||||||||||||
Impact of enacted tax law changes1 | 530 | 59 | % | — | — | % | — | — | % | |||||||||||||||
Other, net2 | (25 | ) | (3 | )% | (35 | ) | (4 | )% | (44 | ) | (4 | )% | ||||||||||||
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| |||||||||||||
Total federal income tax benefit (expense) | $ | 408 | 45 | % | $ | (126 | ) | (14 | )% | $ | (293 | ) | (24 | )% | ||||||||||
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1 | Represents the remeasurement of deferred tax assets and liabilities of $541 million and government fees of $(11) million as a result of the Act. |
2 | Certain prior period amounts have been reclassified to conform to the current year’s presentation. |
The Company’s current federal income tax receivable (liability) was $166 million and $(52) million as of December 31, 2017 and 2016, respectively.
The Company made $8 million, $7 million and $33 million of payments for the years ended December 31, 2017, 2016 and 2015, respectively.
F-39
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following table summarizes the tax effects of temporary differences that gave rise to significant components of the net deferred tax liability included in other liabilities in the consolidated balance sheets, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Deferred tax assets | ||||||||
Future policy benefits and claims | $ | 781 | $ | 953 | ||||
Tax credit carryforwards | 350 | 599 | ||||||
Derivatives, including embedded derivatives | 44 | 21 | ||||||
Other | 236 | 383 | ||||||
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| |||||
Gross deferred tax assets | $ | 1,411 | $ | 1,956 | ||||
Valuation allowance | (10 | ) | (17 | ) | ||||
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| |||||
Gross deferred tax assets, net of valuation allowance | $ | 1,401 | $ | 1,939 | ||||
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| |||||
Deferred tax liabilities | ||||||||
Deferred policy acquisition costs | $ | 971 | $ | 1,577 | ||||
Available-for-sale securities | 589 | 536 | ||||||
Other | 311 | 278 | ||||||
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| |||||
Gross deferred tax liabilities | $ | 1,871 | $ | 2,391 | ||||
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| |||||
Net deferred tax liability | $ | 470 | $ | 452 | ||||
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As of December 31, 2017, the Company has gross federal net operating losses of $17 million, which expire between 2018 and 2037. As of December 31, 2017, the Company had $307 million inlow-income-housing credit carryforwards, which expire between 2024 and 2037. In addition, the Company had $43 million in foreign tax credit carryforwards which expire between 2024 and 2026. The Company expects to fully utilize all carryforwards.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Based on the Company’s analysis, it is more likely than not that the results of future operations and the implementation of tax planning strategies will generate sufficient taxable income to enable the Company to realize the deferred tax assets for which the Company has not established valuation allowances.
The following table is a rollforward of the beginning and ending uncertain tax positions, including permanent and temporary differences, but excluding interest and penalties:
(in millions) | 2017 | 2016 | 2015 | |||||||||
Balance at beginning of period | $ | 36 | $ | 36 | $ | 38 | ||||||
Additions for current year tax positions | 2 | 1 | 1 | |||||||||
Additions for prior year tax positions | — | 1 | — | |||||||||
Reductions for prior years tax positions | (28 | ) | (2 | ) | (3 | ) | ||||||
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| |||||||
Balance at end of period | $ | 10 | $ | 36 | $ | 36 | ||||||
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The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities through the 2013 tax year.
F-40
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(15) | Statutory Financial Information |
Statutory Results
The Company’s life insurance subsidiaries prepare their statutory financial statements in conformity with the statutory accounting practices prescribed and permitted by insurance regulatory authorities, subject to any deviations prescribed or permitted by the applicable state departments of insurance.
Olentangy was granted a permitted practice from the Commissioner of Insurance of the State of Vermont allowing Olentangy to carry the assets placed in a trust account by Union Hamilton Reinsurance Ltd. and held for the benefit of the ceding insurer under a reinsurance agreement on its statutory statements of admitted assets, liabilities and surplus at net admitted asset value with the offset to surplus. In 2017, this permitted practice increased NLAIC’s valuation of this subsidiary by $56 million and did not have an impact on NLIC’s admitted deferred tax assets. In 2016, this permitted practice increased NLAIC’s valuation of this subsidiary by $56 million, and also raised NLIC’s admitted deferred tax assets by $8 million.
Eagle applies a prescribed practice from the State of Ohio that allows an alternative reserve basis on assumed liabilities, net of third party reinsurance, with respect to specified GMDB and GLWB obligations provided under substantially all of the variable annuity contracts issued and to be issued by NLIC. In 2017, this prescribed practice decreased NLIC’s valuation of this subsidiary by $184 million and did not have an impact on NLIC’s admitted deferred tax assets. In 2016, this prescribed practice decreased NLIC’s valuation of this subsidiary by $97 million, and also reduced NLIC’s admitted deferred tax assets by $15 million.
Statutory accounting practices focus on insurer solvency and differ materially from GAAP primarily due to charging policy acquisition and other costs to expense as incurred, establishing future policy benefits and claims reserves based on different actuarial assumptions, excluding certain assets from statutory admitted assets, and valuing investments and establishing deferred taxes on a different basis.
The following table summarizes the statutory capital and surplus for the Company’s primary life insurance subsidiaries for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Statutory net income (loss) | ||||||||||||
NLIC | $ | 1,039 | $ | 751 | $ | 167 | ||||||
NLAIC | (277 | ) | (227 | ) | (99 | ) | ||||||
JNL | — | N/A | N/A | |||||||||
JNLNY | — | N/A | N/A | |||||||||
Statutory capital and surplus | ||||||||||||
NLIC | $ | 5,949 | $ | 5,208 | $ | 4,567 | ||||||
NLAIC | 1,340 | 968 | 735 | |||||||||
JNL | 35 | N/A | N/A | |||||||||
JNLNY | 7 | N/A | N/A | |||||||||
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Dividend Restrictions
The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio, its domiciliary state. The State of Ohio insurance laws require Ohio-domiciled life insurance companies to notify the Ohio Superintendent of Insurance of all dividends prior to payment, and they must seek prior regulatory approval to pay a dividend or distribute cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory-basis policyholders’ surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer as of the prior December 31. During the years ended December 31, 2017, 2016 and 2015 NLIC did not pay any dividends to NFS. As of January 1, 2018, NLIC has the ability to pay dividends to NFS totaling $1.0 billion without obtaining prior approval.
F-41
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned surplus. Earned surplus is defined under the State of Ohio insurance laws as the amount equal to the Company’s unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurer’s policyholder surplus must be reasonable in relation to the insurer’s outstanding liabilities and adequate for its financial needs. The payment of dividends by the Company may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on the Company’s participating policies (measured before dividends to policyholders) available for the benefit of the Company and its stockholders.
The Company currently does not expect such regulatory requirements to impair the ability to pay operating expenses and dividends in the future.
Regulatory Risk-Based Capital
The National Association of Insurance Commissioners’ (“NAIC”) Risk-Based Capital (“RBC”) model law requires every insurer to calculate its total adjusted capital and RBC requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a company’s total adjusted capital falling below established relationships to required RBC. The model includes components for asset risk, liability risk, interest rate exposure and other factors. The State of Ohio imposes minimum RBC requirements that are developed by the NAIC. The formulas in the model for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity, based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action. NLIC, NLAIC, JNL, JNLNY, Olentangy and Eagle each exceeded the minimum RBC requirements for all periods presented.
(16) | Related Party Transactions |
The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations. These include annuity and life insurance contracts, agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services, investment management and software licensing. In addition, employees of the Company participate in several benefit plans sponsored by NMIC, for which the Company has no legal obligations. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, claims counts, policies in force, direct written premium, paid losses, pro rate share of employees or their salaries, the number of full-time employees, commission expense and other methods agreed to by the participating companies.
Effective January 1, 2015, the Company became party to a revised tax sharing agreement that reflects the new NMIC consolidated federal return group, which includes its eligible life andnon-life insurance company subsidiaries. The method of allocation among the companies is based upon separate return calculations with current benefit for tax losses and credits utilized in the consolidated return.
In addition, Nationwide Services Company, LLC (“NSC”), a subsidiary of NMIC, provides data processing, systems development, hardware and software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed pursuant to the enterprise cost sharing agreement. For the years ended December 31, 2017, 2016 and 2015, the Company was allocated costs from NMIC and NSC totaling $324 million, $277 million and $289 million, respectively.
Under the enterprise cost sharing agreement, the Company has an arrangement with NMIC to occupy office space. The Company made payments under the cost sharing agreement to NMIC of $17 million, $19 million and $18 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company has issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $3.4 billion as of December 31, 2017 and 2016. Total revenues from these contracts were $125 million, $127 million and $129 million for the years ended December 31, 2017, 2016 and 2015, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances was $111 million for the years ended December 31, 2017 and 2016, and $106 million for the year ended December 31, 2015.
The Company may underwrite insurance policies for its employees, officers and/or directors. The Company may offer discounts on certain products that are subject to applicable state insurance laws and approvals.
F-42
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
NLIC has a reinsurance agreement with NMIC whereby all of NLIC’s accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets, and investment earnings are paid to the reinsurer. Under the terms of NLIC’s agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. Revenues ceded to NMIC were $158 million for the year ended December 31, 2017 and $209 million for the years ended December 31, 2016 and 2015, while benefits, claims and expenses ceded during these years were $108 million, $185 million and $207 million, respectively.
Funds of Nationwide Funds Group (“NFG”), a group of Nationwide businesses that develops, sells and services mutual funds, are offered to the Company’s customers as investment options in certain of the Company’s products. As of December 31, 2017, 2016 and 2015, customer allocations to NFG funds totaled $66.7 billion, $61.4 billion and $59.1 billion, respectively. For the years ended December 31, 2017, 2016 and 2015, NFG paid the Company $221 million, $199 million and $196 million, respectively, for the distribution and servicing of these funds.
Amounts on deposit with NCMC for the benefit of the Company were $1.0 billion and $899 million as of December 31, 2017 and 2016, respectively.
Nationwide Bank has a line of credit agreement with NLIC that allows the Bank access to borrow up to $50 million from NLIC. The borrowing rate on the line of credit is equal to the daily Prime Rate. The Bank had no amounts outstanding under this agreement as of December 31, 2017, 2016 and 2015.
Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates were $72 million, $65 million and $63 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company provides financing to Nationwide Realty Investors, LTD, a subsidiary of NMIC. As of December 31, 2017, 2016 and 2015, the Company had notes receivable outstanding of $313 million, $332 million and $238 million, respectively.
The Company provides financing to Nationwide Advantage Mortgage Company, a subsidiary of NMIC. As of December 31, 2017, 2016 and 2015, the Company had notes receivable outstanding of $7 million, $11 million and $14 million, respectively.
(17) | Contingencies |
Legal and Regulatory Matters
The Company is subject to legal and regulatory proceedings in the ordinary course of its business. These include proceedings specific to the Company and proceedings generally applicable to business practices in the industries in which the Company operates. The outcomes of these proceedings cannot be predicted due to their complexity, scope, and many uncertainties. The Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory proceedings is not likely to have a material adverse effect on the Company’s consolidated financial position. The Company maintains Professional Liability Insurance and Director and Officer Liability insurance policies that may cover losses for certain legal and regulatory proceedings. The Company will make adequate provision for any probable and reasonably estimable recoveries, under such policies, in accordance with applicable accounting rules.
The various businesses conducted by the Company are subject to oversight by numerous federal and state regulatory entities, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the IRS, the Federal Reserve Bank and state insurance authorities. Such regulatory entities may, in the normal course, be engaged in general or targeted inquiries, examinations and investigations of the Company and/or its affiliates. With respect to all such scrutiny directed at the Company or its affiliates, the Company is cooperating with regulators. The Company will cooperate with its ultimate parent company, NMIC insofar as any inquiry, examination, or investigation encompasses NMIC’s operations. In addition, recent regulatory activity, including state and federal regulatory activity related to fiduciary standards, may impact the Company’s business and operations, and certain estimates and assumptions used by the Company in determining the amounts presented in the financial statements and accompanying notes. Actual results could differ significantly from those estimates and assumptions.
F-43
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
Indemnifications
In the normal course of business, the Company provides standard indemnifications to contractual counterparties. The types of indemnifications typically provided include breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business with various third parties based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated, and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.
(18) | Reinsurance |
The following table summarizes the effects of reinsurance on life, accident and health insurance in force and premiums for the years ended:
December 31, | ||||||||||||
(in millions) | 2017 | 2016 | 2015 | |||||||||
Premiums | ||||||||||||
Direct | $ | 962 | $ | 1,011 | $ | 1,144 | ||||||
Assumed from other companies | — | — | — | |||||||||
Ceded to other companies | (329 | ) | (369 | ) | (358 | ) | ||||||
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| |||||||
Net | $ | 633 | $ | 642 | $ | 786 | ||||||
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| |||||||
Life, accident and health insurance in force | ||||||||||||
Direct | $ | 291,984 | $ | 275,404 | $ | 260,465 | ||||||
Assumed from other companies | 2 | 2 | 5 | |||||||||
Ceded to other companies | (62,714 | ) | (61,674 | ) | (60,976 | ) | ||||||
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Net | $ | 229,272 | $ | 213,732 | $ | 199,494 | ||||||
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Amounts recoverable under reinsurance contracts totaled $1,124 million, $683 million and $647 million as of December 31, 2017, 2016 and 2015, respectively, and are included in other assets in the consolidated balance sheets.
F-44
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(19) | Segment Information |
Management views the Company’s business primarily based on its underlying products and uses this basis to define its business segments. During the 2017 second quarter, the Company reorganized its business segments based on the internally-aligned segment leadership structure, which is how the Company monitors results and assesses performance. The Company now has three reportable segments: Individual Products & Solutions (“IPS”), Retirement Plans and Corporate and Other. All prior period business segment results have been updated to conform to the current period presentation.
The primary segment profitability measure that management uses is a financial measure calledpre-tax operating earnings (loss), which is calculated by adjusting income before federal income taxes to exclude: (1) certain changes in variable annuity liabilities and net realized investment gains and losses, except for operating items, such as trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to certain product hedges; (2) the adjustment to amortization of DAC related to certain changes in variable annuity liabilities and net realized investment gains and losses; and (3) net losses attributable to noncontrolling interest. The Company believes this financial measure enhances the understanding and comparability of its performance by highlighting its results from continuing operations and their underlying profit drivers.
Individual Products and Solutions
IPS offers the following products: individual deferred annuity contracts, immediate annuities, and various life insurance products. Individual deferred annuity contracts offered consist of deferred variable annuity contracts, deferred fixed annuity contracts and deferred fixed indexed annuity contracts. Deferred annuity contracts provide the customer withtax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, deferred variable annuity contracts provide the customer with access to a wide range of investment options and asset protection features. Deferred fixed annuity contracts offered by the Company generate a return for the customer at a specified interest rate fixed for prescribed periods, while deferred fixed indexed annuity contracts generate a return for the customer based on market performance with caps and floors. Immediate annuities differ from deferred annuities in that the initial premium is exchanged for a stream of income for a certain period and/or for the owner’s lifetime without future access to the original investment. The various life insurance products offered consist of individual variable universal life, COLI andBOLI products, traditional life insurance products, fixed universal life insurance products and indexed universal life insurance products. Life insurance products provide a death benefit and, for certain products, allow the customer to build cash value on atax-advantaged basis.
Retirement Plans
The Retirement Plans segment is comprised of the private and public sector retirement plans businesses. The private sector business primarily includes Internal Revenue Code (“IRC”) Section 401 qualified plans funded through fixed and variable group annuity contracts issued through NLIC. The public sector business primarily includes IRC Section 457 (b) and Section 401(a) governmental plans, both in the form of full-service arrangements that provide plan administration along with fixed and variable group annuities, as well as administration-only business. Across the public and private sector business NIA managed account services are also available. The Retirement Plans segment also includes stable value wrap products and solutions.
Corporate and Other
The Corporate and Other segment includes certainnon-operating changes in variable annuity liabilities andnon-operating realized gains and losses, related amortization and other revenues and expenses not allocated to other segments. Additionally, this segment includes the funding agreements with the FHLB.
F-45
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
The following tables summarize the Company’s business segment operating results for the years ended:
(in millions) | Individual Products and Solutions | Retirement Plans | Corporate and Other | Total | ||||||||||||
December 31, 2017 | ||||||||||||||||
Revenues: | ||||||||||||||||
Policy charges | $ | 2,428 | 117 | — | $ | 2,545 | ||||||||||
Premiums | 596 | — | 37 | 633 | ||||||||||||
Net investment income | 1,521 | 835 | 58 | 2,414 | ||||||||||||
Non-operating changes in variable annuity liabilities and net realized investment losses1 | — | — | (318 | ) | (318 | ) | ||||||||||
Other revenues2 | 1 | — | 9 | 10 | ||||||||||||
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Total revenues | $ | 4,546 | $ | 952 | $ | (214 | ) | $ | 5,284 | |||||||
Benefits and expenses: | ||||||||||||||||
Interest credited to policyholder account values3 | $ | 783 | 557 | 36 | $ | 1,376 | ||||||||||
Benefits and claims4 | 1,395 | — | 27 | 1,422 | ||||||||||||
Amortization of DAC | 332 | 6 | 54 | 392 | ||||||||||||
Other expenses, net of deferrals | 741 | 194 | 258 | 1,193 | ||||||||||||
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Total benefits and expenses | $ | 3,251 | $ | 757 | $ | 375 | $ | 4,383 | ||||||||
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Income before federal income taxes and noncontrolling interests | $ | 1,295 | 195 | (589 | ) | $ | 901 | |||||||||
Less: certainnon-operating changes in variable annuity liabilities and net realized investment losses1 | — | — | (318 | ) | ||||||||||||
Less: adjustment to amortization of DAC and other related expenses related tonon-operating items above | — | — | (54 | ) | ||||||||||||
Less: net gain attributable to noncontrolling interest | — | — | (96 | ) | ||||||||||||
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Pre-tax operating earnings (loss) | $ | 1,295 | $ | 195 | $ | (121 | ) | |||||||||
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Assets as of year end | $ | 134,326 | $ | 35,520 | $ | 11,343 | $ | 181,189 | ||||||||
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1 | Excluding operating items (trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to certain product hedges). |
2 | Includes operating items (trading portfolio realized gains and losses, trading portfolio valuation changes). |
3 | Includes operating items (net realized gains and losses related to certain product hedges). |
4 | Excludes certainnon-operating changes in variable annuity liabilities. |
F-46
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(in millions) | Individual Products and Solutions | Retirement Plans | Corporate and Other | Total | ||||||||||||
December 31, 2016 | ||||||||||||||||
Revenues: | ||||||||||||||||
Policy charges | $ | 2,254 | $ | 107 | $ | — | $ | 2,361 | ||||||||
Premiums | 605 | — | 37 | 642 | ||||||||||||
Net investment income | 1,337 | 791 | 11 | 2,139 | ||||||||||||
Non-operating changes in variable annuity liabilities and net realized investment losses1 | — | — | (299 | ) | (299 | ) | ||||||||||
Other revenues2 | — | — | 14 | 14 | ||||||||||||
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| |||||||||
Total revenues | $ | 4,196 | $ | 898 | $ | (237 | ) | $ | 4,857 | |||||||
Benefits and expenses: | ||||||||||||||||
Interest credited to policyholder account values3 | $ | 684 | $ | 531 | $ | 30 | $ | 1,245 | ||||||||
Benefits and claims4 | 1,245 | — | 32 | 1,277 | ||||||||||||
Amortization of DAC | 432 | 4 | (3 | ) | 433 | |||||||||||
Other expenses, net of deferrals | 654 | 181 | 163 | 998 | ||||||||||||
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Total benefits and expenses | $ | 3,015 | $ | 716 | $ | 222 | $ | 3,953 | ||||||||
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| |||||||||
Income before federal income taxes and noncontrolling interests | $ | 1,181 | $ | 182 | $ | (459 | ) | $ | 904 | |||||||
Less: certainnon-operating changes in variable annuity liabilities and net realized investment (losses)1 | — | — | (299 | ) | ||||||||||||
Less: adjustment to amortization of DAC and other related expenses related tonon-operating items above | — | — | 6 | |||||||||||||
Less: net loss attributable to noncontrolling interest | — | — | (91 | ) | ||||||||||||
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Pre-tax operating earnings (loss) | $ | 1,181 | $ | 182 | $ | (75 | ) | |||||||||
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Assets as of year end | $ | 113,062 | $ | 32,239 | $ | 10,337 | $ | 155,638 | ||||||||
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1 | Excluding operating items (trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to certain product hedges). |
2 | Includes operating items (trading portfolio realized gains and losses, trading portfolio valuation changes). |
3 | Includes operating items (net realized gains and losses related to certain product hedges). |
4 | Excludes certainnon-operating changes in variable annuity liabilities. |
F-47
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2017, 2016 and 2015 Consolidated Financial Statements
(in millions) | Individual Products and Solutions | Retirement Plans | Corporate and Other | Total | ||||||||||||
December 31, 2015 | ||||||||||||||||
Revenues: | ||||||||||||||||
Policy charges | $ | 2,105 | $ | 111 | $ | — | $ | 2,216 | ||||||||
Premiums | 751 | — | 35 | 786 | ||||||||||||
Net investment income | 1,193 | 752 | 37 | 1,982 | ||||||||||||
Non-operating changes in variable annuity liabilities and net realized investment losses1 | — | — | (56 | ) | (56 | ) | ||||||||||
Other revenues2 | (83 | ) | — | 7 | (76 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | $ | 3,966 | $ | 863 | $ | 23 | $ | 4,852 | ||||||||
Benefits and expenses: | ||||||||||||||||
Interest credited to policyholder account values | $ | 564 | $ | 494 | $ | 20 | $ | 1,078 | ||||||||
Benefits and claims3 | 1,405 | — | 29 | 1,434 | ||||||||||||
Amortization of DAC | 128 | 7 | (67 | ) | 68 | |||||||||||
Other expenses, net of deferrals | 705 | 163 | 176 | 1,044 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total benefits and expenses | $ | 2,802 | $ | 664 | $ | 158 | $ | 3,624 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income before federal income taxes and noncontrolling interests | $ | 1,164 | $ | 199 | $ | (135 | ) | $ | 1,228 | |||||||
Less: certainnon-operating changes in variable annuity liabilities and net realized investment gains1 | — | — | (56 | ) | ||||||||||||
Less: adjustment to amortization of DAC and other related expenses related tonon-operating items above | — | — | 74 | |||||||||||||
Less: net loss attributable to noncontrolling interest | — | — | (96 | ) | ||||||||||||
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|
|
|
|
|
| |||||||||
Pre-tax operating earnings (loss) | $ | 1,164 | $ | 199 | $ | (57 | ) | |||||||||
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|
|
|
|
|
|
| |||||||||
Assets as of year end | $ | 104,020 | $ | 30,524 | $ | 9,634 | $ | 144,178 | ||||||||
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|
|
|
|
|
|
1 | Excluding operating items (trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to certain product hedges). |
2 | Includes operating items discussed above. |
3 | Excludes certainnon-operating changes in variable annuity liabilities. |
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.
F-48
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Schedule I Consolidated Summary of Investments – Other Than Investments in Related Parties
As of December 31, 2017 (in millions)
Column A | Column B | Column C | Column D | |||||||||
Amount at | ||||||||||||
which shown | ||||||||||||
in the | ||||||||||||
Fair | consolidated | |||||||||||
Type of investment | Cost | value | balance sheet | |||||||||
Fixed maturity securities,available-for-sale: | ||||||||||||
Bonds: | ||||||||||||
U.S. government and agencies | $ | 358 | $ | 396 | $ | 396 | ||||||
Obligations of states, political subdivisions and foreign governments | 3,433 | 3,845 | 3,845 | |||||||||
Public utilities | 5,374 | 5,582 | 5,582 | |||||||||
All other corporate, mortgage-backed and asset-backed securities | 38,677 | 40,378 | 40,378 | |||||||||
|
|
|
|
|
| |||||||
Total fixed maturity securities,available-for-sale | $ | 47,842 | $ | 50,201 | $ | 50,201 | ||||||
Equity securities,available-for-sale: | ||||||||||||
Common stocks: | ||||||||||||
Banks, trust and insurance companies | $ | 15 | $ | 15 | $ | 15 | ||||||
Industrial, miscellaneous and all other | 14 | 12 | 12 | |||||||||
Nonredeemable preferred stocks | 44 | 52 | 52 | |||||||||
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|
|
|
|
| |||||||
Total equity securities,available-for-sale | $ | 73 | $ | 79 | $ | 79 | ||||||
Trading assets | 73 | 74 | 74 | |||||||||
Mortgage loans, net of allowance | 10,963 | 10,929 | 1 | |||||||||
Policy loans | 1,030 | 1,030 | ||||||||||
Other investments | 1,340 | 1,340 | ||||||||||
Short-term investments | 1,406 | 1,406 | ||||||||||
|
|
|
| |||||||||
Total investments | $ | 62,727 | $ | 65,059 | ||||||||
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|
|
1 | Difference from Column B is primarily attributable to valuation allowances due to impairments on mortgage loans on estate (see Note 7 to the audited consolidated financial statements), hedges and commitment hedges on mortgage loans on real estate. |
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.
F-49
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Schedule III Supplementary Insurance Information
As of December 31, 2017, 2016 and 2015 and for each of the years then ended (in millions)
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Deferred policy | Future policy benefits, | Other policy | ||||||||||||||||||
acquisition | losses, claims and | Unearned | claims and | Premium | ||||||||||||||||
Year: Segment | costs | loss expenses | premiums1 | benefits payable1 | revenue | |||||||||||||||
2017 | ||||||||||||||||||||
IPS | $ | 5,922 | $ | 38,510 | $ | 596 | ||||||||||||||
Retirement Plans | 235 | 18,773 | — | |||||||||||||||||
Corporate and Other | (481 | ) | 2,602 | 37 | ||||||||||||||||
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|
|
|
|
| |||||||||||||||
Total | $ | 5,676 | $ | 59,885 | $ | 633 | ||||||||||||||
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|
| |||||||||||||||
2016 | ||||||||||||||||||||
IPS | $ | 5,390 | $ | 32,621 | $ | 605 | ||||||||||||||
Retirement Plans | 229 | 17,443 | — | |||||||||||||||||
Corporate and Other | (187 | ) | 2,847 | 37 | ||||||||||||||||
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|
|
|
| |||||||||||||||
Total | $ | 5,432 | $ | 52,911 | $ | 642 | ||||||||||||||
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|
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| |||||||||||||||
2015 | ||||||||||||||||||||
IPS | $ | 5,007 | $ | 26,742 | $ | 751 | ||||||||||||||
Retirement Plans | 222 | 15,940 | — | |||||||||||||||||
Corporate and Other | (29 | ) | 2,715 | 35 | ||||||||||||||||
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|
|
|
|
| |||||||||||||||
Total | $ | 5,200 | $ | 45,397 | $ | 786 | ||||||||||||||
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| |||||||||||||||
Column A | Column G | Column H | Column I | Column J | Column K | |||||||||||||||
Net | Benefits, claims, | Amortization | Other | |||||||||||||||||
investment | losses and | of deferred policy | operating | Premiums | ||||||||||||||||
Year: Segment | income2 | settlement expenses | acquisition costs | expenses2 | written | |||||||||||||||
2017 | ||||||||||||||||||||
IPS | $ | 1,521 | $ | 2,507 | $ | 332 | 741 | |||||||||||||
Retirement Plans | 835 | 557 | 6 | 194 | ||||||||||||||||
Corporate and Other | 58 | 63 | 54 | 258 | ||||||||||||||||
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|
| |||||||||||||
Total | $ | 2,414 | $ | 3,127 | $ | 392 | $ | 1,193 | ||||||||||||
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| |||||||||||||
2016 | ||||||||||||||||||||
IPS | $ | 1,337 | $ | 2,111 | $ | 432 | 654 | |||||||||||||
Retirement Plans | 791 | 531 | 4 | 181 | ||||||||||||||||
Corporate and Other | 11 | 62 | (3 | ) | 163 | |||||||||||||||
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| |||||||||||||
Total | $ | 2,139 | $ | 2,704 | $ | 433 | $ | 998 | ||||||||||||
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| |||||||||||||
2015 | ||||||||||||||||||||
IPS | $ | 1,193 | $ | 2,198 | $ | 128 | $ | 705 | ||||||||||||
Retirement Plans | 752 | 494 | 7 | 163 | ||||||||||||||||
Corporate and Other | 37 | 48 | (67 | ) | 176 | |||||||||||||||
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|
| |||||||||||||
Total | $ | 1,982 | $ | 2,740 | $ | 68 | $ | 1,044 | ||||||||||||
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|
|
1 | Unearned premiums and other policy claims and benefits payable are included in Column C amounts. |
2 | Allocations of net investment income and certain operating expenses are based on numerous assumptions and estimates, and reported segment operating results would change if different methods were applied. |
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.
F-50
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Schedule IV Reinsurance
As of December 31, 2017, 2016 and 2015 and for each of the years then ended (in millions)
Column A | Column B | Column C | Column D | Column E | ||||||||||||
Ceded to | Assumed | |||||||||||||||
Gross | other | from other | Net | |||||||||||||
amount | companies | companies | amount | |||||||||||||
2017 | ||||||||||||||||
Life, accident and health insurance in force | $ | 291,984 | $ | (62,714 | ) | $ | 2 | $ | 229,272 | |||||||
Premiums: | ||||||||||||||||
Life insurance1 | $ | 700 | $ | (67 | ) | $ | — | $ | 633 | |||||||
Accident and health insurance | 262 | (262 | ) | — | — | |||||||||||
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|
|
|
|
|
| |||||||||
Total | $ | 962 | $ | (329 | ) | $ | — | $ | 633 | |||||||
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|
|
|
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|
| |||||||||
2016 | ||||||||||||||||
Life, accident and health insurance in force | $ | 275,404 | $ | (61,674 | ) | $ | 2 | $ | 213,732 | |||||||
Premiums: | ||||||||||||||||
Life insurance1 | $ | 698 | $ | (56 | ) | $ | — | $ | 642 | |||||||
Accident and health insurance | 313 | (313 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,011 | $ | (369 | ) | $ | — | $ | 642 | |||||||
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|
|
|
|
| |||||||||
2015 | ||||||||||||||||
Life, accident and health insurance in force | $ | 260,465 | $ | (60,976 | ) | $ | 5 | $ | 199,494 | |||||||
Premiums: | ||||||||||||||||
Life insurance1 | $ | 842 | $ | (56 | ) | $ | — | $ | 786 | |||||||
Accident and health insurance | 302 | (302 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,144 | $ | (358 | ) | $ | — | $ | 786 | |||||||
|
|
|
|
|
|
|
|
1 | Primarily represents premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment and universal life insurance products. |
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.
F-51
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
Schedule V Valuation and Qualifying Accounts
Years ended December 31, 2017, 2016 and 2015 (in millions)
Column A | Column B | Column C | Column D | Column E | ||||||||||||||||
Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
beginning | costs and | other | end of | |||||||||||||||||
Description | of period | expenses | accounts | Deductions1 | period | |||||||||||||||
2017 | ||||||||||||||||||||
Valuation allowances - mortgage loans | $ | 32 | $ | 6 | $ | — | $ | (4 | ) | $ | 34 | |||||||||
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| |||||||||||
2016 | ||||||||||||||||||||
Valuation allowances - mortgage loans | $ | 26 | $ | 8 | $ | — | $ | (2 | ) | $ | 32 | |||||||||
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|
| |||||||||||
2015 | ||||||||||||||||||||
Valuation allowances - mortgage loans | $ | 26 | $ | 2 | $ | — | $ | (2 | ) | $ | 26 | |||||||||
|
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|
|
|
1 | Amounts generally represent payoffs, sales and recoveries. |
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.
F-52
Item 13. | Other Expenses of Issuance and Distribution |
Item 14. | Indemnification of Directors and Officers |
• | any threatened, pending or completed civil action, suit or proceeding; |
• | any threatened, pending or completed criminal action, suit or proceeding; |
• | any threatened, pending or completed administrative action or proceeding; |
• | any threatened, pending or completed investigative action or proceeding. |
Item 15. | Recent Sales of Unregistered Securities. |
Item 16. | Exhibits and Financial Statement Schedules |
(A) | Exhibits |
(4) | Annuity Endorsement to Contracts - filed previously on May 2, 1995, as Exhibit 4 to Form S-1 for Nationwide Life Insurance Company, Registration No. 033-58997. | |
(5) | Opinion Regarding Legality - Attached hereto. | |
(6) | Not applicable | |
(7) | Not applicable | |
(8) | None | |
(9) | Not applicable | |
(10) | Tax Sharing Agreement dated as of January 2, 2009 between Nationwide Life Insurance Company and any corporation that is or may hereafter become a subsidiary of Nationwide Life Insurance Company – filed previously on March 27, 2012 with Post-Effective Amendment No. 15 to Form S-1 for Nationwide Life Insurance Company, Registration No. 333-133163. | |
(11) | Not applicable | |
(12) | Not applicable | |
(13) | Not applicable | |
(14) | Not applicable | |
(15) | Not applicable | |
(16) | Not applicable | |
(17) | Not applicable | |
(18) | Not applicable | |
(19) | Not applicable | |
(20) | Not applicable | |
(21) | Subsidiaries of the Registrant - Attached hereto. | |
(22) | Not applicable | |
(23) | (a) | Consent of Independent Registered Public Accounting Firm - Attached hereto. |
(23) | (b) | Consent of Counsel – attached hereto as Exhibit 5. |
(24) | Power of Attorney - Attached hereto. | |
(25) | Not applicable | |
(26) | Not applicable | |
(27) | Not applicable | |
(101.INS) | XBRL Instance Document - Attached hereto. | |
(101.SCH) | XBRL Taxonomy Extension Schema - Attached hereto. | |
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase - Attached hereto. | |
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase - Attached hereto. | |
(101.LAB) | XBRL Taxonomy Extension Label Linkbase - Attached hereto. | |
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase - Attached hereto. |
(B) | Financial Statement Schedules |
Item 17. | Undertakings |
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(a) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
(b) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. |
Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; | |
(c) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
(5) | That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(a) | Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424; |
(b) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; |
(c) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and |
(d) | Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
(B) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officers or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
NATIONWIDE LIFE INSURANCE COMPANY |
(Registrant) |
By: /s/ JAMIE RUFF CASTO |
Jamie Ruff Casto Attorney-in-Fact |
KIRT A. WALKER | |
Kirt A. Walker, President and Chief Operating Officer, and Director | |
MARK R. THRESHER | |
Mark R. Thresher, Executive Vice President and Director | |
TIMOTHY G. FROMMEYER | |
Timothy G. Frommeyer, Senior Vice President-Chief Financial Officer and Director | |
ERIC S. HENDERSON | |
Eric S. Henderson, Senior Vice President - Individual Products & Solutions and Director | |
JOHN L. CARTER | |
John L. Carter, Senior Vice President – Nationwide Retirement Plans and Director | |
STEPHEN S. RASMUSSEN | |
Stephen S. Rasmussen, Director | |
By /s/ JAMIE RUFF CASTO | |
Jamie Ruff Casto Attorney-in-Fact |