Re: | National Western Life Group, Inc |
Form 10-K for the year ended December 31, 2016 | |
Filed March 10, 2017 | |
File No. 000-55522 | |
Dear Mr. Rosenberg: | |
The following responses are provided with respect to your comment letter dated April 7, 2017, for the filing noted above. The responses are in the same order as in your letter. | |
1. | It appears from your disclosure in the fourth paragraph of this section that you utilize a retrospective approach in applying the effective interest method for changes in prepayment estimates for your mortgage and asset-backed securities investments. Please tell us why you do not account for at least some portion of changes in prepayment estimates using a prospective approach, given that only 22.8% of all your investments in debt securities are of “high credit quality,” according to your tabular disclosure on page 56. Reference for us the authoritative literature you rely upon to support your accounting. |
Company Response. We acknowledge the above comment regarding the applicability of the prospective approach to these securities. However, the population of mortgage-backed and asset-backed securities in our portfolios that would be subject to the prospective method is fairly immaterial. At December 31, 2016 and 2015, the book value of our mortgage-backed and asset-backed securities approximated $1.40 billion and $1.54 billion, respectively. Of these amounts, 98.8% and 98.1% were rated “AA” or higher. The non-highly rated securities at December 31, 2016, had a book value of $17.1 million, a par value of $18.6 million, and a fair market value of $18.7 million. The aggregate net discount position of these securities was approximately $1.6 million. Since we did not adjust prepayment speeds at any time during the three-year period ended December 31, 2016, in future filings we will add to our disclosure of significant accounting policies in this area a discussion of the prospective approach and its applicability to the Company’s financial statements for the periods being reported upon. | |
2. | With your October 1, 2015 holding company reorganization whereby your insurance operations now appear to be subsidiaries of your current holding company, please tell us why you do not provide the parent-only financial information under Schedule II identified in Rule 7-05 of Regulation S-X. |
Company Response. The ability of National Western Life Insurance Company (insurance company) to transfer loans, advances, or dividends to National Western Life Group, Inc. (registrant) is subject to limitations imposed by the insurance department of the State of Colorado (state of domicile) such that the requirements of providing Schedule II in accordance with Regulation S-X are applicable to our annual filing on Form 10-K. Accordingly, we commit to including Schedule II in our 2017 Form 10-K. Attached to this response is a mock-up of the required Schedule II using data for the three-year period ended December 31, 2016 (note that data for calendar year 2014 does not apply given the registrant’s commencement date of October 1, 2015). We would appreciate any feedback you may have regarding the appropriateness of this format. | |
2016 | 2015 | |||||
ASSETS | ||||||
Investment in subsidiaries | $ | 1,600,126 | 1,600,630 | |||
Cash and cash equivalents | 1,270 | 1,501 | ||||
Federal income tax receivable | 1,176 | 168 | ||||
Deferred Federal income tax asset | 399 | — | ||||
Other assets | 413 | 441 | ||||
Total assets | $ | 1,603,384 | 1,602,740 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Liabilities: | ||||||
Due to subsidiaries | $ | 608 | — | |||
Deferred Federal income tax liability | — | 131 | ||||
Other liabilities | 4,392 | 2,494 | ||||
Total liabilities | 5,000 | 2,625 | ||||
Stockholders' Equity: | ||||||
Common Stock: | ||||||
Class A - $.01 par value in 2016 and 2015; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2016 and 2015 | 34 | 34 | ||||
Class B - $.01 par value in 2016 and 2015; 200,000 shares authorized, issued, and outstanding in 2016 and 2015 | 2 | 2 | ||||
Additional paid-in capital | 1,585,175 | 1,585,175 | ||||
Retained earnings | 13,173 | 14,904 | ||||
Total stockholders’ equity | 1,598,384 | 1,600,115 | ||||
Total liabilities and stockholders' equity | $ | 1,603,384 | 1,602,740 | |||
2016 | 2015 | |||||
Revenues: | ||||||
Dividend income from subsidiaries | $ | 3,000 | 19,054 | |||
Total revenues | 3,000 | 19,054 | ||||
Expenses: | ||||||
Other operating expenses | 4,493 | 2,779 | ||||
Total expenses | 4,493 | 2,779 | ||||
Earnings/(loss) before Federal income taxes | (1,493 | ) | 16,275 | |||
Income taxes/(benefit) | (1,539 | ) | (37 | ) | ||
Earnings/(loss) before equity in earnings of affiliates | (3,032 | ) | 16,238 | |||
Equity in earnings of affiliates | (504 | ) | (135 | ) | ||
Net earnings | $ | (3,536 | ) | 16,103 | ||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net earnings | $ | (458 | ) | 16,177 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Earnings of Subsidiaries | 504 | 135 | |||||
Dividend from subsidiaries for non cash assets | — | (15,554 | ) | ||||
Depreciation and amortization | 30 | 7 | |||||
Change in: | |||||||
Federal income tax, net | (1,008 | ) | (168 | ) | |||
Deferred Federal income tax | (530 | ) | 131 | ||||
Due to/from subsidiaries, net | 608 | — | |||||
Other, net | 1,896 | 2,046 | |||||
Cash flows from operating activities | 1,042 | 2,774 | |||||
Cash flows from financing activities: | |||||||
Dividends on common stock | (1,273 | ) | (1,273 | ) | |||
Cash flows from financing activities | (1,273 | ) | (1,273 | ) | |||
Net increase (decrease) in cash and cash equivalents | (231 | ) | 1,501 | ||||
Cash and cash equivalents at the beginning of period | 1,501 | — | |||||
Cash and cash equivalents at the end of period | $ | 1,270 | $ | 1,501 | |||