OHIO | 6311 | 31-4156830 |
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One Nationwide Plaza
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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, see Nationwide 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will be credited with a Specified Interest Rate over the corresponding Guaranteed Term, so long as such amounts are not withdrawn from the GTO prior to the Maturity Date.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Market Value Adjustment – The upward or downward adjustment in value of amounts allocated to a GTO that are withdrawn from the GTO for any reason prior to the Maturity Date.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Maturity Period – The period during which the value of amounts allocated under a GTO may be withdrawn without any Market Value Adjustment.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) | 2021 | 2020 | 2019 | |||
Total revenues | $877 | $834 | $883 | |||
Pre-tax operating (losses) earnings | $ (24) | $ (12) | $ 10 |
December 31, | ||||||
(in millions) | 2021 | 2020 | 2019 | |||
Total revenues | $8,693 | $5,247 | $6,010 | |||
Pre-tax operating earnings | $ 610 | $ 355 | $ 434 |
December 31, | ||||||
(in millions) | 2021 | 2020 | 2019 | |||
Total revenues | $5,467 | $7,132 | $5,470 | |||
Pre-tax operating earnings | $ 161 | $ 115 | $ 128 |
December 31, | ||||||
(in millions) | 2021 | 2020 | 2019 | |||
Total revenues | $2,312 | $1,903 | $2,089 | |||
Pre-tax operating earnings | $ 737 | $ 608 | $ 461 |
• | Bonds are generally stated at amortized cost, except those with an NAIC designation of "6", which are stated at the lower of amortized cost or fair value. Changes in fair value of bonds stated at fair value are charged to capital and surplus. |
• | Loan-backed and structured securities, which are included in bonds in the statutory financial statements, are stated in a manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S. government agencies, commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined for each security. The initial NAIC designation, which takes into consideration the security’s amortized cost relative to an NAIC-prescribed valuation matrix, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost or fair value). |
• | Preferred stocks are generally stated at amortized cost, except those with an NAIC designation of "4" through "6", which are stated at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in fair value of stocks stated at fair value are charged to capital and surplus. |
• | The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC and Eagle, and wholly-owned noninsurance subsidiaries, NISC and NIA, are carried using the equity method of accounting. The Company’s investment in JNF, an unaudited downstream noninsurance holding company, is based on the individual audited subsidiary, controlled and affiliated entities owned by the holding company in accordance with the "look through" provisions of Statements of Statutory Accounting Principles ("SSAP") No. 97, Investments in Subsidiary, Controlled and Affiliated Entities. Investments in NLAIC, JNF and NISC are included in stocks, and the investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus. |
• | Commercial mortgage loans are recorded at unpaid principal balance, adjusted for premiums and discounts, less a valuation allowance. |
• | Policy loans, which are collateralized by the related insurance policy, are carried at the outstanding principal balance and do not exceed the cash surrender value of the policy. As such, no valuation allowance for policy loans is required. |
• | Cash equivalents include highly liquid investments with original maturities of less than three months and, effective December 31, 2020, amounts on deposit in internal qualified cash pools. |
• | Short-term investments consist primarily of government agency discount notes with maturities of twelve months or less at acquisition and are carried at amortized cost, which approximates fair value. Prior to December 31, 2020, included amounts on deposit in internal qualified cash pools. |
• | Alternative investments are generally reported based on the equity method of accounting. |
• | The Company’s investment portfolio (and, specifically, the valuations of investment assets held) has been, and may continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome. Moreover, changes in interest rates, reduced liquidity or a continued slowdown in the U.S. or in global economic conditions may also adversely affect the values and cash flows of these assets. The Company’s investments in mortgages and mortgage-backed securities could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities. Further, extreme market volatility may leave the Company unable to react to market events in a prudent manner consistent with the Company’s historical investment practices in dealing with more orderly markets; |
• | The Company provided COVID-19 hardship assistance to its customers including suspending cancellation of certain policies, deferring premium payment deadlines and waiving certain late fees and may elect to do so again in the future as a result of the COVID-19 pandemic. |
• | Potential state or federal legislation and regulation intended to ease the impact of the COVID-19 pandemic on consumers that could mandate waiver of late fees and/or limit or eliminate the ability to cancel policies for non-payment of premiums; |
• | Potential impacts to financial product revenues due to the overall economic slowdown, including the decline in economic activity, reductions in the sale of financial products due to the current market conditions, a reduction in fees collected from assets under management, a reduction in new sales, and an increased number of customers experiencing difficulty in paying premiums; |
• | While the Company has implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the COVID-19 pandemic and such measures may not adequately predict the impact on the Company’s business from such events. An extended period of remote work arrangements could introduce operational risk and impair the Company’s ability to manage its business. |
• | The Company also outsources certain critical business activities to third parties. As a result, the Company relies upon the successful implementation and execution of the business continuity planning of such entities in the current environment. While the Company closely monitors the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside the Company’s control. If one or more of the third parties to whom the Company outsources certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on the Company’s business, financial condition, results of operations, liquidity and cash flows; and |
• | Potential impacts to the cost and availability of reinsurance. |
(a) | fluctuations in the results of operations or financial condition; |
(b) | actual claims losses exceeding reserves for claims; |
(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 (such as the COVID-19 pandemic), 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 Financial Accounting Standards Board ("FASB"), SEC, NAIC or other standard-setting bodies; |
(f) | the inability to maintain the availability of systems and facilities in the event of a disaster, natural or man-made catastrophe (such as the COVID-19 pandemic), 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, technological innovation and the development of new products by new and existing competitors; |
(h) | adverse state and federal legislation and regulation, including in response to the COVID-19 pandemic, with respect to, among other things, tax law changes impacting the federal estate tax and tax treatment of life insurance and investment products; limitations on premium levels; restrictions on product approval and policy issuance; 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, including SEC comprehensive rulemaking and guidance regarding standards of conduct for broker dealers and investment advisers; |
(i) | the inability 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 or otherwise perform (including as a result of the COVID-19 pandemic); |
(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 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) | competitive, regulatory or tax changes that affect the cost of, or demand for, products; |
(p) | fluctuations in RBC levels; |
(q) | settlement of tax liabilities for amounts that differ significantly from those recorded on the balance sheets; |
(r) | deviations from assumptions regarding future persistency, mortality and morbidity rates (including as a result of natural and man-made catastrophes, pandemics, including the COVID-19 pandemic, epidemics, malicious acts, terrorist acts and climate change), and interest rates used in calculating reserve amounts and in pricing products; |
(s) | adverse results and/or resolution of litigation, arbitration, regulatory investigation and/or inquiry; |
(t) | the availability, pricing and effectiveness of reinsurance; |
(u) | the effectiveness of policies and procedures for managing risk; |
(v) | interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; |
(w) | adverse consequences, including financial and reputational costs, regulatory problems and potential loss of customers resulting from a breach of information security, a failure to meet privacy regulations, or inability to secure and maintain the confidentiality of proprietary or customers’ personal information; |
(x) | the inability to protect intellectual property and defend against claims of infringement; |
(y) | realized losses with respect to impairments of assets in the investment portfolio of the Company; |
(z) | exposure to losses related to variable annuity guarantee benefits, including from downturns and volatility in equity markets; |
(aa) | statutory reserve requirements associated with term and universal life insurance policies under Regulation XXX, Guideline AXXX and principles-based reserving requirements; |
(ab) | lack of liquidity in certain investments, access to credit facilities, or other inability to access capital; and |
(ac) | defaults on commercial mortgages and volatility in their performance. |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Revenues | ||||||
Premiums and annuity considerations | $12,664 | $10,637 | 19% |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Net investment income | 2,231 | 2,107 | 6% | |||
Amortization of interest maintenance reserve | (8) | - | 100% | |||
Other revenues | 2,463 | 2,372 | 4% | |||
Total revenues | $17,350 | $15,116 | 15% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $16,884 | $15,013 | 12% | |||
Increase in reserves for future policy benefits and claims | 807 | 1,627 | (50%) | |||
Net transfers from separate accounts | (3,002) | (3,544) | 15% | |||
Commissions | 858 | 646 | 33% | |||
Dividends to policyholders | 30 | 36 | (17%) | |||
Reserve adjustment on reinsurance assumed | (151) | (172) | 12% | |||
Other expenses | 439 | 444 | (1%) | |||
Total benefits and expenses | $15,865 | $14,050 | 13% | |||
Income before federal income tax expense and net realized capital losses on investments | $ 1,485 | $ 1,066 | 39% | |||
Federal income tax (benefit) expense | (9) | 4 | (325%) | |||
Income before net realized capital losses on investments | $ 1,494 | $ 1,062 | 41% | |||
Net realized capital losses on investments, net of tax and transfers to the interest maintenance reserve | (683) | (575) | (19%) | |||
Net income | $ 811 | $ 487 | 67% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Revenues | ||||||
Premiums and annuity considerations | $10,637 | $10,168 | 5% | |||
Net investment income | 2,107 | 1,974 | 7% | |||
Amortization of interest maintenance reserve | - | (2) | 100% | |||
Other revenues | 2,372 | 2,312 | 3% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Total revenues | $15,116 | $14,452 | 5% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $15,013 | $14,782 | 2% | |||
Increase in reserves for future policy benefits and claims | 1,627 | 1,501 | 8% | |||
Net transfers from separate accounts | (3,544) | (3,747) | 5% | |||
Commissions | 646 | 674 | (4%) | |||
Dividends to policyholders | 36 | 38 | (5%) | |||
Reserve adjustment on reinsurance assumed | (172) | (246) | 30% | |||
Other expenses | 444 | 417 | 6% | |||
Total benefits and expenses | $14,050 | $13,419 | 5% | |||
Income before federal income tax expense and net realized capital losses on investments | $ 1,066 | $ 1,033 | 3% | |||
Federal income tax expense (benefit) | 4 | (73) | 105% | |||
Income before net realized capital losses on investments | $ 1,062 | $ 1,106 | (4%) | |||
Net realized capital losses on investments, net of tax and transfers to the interest maintenance reserve | (575) | (477) | (21%) | |||
Net income | $ 487 | $ 629 | (23%) |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Results of Operations |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Revenues | ||||||
Premiums and annuity considerations | $425 | $394 | 8% | |||
Net investment income | 254 | 247 | 3% | |||
Other revenues | 198 | 193 | 3% | |||
Total revenues | $877 | $834 | 5% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $748 | $689 | 9% | |||
Increase in reserves for future policy benefits and claims | 86 | 62 | 39% | |||
Net transfers from separate accounts | (97) | (85) | (14%) | |||
Commissions | 27 | 21 | 29% | |||
Dividends to policyholders | 30 | 36 | (17%) | |||
Other expenses | 107 | 123 | (13%) | |||
Total benefits and expenses | $901 | $846 | 7% | |||
Pre-tax operating losses | $ (24) | $ (12) | (100%) |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $394 | $ 413 | (5%) | |||
Net investment income | 247 | 262 | (6%) | |||
Other revenues | 193 | 208 | (7%) | |||
Total revenues | $834 | $ 883 | (6%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $689 | $ 756 | (9%) | |||
Increase in reserves for future policy benefits and claims | 62 | 21 | 195% | |||
Net transfers from separate accounts | (85) | (105) | 19% | |||
Commissions | 21 | 30 | (30%) | |||
Dividends to policyholders | 36 | 38 | (5%) | |||
Other expenses | 123 | 133 | (8%) | |||
Total benefits and expenses | $846 | $ 873 | (3%) | |||
Pre-tax operating (losses) earnings | $ (12) | $ 10 | (220%) |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 6,686 | $ 3,407 | 96% | |||
Net investment income | 337 | 338 | (0%) | |||
Amortization of interest maintenance reserve | 3 | 4 | (25%) | |||
Other revenues | 1,667 | 1,498 | 11% | |||
Total revenues | $ 8,693 | $ 5,247 | 66% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 8,776 | $ 7,140 | 23% | |||
Increase (decrease) in reserves for future policy benefits and claims | 84 | (78) | 208% | |||
Net transfers from separate accounts | (1,296) | (2,490) | 48% | |||
Commissions | 629 | 437 | 44% | |||
Reserve adjustment on reinsurance assumed | (151) | (172) | 12% | |||
Other expenses | 41 | 55 | (25%) | |||
Total benefits and expenses | $ 8,083 | $ 4,892 | 65% | |||
Pre-tax operating earnings | $ 610 | $ 355 | 72% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 3,407 | $ 4,202 | (19%) | |||
Net investment income | 338 | 319 | 6% | |||
Amortization of interest maintenance reserve | 4 | 1 | 300% | |||
Other revenues | 1,498 | 1,488 | 1% | |||
Total revenues | $ 5,247 | $ 6,010 | (13%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 7,140 | $ 7,993 | (11%) | |||
(Decrease) increase in reserves for future policy benefits and claims | (78) | 25 | (412%) | |||
Net transfers from separate accounts | (2,490) | (2,695) | 8% | |||
Commissions | 437 | 442 | (1%) | |||
Reserve adjustment on reinsurance assumed | (172) | (246) | 30% | |||
Other expenses | 55 | 57 | (4%) | |||
Total benefits and expenses | $ 4,892 | $ 5,576 | (12%) | |||
Pre-tax operating earnings | $ 355 | $ 434 | (18%) |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $4,377 | $5,939 | (26%) | |||
Net investment income | 861 | 843 | 2% | |||
Amortization of interest maintenance reserve | (9) | (4) | (125%) | |||
Other revenues | 238 | 354 | (33%) | |||
Total revenues | $5,467 | $7,132 | (23%) | |||
Benefits and expenses |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Benefits to policyholders and beneficiaries | $ 6,702 | $ 6,582 | 2% | |||
Increase in reserves for future policy benefits and claims | 89 | 1,582 | (94%) | |||
Net transfers from separate accounts | (1,711) | (1,372) | (25%) | |||
Commissions | 104 | 94 | 11% | |||
Other expenses | 122 | 131 | (7%) | |||
Total benefits and expenses | $ 5,306 | $ 7,017 | (24%) | |||
Pre-tax operating earnings | $ 161 | $ 115 | 40% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 5,939 | $ 4,324 | 37% | |||
Net investment income | 843 | 824 | 2% | |||
Amortization of interest maintenance reserve | (4) | (4) | 0% | |||
Other revenues | 354 | 326 | 9% | |||
Total revenues | $ 7,132 | $ 5,470 | 30% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 6,582 | $ 5,308 | 24% | |||
Increase in reserves for future policy benefits and claims | 1,582 | 1,135 | 39% | |||
Net transfers from separate accounts | (1,372) | (1,319) | (4%) | |||
Commissions | 94 | 96 | (2%) | |||
Other expenses | 131 | 122 | 7% | |||
Total benefits and expenses | $ 7,017 | $ 5,342 | 31% | |||
Pre-tax operating earnings | $ 115 | $ 128 | (10%) |
December 31, | ||||||
(in millions) | 2021 | 2020 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $1,176 | $ 897 | 31% | |||
Net investment income | 779 | 679 | 15% | |||
Amortization of interest maintenance reserve | (2) | - | 0% | |||
Other revenues | 359 | 327 | 10% | |||
Total revenues | $2,312 | $1,903 | 21% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 658 | $ 602 | 9% | |||
Increase in reserves for future policy benefits and claims | 548 | 61 | 798% | |||
Net transfers to separate accounts | 102 | 403 | (75%) | |||
Commissions | 98 | 94 | 4% | |||
Other expenses | 169 | 135 | 25% | |||
Total benefits and expenses | $1,575 | $1,295 | 22% | |||
Pre-tax operating earnings | $ 737 | $ 608 | 21% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 897 | $1,229 | (27%) | |||
Net investment income | 679 | 569 | 19% | |||
Amortization of interest maintenance reserve | - | 1 | 0% | |||
Other revenues | 327 | 290 | 13% | |||
Total revenues | $1,903 | $2,089 | (9%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 602 | $ 725 | (17%) | |||
Increase in reserves for future policy benefits and claims | 61 | 320 | (81%) | |||
Net transfers to separate accounts | 403 | 372 | 8% | |||
Commissions | 94 | 106 | (11%) | |||
Other expenses | 135 | 105 | 29% | |||
Total benefits and expenses | $1,295 | $1,628 | (20%) | |||
Pre-tax operating earnings | $ 608 | $ 461 | 32% |
December 31, 2021 | December 31, 2020 | |||||||
(in millions) | Carrying value | % of total | Carrying value | % of total | ||||
Invested assets: | ||||||||
Bonds | $37,931 | 73% | $37,207 | 74% | ||||
Stocks | 3,016 | 6% | 2,835 | 6% | ||||
Mortgage loans, net of allowance | 8,185 | 16% | 7,783 | 15% | ||||
Policy loans | 913 | 2% | 888 | 2% | ||||
Derivative assets | 64 | 0% | 51 | 0% | ||||
Cash, cash equivalents and short-term investments | 636 | 1% | 461 | 1% | ||||
Securities lending collateral assets | 170 | 0% | 101 | 0% | ||||
Other invested assets | 1,225 | 2% | 955 | 2% | ||||
Total invested assets | $52,140 | 100% | $50,281 | 100% |
(in millions) | December 31, 2021 | December 31, 2020 | ||||||||||
NAIC designation | Carrying value | Fair value | % of total statement value | Carrying value | Fair value | % of total statement value | ||||||
1 | $19,868 | $21,733 | 52% | $20,212 | $22,806 | 54% | ||||||
2 | 15,907 | 17,267 | 42% | 14,886 | 16,833 | 40% | ||||||
3 | 1,610 | 1,689 | 5% | 1,635 | 1,695 | 5% | ||||||
4 | 458 | 451 | 1% | 353 | 347 | 1% | ||||||
5 | 78 | 77 | 0% | 113 | 109 | 0% | ||||||
6 | 10 | 25 | 0% | 8 | 20 | 0% | ||||||
$37,931 | $41,242 | 100% | $37,207 | $41,810 | 100% |
(in millions) | December 31, 2021 | December 31, 2020 | ||||||||||
NAIC designation | Statement Value | Fair Value | % of total statement value | Statement Value | Fair Value | % of total statement value | ||||||
1 | $5,635 | $5,768 | 95% | $6,759 | $7,024 | 95% | ||||||
2 | 180 | 190 | 3% | 191 | 223 | 3% | ||||||
3 | 81 | 84 | 1% | 111 | 105 | 2% | ||||||
4 | 48 | 44 | 1% | 55 | 51 | 0% | ||||||
5 | 14 | 11 | 0% | 20 | 19 | 0% | ||||||
6 | 7 | 21 | 0% | 5 | 18 | 0% | ||||||
$5,965 | $6,118 | 100% | $7,141 | $7,440 | 100% |
December 31, | ||||
(in millions) | 2021 | 2020 | ||
Alternative investments: | ||||
Private equity funds | $ 536 | $321 | ||
Real estate partnerships | 463 | 366 | ||
Tax credit funds | 147 | 177 | ||
Investment in Eagle | 53 | 52 | ||
Total alternative investments | $1,199 | $916 | ||
Derivatives collateral and receivables | 26 | 39 | ||
Total other invested assets | $1,225 | $955 |
Life Insurance1 | Annuities 2 | Retirement Solutions3 | Corporate Solutions and Other | |||||||||||||
(in millions) | Account value | Weighted average crediting rate | Account value | Weighted average crediting rate | Account value | Weighted average crediting rate | Account value | Weighted average crediting rate | ||||||||
December 31, 2021 | ||||||||||||||||
Minimum guaranteed crediting rate of 3.51% or greater | $571 | 4.00% | $ - | -% | $ - | -% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 3.01% to 3.50% | $ - | -% | $ 206 | 3.54% | $ 2,635 | 3.48% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 2.01% to 3.00% | $589 | 3.06% | $1,427 | 3.02% | $ 2,202 | 2.80% | $2,326 | 3.13% | ||||||||
Minimum guaranteed crediting rate of 0.01% to 2.00% | $ 72 | 2.34% | $ 543 | 1.08% | $16,492 | 2.57% | $1,426 | 3.01% | ||||||||
No minimum guaranteed crediting rate4 | $ - | -% | $ 541 | 0.03% | $ 1,107 | 2.13% | $ - | -% | ||||||||
December 31, 2020 | ||||||||||||||||
Minimum guaranteed crediting rate of 3.51% or greater | $594 | 4.00% | $ - | -% | $ 38 | 3.95% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 3.01% to 3.50% | $ - | -% | $ 210 | 3.64% | $ 6,346 | 3.42% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 2.01% to 3.00% | $575 | 3.05% | $1,451 | 3.04% | $ 4,172 | 2.83% | $2,306 | 3.04% | ||||||||
Minimum guaranteed crediting rate of 0.01% to 2.00% | $ 55 | 2.56% | $ 553 | 1.12% | $10,548 | 2.92% | $ 979 | 3.07% | ||||||||
No minimum guaranteed crediting rate4 | $ - | -% | $ 56 | 0.55% | $ 1,246 | 2.39% | $ - | -% |
1 | Includes universal life products and the fixed investment options selected within variable life products. |
2 | Includes individual fixed annuity products and the fixed investment options selected within variable annuity and indexed products. |
3 | Includes group fixed annuity products. |
4 | Includes certain products with a stated minimum guaranteed crediting rate of 0%. |
Name | Age | Date Service Began | ||
John L. Carter | 59 | February 2013 | ||
Timothy G. Frommeyer | 57 | January 2009 | ||
Steven A. Ginnan | 54 | June 2018 | ||
Eric S. Henderson | 59 | March 2012 | ||
Holly R. Snyder | 54 | October 2021 | ||
Kirt A. Walker | 58 | November 2009 |
Name | Age | Position with NLIC | ||
John L. Carter | 59 | President and Chief Operating Officer | ||
Vinita Clements | 57 | Executive Vice President-Chief Human Resources Officer | ||
James R. Fowler | 50 | Executive Vice President-Chief Technology Officer | ||
Timothy G. Frommeyer | 57 | Executive Vice President-Chief Financial Officer | ||
Tina Ambrozy | 51 | Senior Vice President-NF Strategic Customer Solutions | ||
Ann S. Bair | 59 | Senior Vice President-Marketing Management-Financial Services | ||
Rae Ann Dankovic | 54 | Senior Vice President-Chief Compliance Officer | ||
Steven A. Ginnan | 54 | Senior Vice President-Chief Financial Officer-Nationwide Financial | ||
Rona Guymon | 47 | Senior Vice President-Annuity Distribution | ||
Craig A. Hawley | 54 | Senior Vice President-Retirement Solutions Sales | ||
Eric S. Henderson | 59 | Senior Vice President-Nationwide Annuity | ||
David LaPaul | 56 | Senior Vice President and Treasurer | ||
Juan J. Perez | 41 | Senior Vice President-Corporate Solutions | ||
Denise L. Skingle | 51 | Senior Vice President-Finance & Strategy Legal and Corporate Secretary | ||
Holly R. Snyder | 54 | Senior Vice President-Nationwide Life | ||
Michael S. Spangler | 56 | Senior Vice President-Investment Management Group | ||
Eric Stevenson | 58 | Senior Vice President-Retirement Solutions |
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
FOR THE YEAR ENDED DECEMBER 31, 2021
Page | ||||
F-1 | ||||
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus | F-4 | |||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
Schedule I – Summary of Investments – Other Than Investments in Related Parties | F-48 | |||
F-49 | ||||
F-50 | ||||
F-51 |
Audit Committee of the Board of Directors Nationwide Life Insurance Company:
Opinions
We have audited the financial statements of Nationwide Life Insurance Company (the Company), which comprise the statutory statements of admitted assets, liabilities, capital and surplus as of December 31, 2021 and 2020, and the related statutory statements of operations and changes in capital and surplus, and cash flow for each of the years in the three-year period ended December 31, 2021, and the related notes to the statutory financial statements (financial statements).
Unmodified Opinion on Statutory Basis of Accounting
In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities, and capital and surplus of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flow for each of the years in the three-year period ended December 31, 2021, in accordance with the statutory accounting practices prescribed or permitted by the Ohio Department of Insurance (the Department) described in Note 2.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles section of our report, the financial statements do not present fairly, in accordance with U.S. generally accepted accounting principles, the financial position of the Company as of December 31, 2021 and 2020, or the results of its operations or its cash flows for each of the years in the three-year period ended December 31, 2021.
Basis for Opinions
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 of the financial statements, the financial statements are prepared by the Company using accounting practices prescribed or permitted by the Department, which is a basis of accounting other than U.S. generally accepted accounting principles. Accordingly, the financial statements are not intended to be presented in accordance with U.S. generally accepted accounting principles. The effects on the financial statements of the variances between the statutory accounting practices described in Note 2 and U.S. generally accepted accounting principles, although not reasonably determinable, are presumed to be material and pervasive.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with statutory accounting practices prescribed or permitted by the Department. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
F-2
Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information Schedule I Summary of Investments – Other Than Investments in Related Parties, Schedule III Supplementary Insurance Information, Schedule IV Reinsurance and Schedule V Valuation and Qualifying Accounts is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Securities and Exchange Commission’s Regulation S-X. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/KPMG LLP
Columbus, Ohio
March 18, 2022
F-3
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus
December 31, | ||||||||
(in millions, except share amounts) | 2021 | 2020 | ||||||
Admitted assets | ||||||||
Invested assets | ||||||||
Bonds | $ | 37,931 | $ | 37,207 | ||||
Stocks | 3,016 | 2,835 | ||||||
Mortgage loans, net of allowance | 8,185 | 7,783 | ||||||
Policy loans | 913 | 888 | ||||||
Derivative assets | 64 | 51 | ||||||
Cash, cash equivalents and short-term investments | 636 | 461 | ||||||
Securities lending collateral assets | 170 | 101 | ||||||
Other invested assets | 1,225 | 955 | ||||||
Total invested assets | $ | 52,140 | $ | 50,281 | ||||
Accrued investment income | 577 | 692 | ||||||
Deferred federal income tax assets, net | 618 | 642 | ||||||
Other assets | 125 | 195 | ||||||
Separate account assets | 125,372 | 114,407 | ||||||
Total admitted assets | $ | 178,832 | $ | 166,217 | ||||
Liabilities, capital and surplus | ||||||||
Liabilities | ||||||||
Future policy benefits and claims | $ | 42,499 | $ | 41,002 | ||||
Policyholders dividend accumulation | 414 | 430 | ||||||
Asset valuation reserve | 610 | 466 | ||||||
Interest maintenance reserve | 17 | - | ||||||
Current federal income taxes payable | 161 | - | ||||||
Payable for securities | 113 | 177 | ||||||
Derivative liabilities | 31 | 87 | ||||||
Securities lending payable | 171 | 101 | ||||||
Funds held under coinsurance | 1,052 | 965 | ||||||
Other liabilities | 922 | 967 | ||||||
Accrued transfers from separate accounts | (1,621 | ) | (1,490 | ) | ||||
Separate account liabilities | 125,372 | 114,407 | ||||||
Total liabilities | $ | 169,741 | $ | 157,112 | ||||
Capital and surplus | ||||||||
Capital shares ($1 par value; authorized - 5,000,000 shares,issued and outstanding - 3,814,779 shares) | $ | 4 | $ | 4 | ||||
Surplus notes | 1,100 | 1,100 | ||||||
Additional paid-in capital | 1,998 | 1,998 | ||||||
Unassigned surplus | 5,989 | 6,003 | ||||||
Total capital and surplus | $ | 9,091 | $ | 9,105 | ||||
Total liabilities, capital and surplus | $ | 178,832 | $ | 166,217 |
See accompanying notes to statutory financial statements.
F-4
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Operations
Year ended December 31, | ||||||||||||
(in millions) | 2021 | 2020 | 2019 | |||||||||
Revenues | ||||||||||||
Premiums and annuity considerations | $ | 12,664 | $ | 10,637 | $ | 10,168 | ||||||
Net investment income | 2,231 | 2,107 | 1,974 | |||||||||
Amortization of interest maintenance reserve | (8 | ) | - | (2 | ) | |||||||
Other revenues | 2,463 | 2,372 | 2,312 | |||||||||
Total revenues | $ | 17,350 | $ | 15,116 | $ | 14,452 | ||||||
Benefits and expenses | ||||||||||||
Benefits to policyholders and beneficiaries | $ | 16,884 | $ | 15,013 | $ | 14,782 | ||||||
Increase in reserves for future policy benefits and claims | 807 | 1,627 | 1,501 | |||||||||
Net transfers from separate accounts | (3,002 | ) | (3,544 | ) | (3,747 | ) | ||||||
Commissions | 858 | 646 | 674 | |||||||||
Dividends to policyholders | 30 | 36 | 38 | |||||||||
Reserve adjustment on reinsurance assumed | (151 | ) | (172 | ) | (246 | ) | ||||||
Other expenses | 439 | 444 | 417 | |||||||||
Total benefits and expenses | $ | 15,865 | $ | 14,050 | $ | 13,419 | ||||||
Income before federal income tax expense and net realized capital losses on investments | $ | 1,485 | $ | 1,066 | $ | 1,033 | ||||||
Federal income tax (benefit) expense | (9 | ) | 4 | (73 | ) | |||||||
Income before net realized capital losses on investments | $ | 1,494 | $ | 1,062 | $ | 1,106 | ||||||
Net realized capital (losses) on investments, net of federal income tax expense (benefit) of $59, $(26) and $7 in 2021, 2020 and 2019, respectively, and excluding $15, $(4) and $0 of net realized capital gains (losses) transferred to the interest maintenance reserve in 2021, 2020 and 2019, respectively | (683 | ) | (575 | ) | (477 | ) | ||||||
Net income | $ | 811 | $ | 487 | $ | 629 |
See accompanying notes to statutory financial statements.
F-5
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Changes in Capital and Surplus
(in millions) | Capital shares | Surplus notes | Additional paid-in capital | Unassigned surplus | Capital and surplus | |||||||||||||||
Balance as of December 31, 2018 | $ | 4 | $ | 700 | $ | 1,398 | $ | 4,743 | $ | 6,845 | ||||||||||
Net income | - | - | - | 629 | 629 | |||||||||||||||
Change in asset valuation reserve | - | - | - | (107 | ) | (107 | ) | |||||||||||||
Change in deferred income taxes | - | - | - | (29 | ) | (29 | ) | |||||||||||||
Change in net unrealized capital gains and losses, net of tax (benefit) of $(29) | - | - | - | 426 | 426 | |||||||||||||||
Change in nonadmitted assets | - | - | - | 59 | 59 | |||||||||||||||
Change in surplus notes | - | 400 | - | - | 400 | |||||||||||||||
Capital contribution from Nationwide Financial Services, Inc. | - | - | 600 | - | 600 | |||||||||||||||
Other, net | - | - | - | (1 | ) | (1 | ) | |||||||||||||
Balance as of December 31, 2019 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 5,720 | $ | 8,822 | ||||||||||
Change in reserve on account of change in valuation basis | - | - | - | 78 | 78 | |||||||||||||||
Cumulative effect of change in accounting principle | - | - | - | 5 | 5 | |||||||||||||||
Balance as of January 1, 2020 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 5,803 | $ | 8,905 | ||||||||||
Net income | - | - | - | 487 | 487 | |||||||||||||||
Change in asset valuation reserve | - | - | - | 13 | 13 | |||||||||||||||
Change in deferred income taxes | - | - | - | 41 | 41 | |||||||||||||||
Change in net unrealized capital gains and losses, net of tax (benefit) of $(3) | - | - | - | (313 | ) | (313 | ) | |||||||||||||
Change in nonadmitted assets | - | - | - | (21 | ) | (21 | ) | |||||||||||||
Other, net | - | - | - | (7 | ) | (7 | ) | |||||||||||||
Balance as of December 31, 2020 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 6,003 | $ | 9,105 | ||||||||||
Change in reserve on account of change in valuation basis | - | - | - | 2 | 2 | |||||||||||||||
Cumulative effect of change in accounting principle | - | - | - | 6 | 6 | |||||||||||||||
Balance as of January 1, 2021 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 6,011 | $ | 9,113 | ||||||||||
Net income | - | - | - | 811 | 811 | |||||||||||||||
Change in asset valuation reserve | - | - | - | (144 | ) | (144 | ) | |||||||||||||
Change in deferred income taxes | - | - | - | 50 | 50 | |||||||||||||||
Change in net unrealized capital gains and losses, net of tax expense of $30 | - | - | - | (142 | ) | (142 | ) | |||||||||||||
Change in nonadmitted assets | - | - | - | (47 | ) | (47 | ) | |||||||||||||
Dividends paid to Nationwide | ||||||||||||||||||||
Financial Services, Inc. | - | - | - | (550 | ) | (550 | ) | |||||||||||||
Balance as of December 31, 2021 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 5,989 | $ | 9,091 |
See accompanying notes to statutory financial statements.
F-6
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Cash Flow
Years ended December 31, | ||||||||||||
(in millions) | 2021 | 2020 | 2019 | |||||||||
Cash flows from operating activities: | ||||||||||||
Premiums collected, net of reinsurance | $ | 12,661 | $ | 10,648 | $ | 10,184 | ||||||
Net investment income | 2,404 | 2,034 | 1,825 | |||||||||
Other revenue | 2,367 | 2,664 | 2,708 | |||||||||
Policy benefits and claims paid | (16,735 | ) | (14,886 | ) | (14,778 | ) | ||||||
Commissions, operating expenses and taxes, other than federal income tax paid | (1,122 | ) | (885 | ) | (847 | ) | ||||||
Net transfers from separate accounts | 2,871 | 3,620 | 3,805 | |||||||||
Policyholders’ dividends paid | (36 | ) | (38 | ) | (40 | ) | ||||||
Federal income taxes recovered | 121 | 121 | 87 | |||||||||
Net cash provided by operating activities | $ | 2,531 | $ | 3,278 | $ | 2,944 | ||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from investments sold, matured or repaid: | ||||||||||||
Bonds | $ | 6,953 | $ | 3,404 | $ | 3,547 | ||||||
Stocks | 127 | 37 | 58 | |||||||||
Mortgage loans | 1,053 | 640 | 910 | |||||||||
Other assets | 279 | 905 | 385 | |||||||||
Total investment proceeds | $ | 8,412 | $ | 4,986 | $ | 4,900 | ||||||
Cost of investments acquired: | ||||||||||||
Bonds | $ | (7,744 | ) | $ | (5,527 | ) | $ | (6,327 | ) | |||
Stocks | (538 | ) | (517 | ) | (454 | ) | ||||||
Mortgage loans | (1,441 | ) | (769 | ) | (800 | ) | ||||||
Derivative assets | (589 | ) | (580 | ) | (687 | ) | ||||||
Other assets | (594 | ) | (837 | ) | (340 | ) | ||||||
Total investments acquired | $ | (10,906 | ) | $ | (8,230 | ) | $ | (8,608 | ) | |||
Net (increase) decrease in policy loans | (25 | ) | 15 | 2 | ||||||||
Net cash used in investing activities | $ | (2,519 | ) | $ | (3,229 | ) | $ | (3,706 | ) | |||
Cash flows from financing activities and miscellaneous sources: | ||||||||||||
Surplus notes | $ | - | $ | - | $ | 400 | ||||||
Capital contribution from Nationwide Financial Services, Inc. | - | - | 600 | |||||||||
Dividend paid to Nationwide Financials Services, Inc. | (550 | ) | - | - | ||||||||
Net change in deposits on deposit-type contract funds and other insurance liabilities | 517 | 160 | (714 | ) | ||||||||
Net change in short-term debt | - | (200 | ) | (162 | ) | |||||||
Derivative liabilities | (56 | ) | 65 | 2 | ||||||||
Other cash provided (used) | 252 | (169 | ) | 93 | ||||||||
Net cash provided by (used in) financing activities and miscellaneous | $ | 163 | $ | (144 | ) | $ | 219 | |||||
Net increase (decrease) in cash, cash equivalents and short-term investments | $ | 175 | $ | (95 | ) | $ | (543 | ) | ||||
Cash, cash equivalents and short-term investments at beginning of year | 461 | 556 | 1,099 | |||||||||
Cash, cash equivalents and short-term investments at end of year | $ | 636 | $ | 461 | $ | 556 | ||||||
Supplemental disclosure of non-cash activities: | ||||||||||||
Exchange of bond investments | $ | 277 | $ | 799 | $ | 592 |
See accompanying notes to statutory financial statements.
F-7
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(1) | Nature of Operations |
Nationwide Life Insurance Company (“NLIC” or “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 is licensed to conduct business in all fifty states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
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, wirehouses and regional firms, pension plan administrators, life insurance agencies, life insurance 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. NMIC completed the transition away from utilizing the exclusive agent model in 2020. The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively under various economic conditions.
Wholly-owned subsidiaries of NLIC as of December 31, 2021 include Nationwide Life and Annuity Insurance Company (“NLAIC”) and its wholly-owned subsidiaries, Olentangy Reinsurance, LLC (“Olentangy”) and Nationwide SBL, LLC (“NWSBL”), Jefferson National Financial Corporation (“JNF”) and its wholly-owned subsidiaries, Jefferson National Securities Corporation (“JNSC”) and Jefferson National Life Insurance Company (“JNLIC”), and its wholly-owned subsidiary, Jefferson National Life Insurance Company of New York (“JNLNY”), Eagle Captive Reinsurance, LLC (“Eagle”), Nationwide Investment Services Corporation (“NISC”) and Nationwide Investment Advisors, LLC (“NIA”). NLAIC primarily offers individual annuity contracts including fixed annuity contracts, group annuity contracts including pension risk transfer contacts, universal life insurance, variable universal life insurance, term life insurance and corporate-owned life insurance on a non-participating basis. Olentangy is a Vermont domiciled special purpose financial insurance company. NWSBL offers a securities-based lending product and is an Ohio limited liability company and nonadmitted subsidiary. JNF is a distributor of tax-advantaged investing solutions for registered investment advisors, fee-based advisors and the clients they serve. JNSC is a registered broker-dealer. JNLIC and JNLNY are licensed to underwrite both fixed and variable annuity products. Eagle is an Ohio domiciled special purpose financial captive insurance company. NISC is a registered broker-dealer. NIA is a registered investment advisor.
The Company is subject to regulation by the insurance departments of states in which it is domiciled and/or transacts business and undergoes periodic examinations by those departments.
As of December 31, 2021 and 2020, 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 |
Use of Estimates
The preparation of the statutory financial statements requires the Company to make estimates and assumptions that affect the amounts reported in the statutory financial statements and accompanying notes. Significant estimates include certain investment and derivative valuations and future policy benefits and claims. Actual results could differ significantly from those estimates.
Basis of Presentation
The statutory financial statements of the Company are presented on the basis of accounting practices prescribed or permitted by the Ohio Department of Insurance (“the Department”). Prescribed statutory accounting practices are those practices incorporated directly or by reference in state laws, regulations and general administrative rules applicable to all insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the domiciliary state but allowed by the domiciliary state regulatory authority.
F-8
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Effective January 1, 2021, NLIC and NLAIC elected to apply a prescribed practice promulgated under Ohio Administrative Code Section 3901-1-67 (“OAC 3901-1-67”) to its derivative instruments hedging indexed products and indexed annuity reserve liabilities in order to better align the measurement of indexed product reserves and the derivatives that hedge them. Under OAC 3901-1-67, derivative instruments are carried at amortized cost with the initial hedge cost amortized over the term and asset payoffs realized at the end of the term being reported through net investment income, rather than the derivative instruments being carried at fair value with asset payoffs realized over the term through net realized capital gains and losses. Additionally, the cash surrender value reserves for indexed annuity products only reflect index interest credits at the end of the crediting term as compared to partial index interest credits accumulating throughout the crediting term in increase in reserves for future policy benefits and claims.
The Company’s subsidiary, Eagle, applies one prescribed practice with multiple applications as provided under the State of Ohio’s captive law, which values assumed guaranteed minimum death benefits (“GMDB”) and guaranteed lifetime withdrawal benefits (“GLWB”) risks on variable annuity contracts from NLIC and GLWB risks on fixed indexed annuity contracts from NLIC and NLAIC using an alternative reserving basis from the Statutory Accounting Principles detailed within the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) pursuant to Ohio Revised Code Chapter 3964 and approved by the Department.
Olentangy was granted a permitted practice from the State of Vermont allowing Olentangy to carry the assets placed into a trust account by Union Hamilton Reinsurance Ltd. (“UHRL”) on its statutory statements of admitted assets, liabilities and surplus at net admitted asset value for certain universal life and term life insurance policies.
If the prescribed or permitted practices were not applied, the Company’s risk-based capital would continue to be above regulatory action levels. A reconciliation of the Company’s net income between NAIC SAP and prescribed and permitted practices is shown below:
(in millions) | SSAP # | F/S Page | State of domicile | December 31, | ||||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||||||
| ||||||||||||||||||||||||
Net Income |
| |||||||||||||||||||||||
Statutory Net Income | OH | $ | 811 | $ | 487 | $ | 629 | |||||||||||||||||
State Prescribed Practice: | ||||||||||||||||||||||||
OAC 3901-1-67: | ||||||||||||||||||||||||
Derivative instruments | 86 | 4 | OH | 9 | - | - | ||||||||||||||||||
Reserves for indexed annuities | 51 | 4 | OH | (20 | ) | - | - | |||||||||||||||||
Tax impact | 101 | 4 | OH | 3 | - | - | ||||||||||||||||||
| ||||||||||||||||||||||||
NAIC SAP | $ | 803 | $ | 487 | $ | 629 | ||||||||||||||||||
|
A reconciliation of the Company’s capital and surplus between NAIC SAP and prescribed and permitted practices is shown below:
(in millions) | SSAP # | F/S Page | State of domicile | As of December 31, | ||||||||||||||||
2021 | 2020 | |||||||||||||||||||
Surplus | ||||||||||||||||||||
Statutory Capital and Surplus | OH | $ | 9,091 | $ | 9,105 | |||||||||||||||
State Prescribed Practice: | ||||||||||||||||||||
Subsidiary valuation - Eagle: NLIC risks ceded | 51 | 2 | OH | 791 | 711 | |||||||||||||||
Subsidiary valuation - Eagle: NLAIC risks ceded | 51 | 2 | OH | (810 | ) | (523 | ) | |||||||||||||
OAC 3901-1-67: | ||||||||||||||||||||
Derivative instruments | 86 | 2,4 | OH | 13 | - | |||||||||||||||
Reserves for indexed annuities | 51 | 3,4 | OH | (22 | ) | - | ||||||||||||||
Tax impact | 101 | 2,4 | OH | 2 | - | |||||||||||||||
Subsidiary Valuation - NLAIC | 51,86,101 | 2 | OH | 274 | - | |||||||||||||||
State Permitted Practice: | ||||||||||||||||||||
Subsidiary valuation - Olentangy | 20 | 2 | VT | (67 | ) | (67 | ) | |||||||||||||
NAIC SAP | $ | 9,272 | $ | 9,226 | ||||||||||||||||
Statutory accounting practices vary in some respects from U.S. generally accepted accounting principles (“GAAP”), including the following practices:
F-9
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Financial Statements
● | Statutory financial statements are prepared using language and groupings substantially the same as the annual statements of the Company filed with the NAIC and state regulatory authorities; |
● | assets must be included in the statutory statements of admitted assets, liabilities, capital and surplus at net admitted asset value and nonadmitted assets are excluded through a charge to capital and surplus; |
● | an asset valuation reserve (“AVR”) is established in accordance with the NAIC Annual Statement Instructions for Life and Accident and Health Insurance Companies and is reported as a liability, and changes in the AVR are reported directly in capital and surplus; |
● | an interest maintenance reserve (“IMR”) is established in accordance with the NAIC Annual Statement Instructions for Life and Accident and Health Insurance Companies and is reported as a liability, and the amortization of the IMR is reported as revenue; |
● | the expense allowance associated with statutory reserving practices for investment contracts held in the separate accounts is reported in the general account as a negative liability; |
● | accounting for contingencies requires recording a liability at the midpoint of a range of estimated possible outcomes when no better estimate in the range exists; |
● | surplus notes are accounted for as a component of capital and surplus; |
● | costs related to successful policy acquisitions are charged to operations in the year incurred; |
● | negative cash balances are reported as negative assets; |
● | certain income and expense items are charged or credited directly to capital and surplus; |
● | amounts on deposit in internal qualified cash pools are reported as cash equivalents; |
● | the statutory statements of cash flows are presented on the basis prescribed by the NAIC; and |
● | the statutory financial statements do not include accumulated other comprehensive income. |
Future Policy Benefits and Claims
● | Deposits to universal life contracts, investment contracts and limited payment contracts are included in revenue; and |
● | future policy benefit reserves are based on statutory requirements. |
Reinsurance Ceded
● | Certain assets and liabilities are reported net of ceded reinsurance balances; and |
● | provision is made for amounts receivable and outstanding for more than 90 days through a charge to capital and surplus. |
Investments
● | Investments in bonds are generally stated at amortized cost, except those with an NAIC designation of “6”, which are stated at the lower of amortized cost or fair value; |
● | investments in preferred stocks are generally stated at amortized cost, except those with an NAIC designation of “4” through “6”, which are stated at the lower of amortized cost or fair value; |
● | other-than-temporary impairments on bonds, excluding loan-backed and structured securities, are measured based on fair value and are not reversible; |
● | the proportional amortized cost method is utilized to determine the liquidation value of Low-Income Housing Tax Credit Funds (“Tax Credit Funds”); |
● | admitted subsidiary, controlled and affiliated entities are not consolidated; rather, those investments are generally carried at audited statutory capital and surplus or GAAP equity, as appropriate, and are recorded as an equity investment in stocks or other invested assets; |
● | equity in earnings of subsidiary companies is recognized directly in capital and surplus as net unrealized capital gains or losses, while dividends from unconsolidated companies are recorded in operations as net investment income; |
F-10
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
● | undistributed earnings and valuation adjustments from investments in joint ventures, partnerships and limited liability companies are recognized directly in capital and surplus as net unrealized capital gains or losses; |
● | changes in non-specific mortgage loan reserves are measured under an incurred loss model and are recorded directly in capital and surplus as net unrealized capital gains or losses; and |
● | gains on sales of investments between affiliated companies representing economic transactions are deferred at the parent level until the related assets are paid down or an external sale occurs. |
Separate Accounts
● | Assets and liabilities of guaranteed separate accounts are reported as separate account assets and separate account liabilities, respectively. |
Derivative Instruments
● | Derivatives used in effective hedging transactions are valued in a manner consistent with the hedged asset or liability; |
● | With the exception of derivatives applying the prescribed practice under OAC 3901-1-67, unrealized gains and losses on derivatives that are not considered to be effective hedges are charged to capital and surplus; |
● | interest earned on derivatives is charged to net investment income; and |
● | embedded derivatives are not separated from the host contract and accounted for separately as a derivative instrument. |
Goodwill
● | Goodwill is limited to 10% of the prior reporting period’s adjusted statutory surplus, with any goodwill in excess of this limitation nonadmitted through a charge to surplus; and |
● | goodwill is amortized and charged to surplus. |
Federal Income Taxes
● | Changes in deferred federal income taxes are recognized directly in capital and surplus with limitations on the amount of deferred tax assets that can be reflected as an admitted asset (15% of capital and surplus); and |
● | uncertain tax positions are subject to a “more likely than not” standard for federal and foreign income tax loss contingencies only. |
Nonadmitted Assets
● | In addition to the nonadmitted assets described above, certain other assets are nonadmitted and charged directly to capital and surplus. These include prepaid assets, certain software, disallowed IMR and other receivables outstanding for more than 90 days. |
The financial information included herein is prepared and presented in accordance with SAP prescribed or permitted by the Department. Certain differences exist between SAP and GAAP, which are presumed to be material.
Revenues and Benefits
Life insurance premiums are recognized as revenue over the premium paying period of the related policies when due. 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. Policy benefits and claims that are expensed include interest credited to policy account balances, benefits and claims incurred in the period in excess of related policy reserves and other changes in future policy benefits.
Future Policy Benefits and Claims
Future policy benefits for traditional products are based on statutory mortality and interest requirements without consideration of withdrawals. The principal statutory mortality tables and interest assumptions used on policies in force are the 1958 Commissioner’s Standard Ordinary (“CSO”) table at interest rates of 2.5%, 3.0%, 3.5%, 4.0% and 4.5%, the 1941 CSO table at an interest rate of 2.5%, the 1980 CSO table at interest rates of 4.0%, 4.5%, 5.0% and 5.5%, the 2001 CSO table at an interest rate of 4.0% and 3.5% and the 2017 CSO table at an interest rate of 3.5% and 4.5%. Beginning January 1, 2020, the Company has applied principles-based reserving to all new individual life business. For business subject to principles-based reserving, additional reserves may be held where the deterministic and/or stochastic reserves are in excess of net premium reserves, as defined by Valuation Manual 20, Requirements for Principle-Based Reserves for Life Products (“VM-20”).
F-11
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Future policy benefits for universal life and variable universal life contracts have been calculated based on participants’ contributions plus interest credited on any funds in the fixed account less applicable contract charges. These policies have been adjusted for possible future surrender charges in accordance with the Commissioner’s Reserve Valuation Method (“CRVM”). For business subject to principles-based reserving, the Company has calculated reserves under VM-20.
Future policy benefits for annuity products have been established based on contract term, interest rates and various contract provisions. Individual deferred annuity contracts issued in 1990 and after have been adjusted for possible future surrender charges in accordance with the Commissioner’s Annuity Reserve Valuation Method (“CARVM”).
Future policy benefits for pension risk transfer (“PRT”) products have been established in accordance with the CARVM. Statutory reserves for PRT business written during or after 2020 are calculated as the present value of future benefit payments, using the prescribed 1994 Group Annuity Mortality (“GAM”) table along with the AA projection mortality improvement scale and prescribed valuation rates as specified in Chapter 22 of the Valuation Manual. For the PRT business written before 2020, the statutory reserves are calculated using prescribed GAM tables and valuation interest rates that vary by issue year, as specified in the Standard Valuation Law.
As of 2019, the Company calculated its reserves for variable annuity products with guaranteed minimum death, accumulation and withdrawal benefits and other contracts involving guaranteed benefits similar to those offered with variable annuities under the standard scenario of Actuarial Guideline XLIII “CARVM for Variable Annuities”, which exceeded the stochastic 70th percentile Conditional Tail Expectations scenario. Effective January 1, 2020, the Company changed its reserve valuation basis for variable annuities due to changes to Valuation Manual 21, Requirements for Principle-Based Reserves for Variable Annuities (“VM-21”) and as a result, the Company calculated its reserves using a stochastic reserve, which is floored at the cash surrender value.
The aggregate reserves for individual accident and health policies consist of active life reserves, disabled life reserves and unearned premium reserves. The active life reserves for disability income are reserved for on the net level basis, at a 3.0% interest rate, using either the 1964 Commissioner’s Disability Table (for policies issued prior to 1982) or the 1985 Commissioner’s Individual Disability Table A (for policies issued after 1981). The active life reserves for major medical insurance (both scheduled and unscheduled benefits) are based on the benefit ratio method for policies issued after 1981.
The active life reserves for accident and health policies are reserved for on the net level basis, at a 3.0% interest rate, using either the 1956 Inter-Company Hospital-Surgical tables, the 1974 Medical Expense tables or the 1959 Accidental Death Benefits table.
The disabled life reserves for accident and health policies are calculated using the 1985 Commissioner’s Individual Disability Table A at a 3.0% interest rate. Unearned premium reserves are based on the actual gross premiums and actual days.
The aggregate reserves for group accident and health and franchise accident and health policies consist of disabled life reserves and unearned premium reserves. Reserves for benefits payable on disabled life claims are based on the 2012 Group Long-Term Disability Valuation Table, at varying interest rates of 2.75% - 6.0%, for group policies and the 1987 Commissioner’s Group Disability Table, at varying interest rates of 2.75% - 10.25%, for franchise policies.
Future policy benefits and claims for group long-term disability policies are the present value (discounted between 2.75% and 6.00%) of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. Future policy benefits and claims on other group health policies are not discounted.
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 for life insurance companies and recorded in future policy benefits and claims. Refer to Note 9 for additional details.
Separate Accounts
Separate account assets represent contractholders’ funds that have been legally segregated into accounts with specific investment objectives. Separate account assets are primarily 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 and non-registered mutual funds, whose fair value is primarily based on the funds’ net asset value. Other separate account assets are recorded at fair value based on the methodology that is applicable to the underlying assets. In limited circumstances, other separate account assets are recorded at book value when the policyholder does not participate in the underlying portfolio experience.
F-12
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Separate account liabilities, in conjunction with accrued transfers from separate accounts, represent contractholders’ funds adjusted for possible future surrender charges in accordance with the CARVM and the CRVM, respectively. The difference between full account value and CARVM/CRVM is reflected in accrued transfers to separate accounts, as prescribed by the NAIC, in the statutory statements of admitted assets, liabilities, capital and surplus. The annual change in the difference between full account value and CARVM/CRVM and its applicable federal income tax is reflected in the statutory statements of operations as part of the net transfers to separate accounts and federal income tax, respectively.
Retained Assets
The Company does not retain beneficiary assets. During a death benefit claim, the death benefit settlement method is payment to the beneficiary in the form of a check or electronic funds transfer.
Investments
Bonds and stocks of unaffiliated companies. Bonds are generally stated at amortized cost, except those with an NAIC designation of “6”, which are stated at the lower of amortized cost or fair value. Preferred stocks are generally stated at amortized cost, except those with an NAIC designation of “4” through “6”, which are stated at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in the fair value of bonds and stocks stated at fair value are charged to capital and surplus.
Loan-backed and structured securities, which are included in bonds in the statutory financial statements, are stated in a manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S. government agencies, commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined for each security. The initial NAIC designation, which takes into consideration the security’s amortized cost relative to an NAIC-prescribed valuation matrix, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost or fair value).
Interest income is recognized when earned, while dividends are recognized when declared. The Company nonadmits investment income due and accrued when amounts are over 90 days past due.
For investments in loan-backed and structured securities, the Company recognizes income and amortizes discounts and premiums using the effective-yield method based on prepayment assumptions, generally obtained using a model provided by a third-party vendor, 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.
Purchases and sales of bonds and stocks are recorded on the trade date, with the exception of private placement bonds, which are recorded on the funding date. Realized gains and losses are determined on a specific identification method on the trade date.
Independent pricing services are most often utilized, and compared to pricing from additional sources when available, to determine the fair value of bonds and stocks for which market quotations or quotations on comparable securities or models are used. For these bonds and stocks, the Company obtains the pricing services’ methodologies and classifies the investments accordingly in the fair value hierarchy.
A corporate pricing matrix is used in valuing certain corporate bonds. The corporate pricing matrix was developed using publicly available spreads for certain privately-placed corporate bonds with varying weighted average lives and credit quality ratings. The weighted average life and credit quality rating of a particular bond to be priced using the corporate pricing 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 bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular bond.
Non-binding broker quotes are also utilized to determine the fair value of certain bonds when deemed appropriate or when valuations are not available from independent pricing services or a corporate pricing matrix. These bonds 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.
F-13
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
For all bonds, the Company considers its ability and intent to hold the security for a period of time sufficient to allow for the anticipated recovery in value, the expected recovery of principal and interest and the extent to which the fair value has been less than amortized cost. If the decline in fair value to below amortized cost is determined to be other-than-temporary, a realized loss is recorded equal to the difference between the amortized cost of the investment and its fair value.
The Company periodically reviews loan-backed and structured securities in an unrealized loss position by comparing the present value of cash flows, including estimated prepayments, expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected, discounted at the security’s effective interest rate, is less than the amortized cost basis of the security, the impairment is considered other-than-temporary and a realized loss is recorded.
All other bonds in an unrealized loss position are periodically reviewed to determine if a decline in fair value to below amortized cost is other-than-temporary. Factors considered during this review include timing and amount of expected cash flows, ability of the issuer to meet its obligations, financial condition and future prospects of the issuer, amount and quality of any underlying collateral and current economic and industry conditions that may impact an issuer.
Stocks may experience other-than-temporary impairment based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the stock to recovery. If a stock is determined to be other-than-temporarily impaired, a realized loss is recorded equal to the difference between the cost basis of the investment and its fair value.
Investments in subsidiaries. The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC and Eagle, are carried using the equity method of accounting applicable to U.S. insurance subsidiary, controlled and affiliated (“SCA”) entities. This requires the investment to be recorded based on the value of its underlying audited statutory surplus. Furthermore, the equity method of accounting would be discontinued if the investment is reduced to zero, unless the Company has guaranteed obligations of the subsidiary or otherwise committed to provide further financial support. In accordance with the “look through” provisions of Statements of Statutory Accounting Principles (“SSAP”) No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, the valuation of JNF, an unaudited downstream noninsurance holding company, is based on the individual audited SCA entities owned by the holding company. Additionally, all non-affiliated liabilities, commitments, contingencies, guarantees or obligations of the holding company are reflected in the determination of the carrying value of the investments. The Company’s investment in NISC and NIA, wholly-owned non-insurance subsidiaries, are carried using the equity method of accounting applicable to U.S. non-insurance subsidiary, controlled and affiliated entities. This requires the investment to be recorded based on its underlying audited GAAP equity. Investments in NLAIC, JNF and NISC are included in stocks, and the investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus.
Mortgage loans, net of allowance. The Company holds commercial mortgage loans that are collateralized by properties throughout the U.S. Mortgage loans are held at unpaid principal balance adjusted for premiums and discounts, less a valuation allowance. The Company also holds commercial mortgage loans of these property types that are under development. Mortgage loans under development are collateralized by the borrower’s common stock.
As part of the underwriting process, specific guidelines are followed to ensure the initial quality of a new mortgage loan. Third-party appraisals are obtained to support loaned amounts as the loans are collateral dependent or guaranteed.
The collectability and value of a mortgage loan is based on the ability of the borrower to repay and/or the value of the underlying collateral. Many of the Company’s mortgage loans are structured with balloon payment maturities, exposing the Company to risks associated with the borrowers’ ability to make the balloon payment or refinance the property. Loans are considered delinquent when contractual payments are 90 days past due.
Mortgage loans require a loan-specific reserve when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When management determines that a loan requires a loan-specific reserve, a provision for loss is established equal to the difference between the carrying value and the fair value of the collateral less costs to sell. Loan-specific reserve charges are recorded in net realized capital gains and losses. In the event a loan-specific reserve charge is reversed, the recovery is also recorded in net realized capital gains and losses.
In addition to the loan-specific reserves, the Company maintains a non-specific reserve based primarily on loan surveillance categories and property type classes, which reflects management’s best estimates of probable credit losses inherent in the portfolio of loans without specific reserves as of the date of the statutory statements of admitted assets, liabilities, capital and surplus. Management’s periodic evaluation of the adequacy of the non-specific reserve is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect a group of borrowers’ ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Non-specific reserve changes are recorded directly in capital and surplus as net unrealized capital gains and losses.
F-14
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Management evaluates the credit quality of individual mortgage loans and the portfolio as a whole through a number of loan quality measurements, including, but not limited to, loan-to-value (“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 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. Due to the nature of the collateral underlying mortgage loans under development, these loans are not evaluated using the LTV and DSC ratios described above.
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 on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received. 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 the loan is modified.
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.
Cash and cash equivalents. Cash and cash equivalents include highly liquid investments with original maturities of less than three months and, effective December 31, 2020, amounts on deposit in internal qualified cash pools. 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 in the internal qualified cash pool.
Short-term investments. Short-term investments consist primarily of government agency discount notes with maturities of twelve months or less at acquisition. Short-term investments also include outstanding promissory notes with initial maturity dates of one-year or less with certain affiliates. The Company carries short-term investments at amortized cost, which approximates fair value.
Other invested assets. Other invested assets consist primarily of alternative investments in private equity funds, private debt funds, tax credit funds, real estate partnerships and the investment in Eagle. Except for investments in certain tax credit funds, these investments are recorded using the equity method of accounting. Changes in carrying value as a result of the equity method are reflected as net unrealized capital gains and losses as a direct adjustment to capital and surplus. Gains and losses are generally recognized through income at the time of disposal or when operating distributions are received. Partnership interests in tax credit funds are held at amortized cost with amortization charged to net investment income over the period in which the tax benefits, primarily credits, are earned. Tax credits are recorded as an offset to tax expense in the period utilized.
The Company sold $2.6 billion, $2.3 billion and $2.2 billion in Tax Credit Funds to unrelated third parties with outstanding guarantees as of December 31, 2021, 2020 and 2019, respectively. The Company guaranteed after-tax benefits to the third-party investors through periods ending in 2038. These guarantees 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 cumulative after-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 $1.5 billion, 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 of after-tax benefits.
F-15
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Securities Lending. 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 invested assets of the Company. Periodically, the Company may receive non-cash collateral, which would be recorded off-balance sheet. The Company recognizes loaned securities in bonds. A securities lending payable is recorded in other liabilities for the amount of cash collateral received. If the fair value of the collateral received (cash and/or securities) is less than the fair value of the securities loaned, the shortfall is nonadmitted. Net income received from securities lending activities is included in net investment income. Because the borrower or the Company may terminate a securities lending transaction at any time, if loans are terminated in advance of the reinvested collateral asset maturities, the Company would repay its securities lending obligations from operating cash flows or the proceeds of sales from its investment portfolio, which includes significant liquid securities.
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, cross-currency swaps, futures and options.
Derivative instruments used in hedging transactions considered to be effective hedges are reported in a manner consistent with the hedged items. With the exception of derivatives applying the prescribed practice under OAC 3901-1-67, derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value with changes in fair value recorded in capital and surplus as unrealized gains or losses.
The fair value of derivative instruments is determined using various valuation techniques relying predominantly on observable market inputs and internal models. These inputs include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels.
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 recorded off-balance sheet.
Cash flows and payment accruals on derivatives are recorded in net investment income.
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.
The Company categorizes assets and liabilities held at fair value in the statutory statements of admitted assets, liabilities, capital and surplus 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.
F-16
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Level 2. Unadjusted quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active 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. Primary inputs to this valuation technique include broker quotes and comparative trades.
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 reporting period in which the change occurs.
Asset Valuation Reserve
The Company maintains an AVR as prescribed by the NAIC for the purpose of offsetting potential credit related investment losses on each invested asset category, excluding cash, policy loans and income receivable. The AVR contains a separate component for each category of invested assets. The change in AVR is charged or credited directly to capital and surplus.
Interest Maintenance Reserve
The Company records an IMR as prescribed by the NAIC, which represents the net deferral for interest-related gains or losses arising from the sale of certain investments, such as bonds, mortgage loans and loan-backed and structured securities sold. The IMR is applied as follows:
• | for bonds, the designation from the NAIC Capital Markets and Investments Analysis Office must not have changed more than one designation between the beginning of the holding period and the date of sale; |
• | the bond must never have been classified as a default security; |
• | for mortgage loans, during the prior two years, they must not have had interest more than 90 days past due, been in the process of foreclosure or in the course of voluntary conveyance, nor had restructured terms; and |
• | for loan-backed and structured securities, all interest-related other-than-temporary impairments and interest-related realized gains or losses on sales of the securities. |
The realized gains or losses, net of related federal income tax, from the applicable bonds and mortgage loans sold, have been removed from the net realized gain or loss amounts and established as a net liability. This liability is amortized into income such that the amount of each capital gain or loss amortized in a given year is based on the excess of the amount of income which would have been reported that year, if the asset had not been disposed of over the amount of income which would have been reported had the asset been repurchased at its sale price. In the event the unamortized IMR liability balance is negative, the balance is reclassified as an asset and fully nonadmitted. The Company utilizes the grouped method for amortization. Under the grouped method, the liability is amortized into income over the remaining period to expected maturity based on the groupings of the individual securities into five-year bands.
Goodwill
For companies whose operations are primarily insurance related, goodwill is the excess of the cost to acquire a company over the Company’s share of the statutory book value of the acquired entity. Goodwill is recorded in stocks in the statutory statements of admitted assets, liabilities and surplus. Goodwill is amortized on a straight-line basis over the period of economic benefit, not to exceed ten years, with a corresponding charge to surplus. Goodwill was immaterial as of December 31, 2021 and 2020.
F-17
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Federal Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets, net of any nonadmitted portion and statutory valuation allowance, and deferred tax liabilities, are recognized for the expected future tax consequences attributable to differences between the statutory financial statement carrying amounts of existing assets and liabilities and their respective tax basis. 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. The change in deferred taxes, excluding the impact of taxes on unrealized capital gains or losses and nonadmitted deferred taxes, is charged directly to capital and surplus.
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 statutory 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 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 Internal Revenue Service (“IRS”) examinations and other tax-related matters for all open tax years.
The Company is included in the NMIC consolidated federal income tax return.
Reinsurance Ceded
The Company cedes insurance to other companies in order to limit potential losses and to diversify its exposures. Such agreements do not relieve the Company of its primary obligation to the policyholder in the event the reinsurer is unable to meet the obligations it has assumed. 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 statutory statements of admitted assets, liabilities, capital and surplus on a net basis within the related future policy benefits and claims of the Company.
Participating Business
Participating business, which refers to policies that participate in profits through policyholder dividends, represented approximately 4% of the Company’s life insurance in force in 2021 and 2020, and 50% of the number of life insurance policies in force in 2021 and 2020. The provision for policyholder dividends was based on the respective year’s dividend scales, as approved by the Board of Directors. Policyholder dividends are recognized when declared. No additional income was allocated to participating policyholders during 2021 and 2020.
Accounting Changes and Corrections of Errors
Effective January 1, 2021, the Company elected to apply OAC 3901-1-67 to its derivative instruments hedging indexed products and indexed annuity reserve liabilities. As a result of the Company’s election to apply OAC 3901-1-67 as of January 1, 2021, the Company’s admitted assets decreased $3 million, total liabilities decreased $2 million and capital and surplus decreased $1 million, which included a $3 million reduction to unassigned surplus from the cumulative effect of the change in accounting principle.
During 2020, the Company identified and corrected an error in the variable annuity ceded premium calculation under the intercompany 100% coinsurance agreement with Eagle. The error resulted in an understatement of ceded premiums for the years ended December 31, 2019 and 2018. In accordance with SSAP No. 3, Accounting Changes and Corrections of Errors, the total prior period correction of $9 million was reported in 2020 as a negative adjustment to unassigned funds (surplus) and consisted of $11 million of ceded premiums, offset by $2 million of taxes.
Effective January 1, 2020, the Company changed its reserve valuation basis for variable annuities due to changes to VM-21. As a result of this change, the Company records stochastic reserves, floored at the cash surrender value, instead of reserves using the standard scenario previously required under Actuarial Guideline XLIII “CARVM for Variable Annuities”. The impacts of the valuation basis change were recognized as of January 1, 2020, resulting in an increase to statutory capital and surplus of $78 million. In addition, the Company changed its reserve valuation basis for stable value wraps covering certain group life insurance policies from Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts, to VM-21. There was no impact to statutory capital and surplus as a result of this change.
F-18
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
During 2020, the Company modified its approach used to schedule the reversals of its deferred tax assets for policyholder reserves under SSAP No. 101, Income Taxes (“SSAP No. 101”). Prior to 2020 the Company scheduled the reversals of its deferred tax assets for policyholder reserves by estimating the reserve reversal using the aggregate policyholder reserve. As of January 1, 2020, the Company is now taking a disaggregated approach and calculates reversal of the deferred tax assets for policyholder reserves on a product-by-product basis. The new method is more precise and better reflects how the deferred tax assets for policyholder reserves moves with the underlying reserve liability. SSAP No. 101 permits a company to modify its scheduling method so long as the modification is treated as change in accounting principle. The impact of the change increases the Company’s net admitted deferred tax asset $6 million and $5 million as of December 31, 2020 and January 1, 2020, respectively, with a commensurate increase in capital and surplus. There was no impact on net income.
Recently Adopted Accounting Standard
Effective January 1, 2021, the Company adopted revisions to SSAP No. 32R, Preferred Stock (“SSAP No. 32R”). The adopted revisions updated the definition for redeemable and perpetual preferred stock and furthermore, updated the valuation classification for perpetual preferred stock to fair value. Previously, perpetual preferred stock could have been valued at amortized cost or fair value based on the rating of the security. Per SSAP No. 32R, any valuation classification changes from amortized cost to fair value are to be recognized in statutory surplus. Going forward, changes to fair value will be recognized as a change in net unrealized capital gains and losses to in statutory surplus. As a result of this change, the Company recorded an increase to statutory capital and surplus of $9 million as of January 1, 2021.
In December 2020, the Company adopted revisions to SSAP No. 2R, Cash, Cash Equivalents, Drafts and Short-Term Investments (“SSAP No. 2R”). The adopted revisions require internal cash pooling arrangements to meet certain criteria to be considered qualified cash pools, with investments in qualifying pools reported as cash equivalents on the statutory statements of admitted assets, liabilities, capital and surplus. The Company’s cash pool meets the criteria to be considered a qualified cash pool under SSAP No. 2R. The internal cash pooling arrangement with NCMC was historically classified as short-term investments, resulting in a change in classification to cash equivalents.
COVID-19
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a pandemic. In response to the COVID-19 pandemic, governments have enacted various measures to reduce the spread of the virus. The COVID-19 pandemic conditions have created financial market volatility and uncertainty regarding whether and when certain customer behaviors will return to historical patterns, including sales of new and retention of existing policies, life insurance mortality and credit allowance exposure. None of the aforementioned items have had a material impact on the overall financial condition of the Company. While many of the government-imposed measures have eased in 2021, the extent to which the COVID-19 pandemic may impact the Company’s ongoing operations and financial condition will depend on future developments that are evolving and uncertain.
Subsequent Events
The Company evaluated subsequent events through March 18 2022, the date the statutory financial statements were issued.
Effective January 1, 2022, Harleysville Life Insurance Company (“HLIC”), an Ohio domiciled stock life insurance company and subsidiary of NMIC that offers universal and traditional life insurance, disability income insurance and fixed annuity contracts on a non-participating basis, completed a merger agreement with NLAIC. Pursuant to the merger agreement, the operations of HLIC merged with and into NLAIC, with NLAIC continuing as the surviving entity. There was not a material impact on the Company’s surplus as a result of the merger.
F-19
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(3) | Analysis of Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics |
The following table summarizes the analysis of individual annuities actuarial reserves by withdrawal characteristics, as of the dates indicated:
(in millions) | General account1 | Separate account with guarantees | Separate account non- guaranteed | Total | % of Total | |||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 622 | 125 | - | $ | 747 | 1 | % | ||||||||||||
At book value less current surrender charge of 5% or more | 209 | - | - | 209 | 0 | % | ||||||||||||||
At fair value | 12 | - | 73,141 | 73,153 | 93 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 843 | $ | 125 | $ | 73,141 | $ | 74,109 | 94 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 3,295 | - | 6 | 3,301 | 4 | % | ||||||||||||||
Not subject to discretionary withdrawal | 1,749 | - | 69 | 1,818 | 2 | % | ||||||||||||||
Total, gross | $ | 5,887 | $ | 125 | $ | 73,216 | $ | 79,228 | 100 | % | ||||||||||
Less: Reinsurance ceded | (114 | ) | - | - | (114 | ) | ||||||||||||||
Total, net | $ | 5,773 | $ | 125 | $ | 73,216 | $ | 79,114 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 53 | $ | - | $ | - | $ | 53 | ||||||||||||
December 31, 2020 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 190 | $ | 162 | $ | - | $ | 352 | 0 | % | ||||||||||
At book value less current surrender charge of 5% or more | 219 | - | - | 219 | 0 | % | ||||||||||||||
At fair value | - | - | 65,990 | 65,990 | 92 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 409 | $ | 162 | $ | 65,990 | $ | 66,561 | 92 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 3,480 | - | 8 | 3,488 | 5 | % | ||||||||||||||
Not subject to discretionary withdrawal | 1,755 | - | 62 | 1,817 | 3 | % | ||||||||||||||
Total, gross | $ | 5,644 | $ | 162 | $ | 66,060 | $ | 71,866 | 100 | % | ||||||||||
Less: Reinsurance ceded | (112 | ) | - | - | (112 | ) | ||||||||||||||
Total, net | $ | 5,532 | $ | 162 | $ | 66,060 | $ | 71,754 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 67 | $ | - | $ | - | $ | 67 |
1 | Includes reserves applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2. |
F-20
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the analysis of group annuities actuarial reserves by withdrawal characteristics, as of the dates indicated:
(in millions) | General account1 | Separate account with guarantees | Separate account non- guaranteed | Total | % of Total | |||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 18,205 | 2,389 | - | $ | 20,594 | 44 | % | ||||||||||||
At book value less current surrender charge of 5% or more | 6 | - | - | 6 | 0 | % | ||||||||||||||
At fair value | - | - | 20,679 | 20,679 | 44 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 18,211 | $ | 2,389 | $ | 20,679 | $ | 41,279 | 88 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 5,227 | - | - | 5,227 | 11 | % | ||||||||||||||
Not subject to discretionary withdrawal | 673 | - | 3 | 676 | 1 | % | ||||||||||||||
Total, gross | $ | 24,111 | $ | 2,389 | $ | 20,682 | $ | 47,182 | 100 | % | ||||||||||
Less: Reinsurance ceded | (55 | ) | - | - | (55 | ) | ||||||||||||||
Total, net | $ | 24,056 | $ | 2,389 | $ | 20,682 | $ | 47,127 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 6 | $ | - | $ | - | $ | 6 | ||||||||||||
December 31, 2020 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 17,393 | $ | 2,483 | $ | - | $ | 19,876 | 43 | % | ||||||||||
At book value less current surrender charge of 5% or more | 3 | - | - | 3 | 0 | % | ||||||||||||||
At fair value | - | - | 19,670 | 19,670 | 43 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 17,396 | $ | 2,483 | $ | 19,670 | $ | 39,549 | 86 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 6,000 | - | - | 6,000 | 13 | % | ||||||||||||||
Not subject to discretionary withdrawal | 591 | - | 3 | 594 | 1 | % | ||||||||||||||
Total, gross | $ | 23,987 | $ | 2,483 | $ | 19,673 | $ | 46,143 | 100 | % | ||||||||||
Less: Reinsurance ceded | (58 | ) | - | - | (58 | ) | ||||||||||||||
Total, net | $ | 23,929 | $ | 2,483 | $ | 19,673 | $ | 46,085 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 3 | $ | - | $ | - | $ | 3 |
1 | Includes reserves applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2. |
F-21
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the analysis of deposit-type contracts and other liabilities without life or disability contingencies by withdrawal characteristics, as of the dates indicated:
(in millions) | General account | Separate account non- guaranteed | Total | % of Total | ||||||||||||
December 31, 2021 | ||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||
With market value adjustment | $ | 2 | $ | - | $ | 2 | 0 | % | ||||||||
At fair value | - | - | - | 0 | % | |||||||||||
Total with market value adjustment or at fair value | $ | 2 | $ | - | $ | 2 | 0 | % | ||||||||
At book value without adjustment (minimal or no charge or adjustment) | 665 | 3 | 668 | 17 | % | |||||||||||
Not subject to discretionary withdrawal | 3,132 | 17 | 3,149 | 83 | % | |||||||||||
Total, gross | $ | 3,799 | $ | 20 | $ | 3,819 | 100 | % | ||||||||
Less: Reinsurance ceded | - | - | - | |||||||||||||
Total, net | $ | 3,799 | $ | 20 | $ | 3,819 | ||||||||||
December 31, 2020 | ||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||
With market value adjustment | $ | 2 | $ | - | $ | 2 | 0 | % | ||||||||
At fair value | 12 | - | 12 | 0 | % | |||||||||||
Total with market value adjustment or at fair value | $ | 14 | $ | - | $ | 14 | 0 | % | ||||||||
At book value without adjustment (minimal or no charge or adjustment) | 728 | 3 | 731 | 22 | % | |||||||||||
Not subject to discretionary withdrawal | 2,540 | 13 | 2,553 | 78 | % | |||||||||||
Total, gross | $ | 3,282 | $ | 16 | $ | 3,298 | 100 | % | ||||||||
Less: Reinsurance ceded | - | - | - | |||||||||||||
Total, net | $ | 3,282 | $ | 16 | $ | 3,298 |
The following table is a reconciliation of total annuity actuarial reserves and deposit fund liabilities, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2021 | 2020 | ||||||
Life, accident and health annual statement: | ||||||||
Annuities, net (excluding supplemental contracts with life contingencies) | $ | 29,815 | $ | 29,445 | ||||
Supplemental contracts with life contingencies, net | 15 | 16 | ||||||
Deposit-type contracts | 3,799 | 3,282 | ||||||
Subtotal | $ | 33,629 | $ | 32,743 | ||||
Separate accounts annual statement: | ||||||||
Annuities, net (excluding supplemental contracts with life contingencies) | $ | 96,412 | $ | 88,378 | ||||
Other contract deposit funds | 20 | 16 | ||||||
Subtotal | $ | 96,432 | $ | 88,394 | ||||
Total annuity actuarial reserves and deposit fund liabilities, net | $ | 130,061 | $ | 121,137 |
F-22
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the analysis of life actuarial reserves by withdrawal characteristics, as of the dates indicated:
General account | Separate account - nonguaranteed | |||||||||||||||||||||||
(in millions) | Account value | Cash value | Reserve | Account value | Cash value | Reserve | ||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||
Subject to discretionary withdrawal,surrender | ||||||||||||||||||||||||
Term policies with cash value | $ | - | $ | 11 | $ | 11 | $ | - | $ | - | $ | - | ||||||||||||
Universal life | 2,609 | 2,624 | 2,783 | - | - | - | ||||||||||||||||||
Universal life with secondary guarantees | 395 | 320 | 855 | - | - | - | ||||||||||||||||||
Indexed universal life with secondary guarantees | 232 | 174 | 251 | - | - | - | ||||||||||||||||||
Other permanent cash value life insurance | - | 1,271 | 2,539 | - | - | - | ||||||||||||||||||
Variable life | 2,334 | 2,403 | 2,503 | 27,487 | 27,480 | 27,480 | ||||||||||||||||||
Miscellaneous reserves | - | - | - | - | - | 6 | ||||||||||||||||||
Subtotal | $ | 5,570 | $ | 6,803 | $ | 8,942 | $ | 27,487 | $ | 27,480 | $ | 27,486 | ||||||||||||
Not subject to discretionary withdrawal or no | ||||||||||||||||||||||||
Term policies without cash value | - | - | 241 | - | - | - | ||||||||||||||||||
Accidental death benefits | - | - | 1 | - | - | - | ||||||||||||||||||
Disability - active lives | - | - | 14 | - | - | - | ||||||||||||||||||
Disability - disabled lives | - | - | 58 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | - | 33 | - | - | - | ||||||||||||||||||
Total, gross | $ | 5,570 | $ | 6,803 | $ | 9,289 | $ | 27,487 | $ | 27,480 | $ | 27,486 | ||||||||||||
Less: reinsurance ceded | (9 | ) | (9 | ) | (209 | ) | - | - | - | |||||||||||||||
Total, net | $ | 5,561 | $ | 6,794 | $ | 9,080 | $ | 27,487 | $ | 27,480 | $ | 27,486 |
F-23
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
General account | Separate account - nonguaranteed1 | |||||||||||||||||||||||
(in millions) | Account value | Cash value | Reserve | Account value | Cash value | Reserve | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
Subject to discretionary withdrawal,surrender | ||||||||||||||||||||||||
Term policies with cash value | $ | - | $ | 11 | $ | 11 | $ | - | $ | - | $ | - | ||||||||||||
Universal life | 2,585 | 2,600 | 2,764 | - | - | - | ||||||||||||||||||
Universal life with secondary guarantees | 360 | 288 | 720 | - | - | - | ||||||||||||||||||
Indexed universal life with secondary guarantees | 179 | 130 | 191 | - | - | - | ||||||||||||||||||
Other permanent cash value life insurance | - | 1,300 | 2,607 | - | - | - | ||||||||||||||||||
Variable life | 1,887 | 1,965 | 2,060 | 24,591 | 24,581 | 24,582 | ||||||||||||||||||
Miscellaneous reserves | - | - | - | - | - | 9 | ||||||||||||||||||
Subtotal | $ | 5,011 | $ | 6,294 | $ | 8,353 | $ | 24,591 | $ | 24,581 | $ | 24,591 | ||||||||||||
Not subject to discretionary withdrawal or no | ||||||||||||||||||||||||
Term policies without cash value | - | - | 275 | - | - | - | ||||||||||||||||||
Accidental death benefits | - | - | 1 | - | - | - | ||||||||||||||||||
Disability - active lives | - | - | 13 | - | - | - | ||||||||||||||||||
Disability - disabled lives | - | - | 58 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | - | 30 | - | - | - | ||||||||||||||||||
Total, gross | $ | 5,011 | $ | 6,294 | $ | 8,730 | $ | 24,591 | $ | 24,581 | $ | 24,591 | ||||||||||||
Less: reinsurance ceded | (10 | ) | (10 | ) | (240 | ) | - | - | - | |||||||||||||||
Total, net | $ | 5,001 | $ | 6,284 | $ | 8,490 | $ | 24,591 | $ | 24,581 | $ | 24,591 |
1 | In 2020, the classification of certain group life insurance policies was changed from separate accounts with guarantees to separate accounts nonguaranteed as a result of a change in the reserve valuation basis, as described in Note 2. |
The following table is a reconciliation of life actuarial reserves, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2021 | 2020 | ||||||
Life, accident and health annual statement: | ||||||||
Life Insurance, net | $ | 8,986 | $ | 8,400 | ||||
Accidental death benefits, net | 1 | 1 | ||||||
Disability - active lives, net | 13 | 12 | ||||||
Disability - disabled lives, net | 51 | 51 | ||||||
Miscellaneous reserves, net | 29 | 26 | ||||||
Subtotal | $ | 9,080 | $ | 8,490 | ||||
Separate accounts annual statement: | ||||||||
Life insurance1 | $ | 27,788 | $ | 24,884 | ||||
Miscellaneous reserves | 6 | 9 | ||||||
Subtotal | $ | 27,794 | $ | 24,893 | ||||
Total life actuarial reserves, net | $ | 36,874 | $ | 33,383 |
1 | In 2021, life insurance account value, cash value and reserve includes separate accounts with guarantees of $308 million for universal life. In 2020, life insurance account value, cash value and reserve includes separate accounts with guarantees of 302 million for universal life. |
F-24
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Direct Premium Written by Managing General Agents and Third Party Administrators
The following table summarizes direct premium written by managing general agents and third party administrators as of December 31, 2021:
(in millions) | ||||||||||||||
Managing general agent/ third party reserve | FEIN number | Exclusive contract | Types of business written | Types of authority granted1 | Total Direct Premium | |||||||||
AccuRisk Solutions, LLC | 31-1777676 | Not Exclusive | Accident & health | C / CA / B / P / U | 109 | |||||||||
Fringe Insurance Benefits, Inc. | 74-2616364 | Not Exclusive | Accident & health | B /P / U | 55 | |||||||||
Gilsbar, Inc. | 72-0519951 | Not Exclusive | Accident & health | B / P / U | 24 | |||||||||
IRC | 74-2824053 | Not Exclusive | Accident & health | C / CA / B / P / U | 27 | |||||||||
K&K Insurance Group, Inc. | 35-1003799 | Not Exclusive | Accident & health | C / CA / B / P / U | 12 | |||||||||
Matrix | 01-0544915 | Not Exclusive | Accident & health | C / CA / B / P / U | 12 | |||||||||
Merchants Benefit Administration, Inc. | 86-0875918 | Exclusive | Accident & health | B / C / CA / P | 22 | |||||||||
PRAM Insurance Services, Inc. | 33-0367265 | Not Exclusive | Accident & health | C / CA / B / P / U | 4 | |||||||||
RMTS - Manufacturers & Traders Trust Co. | 20-1049240 | Not Exclusive | Accident & health | C / CA / B / P / U | 24 | |||||||||
Roundstone Management, Ltd. | 27-0371422 | Not Exclusive | Accident & health | C / CA / B / P / U | 78 | |||||||||
Star Line Group | 04-3499188 | Not Exclusive | Accident & health | C / CA / B / P / U | 5 | |||||||||
TMS RE Inc | 65-0644164 | Not Exclusive | Accident & health | C / CA / B / P / U | 61 | |||||||||
United Group Programs Inc. | 59-1896277 | Not Exclusive | Accident & health | C / CA / B / P / U | 10 | |||||||||
USMGU | 46-4619917 | Not Exclusive | Accident & health | C / CA / B / P / U | 1 | |||||||||
Total Direct Premiums Written and Produced | $ | 444 |
1 | Authority code key includes: C– claims payment, CA– claims adjustment, B- binding authority, P-premium collection, U- underwriting. |
F-25
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(4) | Separate Accounts |
The Company’s separate account statement includes assets legally insulated from the general account as of the dates indicated, attributed to the following product lines:
December 31, 2021 | December 31, 2020 | |||||||||||||||
(in millions) | Separate account assets legally insulated | Separate assets (not legally | Separate account assets legally insulated | Separate assets (not legally | ||||||||||||
Product / Transaction: | ||||||||||||||||
Individual annuities | $ | 79,416 | $ | - | $ | 71,875 | $ | - | ||||||||
Group annuities | 18,091 | - | 17,550 | - | ||||||||||||
Life insurance | 27,865 | - | 24,982 | - | ||||||||||||
Total | $ | 125,372 | $ | - | $ | 114,407 | $ | - |
The following table summarizes amounts paid towards separate account guarantees by the general account and related risk charges paid by the separate account for the years ended:
(in millions) | Total paid toward separate account guarantees | Risk charges paid general account | ||||||
2021 | $ | 12 | $ | 674 | ||||
2020 | $ | 26 | $ | 631 | ||||
2019 | $ | 58 | $ | 612 | ||||
2018 | $ | 18 | $ | 594 | ||||
2017 | $ | 13 | $ | 559 |
The Company does not engage in securities lending transactions within its separate accounts.
Most separate accounts held by the Company relate to individual and group variable annuity and variable universal life insurance contracts of a non-guaranteed return nature. The net investment experience of the separate accounts is credited directly to the contract holder and can be positive or negative. The individual variable annuity contracts generally provide an incidental death benefit of the greater of account value or premium paid (net of prior withdrawals). However, many individual variable annuity contracts also provide death benefits equal to (i) the most recent fifth-year anniversary account value, (ii) the highest account value on any previous anniversary, (iii) premiums paid increased 5% or certain combinations of these, all adjusted for prior withdrawals. The death benefit and cash value under the variable universal life policies may vary with the investment performance of the underlying investments in the separate accounts. The assets and liabilities of these separate accounts are carried at fair value and are non-guaranteed.
Certain other separate accounts offered by the Company contain groups of variable universal life policies wherein the assets supporting account values on the underlying policies reside in Private Placement Separate Accounts. They provide a quarterly interest rate based on a crediting formula that reflects the market value to book value ratio of the investments, investment portfolio yield and a specified duration.
Certain other separate accounts relate to a guaranteed term option, which provides a guaranteed interest rate that is paid over certain maturity durations ranging from three to ten years, so long as certain conditions are met. If amounts allocated to the guaranteed term option are distributed prior to the maturity period, a market value adjustment can be assessed. The assets and liabilities of these separate accounts are carried at fair value.
Another separate account offered by the Company contains a group of universal life policies wherein the assets supporting the account values on the underlying policies reside in a Private Placement Separate Account. It provides an annual interest rate guarantee, subject to a minimum guarantee of 3%. The interest rate declared each year reflects the anticipated investment experience of the account. The business has been included as a nonindexed guarantee less than or equal to 4%.
F-26
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following tables summarize the separate account reserves of the Company, as of the dates indicated:
(in millions) | Indexed | Nonindexed guarantee less than or equal to 4% | Nonindexed guarantee more than 4% | Nonguaranteed separate accounts | Total | |||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Premiums, considerations or deposits | $ | - | $ | 221 | $ | - | $ | 8,088 | $ | 8,309 | ||||||||||
Reserves | ||||||||||||||||||||
For accounts with assets at: | ||||||||||||||||||||
Fair value | $ | - | $ | 2,368 | $ | 146 | $ | 121,404 | $ | 123,918 | ||||||||||
Amortized cost | - | 308 | - | - | 308 | |||||||||||||||
Total reserves | $ | - | $ | 2,676 | $ | 146 | $ | 121,404 | $ | 124,226 | ||||||||||
By withdrawal characteristics: | ||||||||||||||||||||
With market value adjustment | $ | - | $ | 2,368 | $ | 146 | $ | - | $ | 2,514 | ||||||||||
At book value without market value adjustment and with current surrender charge of 5% or more |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| |||||
At fair value | - | - | - | 121,307 | 121,307 | |||||||||||||||
At book value without market value adjustment and with current surrender charge less than 5% | - | 308 | - | 9 | 317 | |||||||||||||||
Subtotal | $ | - | $ | 2,676 | $ | 146 | $ | 121,316 | $ | 124,138 | ||||||||||
Not subject to discretionary withdrawal | - | - | - | 88 | 88 | |||||||||||||||
Total reserves1 | $ | - | $ | 2,676 | $ | 146 | $ | 121,404 | $ | 124,226 |
1 | The total reserves balance does not equal the liabilities related to separate accounts of $125.4 billion in the statutory statements of admitted assets, liabilities, capital and surplus by $1.2 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
F-27
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(in millions) | Indexed | Nonindexed guarantee less than or equal to 4% | Nonindexed guarantee more than 4% | Nonguaranteed separate accounts | Total | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Premiums, considerations or deposits | $ | - | $ | 417 | $ | - | $ | 5,392 | $ | 5,809 | ||||||||||
Reserves | ||||||||||||||||||||
For accounts with assets at: | ||||||||||||||||||||
Fair value | $ | - | $ | 2,480 | $ | 166 | $ | 110,340 | $ | 112,986 | ||||||||||
Amortized cost | - | 302 | - | - | 302 | |||||||||||||||
Total reserves | $ | - | $ | 2,782 | $ | 166 | $ | 110,340 | $ | 113,288 | ||||||||||
By withdrawal characteristics: | ||||||||||||||||||||
With market value adjustment | $ | - | $ | 2,480 | $ | 166 | $ | - | $ | 2,646 | ||||||||||
At book value without market value adjustment and with current surrender charge of 5% or more | - | - | - | - | - | |||||||||||||||
At fair value | - | - | - | 110,252 | 110,252 | |||||||||||||||
At book value without market value adjustment and with current surrender charge less than 5% | - | 302 | - | 11 | 313 | |||||||||||||||
Subtotal | $ | - | $ | 2,782 | $ | 166 | $ | 110,263 | $ | 113,211 | ||||||||||
Not subject to discretionary withdrawal | - | - | - | 77 | 77 | |||||||||||||||
Total reserves1 | $ | - | $ | 2,782 | $ | 166 | $ | 110,340 | $ | 113,288 |
1 | The total reserves balance does not equal the liabilities related to separate accounts of $114.4 billion in the statutory statements of admitted assets, liabilities, capital and surplus by $1.1 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
The following table is a reconciliation of net transfers from separate accounts, as of the dates indicated:
December 31, | ||||||||||||
(in millions) | 2021 | 2020 | 2019 | |||||||||
Transfers as reported in the statutory statements of operations of the separate accounts: | ||||||||||||
Transfers to separate accounts | $ | 8,309 | $ | 5,809 | $ | 6,142 | ||||||
Transfers from separate accounts | (10,860 | ) | (8,921 | ) | (9,470 | ) | ||||||
Net transfers from separate accounts | $ | (2,551 | ) | $ | (3,112 | ) | $ | (3,328 | ) | |||
Reconciling adjustments: | ||||||||||||
Exchange accounts offsetting in the general account | (552 | ) | (337 | ) | (321 | ) | ||||||
Fees not included in general account transfers | 68 | (67 | ) | (68 | ) | |||||||
Other miscellaneous adjustments not included in the general account balance | 33 | (28 | ) | (30 | ) | |||||||
Transfers as reported in the statutory statements of operations | $ | (3,002 | ) | $ | (3,544 | ) | $ | (3,747 | ) |
F-28
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(5) | Investments |
Bonds and Stocks
The following table summarizes the carrying value, the excess of fair value over carrying value, the excess of carrying value over fair value and the fair value of bonds and stocks, as of the dates indicated:
(in millions) | Carrying value | Fair value in excess of carrying value | Carrying value in excess of fair value | Fair value | ||||||||||||
December 31, 2021 | ||||||||||||||||
Bonds: | ||||||||||||||||
U.S. Government | $ | 12 | $ | - | $ | - | $ | 12 | ||||||||
States, territories and possessions | 463 | 44 | 1 | 506 | ||||||||||||
Political subdivisions | 376 | 66 | - | 442 | ||||||||||||
Special revenues | 2,882 | 489 | 2 | 3,369 | ||||||||||||
Industrial and miscellaneous | 28,233 | 2,649 | 86 | 30,796 | ||||||||||||
Loan-backed and structured securities | 5,965 | 183 | 31 | 6,117 | ||||||||||||
Total bonds | $ | 37,931 | $ | 3,431 | $ | 120 | $ | 41,242 | ||||||||
Common stocks unaffiliated | $ | 225 | $ | - | $ | - | $ | 225 | ||||||||
Preferred stocks unaffiliated | 50 | - | - | 50 | ||||||||||||
Total unaffiliated stocks1 | $ | 275 | $ | - | $ | - | $ | 275 | ||||||||
Total bonds and unaffiliated stocks1 | $ | 38,206 | $ | 3,431 | $ | 120 | $ | 41,517 | ||||||||
December 31, 2020 | ||||||||||||||||
Bonds: | ||||||||||||||||
U.S. Government | $ | 7 | $ | - | $ | - | $ | 7 | ||||||||
States, territories and possessions | 370 | 59 | - | 429 | ||||||||||||
Political subdivisions | 343 | 71 | - | 414 | ||||||||||||
Special revenues | 2,763 | 564 | - | 3,327 | ||||||||||||
Industrial and miscellaneous | 26,583 | 3,656 | 46 | 30,193 | ||||||||||||
Loan-backed and structured securities | 7,141 | 336 | 37 | 7,440 | ||||||||||||
Total bonds | $ | 37,207 | $ | 4,686 | $ | 83 | $ | 41,810 | ||||||||
Common stocks unaffiliated | $ | 142 | $ | - | $ | - | $ | 142 | ||||||||
Preferred stocks unaffiliated | 97 | 12 | - | 109 | ||||||||||||
Total unaffiliated stocks1 | $ | 239 | $ | 12 | $ | - | $ | 251 | ||||||||
Total bonds and unaffiliated stocks1 | $ | 37,446 | $ | 4,698 | $ | 83 | $ | 42,061 |
1 | Excludes affiliated common stocks with a carrying value of $2.7 billion and $2.6 billion as of December 31, 2021 and 2020, respectively. Affiliated common stocks include investment in NLAIC and JNF of $2.6 billion and $186 million as of December 31, 2021, respectively, and $2.4 billion and $180 million as of December 31, 2020, respectively. |
The carrying value of bonds on deposit with various states as required by law or special escrow agreement was $3 million as of December 31, 2021 and 2020.
F-29
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the carrying value and fair value of bonds, by contractual maturity, as of December 31, 2021. 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) | Carrying value | Fair value | ||||||
Bonds: | ||||||||
Due in one year or less | $ | 1,376 | $ | 1,398 | ||||
Due after one year through five years | 7,602 | 8,013 | ||||||
Due after five years through ten years | 9,671 | 10,182 | ||||||
Due after ten years | 13,317 | 15,531 | ||||||
Total bonds excluding loan-backed and structured securities | $ | 31,966 | $ | 35,124 | ||||
Loan-backed and structured securities | 5,965 | 6,118 | ||||||
Total bonds | $ | 37,931 | $ | 41,242 |
The following table summarizes the fair value and unrealized losses on bonds and stocks (amount by which cost or amortized cost exceeds fair value), for which other-than-temporary declines in value have not been recognized, based on the amount of time each type of bond or stock has been in an unrealized loss position, 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 | Fair value | Unrealized losses | ||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||
Bonds: | ||||||||||||||||||||||||
U.S. Government | $ | 3 | $ | - | $ | - | $ | - | $ | 3 | $ | - | ||||||||||||
States, territories and possessions | 77 | 1 | 1 | - | 78 | 1 | ||||||||||||||||||
Special revenues | 76 | 2 | - | - | 76 | 2 | ||||||||||||||||||
Industrial and miscellaneous | 3,355 | 74 | 455 | 48 | 3,810 | 122 | ||||||||||||||||||
Loan-backed and structured securities | 2,005 | 14 | 332 | 19 | 2,337 | 33 | ||||||||||||||||||
Total bonds | $ | 5,516 | $ | 91 | $ | 788 | $ | 67 | $ | 6,304 | $ | 158 | ||||||||||||
Common stocks unaffiliated | $ | - | $ | - | $ | 23 | $ | 2 | $ | 23 | $ | 2 | ||||||||||||
Preferred stocks unaffiliated | 14 | - | - | - | 14 | - | ||||||||||||||||||
Total unaffiliated stocks | $ | 14 | $ | - | $ | 23 | $ | 2 | $ | 37 | $ | 2 | ||||||||||||
Total bonds and unaffiliated stocks | $ | 5,530 | $ | 91 | $ | 811 | $ | 69 | $ | 6,341 | $ | 160 | ||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
Bonds: | ||||||||||||||||||||||||
U.S. Government | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
States, territories and possessions | 1 | - | - | - | 1 | - | ||||||||||||||||||
Special revenues | 14 | - | - | - | 14 | - | ||||||||||||||||||
Industrial and miscellaneous | 636 | 27 | 408 | 38 | 1,044 | 65 | ||||||||||||||||||
Loan-backed and structured securities | 1,454 | 15 | 870 | 23 | 2,324 | 38 | ||||||||||||||||||
Total bonds | $ | 2,105 | $ | 42 | $ | 1,278 | $ | 61 | $ | 3,383 | $ | 103 | ||||||||||||
Common stocks unaffiliated | $ | 21 | $ | 4 | $ | - | $ | - | $ | 21 | $ | 4 | ||||||||||||
Preferred stocks unaffiliated | 9 | - | - | - | 9 | - | ||||||||||||||||||
Total unaffiliated stocks | $ | 30 | $ | 4 | $ | - | $ | - | $ | 30 | 4 | |||||||||||||
Total bonds and unaffiliated stocks | $ | 2,135 | $ | 46 | $ | 1,278 | $ | 61 | $ | 3,413 | $ | 107 |
As of December 31, 2021, management evaluated securities in an unrealized loss position and all non-marketable securities for impairment. As of the reporting date, the Company has the intent and ability to hold these securities until the fair value recovers, which may be maturity, and therefore, does not consider the securities to be other-than-temporarily impaired.
There was no intent to sell other-than-temporary impairments on loan-backed and structured securities for the years ended December 31, 2021 and 2020.
F-30
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
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) | 2021 | 2020 | ||||||
Amortized cost: | ||||||||
Loans with non-specific reserves | $ | 8,219 | $ | 7,819 | ||||
Loans with specific reserves | 9 | 12 | ||||||
Total amortized cost | $ | 8,228 | $ | 7,831 | ||||
Valuation allowance: | ||||||||
Non-specific reserves | $ | 42 | $ | 45 | ||||
Specific reserves | 1 | 3 | ||||||
Total valuation allowance1 | $ | 43 | $ | 48 | ||||
Mortgage loans, net of allowance | $ | 8,185 | $ | 7,783 |
1 | Changes in the valuation allowance are due to current period provisions. These changes in the valuation allowance for the years ended December 31, 2021, 2020, and 2019 were immaterial. |
As of December 31, 2021 and 2020, the Company’s mortgage loans classified as delinquent and/or in non-accrual status were immaterial in relation to the total mortgage loan portfolio.
The following table summarizes the LTV ratio and DSC ratio 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 or equal to 1.00 | Total | ||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||
Apartment | $ | 3,441 | $ | 33 | $ | 3,474 | $ | 3,445 | $ | 29 | $ | 3,474 | ||||||||||||||
Industrial | 1,137 | - | 1,137 | 1,137 | - | 1,137 | ||||||||||||||||||||
Office | 1,226 | 25 | 1,251 | 1,231 | 20 | 1,251 | ||||||||||||||||||||
Retail | 2,067 | 41 | 2,108 | 2,068 | 40 | 2,108 | ||||||||||||||||||||
Other | 171 | - | 171 | 171 | - | 171 | ||||||||||||||||||||
Total1 | $ | 8,042 | $ | 99 | $ | 8,141 | $ | 8,052 | $ | 89 | $ | 8,141 | ||||||||||||||
Weighted average DSC ratio | 2.22 | 1.31 | 2.21 | 2.22 | 0.90 | 2.21 | ||||||||||||||||||||
Weighted average LTV ratio | 58 | % | 94 | % | 59 | % | 59 | % | 78 | % | 59% | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||
Apartment | $ | 2,988 | $ | 25 | $ | 3,013 | $ | 2,993 | $ | 20 | $ | 3,013 | ||||||||||||||
Industrial | 1,026 | - | 1,026 | 1,005 | 21 | 1,026 | ||||||||||||||||||||
Office | 1,307 | - | 1,307 | 1,304 | 3 | 1,307 | ||||||||||||||||||||
Retail | 2,155 | 27 | 2,182 | 2,169 | 13 | 2,182 | ||||||||||||||||||||
Other | 218 | - | 218 | 218 | - | 218 | ||||||||||||||||||||
Total1 | $ | 7,694 | $ | 52 | $ | 7,746 | $ | 7,689 | $ | 57 | $ | 7,746 | ||||||||||||||
Weighted average DSC ratio | 2.21 | 1.52 | 2.20 | 2.21 | 0.91 | 2.20 | ||||||||||||||||||||
Weighted average LTV ratio | 57 | % | 98 | % | 57 | % | 57 | % | 65 | % | 57% |
1 | Excludes $87 million and $85 million of commercial mortgage loans that were under development as of December 31, 2021 and 2020, respectively. |
As of December 31, 2021 and 2020, the Company has a diversified mortgage loan portfolio with no more than 24%, in a geographic region in the U.S. and no more than 1% with any one borrower. The maximum and minimum lending rates for mortgage loans originated or acquired during 2021 were 4.1% and 1.9%, respectively, and for those originated or acquired during 2020 were 4.3% and 1.9%, respectively. As of December 31, 2021 and 2020, the maximum LTV ratio of any one loan at the time of loan origination was 80%. As of December 31, 2021 and 2020, the Company did not hold mortgage loans with interest 90 days or more past due. Additionally, there were no taxes, assessments or any amounts advanced and not included in the mortgage loan portfolio.
F-31
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Securities Lending
The fair value of loaned securities was $547 million and $244 million as of December 31, 2021 and 2020, respectively. The Company held $170 million and $101 million of cash collateral on securities lending as of December 31, 2021 and 2020, respectively. As of December 31, 2021, the carrying value and fair value of reinvested collateral assets was $170 million. As of December 31, 2020, the carrying value and fair value of reinvested collateral assets was $101 million. The fair value of bonds acquired with reinvested collateral assets was $173 million and $103 million as of December 31, 2021 and 2020, respectively. There are no securities lending transactions that extend beyond one year as of the reporting date. The Company received $388 million and $148 million of non-cash collateral on securities lending as of December 31, 2021 and 2020, respectively.
Net Investment Income
The following table summarizes net investment income by investment type, for the years ended:
December 31, | ||||||||||||
(in millions) | 2021 | 2020 | 2019 | |||||||||
Bonds | $ | 1,417 | $ | 1,419 | $ | 1,408 | ||||||
Mortgage loans | 358 | 339 | 353 | |||||||||
Other invested assets | 499 | 384 | 225 | |||||||||
Policy loans | 43 | 43 | 45 | |||||||||
Derivative instruments1 | 31 | 25 | 23 | |||||||||
Other | 12 | 16 | 28 | |||||||||
Gross investment income | $ | 2,360 | $ | 2,226 | $ | 2,082 | ||||||
Investment expenses | (129 | ) | (119 | ) | (108 | ) | ||||||
Net investment income | $ | 2,231 | $ | 2,107 | $ | 1,974 |
1 | Includes net investment income applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2. |
There was no investment income due and accrued that was nonadmitted as of December 31, 2021 and 2020.
Net Realized Capital Gains and Losses
The following table summarizes net realized capital gains and losses for the years ended:
December 31, | ||||||||||||
(in millions) | 2021 | 2020 | 2019 | |||||||||
Gross gains on sales | $ | 106 | $ | 36 | $ | 71 | ||||||
Gross losses on sales | (32 | ) | (42 | ) | (21 | ) | ||||||
Net realized gains (losses) on sales | $ | 74 | $ | (6 | ) | $ | 50 | |||||
Net realized derivative losses1 | (679 | ) | (521 | ) | (515 | ) | ||||||
Other-than-temporary impairments | (4 | ) | (78 | ) | (5 | ) | ||||||
Total net realized losses | $ | (609 | ) | $ (605) | $ | (470 | ) | |||||
Tax expense (benefit) on net losses | 59 | (26 | ) | 7 | ||||||||
Net realized capital losses, net of tax | $ | (668 | ) | $ | (579 | ) | $ | (477 | ) | |||
Less: Realized losses transferred to the IMR | 15 | (4 | ) | - | ||||||||
Net realized capital losses, net of tax and transfers to the IMR | $ | (683 | ) | $ | (575 | ) | $ | (477 | ) |
1 | Includes impacts to derivative instruments applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2. |
For the year ended December 31, 2021, gross realized gains and gross realized losses on sales of bonds were $80 million and $31 million, respectively. For the year ended December 31, 2020, gross realized gains and gross realized losses on sales of bonds were $26 million and $38 million, respectively. For the year ended December 31, 2019, gross realized gains and gross realized losses on sales of bonds were $56 million and $19 million, respectively.
The Company did not enter into any material repurchase transactions that would be considered wash sales during the years ended December 31, 2021 and 2020.
Investment Commitments
The Company had unfunded commitments related to its investment in limited partnerships and limited liability companies totaling $793 million and $483 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, there were $89 million and $21 million of commitments to purchase private placement bonds and $0 and $114 million of outstanding commitments to fund mortgage loans, respectively.
F-32
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(6) | 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 it to interest rate risk arising from mismatches between assets and liabilities. The Company may use 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.
Equity market risk management. The Company issues a variety of insurance products that expose it to equity risks. To mitigate these risks, the Company enters into a variety of derivatives including futures and options.
Indexed crediting risk management. The Company issues a variety of insurance and annuity products with indexed crediting features that expose the Company to risks related to the performance of an underlying index. To mitigate these risks, the Company enters into a variety of derivatives including index options, total return swaps and futures. The underlying indices can have exposure to equites, commodities and fixed income securities.
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. 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. To mitigate this risk, the Company uses cross-currency swaps.
Credit risk associated with derivatives transactions. The Company periodically evaluates the risks within the derivative portfolios due to credit exposure. When evaluating this risk, 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, 2021 and 2020, 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.
The following table summarizes the fair value, carrying value and related notional amounts of derivative instruments, as of the dates indicated:
(in millions) | Notional amount | Net Carrying Value | Fair value asset | Fair value liability | Average fair value | |||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Interest rate swaps | $ | 7 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Options | 25 | 1 | 1 | - | - | |||||||||||||||
Cross currency swaps | 1,465 | 32 | 101 | (13) | 1 | |||||||||||||||
Futures | 2,715 | - | - | - | - | |||||||||||||||
Total derivatives¹ | $ | 4,212 | $ | 33 | $ | 102 | $ | (13) | $ | 1 | ||||||||||
December 31, 2020 | ||||||||||||||||||||
Interest rate swaps | $ | 7 | $ | (1) | $ | - | $ | (1) | $ | (1) | ||||||||||
Options | - | - | - | - | - | |||||||||||||||
Cross currency swaps | 1,524 | (36) | 75 | (49) | - | |||||||||||||||
Futures | 3,342 | - | - | - | - | |||||||||||||||
Total derivatives¹ | $ | 4,873 | $ | (37) | $ | 75 | $ | (50) | $ | (1) |
1 | Fair value balance excludes immaterial accrued interest on derivative assets for December 31, 2021 and 2020. |
F-33
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
Of the $102 million and $75 million of fair value of derivative assets as of December 31, 2021 and 2020, $13 million and $24 million were subject to master netting agreements as of December 31, 2021 and 2020, the Company received $92 million and $35 million of cash collateral and $17 million and $22 million in pledged securities, respectively, resulting in an immaterial uncollateralized position as of December 31, 2021 and 2020. Of the $13 million and $50 million of fair value of derivative liabilities as of December 31, 2021 and 2020, $13 million and $24 million were subject to master netting agreements as of December 31, 2021 and 2020, the Company posted $0 and $28 million of cash collateral, respectively, resulting in an immaterial uncollateralized position as of December 31, 2021 and 2020. Securities received as collateral are recorded off-balance sheet and exclude initial margin posted on derivatives of $171 million and $280 million as of December 31, 2021 and 2020, respectively.
The following table summarizes net gains and losses on derivatives programs by type of derivative instrument, as of the dates indicated:
Net realized (losses) gains recorded in operations | Unrealized gains (losses) recorded in capital and surplus | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||
Options | $ | - | $ | - | $ | 3 | $ | - | $ | (1 | ) | $ | 4 | |||||||||||
Cross currency swaps | 1 | 4 | (1 | ) | 69 | (102 | ) | (13 | ) | |||||||||||||||
Futures | (680 | ) | (525 | ) | (517 | ) | 27 | 1 | (169 | ) | ||||||||||||||
Total | $ | (679 | ) | $ | (521 | ) | $ | (515 | ) | $ | 96 | $ | (102 | ) | $ | (178 | ) |
(7) | Fair Value Measurements |
The following table summarizes assets and liabilities held at fair value as of December 31, 2021:
(in millions) | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Bonds | $ | - | $ | 7 | $ | 1 | $ | - | $ | 8 | ||||||||||
Common stocks unaffiliated | 82 | 143 | - | - | 225 | |||||||||||||||
Preferred stocks unaffiliated | - | 44 | 6 | - | 50 | |||||||||||||||
Separate account assets | 119,549 | 2,087 | 49 | 3,354 | 125,039 | |||||||||||||||
Assets at fair value | $ | 119,631 | $ | 2,281 | $ | 56 | $ | 3,354 | $ | 125,322 |
The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2021:
(in millions) | Bonds | Common stocks | Preferred stocks | Separate account assets | Assets at fair | |||||||||||||||
Balance as of December 31, 2020 | $ | 1 | $ | 1 | $ | - | $ | 58 | $ | 60 | ||||||||||
Net gains (losses): | ||||||||||||||||||||
In operations | - | - | - | - | - | |||||||||||||||
In surplus | - | - | 1 | 6 | 7 | |||||||||||||||
Purchases | 1 | - | 1 | - | 2 | |||||||||||||||
Sales | (1 | ) | - | - | (15 | ) | (16 | ) | ||||||||||||
Transfers into Level 3 | - | - | 4 | - | 4 | |||||||||||||||
Transfers out of Level 3 | - | (1 | ) | - | - | (1 | ) | |||||||||||||
Balance as of December 31, 2021 | $ | 1 | $ | - | $ | 6 | $ | 49 | $ | 56 |
Preferred stocks unaffiliated transfers into Level 3 are primarily related to the Company’s adoption of SSAP No. 32R. Refer to Note 2 for more information.
F-34
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes assets and liabilities held at fair value as of December 31, 2020:
(in millions) | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Bonds | $ | - | $ | 4 | $ | 1 | $ | - | $ | 5 | ||||||||||
Common stocks unaffiliated | 53 | 88 | 1 | - | 142 | |||||||||||||||
Separate account assets | 109,265 | 2,047 | 58 | 2,720 | 114,090 | |||||||||||||||
Assets at fair value | $ | 109,318 | $ | 2,139 | $ | 60 | $ | 2,720 | $ | 114,237 |
The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2020:
(in millions) | Bonds | Common stocks | Derivative assets1 | Separate account assets | Assets at fair value | |||||||||||||||
Balance as of December 31, 2019 | $ | 6 | $ | 1 | $ | 6 | $ | 87 | $ | 100 | ||||||||||
Net gains (losses): | ||||||||||||||||||||
In operations | (2) | - | - | - | (2) | |||||||||||||||
In surplus | 5 | - | (1) | (17) | (13) | |||||||||||||||
Purchases | 2 | - | - | - | 2 | |||||||||||||||
Sales | (9) | - | (5) | (12) | (26) | |||||||||||||||
Transfers into Level 3 | 1 | - | - | - | 1 | |||||||||||||||
Transfers out of Level 3 | (2) | - | - | - | (2) | |||||||||||||||
Balance as of December 31, 2020 | $ | 1 | $ | 1 | $ | - | $ | 58 | 60 |
1 | Non-binding broker quotes are utilized to determine fair value of all Level 3 derivative assets. |
Bond transfers into and/or out of Level 3 during the year ended December 31, 2020 are due to the changes in observability of pricing inputs and changes resulting from application of the lower of amortized cost or fair value rules based on the security’s NAIC designation.
F-35
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the carrying value and fair value of the Company’s assets and liabilities not held at fair value as of the dates indicated. The valuation techniques used to estimate these fair values are described below or in Note 2.
Fair Value | ||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total fair value | Carrying value | |||||||||||||||
December 31, 2021 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Bonds1,2,3 | $ | 2 | $ | 35,874 | $ | 5,358 | $ | 41,234 | $ | 37,923 | ||||||||||
Mortgage loans, net of allowance | - | - | 8,340 | 8,340 | 8,185 | |||||||||||||||
Policy loans | - | - | 913 | 913 | 913 | |||||||||||||||
Derivative assets | - | 101 | 1 | 102 | 64 | |||||||||||||||
Cash, cash equivalents and short-term investments | 127 | 509 | - | 636 | 636 | |||||||||||||||
Securities lending collateral assets | 170 | - | - | 170 | 170 | |||||||||||||||
Separate account assets | 3 | 374 | 3 | 380 | 333 | |||||||||||||||
Total assets | $ | 302 | $ | 36,858 | $ | 14,615 | $ | 51,775 | $ | 48,224 | ||||||||||
Liabilities: | ||||||||||||||||||||
Investment contracts | $ | - | $ | - | $ | 2,720 | $ | 2,720 | $ | 2,715 | ||||||||||
Derivative liabilities | - | 13 | - | 13 | 31 | |||||||||||||||
Total liabilities | $ | - | $ | 13 | $ | 2,720 | $ | 2,733 | $ | 2,746 | ||||||||||
December 31, 2020 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Bonds3 | $ | 1,366 | $ | 39,072 | $ | 1,367 | $ | 41,805 | $ | 37,202 | ||||||||||
Preferred stocks unaffiliated | - | 104 | 5 | 109 | 97 | |||||||||||||||
Mortgage loans, net of allowance | - | - | 7,952 | 7,952 | 7,783 | |||||||||||||||
Policy loans | - | - | 888 | 888 | 888 | |||||||||||||||
Derivative assets | - | 75 | - | 75 | 51 | |||||||||||||||
Cash, cash equivalents and short-term investments | (90 | ) | 551 | - | 461 | 461 | ||||||||||||||
Securities lending collateral assets | 101 | - | - | 101 | 101 | |||||||||||||||
Separate account assets | 7 | 368 | - | 375 | 317 | |||||||||||||||
Total assets | $ | 1,384 | $ | 40,170 | $ | 10,212 | $ | 51,766 | $ | 46,900 | ||||||||||
Liabilities: | ||||||||||||||||||||
Investment contracts | $ | - | $ | - | $ | 2,097 | $ | 2,097 | $ | 2,076 | ||||||||||
Derivative liabilities | - | 48 | - | 48 | 86 | |||||||||||||||
Total liabilities | $ | - | $ | 48 | $ | 2,097 | $ | 2,145 | $ | 2,162 |
1 | The Company changed pricing services for certain investments in 2021 resulting in the Company applying a practical expedient within SSAP No. 100, Fair Value, that resulted in those investments being classified in Level 2. |
2 | The Company changed to a pricing service for certain investments in 2021. The service incorporates a proprietary input which resulted in these investments being classified in Level 3. |
3 | Level 3 is primarily composed of industrial and miscellaneous bonds. |
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 statutory statements of admitted assets, liabilities, capital and surplus approximates fair value as policy loans are fully collateralized by the cash surrender value of underlying insurance policies.
Securities lending collateral assets. These assets are comprised of bonds and short-term investments and the respective fair values are estimated based on the fair value methods described in Note 2.
F-36
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory 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.
(8) | Federal Income Taxes |
The following tables summarize the net admitted deferred tax assets, as of the dates indicated:
December 31, 2021 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Total gross deferred tax assets | $ | 759 | $ | 30 | $ | 789 | ||||||
Statutory valuation allowance adjustment | - | - | - | |||||||||
Adjusted gross deferred tax assets | $ | 759 | $ | 30 | $ | 789 | ||||||
Less: Deferred tax assets nonadmitted | (71 | ) | (12 | ) | (83) | |||||||
Net admitted deferred tax assets | $ | 688 | $ | 18 | $ | 706 | ||||||
Less: Deferred tax liabilities | (81 | ) | (7 | ) | (88) | |||||||
Net admitted deferred tax assets | $ | 607 | $ | 11 | $ | 618 | ||||||
December 31, 2020 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Total gross deferred tax assets | $ | 770 | $ | 16 | $ | 786 | ||||||
Statutory valuation allowance adjustment | - | - | - | |||||||||
Adjusted gross deferred tax assets | $ | 770 | $ | 16 | $ | 786 | ||||||
Less: Deferred tax assets nonadmitted | (41 | ) | - | (41) | ||||||||
Net admitted deferred tax assets | $ | 729 | $ | 16 | $ | 745 | ||||||
Less: Deferred tax liabilities | (94 | ) | (9 | ) | (103) | |||||||
Net admitted deferred tax assets | $ | 635 | $ | 7 | $ | 642 |
The following table summarizes components of the change in deferred income taxes reported in capital and surplus before consideration of nonadmitted assets and changes from the prior year, as of the dates indicated:
December 31, | ||||||||||||
(in millions) | 2021 | 2020 | Change | |||||||||
Adjusted gross deferred tax assets | $ | 789 | $ | 786 | $ | 3 | ||||||
Total deferred tax liabilities | (88 | ) | (103 | ) | 15 | |||||||
Net deferred tax assets | $ | 701 | $ | 683 | $ | 18 | ||||||
Less: Tax effect of unrealized gains | (30 | ) | ||||||||||
Less: Prior period adjustment | (2 | ) | ||||||||||
Change in deferred income tax | $ | 50 |
F-37
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following tables summarize components of the admitted deferred tax assets calculation, as of the dates indicated:
December 31, 2021 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Federal income taxes recoverable through loss carryback | $ | - | $ | 11 | $ | 11 | ||||||
Adjusted gross deferred tax assets expected to be realized1 | 607 | - | 607 | |||||||||
Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities | 81 | 7 | 88 | |||||||||
Admitted deferred tax assets | $ | 688 | $ | 18 | $ | 706 |
December 31, 2020 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Federal income taxes recoverable through loss carryback | $ | - | $ | 7 | $ | 7 | ||||||
Adjusted gross deferred tax assets expected to be realized1 | 633 | 2 | 635 | |||||||||
Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities | 96 | 7 | 103 | |||||||||
Admitted deferred tax assets | $ | 729 | $ | 16 | $ | 745 |
1 | Note that this amount is calculated as the lesser of the adjusted gross deferred tax assets expected to be realized following the balance sheet date or the adjusted gross deferred tax assets allowed per the limitation threshold. For the years ended December 31, 2021 and 2020, the threshold limitation for adjusted capital and surplus was $1.3 billion. |
The adjusted capital and surplus used to determine the recovery period and adjusted gross deferred tax assets allowed per the limitation threshold was $8.4 billion as of December 31, 2021 and 2020. The ratio percentage used to determine the recovery period and adjusted gross deferred tax assets allowed per the limitation threshold was 1,125% and 1,176% as of December 31, 2021 and 2020, respectively.
The following tables summarize the impact of tax planning strategies, as of the dates indicated:
December 31, 2021 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
Adjusted gross deferred tax assets | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Net admitted adjusted gross deferred tax assets | 8.36 | % | 0.00 | % | 8.36 | % | ||||||
December 31, 2020 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
Adjusted gross deferred tax assets | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Net admitted adjusted gross deferred tax assets | 32.64 | % | 0.00 | % | 32.64 | % |
The Company’s tax planning strategies included the use of affiliated reinsurance for the years ended December 31, 2021 and 2020.
There are no temporary differences for which deferred tax liabilities are not recognized for the years ended December 31, 2021 and 2020.
F-38
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the tax effects of temporary differences and the change from the prior year, for the years ended:
December 31, | ||||||||||||
(in millions) | 2021 | 2020 | Change | |||||||||
Deferred tax assets | ||||||||||||
Ordinary: | ||||||||||||
Future policy benefits and claims | $ | 90 | $ | 108 | $ | (18 | ) | |||||
Investments | 128 | 116 | 12 | |||||||||
Deferred acquisition costs | 214 | 202 | 12 | |||||||||
Policyholders’ dividends accumulation | 4 | 5 | (1 | ) | ||||||||
Compensation and benefits accrual | 11 | 10 | 1 | |||||||||
Tax credit carry-forward | 299 | 316 | (17 | ) | ||||||||
Other | 13 | 13 | - | |||||||||
Subtotal | $ | 759 | $ | 770 | $ | (11 | ) | |||||
Nonadmitted | (71 | ) | (41 | ) | (30 | ) | ||||||
Admitted ordinary deferred tax assets | $ | 688 | $ | 729 | $ | (41 | ) | |||||
Capital: | ||||||||||||
Investments | 30 | 16 | 14 | |||||||||
Subtotal | $ | 30 | $ | 16 | $ | 14 | ||||||
Nonadmitted | (12 | ) | - | (12 | ) | |||||||
Admitted capital deferred tax assets | $ | 18 | $ | 16 | $ | 2 | ||||||
Admitted deferred tax assets | $ | 706 | $ | 745 | $ | (39 | ) | |||||
Deferred tax liabilities | ||||||||||||
Ordinary: | ||||||||||||
Investments | $ | (12 | ) | $ | (2 | ) | $ | (10 | ) | |||
Deferred and uncollected premium | (6 | ) | (6 | ) | - | |||||||
Future policy benefits and claims | (38 | ) | (57 | ) | 19 | |||||||
Deferred acquisition costs | (14 | ) | (28 | ) | 14 | |||||||
Marketing allowance and trail commission | (10 | ) | - | (10 | ) | |||||||
Other | (1 | ) | (1 | ) | - | |||||||
Subtotal | $ | (81 | ) | $ | (94 | ) | $ | 13 | ||||
Capital: | ||||||||||||
Investments | (7 | ) | (9 | ) | 2 | |||||||
Subtotal | $ | (7 | ) | $ | (9 | ) | $ | 2 | ||||
Deferred tax liabilities | $ | (88 | ) | $ | (103 | ) | $ | 15 | ||||
Net deferred tax assets | $ | 618 | $ | 642 | $ | (24 | ) |
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion of the total deferred tax assets will not be realized. Valuation allowances are established when necessary to reduce the deferred tax assets to amounts expected to 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 all deferred tax assets. Therefore, no valuation allowances have been established as of December 31, 2021 and 2020.
F-39
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The following table summarizes the Company’s income tax incurred and change in deferred income tax. The total income tax and change in deferred income tax differs from the amount obtained by applying the federal statutory rate to income (loss) before tax as follows, for the years ended:
December 31, | ||||||||||||
(in millions) | 2021 | 2020 | 2019 | |||||||||
Current income tax (benefit) expense | $ | 50 | $ | (22 | ) | $ | (66 | ) | ||||
Change in deferred income tax (without tax on unrealized gains and losses) | (50 | ) | (41 | ) | 29 | |||||||
Total income tax (benefit) reported | $ | - | $ | (63 | ) | $ | (37 | ) | ||||
Income before income and capital gains taxes | $ | 861 | $ | 465 | $ | 563 | ||||||
Federal statutory tax rate | 21 | % | 21 | % | 21 | % | ||||||
Expected income tax expense at statutory tax rate | $ | 181 | $ | 98 | $ | 118 | ||||||
(Decrease) increase in actual tax reported resulting from: | ||||||||||||
Dividends received deduction | (137 | ) | (117 | ) | (101 | ) | ||||||
Change in tax reserves | - | 16 | - | |||||||||
Tax credits | (47 | ) | (48 | ) | (53 | ) | ||||||
Loss carryback rate differential | - | (10 | ) | - | ||||||||
Other | 3 | (2 | ) | (1 | ) | |||||||
Total income tax (benefit) reported | $ | - | $ | (63 | ) | $ | (37 | ) |
The Company incurred $10 million in federal income tax expense in 2021 which is available for recoupment in the event of future net losses.
The following table summarizes operating loss or tax credit carry-forwards available as of December 31, 2021:
(in millions) | Amount | Origination | Expiration | |||||||||
Business credits | $ | 15 | 2014 | 2034 | ||||||||
Business credits | $ | 47 | 2015 | 2035 | ||||||||
Business credits | $ | 62 | 2016 | 2036 | ||||||||
Business credits | $ | 62 | 2017 | 2037 | ||||||||
Business credits | $ | 30 | 2018 | 2038 | ||||||||
Business credits | $ | 27 | 2019 | 2039 | ||||||||
Business credits | $ | 29 | 2020 | 2040 | ||||||||
Business credits | $ | 27 | 2021 | 2041 |
F-40
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The Company is included in the NMIC consolidated federal income tax return which includes the following entities:
Nationwide Mutual Insurance Company AGMC Reinsurance, Ltd Allied Group, Inc. Allied Holding (Delaware), Inc. Allied Insurance Company of America Allied Property & Casualty Insurance Company Allied Texas Agency, Inc. AMCO Insurance Company American Marine Underwriters Crestbrook Insurance Company Depositors Insurance Company DVM Insurance Agency, Inc. Eagle Captive Reinsurance, LLC Freedom Specialty Insurance Company Harleysville Group Inc. Harleysville Insurance Co. of New York Harleysville Insurance Company Harleysville Insurance Company of New Jersey Harleysville Lake States Insurance Company Harleysville Life Insurance Company Harleysville Preferred Insurance Company Harleysville Worcester Insurance Company Jefferson National Financial Corporation Jefferson National Securities Corporation Lone Star General Agency, Inc. National Casualty Company Nationwide Advantage Mortgage Company Nationwide Affinity Insurance Company of America Nationwide Agent Risk Purchasing Group. Inc. Nationwide Agribusiness Insurance Company Nationwide Assurance Company Nationwide Cash Management Company | Nationwide Corporation Nationwide Financial Assignment Company Nationwide Financial General Agency, Inc. Nationwide Financial Services, Inc. Nationwide General Insurance Company Nationwide Indemnity Company Nationwide Insurance Company of America Nationwide Insurance Company of Florida Nationwide Investment Services Corporation Nationwide Life and Annuity Ins. Company Nationwide Life Insurance Company Nationwide Lloyds Nationwide Property & Casualty Ins. Company Nationwide Retirement Solutions, Inc. Nationwide Sales Solutions, Inc. Nationwide Trust Company, FSB NBS Insurance Agency, Inc. NFS Distributors, Inc. Registered Investment Advisors Services, Inc. Retention Alternatives SAC Ltd. Scottsdale Indemnity Company Scottsdale Insurance Company Scottsdale Surplus Lines Insurance Company THI Holdings (Delaware), Inc. Titan Insurance Company Titan Insurance Services, Inc. Veterinary Pet Insurance Company Victoria Fire & Casualty Company Victoria National Insurance Company Victoria Select Insurance Company VPI Services, Inc. |
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.
The Company did not have any protective tax deposits under Section 6603 of the Internal Revenue Code as of December 31, 2021 and 2020.
The Company does not have any tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date.
(9) | Short-Term Debt and Federal Home Loan Bank Funding Agreement |
Short-Term Debt
The Company participated in a commercial paper program with a limit of $750 million, which was terminated in 2021. There were no amounts outstanding under the program as of December 31, 2020.
As of December 31, 2020, the Company had access to borrow up to $300 million from the FHLB to provide financing for operations that expired in March 2021. As of December 31, 2020, the Company had $4.3 billion in eligible collateral and no amounts outstanding under the agreement. In February 2021, the Company terminated this agreement and entered into a new agreement with the FHLB, which expired February 4, 2022, that allowed the Company and NLAIC access to collectively borrow up to $1.1 billion in the aggregate, which would be collateralized by pledged securities. As of December 31, 2021, the Company had $3.6 billion in eligible collateral and no amounts outstanding under the agreement. In February 2022, this agreement was extended through February 3, 2023.
F-41
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
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 one-month U.S. LIBOR. The Company had no amounts outstanding under this agreement as of December 31, 2021 and 2020.
The terms of certain debt instruments contain various restrictive covenants, including, but not limited to, minimum statutory surplus defined in the agreements. The Company was in compliance with all covenants as of December 31, 2021 and 2020.
The amount of interest paid on short-term debt was immaterial in 2021, 2020 and 2019.
Federal Home Loan Bank Funding Agreements
The Company is a member of the FHLB. Through its membership, the FHLB established the Company’s capacity for short-term borrowings and cash advances under the funding agreement program at up to 50% of total admitted assets.
The Company’s Board of Directors has authorized the issuance of funding agreements up to $4.0 billion to the FHLB, shared between the Company and NLAIC, in exchange for cash advances, which are collateralized by pledged securities. The Company uses these funds in an investment spread strategy, consistent with its other investment spread operations. As such, the Company applies SSAP No. 52, Deposit-Type Contracts, accounting treatment to these funds, consistent with its other deposit-type contracts. It is not part of the Company’s strategy to utilize these funds for operations, and any funds obtained from the FHLB for use in general operations would be accounted for consistent with SSAP No. 15, Debt and Holding Company Obligations, as borrowed money. Membership requires the Company to purchase and hold a minimum amount of FHLB capital stock plus additional stock based on outstanding advances. The Company has $25 million and $30 million in membership stock as of December 31, 2021 and 2020, respectively. As part of the agreement, the Company purchased and held an additional $118 million and $58 million in activity stock as of December 31, 2021 and 2020, respectively, which is included in the general account in stocks on the statutory statements of admitted assets, liabilities, capital and surplus. The Company’s liability for advances from the FHLB was $2.7 billion and $2.1 billion as of December 31, 2021 and 2020, respectively, which is included in future policy benefits and claims on the statutory statements of admitted assets, liabilities, capital and surplus. The advances were collateralized by bonds and mortgage loans with carrying values of $3.1 billion (1.7 % of total admitted assets) as of December 31, 2021 and $2.4 billion (1.5% of total admitted assets) as of December 31, 2020, which are included in the general account in bonds and mortgage loans on the statutory statements of admitted assets, liabilities, capital and surplus.
(10) | Surplus Notes |
The following table summarizes the carrying value of surplus notes issued by the Company to NFS, as of the dates indicated:
(in millions) | ||||||||||||||||||||||||||||
Date issued | Interest rate | Par value | Carrying value | Interest and/ or principal paid in current year | Total interest and/ or principal paid | Unapproved interest and/ or principal | Date of maturity | |||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||||
12/19/2001 | 7.50 | % | $ | 300 | $ | 300 | $ | 22 | $ | 450 | $ | - | 12/31/2031 | |||||||||||||||
6/27/2002 | 8.15 | % | 300 | 300 | 25 | 473 | - | 6/27/2032 | ||||||||||||||||||||
12/23/2003 | 6.75 | % | 100 | 100 | 7 | 119 | - | 12/23/2033 | ||||||||||||||||||||
12/20/2019 | 4.21 | % | 400 | 400 | 17 | 34 | - | 12/19/2059 | ||||||||||||||||||||
Total | $ | 1,100 | $ | 1,100 | $ | 71 | $ | 1,076 | $ | - | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||
12/19/2001 | 7.50 | % | $ | 300 | $ | 300 | $ | 22 | $ | 428 | $ | - | 12/31/2031 | |||||||||||||||
6/27/2002 | 8.15 | % | 300 | 300 | 25 | 448 | - | 6/27/2032 | ||||||||||||||||||||
12/23/2003 | 6.75 | % | 100 | 100 | 7 | 112 | - | 12/23/2033 | ||||||||||||||||||||
12/20/2019 | 4.21 | % | 400 | 400 | 17 | 17 | - | 12/19/2059 | ||||||||||||||||||||
Total | $ | 1,100 | $ | 1,100 | $ | 71 | $ | 1,005 | $ | - |
The surplus notes were issued in accordance with Section 3901.72 of the Ohio Revised Code. The principal and interest on these surplus notes shall not be a liability or claim against NLIC, or any of its assets, except as provided in Section 3901.72 of the Ohio Revised Code. The Department must approve interest and principal payments before they are paid.
F-42
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
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(11) | Reinsurance |
The Company has 100% coinsurance agreement with funds withheld with Eagle to cede specified GMDB and GLWB obligations provided under substantially all of the variable annuity contracts and certain fixed indexed annuity contracts issued and to be issued by NLIC. While the GMDB and GLWB contract riders are ceded by NLIC to Eagle, the base annuity contracts and any non-reinsured risks will be retained by NLIC. Amounts ceded to Eagle during 2021, 2020 and 2019 included premiums of $607 million, $627 million and $529 million, respectively, benefits and claims, net of third party reinsurance recoveries of $8 million, $23 million, and $17 million respectively, net investment earnings on funds withheld assets of $40 million, $49 million and $33 million, respectively, and an expense allowance for third party reinsurance premiums of $1 million, $1 million and $1 million, respectively. As of December 31, 2021 and 2020, the carrying value of the funds withheld assets recorded within funds held under coinsurance was $1.1 billion and $965 million, respectively, which consists of bonds and cash equivalents that had a carrying value of $954 million and $856 million, respectively, and mortgage loans that had a carrying value of $98 million and $108 million, respectively. As of December 31, 2021 and 2020, the Company’s reserve credit for guaranteed benefits ceded under the reinsurance agreements was $50 million and $65 million, respectively. Amounts payable to Eagle related to the reinsurance agreements were $204 million and $402 million as of as of December 31, 2021 and December 31, 2020, respectively.
The Company has a reinsurance agreement with NMIC whereby nearly all of the Company’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 the Company’s agreement, the investment risk associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by the Company, although a fee is paid to the Company for the retention of such risk. The ceding of risk does not discharge the Company, as the original insurer, from its primary obligation to the policyholder. Amounts ceded to NMIC include revenues of $281 million, $281 million and $279 million for the years ended December 31, 2021, 2020 and 2019, respectively, while benefits, claims and expenses ceded were $257 million, $260 million and $273 million, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby certain inforce and subsequently issued fixed individual deferred annuity contracts are assumed on a modified coinsurance basis. Under modified coinsurance agreements, the ceding company retains invested assets and investment earnings are paid to the reinsurer. Under terms of the agreement, the Company bears the investment risk associated with changes in interest rates. Risk of asset default remains with NLAIC, and the Company pays a fee to NLAIC for the retention of such risk. The agreement will remain inforce until all contract obligations are settled. The ceding of risk does not discharge the original insurer from its primary obligation to the contractholder. Amounts assumed from NLAIC are included in the Company’s statutory statement of operations for 2021, 2020 and 2019 and include premiums of $10 million, $12 million and $14 million, respectively, net investment income of $42 million, $46 million and $49 million, respectively, and benefits, claims and other expenses of $147 million, $171 million and $251 million, respectively. The reserve adjustment for 2021, 2020 and 2019 of $(151) million, $(172) million and $(246) million, respectively, represents changes in reserves related to this fixed block of business, offset by investment earnings on the underlying assets. Policy reserves under this agreement totaled $985 million and $1.1 billion as of December 31, 2021 and 2020, respectively, and amounts payable related to this agreement were $8 million for the years ended December 31, 2021 and 2020.
The Company has an intercompany reinsurance agreement with NLAIC whereby certain variable universal life insurance, whole life insurance and universal life insurance policies are assumed on a modified coinsurance basis. Total policy reserves under this treaty were $35 million and $37 million as of December 31, 2021 and 2020, respectively. Total premiums assumed under this treaty were $12 million, $8 million and $11 million during 2021, 2020 and 2019, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby a certain life insurance contract is assumed on a 100% coinsurance basis. Policy reserves assumed under this agreement totaled $155 million and $158 million as of December 31, 2021 and 2020, respectively.
The Company has entered into reinsurance contracts to cede a portion of its individual annuity and life insurance business to unrelated reinsurers. Total reserve credits taken as of December 31, 2021 and 2020 were $382 million and $420 million, respectively. The three largest contracts are with Security Benefit Life Insurance Company (“SBL”), SCOR Global Life Americas Reinsurance (“SGLAR”), and Security Life of Denver Insurance Company (“SLD”) as of December 31, 2021. Total reserve credits taken on these contracts as of December 31, 2021 and 2020 totaled $96 million and $100 million for each year, from SBL, $32 million and $44 million, respectively, from SGLAR and $29 million and $36 million, respectively, from SLD. The ceding of risk does not relieve the Company, as the original insurer, from its primary obligation to the policyholder. Under the terms of the contracts, SBL has established a trust as collateral for the recoveries, whereby the trust assets are invested in investment grade securities, the fair value of which must at all times be greater or equal to 100% of the reinsured reserves.
F-43
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(12) | Transactions with Affiliates |
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, office space cost sharing arrangements, and agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. In addition, several benefit plans sponsored by NMIC are available to Nationwide employees, for which the Company has no legal obligations. Measures used to determine the allocation among companies includes individual employee estimates of time spent, special cost studies, the number of full-time employees and other methods agreed to by the participating companies.
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, 2021, 2020 and 2019, the Company was allocated costs from NMIC and NSC totaling $288 million, $281 million and $220 million, 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 $3.8 billion, $3.7 billion and $3.5 billion as of December 31, 2021, 2020 and 2019, respectively. Total revenues from these contracts were $121 million, $122 million and $120 million for the years ended December 31, 2021, 2020 and 2019, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances were $113 million, $115 million and $112 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company may underwrite insurance policies for its officers, directors, and/or other personnel providing services to the Company. The Company may offer discounts on certain products that are subject to applicable state insurance laws and approvals.
Under the enterprise cost sharing agreement, the Company has a cost sharing arrangement with NMIC to occupy office space. For the years ended December 31, 2021, 2020 and 2019, the Company was allocated costs from NMIC of $12 million, $13 million and $11 million, respectively.
The Company receives an annual fee payable from the Tax Credit Funds, for which it is a guarantor and Managing Member, for its services in connection with the oversight of the performance of the Investee Partnerships and the compliance by their managing members and managing agents thereof with the provisions of the various operating level agreements and applicable laws. The Company earned $3 million, $2 million, and $2 million for the years ended December 31, 2021, 2020 and 2019, 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, 2021, 2020 and 2019, customer allocations to NFG funds totaled $76.8 billion, $69.2 billion and $66.8 billion, respectively. For the years ended December 31, 2021, 2020 and 2019, NFG paid the Company $265 million, $229 million and $227 million, respectively, for the distribution and servicing of these funds.
Amounts on deposit with NCMC for the benefit of the Company were $509 million and $551 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, amounts on deposit with NCMC were comprised of $483 million and $547 million, respectively, of cash equivalents, with remaining amounts in short-term investments.
Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the years ended December 31, 2021, 2020 and 2019 was $74 million, $69 million and $71 million, respectively.
The Company provides financing to Nationwide Realty Investors, LTD, a subsidiary of NMIC with interest rates ranging from 3.3% to 5.0% and maturity dates ranging from January 2022 to July 2041. As of December 31, 2021 and 2020, the Company had mortgage loans outstanding of $358 million and $414 million, respectively.
The Company also participates in intercompany repurchase agreements with affiliates whereby the seller transfers securities to the buyer at a stated value. Upon demand or after a stated period, the seller repurchases the securities from the buyer at the original sales price plus interest. As of December 31, 2021 and 2020, the Company had no outstanding borrowings from affiliated entities under such agreements. During 2021 and 2020, there were no outstanding borrowings from affiliated entities at any given time. The amount the Company incurred for interest expense on intercompany repurchase agreements during 2021, 2020 and 2019 were immaterial.
During 2019, the Company received capital contributions of $600 million from NFS. In March 2022, the Company received a capital contribution of $50 million from NFS.
F-44
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
During 2020, the Company sold securities of $59 million to Nationwide Mutual Fire Insurance Company for cash, which resulted in a realized loss of $2 million.
During 2021, 2020 and 2019, the Company paid capital contributions of $400 million, $500 million and $400 million, respectively, to NLAIC. During 2022, the Company paid additional capital contributions totaling $100 million to NLAIC through the subsequent event date.
The company has an unsecured promissory note and revolving line of credit with JNLNY whereby JNLNY can borrow up to $5 million. No amounts have been drawn on the note as of December 31, 2021 or through the subsequent event date.
Pursuant to financial support agreements, the Company has agreed to provide NLAIC and JNLIC with the minimum capital and surplus required by each state in which NLAIC and JNLIC does business. These agreements do not constitute the Company as guarantor of any obligation or indebtedness of NLAIC or JNLIC or provide any creditor of NLAIC or JNLIC with recourse to or against any of the assets of the Company.
Eagle’s surplus position is evaluated quarterly to determine if an additional surplus contribution is required from the Company or if a distribution to the Company can be declared as of each quarter end.
During 2020, the Company made surplus contributions to Eagle. On March 31, 2020 and April 17, 2020, the Company made surplus contributions to Eagle of $555 million and $50 million, respectively.
During 2021 and 2020 Eagle declared distributions to the Company based on their earned surplus position. On February 10, 2022, the Company received a dividend distribution of $168 million that was declared on December 31, 2021. The dividend receivable was recorded in accrued investment income as of December 31, 2021. On November 10, 2021, the Company received a dividend distribution of $45 million that was declared on September 30, 2021. On August 10, 2021, the Company received a dividend distribution of $20 million that was declared on June 30, 2021. On May 10, 2021, the Company received a dividend distribution of $191 million that was declared on March 31, 2021. On February 10, 2021, the Company received a dividend distribution of $292 million from Eagle that was declared on December 31, 2020. The dividend receivable was recorded in accrued investment income as of December 31, 2020. On November 10, 2020 the Company received a total distribution of $267 million from Eagle that was declared on September 30, 2020 and consisted of a return of contributed surplus of $184 million and a dividend of $83 million. On August 10, 2020 the Company received a return of contributed surplus distribution of $421 million from Eagle that was declared on June 30, 2020.
On December 22, 2021, the Company and NLAIC entered into a short-term loan where NLAIC borrowed $80 million from the Company. NLAIC repaid the short-term loan in full on January 4, 2022.
In March 2022, the Company executed a $850 million unsecured promissory note and revolving line of credit agreement with Nationwide SBL, LLC, an affiliate, at an interest rate of 1-month LIBOR plus 1.25% with a maturity date of March 1, 2023.
The Company utilizes the look-through approach in valuing its investment in Nationwide Real Estate Investors (NLIC), LLC (“NW REI (NLIC)”), a subsidiary of NMIC, at $71 million and $90 million as of December 31, 2021 and 2020, respectively. NW REI (NLIC)’s financial statements are not audited and the Company has limited the value of its investment in NW REI (NLIC) to the value contained in the audited statutory financial statements of the underlying investments. All liabilities, commitments, contingencies, guarantees or obligations of the NW REI (NLIC), which are required under applicable accounting guidance, are reflected in the Company’s determination of the carrying value of the investment in NW REI (NLIC), if not already recorded in the financial statements of NW REI (NLIC).
F-45
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
(13) | 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 financial condition.
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 Office of the Comptroller of the Currency and state insurance authorities. Such regulatory entities may, in the normal course of business, 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.
Guarantees
In accordance with SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, for all guarantees made to or on behalf of wholly-owned subsidiaries, no initial liability recognition has been made and there is no net financial statement impact related to these guarantees.
The contractual obligations under NLAIC’s single premium deferred annuity (“SPDA”) contracts in force and issued before September 1, 1988 are guaranteed by the Company. Total SPDA contracts affected by this guarantee in force as of December 31, 2021 and 2020 were approximately $7 million and $8 million, respectively.
The Company has guaranteed the obligations and liabilities of NISC, including, without limitation, the full and prompt payment of all accounts payable to any party now or in the future. If for any reason NISC fails to satisfy any of its obligations, the Company will cause such obligation, loss or liability to be fully satisfied.
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 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.
(14) | Regulatory Risk-Based Capital, Dividend Restrictions and Unassigned Surplus |
The 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, where the Company is domiciled, 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. The Company exceeded the minimum RBC requirements for all periods presented.
The State of Ohio insurance laws require insurers to seek prior regulatory approval to pay a dividend or distribution of 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 (i) 10% of statutory-basis capital and surplus as of the prior December 31 or (ii) the statutory-basis net income of the insurer for the prior year. In March 2021, the Company paid an ordinary dividend of $550 million to NFS. No dividends were paid by the Company to NFS for the years ended December 31, 2020 and 2019. The Company’s statutory capital and surplus as of December 31, 2021, was $9.1 billion and statutory net income for 2021 was $811 million. As of January 1, 2022, the Company has the ability to pay dividends to NFS totaling $359 million without obtaining prior approval.
F-46
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2021, 2020 and 2019 Statutory Financial Statements
The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned capital and surplus. Earned capital and 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 capital and 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.
F-47
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule I Summary of Investments – Other Than Investments in Related Parties
As of December 31, 2021:
(in millions) | Column A | Column B | Column C | Column D | ||||||||||
Type of investment | Cost | Fair value | Amount at which shown in the assets, liabilities, | |||||||||||
Bonds: | ||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations | $ | 2 | $ | 2 | $ | 2 | ||||||||
U.S. government and agencies | 117 | 139 | 117 | |||||||||||
Obligations of states and political subdivisions | 3,506 | 4,089 | 3,506 | |||||||||||
Foreign governments | 197 | 200 | 197 | |||||||||||
Public utilities | 3,722 | 4,037 | 3,715 | |||||||||||
All other corporate, mortgage-backed and asset-backed securities | 30,420 | 32,776 | 30,394 | |||||||||||
Total fixed maturity securities | $ | 37,964 | $ | 41,243 | $ | 37,931 | ||||||||
Equity securities: | ||||||||||||||
Common Stocks: | ||||||||||||||
Banks, trust and insurance companies | 56 | 59 | 59 | |||||||||||
Industrial, miscellaneous and all other | 168 | 167 | 167 | |||||||||||
Nonredeemable preferred stocks | 45 | 50 | 50 | |||||||||||
Total equity securities1 | $ | 269 | $ | 276 | $ | 276 | ||||||||
Mortgage loans2 | 8,229 | 8,185 | ||||||||||||
Short-term investments | 636 | 636 | ||||||||||||
Policy loans | 914 | 913 | ||||||||||||
Other long-term investments3 | 1,323 | 1,324 | ||||||||||||
Total invested assets | $ | 49,335 | $ | 49,265 |
1 | Amount does not agree to the statutory statements of admitted assets, liabilities, capital and surplus as investments in related parties of $2.7 billion are excluded. |
2 | Difference from Column B is attributable to valuation allowances on mortgage loans (see Note 5 to the audited statutory financial statements). |
3 | Includes derivatives, securities lending reinvested collateral assets and other invested assets. Amount does not agree to the statutory statements of admitted assets, liabilities, capital and surplus as investments in related parties of $134 million are excluded. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-48
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule III Supplementary Insurance Information
As of December 31, 2021, 2020 and 2019 and for each of the years then ended (in millions):
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Year: Segment | Deferred policy acquisition costs1 | Future policy benefits, losses, claims and loss expenses | Unearned premiums2 | Other policy and benefits | Premium revenue | |||||||||||||||
2021 | ||||||||||||||||||||
Life Insurance | $ | 5,306 | $ | 425 | ||||||||||||||||
Annuities | 8,026 | 6,686 | ||||||||||||||||||
Retirement Solutions | 22,446 | 4,377 | ||||||||||||||||||
Corporate Solutions and Other | 6,721 | 1,176 | ||||||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | $ | 42,499 | $ | 12,664 | ||||||||||||||||
|
|
|
|
| ||||||||||||||||
2020 | ||||||||||||||||||||
Life Insurance | $ | 5,204 | $ | 394 | ||||||||||||||||
Annuities | 7,837 | 3,443 | ||||||||||||||||||
Retirement Solutions | 22,362 | 5,939 | ||||||||||||||||||
Corporate Solutions and Other | 5,599 | 861 | ||||||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | $ | 41,002 | $ | 10,637 | ||||||||||||||||
|
|
|
|
| ||||||||||||||||
2019 | ||||||||||||||||||||
Life Insurance | $ | 5,125 | $ | 413 | ||||||||||||||||
Annuities | 7,955 | 4,202 | ||||||||||||||||||
Retirement Solutions | 20,781 | 4,324 | ||||||||||||||||||
Corporate Solutions and Other | 5,278 | 1,229 | ||||||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | $ | 39,139 | $ | 10,168 | ||||||||||||||||
|
|
|
|
|
Column A | Column G | Column H | Column I | Column J | Column K | |||||||||||||||
Year: Segment | Net investment income3 | Benefits, claims, losses and settlement expenses4 | Amortization of deferred policy acquisition costs1 | Other operating expenses | Premiums written | |||||||||||||||
2021 | ||||||||||||||||||||
Life Insurance | $ | 254 | $ | 311 | $ | 107 | ||||||||||||||
Annuities | 337 | 9,489 | 41 | |||||||||||||||||
Retirement Solutions | 861 | 6,895 | 122 | |||||||||||||||||
Corporate Solutions and Other | 779 | 1,304 | 169 | |||||||||||||||||
|
|
| ||||||||||||||||||
Total | $ | 2,231 | $ | 17,999 | $ | 439 | ||||||||||||||
|
|
| ||||||||||||||||||
2020 | ||||||||||||||||||||
Life Insurance | $ | 247 | $ | 772 | $ | 123 | ||||||||||||||
Annuities | 338 | 7,539 | 55 | |||||||||||||||||
Retirement Solutions | 843 | 8,258 | 131 | |||||||||||||||||
Corporate Solutions and Other | 679 | 717 | 135 | |||||||||||||||||
|
|
| ||||||||||||||||||
Total | $ | 2,107 | $ | 17,286 | $ | 444 | ||||||||||||||
|
|
| ||||||||||||||||||
2019 | ||||||||||||||||||||
Life Insurance | $ | 262 | $ | 807 | $ | 133 | ||||||||||||||
Annuities | 319 | 8,460 | 57 | |||||||||||||||||
Retirement Solutions | 824 | 6,539 | 122 | |||||||||||||||||
Corporate Solutions and Other | 569 | 1,151 | 105 | |||||||||||||||||
|
|
| ||||||||||||||||||
Total | $ | 1,974 | $ | 16,957 | $ | 417 | ||||||||||||||
|
|
|
1 | Deferred policy acquisition costs and amortization of deferred policy acquisition costs are not applicable for statutory basis of accounting. |
2 | Unearned premiums and other policy claims and benefits payable are included in Column C amounts. |
3 | 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. |
4 | Benefits to policyholders and beneficiaries, reserves for future policy benefits and claims and commissions are included in Column H amounts. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-49
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
As of December 31, 2021, 2020 and 2019 and 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 | |||||||||||||
2021 | ||||||||||||||||
Life insurance in force | $ | 144,115 | $ | (29,120 | ) | $ | 653 | $ | 115,648 | |||||||
Premiums: | ||||||||||||||||
Life Insurance1 | $ | 1,624 | $ | (140 | ) | $ | 12 | $ | 1,496 | |||||||
Accident and health insurance | 445 | (444 | ) | 1 | ||||||||||||
Total | $ | 2,069 | $ | (584 | ) | $ | 12 | $ | 1,497 | |||||||
2020 | ||||||||||||||||
Life insurance in force | $ | 146,855 | $ | (31,055 | ) | $ | 686 | $ | 116,486 | |||||||
Premiums: | ||||||||||||||||
Life Insurance1 | $ | 1,378 | $ | (133 | ) | $ | 8 | $ | 1,253 | |||||||
Accident and health insurance | 441 | (440 | ) | - | 1 | |||||||||||
Total | $ | 1,819 | $ | (573 | ) | $ | 8 | $ | 1,254 | |||||||
2019 | ||||||||||||||||
Life insurance in force | $ | 146,044 | $ | (31,691 | ) | $ | 728 | $ | 115,081 | |||||||
Premiums: | ||||||||||||||||
Life Insurance1 | $ | 1,761 | $ | (661 | ) | $ | 10 | $ | 1,110 | |||||||
Accident and health insurance | 444 | (445 | ) | 2 | 1 | |||||||||||
Total | $ | 2,205 | $ | (1,106 | ) | $ | 12 | $ | 1,111 |
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 statutory financial statements and report of independent registered public accounting firm.
F-50
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule V Valuation and Qualifying Accounts
Years ended December 31, 2021, 2020 and 2019:
(in millions) | ||||||||||||||||
Column A | Column B | Column C | Column D | Column E | ||||||||||||
Balance at | Charged to | Balance at | ||||||||||||||
beginning | costs and | end of | ||||||||||||||
Description | of period | expenses | Deductions1 | period | ||||||||||||
2021 | ||||||||||||||||
Valuation allowances - mortgage loans | $ | 48 | $ | (4 | ) | $ | (1 | ) | $ | 43 | ||||||
2020 | ||||||||||||||||
Valuation allowances - mortgage loans | $ | 34 | $ | 14 | $ | - | $ | 48 | ||||||||
2019 | ||||||||||||||||
Valuation allowances - mortgage loans | $ | 25 | $ | 9 | $ | - | $ | 34 |
1 | Amounts generally represent recoveries, payoffs and sales. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-51
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 |
(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 |
JOHN L. CARTER | |
John L. Carter, President and Chief Operating Officer and Director | |
TIMOTHY G. FROMMEYER | |
Timothy G. Frommeyer, Executive Vice President and Director | |
ERIC S. HENDERSON | |
Eric S. Henderson, Senior Vice President-Nationwide Annuity and Director | |
STEVEN A. GINNAN | |
Steven A. Ginnan, Senior Vice President-Chief Financial Officer-Nationwide Financial and Director | |
HOLLY R. SNYDER | |
Holly R. Snyder, Senior Vice President-Nationwide Life and Director | |
KIRT A. WALKER | |
Director | |
By /s/ Jamie Ruff Casto | |
Jamie Ruff Casto Attorney-in-Fact |