National Western Life Group, Inc. [NWLI] Filings

10-Q 1 nwli-20230630.htm 10-Q nwli-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-55522

NATIONAL WESTERN LIFE GROUP, INC.

(Exact name of Registrant as specified in its charter)


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

10801 N. Mopac Expy Bldg 3

Austin,

Texas

78759

(512)

836-1010

(Address of Principal Executive Offices) (Zip Code)

(Telephone Number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class to be so registered:

Trading Symbol

Name of each exchange on which
each class is to be registered:

Class A Common Stock, $0.01 par value

NWLI

The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "accelerated filer." "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐ Accelerated filer ☒ Non-accelerated filer (Do not check if a smaller reporting company) ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 7, 2023, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,020 and Class B - 200,000.

Table of Contents


TABLE OF CONTENTS
			Page

Part I. Financial Information:			3

Item 1. Financial Statements			3

Condensed Consolidated Balance Sheets June 30, 2023 and December 31, 2022 (Unaudited)			3

Condensed Consolidated Statements of Earnings For the Three Months Ended June 30, 2023 and 2022 (Unaudited)			5

Condensed Consolidated Statements of Earnings For the Six Months Ended June 30, 2023 and 2022 (Unaudited)			6

Condensed Consolidated Statements of Comprehensive Income (Loss) For the Three Months Ended June 30, 2023 and 2022 (Unaudited)			7

Condensed Consolidated Statements of Comprehensive Inco me (L oss ) For the Six Months Ended June 30, 2023 and 2022 (Unaudited)			8

Condensed Consolidated Statements of Changes in Stockholders' Equity For the Three Months Ended June 30, 2023 and 2022 (Unaudited)			9

Condensed Consolidated Statements of Changes in Stockholders' Equity For the Six Months Ended June 30, 2023 and 2022 (Unaudited)			11

Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2023 and 2022 (Unaudited)			13

Notes to Condensed Consolidated Financial Statements (Unaudited)			15

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			101

Item 3. Quantitative and Qualitative Disclosures About Market Risk			144

Item 4. Controls and Procedures			144

Part II. Other Information:			146

Item 1. Legal Proceedings			146

Item 1A. Risk Factors			146

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			146

Item 4. Removed and Reserved			146

Item 6. Exhibits			146

Signatures			147

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)


ASSETS	June 30, 2023		December 31, 2022

Investments:

Debt securities available-for-sale, at fair value (cost: $8,083,487 and $8,438,760)	$	7,324,100	7,611,633
Debt securities trading, at fair value (cost: $1,254,993 and $1,269,597)	1,069,625		1,065,993
Mortgage loans, net of allowance for credit losses ($3,736 and $3,575), ($19,422 and $19,334 at fair value)	495,411		505,730
Policy loans	69,123		70,495
Derivatives, index options	72,863		23,669
Equity securities, at fair value (cost: $13,986 and $14,547)	23,157		22,076
Other long-term investments	300,466		262,106
Short-term investments	7,821		3,937

Total investments	9,362,566		9,565,639

Cash and cash equivalents	291,820		295,270
Deferred policy acquisition costs (Note 1)	644,933		663,882
Deferred sales inducements (Note 1)	78,209		85,303
Value of business acquired (Note 1)	134,097		138,495
Cost of reinsurance (Note 1)	72,276		78,328
Market risk benefits asset (Note 1)	40,073		48,759
Accrued investment income	90,607		92,250
Federal income tax receivable	5,489		6,508
Deferred Federal income tax asset (Note 1)	13,822		9,032
Amounts recoverable from reinsurer, net of allowance for credit losses ($800 and $450) (Note 1)	1,611,143		1,688,788
Other assets	109,351		110,691

Total assets	$	12,454,386	12,782,945

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)


LIABILITIES AND STOCKHOLDERS’ EQUITY	June 30, 2023		December 31, 2022

LIABILITIES:

Future policyholder obligations:
Liability for policyholder account balances (Note 1)	$	7,285,129	7,661,785
Additional liability for benefits in excess of account balance (Note 1)	151,787		148,708
Liability for future policy benefits (Note 1)	908,212		900,146
Market risk benefits liability (Note 1)	248,876		215,777
Other policyholder liabilities	148,113		175,089
Funds withheld liability	1,243,314		1,333,036


Other liabilities	190,755		157,482

Total liabilities	10,176,186		10,592,023

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS’ EQUITY:

Common stock:
Class A - $0.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2023 and 2022	34		34
Class B - $0.01 par value; 200,000 shares authorized, issued, and outstanding in 2023 and 2022	2		2
Additional paid-in capital	41,716		41,716
Accumulated other comprehensive income (loss) (Note 1)	(432,879)		(478,219)
Retained earnings (Note 1)	2,669,327		2,627,389

Total stockholders’ equity	2,278,200		2,190,922

Total liabilities and stockholders' equity	$	12,454,386	12,782,945

Note: The Condensed Consolidated Balance Sheet at December 31, 2022 has been derived from the audited Consolidated Financial Statements as of that date.

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the Three Months Ended June 30, 2023 and 2022

(Unaudited)

(In thousands, except per share amounts)


	2023		2022

Premiums and other revenues:
Universal life and annuity contract charges (Note 1)	$	37,124	32,821
Traditional life and single premium immediate annuity with life contingency (SPIAWLC) premiums (Note 1)	21,228		22,641
Net investment income	122,514		55,474
Other revenues	5,285		5,578
Net realized investment gains	26		1,766





Total revenues	186,177		118,280

Benefits and expenses:
Life and other policy benefits (Note 1)	32,688		26,201

Market risk benefits expense (Note 1)	(788)		(55,492)
Amortization of deferred transaction costs (Note 1)	22,000		22,500
Universal life and annuity contract interest (Note 1)	32,947		(26,198)
Other operating expenses	62,443		30,322

Total benefits and expenses	149,290		(2,667)

Earnings before Federal income taxes	36,887		120,947

Federal income taxes	7,253		24,420

Net earnings	$	29,634	96,527

Basic earnings per share:
Class A (Note 4)	$	8.38	27.30
Class B (Note 4)	$	4.19	13.65

Diluted earnings per share:
Class A (Note 4)	$	8.38	27.30
Class B (Note 4)	$	4.19	13.65

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the Six Months Ended June 30, 2023 and 2022

(Unaudited)

(In thousands, except per share amounts)



	2023		2022

Premiums and other revenues:
Universal life and annuity contract charges (Note 1)	$	72,481	65,618
Traditional life and single premium immediate annuity with life contingency (SPIAWLC) premiums (Note 1)	42,804		48,782
Net investment income	212,423		125,198
Other revenues	10,990		11,375
Net realized investment gains	93		5,560

Total revenues	338,791		256,533

Benefits and expenses:
Life and other policy benefits (Note 1)	56,878		59,713

Market risk benefits expense (Note 1)	36,172		(116,498)
Amortization of deferred transaction costs (Note 1)	43,274		45,936
Universal life and annuity contract interest (Note 1)	63,159		(39,769)
Other operating expenses	87,126		62,903

Total benefits and expenses	286,609		12,285

Earnings before Federal income taxes	52,182		244,248

Federal income taxes	10,244		50,159

Net earnings	$	41,938	194,089

Basic earnings per share:
Class A (Note 4)	$	11.86	$	54.89
Class B (Note 4)	$	5.93	$	27.44

Diluted earnings per share:
Class A (Note 4)	$	11.86	$	54.89
Class B (Note 4)	$	5.93	$	27.44

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2023 and 2022

(Unaudited)

(In thousands)


	2023		2022

Net earnings	$	29,634	96,527

Other comprehensive income (loss), net of effects of taxes:
Unrealized gains (losses) on debt securities available-for-sale:
Net unrealized holding gains (losses) arising during period (Note 1)	(71,596)		(368,775)

Reclassification adjustment for net amounts included in net earnings	(36)		(1,395)


Net unrealized gains (losses) on securities	(71,632)		(370,170)



Effect of discount rate changes on liability for future policy benefits (Note 1)	14,344		76,256

Foreign currency translation adjustments (Note 1)	22		(20)

Benefit plans:
Amortization of net prior service cost and net gain (loss)	(399)		1,134

Other comprehensive income (loss)	(57,665)		(292,800)

Comprehensive income (loss)	$	(28,031)	(196,273)

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2023 and 2022

(Unaudited)

(In thousands)



	2023		2022

Net earnings	$	41,938	194,089

Other comprehensive income (loss), net of effects of taxes:
Unrealized gains (losses) on available-for-sale securities:
Net unrealized holding gains (losses) arising during period (Note 1)	53,605		(807,191)

Reclassification adjustment for net amounts included in net earnings	(89)		(4,127)


Net unrealized gains (losses) on securities	53,516		(811,318)

Effect of discount rate changes on liability for future policy benefits (Note 1)	(7,370)		156,288

Foreign currency translation adjustments (Note 1)	(8)		295

Benefit plans:
Amortization of net prior service cost and net gain (loss)	(798)		2,268

Other comprehensive income (loss)	45,340		(652,467)

Comprehensive income (loss)	$	87,278	(458,378)

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Three Months Ended June 30, 2023 and 2022
(Unaudited)
(In thousands)


	2023		2022

Common stock:
Balance at beginning of period	$	36	36


Balance at end of period	36		36

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


Balance at end of period	41,716		41,716

Accumulated other comprehensive income (loss):
Unrealized gains (losses) on debt securities available-for-sale: (Note 1)
Balance at beginning of period	(528,283)		(74,039)
Change in unrealized gains (losses) during period, net of tax	(71,632)		(370,170)


Balance at end of period	(599,915)		(444,209)

























Changes in the Liability for future policy benefits related to changing discount rates (Note 1)
Balance at beginning of period	148,987		19,911
Change in liability for future policy benefits during period, net of tax	14,344		76,256

Balance at end of period	163,331		96,167

	Continued on Next Page

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NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued) For the Three Months Ended June 30, 2023 and 2022 (Unaudited) (In thousands)

	2023		2022

Foreign currency translation adjustments: (Note 1)
Balance at beginning of period	6,420		6,343
Change in translation adjustments during period	22		(20)

Balance at end of period	6,442		6,323

Benefit plan liability adjustment:
Balance at beginning of period	(2,338)		(14,233)
Amortization of net prior service cost and net gain (loss), net of tax	(399)		1,134

Balance at end of period	(2,737)		(13,099)

Accumulated other comprehensive income (loss) at end of period	(432,879)		(354,818)

Retained earnings:
Balance at beginning of period (Note 1)	2,639,693		2,479,714

Net earnings (Note 1)	29,634		96,527



Balance at end of period	2,669,327		2,576,241

Total stockholders' equity	$	2,278,200	2,263,175

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

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NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Six Months Ended June 30, 2023 and 2022 (Unaudited) (In thousands)

	2023		2022

Common stock:
Balance at beginning of period	$	36	36


Balance at end of period	36		36

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


Balance at end of period	41,716		41,716

Accumulated other comprehensive income (loss):
Unrealized gains (losses) on debt securities available-for-sale: (Note 1)
Balance at beginning of period	(653,431)		367,109
Change in unrealized gains (losses) during period, net of tax	53,516		(811,318)


Balance at end of period	(599,915)		(444,209)


















Changes in the Liability for future policy benefits related to changing discount rates (Note 1)
Balance at beginning of period	170,701		(60,121)
Change in liability for future policy benefits during period, net of tax	(7,370)		156,288

Balance at end of period	163,331		96,167

Foreign currency translation adjustments: (Note 1)
Balance at beginning of period	6,450		6,028
Change in translation adjustments during period	(8)		295

Balance at end of period	6,442		6,323

	Continued on Next Page

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NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued) For the Six Months Ended June 30, 2023 and 2022 (Unaudited) (In thousands)

	2023		2022

Benefit plan liability adjustment:
Balance at beginning of period	(1,939)		(15,367)
Amortization of net prior service cost and net gain (loss), net of tax	(798)		2,268

Balance at end of period	(2,737)		(13,099)

Accumulated other comprehensive income (loss) at end of period	(432,879)		(354,818)

Retained earnings:
Balance at beginning of period (Note 1)	2,627,389		2,382,152

Net earnings (Note 1)	41,938		194,089

Balance at end of period	2,669,327		2,576,241

Total stockholders' equity	$	2,278,200	2,263,175

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

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NATIONAL WESTERN LIFE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2023 and 2022

(Unaudited)

(In thousands)



	2023		2022

Cash flows from operating activities:
Net earnings	$	41,938	194,089
Adjustments to reconcile net earnings to net cash from operating activities:
Universal life and annuity contract interest (Note 1)	63,159		(39,769)
Surrender charges and other policy revenues	(12,506)		(9,761)
Realized (gains) losses on investments	(93)		(5,560)
Accretion/amortization of discounts and premiums, investments	(1,756)		(1,734)
Depreciation and amortization	5,107		6,896
Increase (decrease) in estimated credit losses on investments	161		(413)
(Increase) decrease in value of debt securities trading	(18,236)		156,791
(Increase) decrease in value of equity securities	(2,357)		4,600
(Increase) decrease in value of derivative options	(23,854)		76,624
(Increase) decrease in deferred policy acquisition and sales inducement costs, and value of business acquired (Note 1)	30,441		11,852
(Increase) decrease in accrued investment income	1,643		(526)
(Increase) decrease in reinsurance recoverable (Note 1)	77,645		131,373
(Increase) decrease in cost of reinsurance	6,052		5,511
(Increase) decrease in other assets (Note 1)	(14,493)		443
Increase (decrease) in liabilities for future policy benefits (Note 1)	21,730		(15,654)
Increase (decrease) in market risk benefits liability (Note 1)	41,785		(123,075)
Increase (decrease) in other policyholder liabilities	(26,966)		7,843
Increase (decrease) in Federal income tax liability	1,019		(19,186)
Increase (decrease) in deferred Federal income tax (Note 1)	(16,844)		47,245
Increase (decrease) in funds withheld liability	(89,722)		(277,048)
Increase (decrease) in other liabilities (Note 1)	34,486		(12,478)


Net cash provided by operating activities	118,339		138,063

Cash flows from investing activities:
Proceeds from sales of:

Debt securities available-for-sale	22,307		39,254
Debt securities trading	38,725		17,183
Other investments	1,287		2,804
Proceeds from maturities, redemptions, and prepayments of:

Debt securities available-for-sale	437,489		565,415
Debt securities trading	33,996		69,983
Other investments	15,264		16,138
Derivatives, index options	270		46,412

Purchases of:

Debt securities available-for-sale	(104,253)		(690,390)



	Continued on Next Page

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the Six Months Ended June 30, 2023 and 2022 (Unaudited) (In thousands)

	2023		2022

Debt securities trading	(63,624)		(75,581)
Equity securities	(12)		(890)
Derivatives, index options	(25,925)		(26,377)
Other investments	(41,016)		(33,704)
Property, equipment, and other productive assets	(1,593)		(764)
Net change in short-term investments	(3,884)		—
Principal payments on mortgage loans	12,141		18,872
Cost of mortgage loans acquired	(1,800)		(44,139)
Decrease (increase) in policy loans	1,004		(157)
Other (increases) decreases to funds withheld	5,247		(424)


Net cash provided by (used in) investing activities	325,623		(96,365)

Cash flows from financing activities:

Deposits to account balances for universal life and annuity contracts (Note 1)	52,142		205,775
Return of account balances on universal life and annuity contracts (Note 1)	(499,374)		(431,743)



Principal payments under finance lease obligation	(170)		(169)


Net cash provided by (used in) financing activities	(447,402)		(226,137)

Effect of foreign exchange (Note 1)	(10)		374

Net increase (decrease) in cash, cash equivalents, and restricted cash	(3,450)		(184,065)
Cash, cash equivalents, and restricted cash at beginning of period	295,270		714,624

Cash, cash equivalents and restricted cash at end of period	$	291,820	530,559

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest	$	38	37
Income taxes	26,052		22,138

Noncash operating activities:
Net deferral and amortization of sales inducements (Note 1)	$	(7,094)	(523)

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

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. Except for the retroactive adoption of a required change in accounting standard as discussed below and as further described in Note (2) New Accounting Pronouncements, in the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position and results of operations of National Western Life Group, Inc. ("NWLGI") and its wholly owned subsidiaries (collectively, the “Company”), on a basis consistent with the prior audited consolidated financial statements, as of June 30, 2023, and for the three and six months ended June 30, 2023 and June 30, 2022. Certain reclasses of prior year balances have been made for comparison. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year. It is recommended that these Condensed Consolidated Financial Statements, excluding balances affected by the adoption of Accounting Standards Update (ASU) 2018-12 noted below, be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 which is accessible free of charge through the Company's internet site at www.nwlgi.com or the Securities and Exchange Commission internet site at www.sec.gov. Except for balances affected by the adoption of ASU 2018-12 noted below, the Condensed Consolidated Balance Sheet at December 31, 2022 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of NWLGI and its wholly owned subsidiaries: National Western Life Insurance Company ("NWLIC" or "National Western"), Regent Care San Marcos Holdings, LLC, NWL Services, Inc., and N.I.S. Financial Services, Inc. ("NIS"). National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., Braker P III, LLC, and Ozark National Life Insurance Company ("Ozark National"). All significant intercorporate transactions and accounts have been eliminated in consolidation.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying Condensed Consolidated Financial Statements include: (1) liabilities for future policy obligations and market risk benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs ("DPAC"), deferred sales inducements ("DSI"), the value of business acquired ("VOBA"), and the cost of reinsurance ("COR"), (4) valuation allowances for deferred tax assets, (5) goodwill, (6) allowances for credit losses on available-for-sale debt securities, (7) allowance for credit losses for mortgage loans and reinsurance recoverables, and (8) commitments and contingencies.

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

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On July 27, 2022, National Western entered into a Funds Withheld Coinsurance Agreement with Aspida Life Re Ltd. (“Aspida"), a reinsurer organized under the Laws of Bermuda. Pursuant to this agreement, the Company agreed to cede, on a coinsurance with funds withheld basis, a specified quota share of certain liabilities pertaining to an in-force block of annuity contracts issued by the Company before July 1, 2022. The initial amount of statutory reserve liabilities ceded by the Company to Aspida under the agreement approximated $250.0 million. In addition, pursuant to the agreement, the Company agreed to cede, on a coinsurance with funds withheld basis, a specified quota share of certain annuity contracts issued or to be issued by the Company on or after July 1, 2022.

As consideration for Aspida’s agreement to provide reinsurance pursuant to the agreement, the Company transferred into a funds withheld account permitted assets approximating the initial statutory reserve liabilities ceded to Aspida. In accordance with the agreement and in order to provide additional security for Aspida’s obligations under the agreement, the parties established a trust account for the benefit of the Company in which Aspida maintains certain assets and grants the Company a first priority security interest in such assets.

The table below shows the net unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2023 and June 30, 2022.


Affected Line Item in the Condensed Consolidated Statements of Earnings	Amount Reclassified From Accumulated Other Comprehensive Income (Loss)
	Three Months Ended June 30,			Six Months Ended June 30,
	2023		2022	2023	2022

	(In thousands)

Other net investment gains	$	46	1,766	113	5,224

Earnings before Federal income taxes	46		1,766	113	5,224
Federal income taxes	10		371	24	1,097

Net earnings	$	36	1,395	89	4,127

Restatement of prior period consolidated financial statements as a result of adopting ASU 2018-12

As a result of the adoption of Accounting Standards Update 2018-12 Financial Services - Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts ("LDTI" or "ASU 2018-12), the results and related disclosures for the comparative 2022 periods presented in this Form 10-Q were recast to be presented as if the requirements of LDTI had been in effect during those periods. Implementation of LDTI affected various line items in each condensed consolidated financial statement. Refer to Note (2) New Accounting Policies for more details about the new guidance and a summary of the restated balances.

The Company adopted ASU 2018-12 guidance effective January 1, 2023 using the modified retrospective transaction method, where permitted, for changes in the liability for future policy benefits and deferred policy acquisition costs and related balances, and the retrospective transition method for market risk benefits. The transition date for restatement was January 1, 2021 and amounts previously reported were retroactively restated, including those amounts shown for the three and six months ended June 30, 2022, and as of December 31, 2022.

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables present amounts as previously reported, the effect of adoption of the guidance under ASU 2018-12, and the resulting adjusted amounts reported in interim Condensed Consolidated Financial Statements included herein. The tables include only those line items impacted by restatement.

Restated Lines of Condensed Consolidated Balance Sheet:


	December 31, 2022
	As previously Reported		Effect of Change	As Currently Reported

	(In thousands)

Assets:
Deferred policy acquisition costs	$	909,786	(245,904)	663,882
Deferred sales inducements	114,399		(29,096)	85,303
Value of business acquired	146,494		(7,999)	138,495
Market risk benefits asset	—		48,759	48,759
Deferred federal income tax asset	57,867		(48,835)	9,032
Amounts recoverable from reinsurer, net of allowance for credit losses	1,723,347		(34,559)	1,688,788
Other assets	110,339		352	110,691
Total Assets	13,100,227		(317,282)	12,782,945

Liabilities:
Future policy benefits:
Universal life and annuity contracts	8,498,684		(8,498,684)	—
Traditional life reserves	919,650		(919,650)	—
Liability for policyholder account balances	—		7,661,785	7,661,785
Additional liability for benefits in excess of account balance	—		148,708	148,708
Liability for future policy benefits	—		900,146	900,146
Market risk benefits liability	—		215,777	215,777
Other liabilities	166,557		(9,075)	157,482
Total liabilities	11,093,016		(500,993)	10,592,023

Stockholders' Equity:
Accumulated other comprehensive income (loss)	(416,397)		(61,822)	(478,219)
Retained earnings	2,381,856		245,533	2,627,389
Total stockholders' equity	2,007,211		183,711	2,190,922

Total liabilities and stockholders' equity	13,100,227		(317,282)	12,782,945

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Interim Condensed Consolidated Statements of Earnings:


	Three Months Ended June 30, 2022
	As previously Reported		Effect of Change	As Currently Reported

	(In thousands, except per share amounts)

Premiums and other revenues:
Universal life and annuity contract charges	$	32,692	129	32,821
Traditional life and SPIAWLC premiums	21,647		994	22,641

Total Revenues	117,157		1,123	118,280

Benefits and Expenses:
Life and other policy benefits	35,177		(8,976)	26,201
Market risk benefits expense	—		(55,492)	(55,492)
Amortization of deferred transaction costs	27,756		(5,256)	22,500
Universal life and annuity contract interest	(13,801)		(12,397)	(26,198)
Total benefit and expenses	79,453		(82,120)	(2,667)

Federal income taxes	6,939		17,481	24,420

Net earnings	30,765		65,762	96,527

Basic earnings per share:
Class A (Note 4)	8.70		18.60	27.30
Class B (Note 4)	4.35		9.30	13.65

Diluted earnings per share:
Class A (Note 4)	8.70		18.60	27.30
Class B (Note 4)	4.35		9.30	13.65

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Six Months Ended June 30, 2022
	As previously Reported		Effect of Change	As Currently Reported

	(In thousands, except per share amounts)

Premiums and other revenues:
Universal life and annuity contract charges	$	65,343	275	65,618
Traditional life and SPIAWLC premiums	43,980		4,802	48,782

Total Revenues	251,456		5,077	256,533

Benefits and Expenses:
Life and other policy benefits	77,076		(17,363)	59,713
Market risk benefits expense	—		(116,498)	(116,498)
Amortization of deferred transaction costs	56,772		(10,836)	45,936
Universal life and annuity contract interest	(28,606)		(11,163)	(39,769)
Total benefit and expenses	168,145		(155,860)	12,285

Federal income taxes	16,362		33,797	50,159

Net earnings	66,949		127,140	194,089

Basic earnings per share:
Class A (Note 4)	18.93		35.96	54.89
Class B (Note 4)	9.47		17.97	27.44

Diluted earnings per share:
Class A (Note 4)	18.93		35.96	54.89
Class B (Note 4)	9.47		17.97	27.44

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NATIONAL WESTERN LIFE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Interim Condensed Consolidated Statement of Changes in Stockholders' Equity:

Three Months Ended June 30, 2022

As previously Reported

Effect of Change

As Currently Reported

(In thousands)

Retained Earnings:

Balance at March 31, 2022

2,318,170

161,544