For financial instruments the FASB provides guidance which defines fair value, establishes a framework for measuring fair value under GAAP, and requires additional disclosures about fair value measurements. In compliance with this GAAP guidance, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3"). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Level 1: Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. These generally provide the most reliable evidence and are used to measure fair value whenever available. The Company's Level 1 assets are equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.

Level 2: Fair value is based upon significant inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable for substantially the full term of the asset or liability through corroboration with observable market data as of the reporting date. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, model-derived valuations whose inputs are observable or whose significant value drivers are observable and other observable inputs. The Company’s Level 2 assets include fixed maturity debt securities (corporate and private bonds, government or agency securities, asset-backed and mortgage-backed securities). The Company's Level 2 liabilities include the embedded derivative on reinsurance. Valuations are generally obtained from third party pricing services for identical or comparable assets or determined through use of valuation methodologies using observable market inputs.

Level 3: Fair value is based on significant unobservable inputs which reflect the entity’s or third party pricing service’s assumptions about the assumptions market participants would use in pricing an asset or liability. The Company’s Level 3 assets are debt securities available-for-sale, trading securities, over-the-counter derivative contracts and mortgage loans. The Company’s Level 3 liabilities consist of share-based compensation obligations and certain equity-index product-related embedded derivatives. Valuations are estimated based on non-binding broker prices or internally developed valuation models or methodologies, discounted cash flow models and other similar techniques.


	December 31, 2021
	Total		Level 1	Level 2	Level 3
	(In thousands)

Debt securities, available-for-sale	$	9,068,946	—	8,741,984	326,962
Debt securities, trading	1,077,438		—	1,002,616	74,822
Equity securities	28,217		23,795	4,422	—
Mortgage loans	8,469		—	—	8,469
Derivatives, index options	101,622		—	—	101,622


Total assets	$	10,284,692	23,795	9,749,022	511,875

Policyholder account balances (a)	$	142,761	—	—	142,761
Other liabilities (b)	(76,856)		—	(84,725)	7,869

Total liabilities	$	65,905	—	(84,725)	150,630


	December 31, 2020
	Total		Level 1	Level 2	Level 3
	(In thousands)

Debt securities, available-for-sale	$	10,770,923	—	10,770,923	—
Equity securities	17,744		17,744	—	—
Derivatives, index options	132,821		—	—	132,821


Total assets	$	10,921,488	17,744	10,770,923	132,821

Policyholder account balances (a)	$	161,351	—	—	161,351
Other liabilities (c)	6,202		—	—	6,202

Total liabilities	$	167,553	—	—	167,553


	December 31, 2021
	Assets
	Debt Securities, Available-for-Sale		Trading Securities	Derivatives, Index Options	Mortgage Loans	Total Assets
	(In thousands)

Beginning balance, January 1, 2021	$	—	—	132,821	—	132,821
Total realized and unrealized gains (losses):
Included in net earnings	—		757	120,717	412	121,886
Included in other comprehensive income	876		—	—	—	876
Purchases, sales, issuances and settlements, net:
Purchases	245,456		75,265	47,203	8,103	376,027
Sales	—		—	—	—	—
Issuances	—		—	—	—	—
Settlements	(13,031)		(1,200)	(199,119)	(46)	(213,396)
Transfers into (out of) Level 3	93,661		—	—	—	93,661

Balance at end of period	$	326,962	74,822	101,622	8,469	511,875

Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets/liabilities held at the end of the reporting period:
Net investment income	—		757	54,420	412	55,589
Benefits and expenses	—		—	—	—	—

Total	$	—	757	54,420	412	55,589

December 31, 2021

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

(In thousands)

Assets:

Debt securities, available-for-sale

113,268

Discounted cash flow

Discount rate

2.40% - 6.14% (4.06%)

Derivatives, index options

101,622

Broker prices

Implied volatility

11.76% - 16.54% (14.55%)

Mortgage loans

8,469

Discounted cash flow

Spread

100 - 250 bps

Total assets

223,359

Liabilities:

Policyholder account balances

142,761

Deterministic cash flow model

Projected option cost

0.03% - 14.49% (2.65%)

Share based compensation

7,869

Black-Scholes model

Expected term

1.9 to 10.0 years

Expected volatility

35.05%

Total liabilities

150,630

December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

(In thousands)

Assets:

Derivatives, index options

132,821

Broker prices

Implied volatility

12.96% - 53.69% (20.70%)

Total assets

132,821

Liabilities:

Policyholder account balances

161,351

Deterministic cash flow model

Projected option cost

0.0% - 45.04% (3.27%)

Share based compensation

6,202

Black-Scholes model

Expected term

1.0 to 9.9 years

Expected volatility

33.47%

Total liabilities

167,553

The tables above exclude certain securities for which fair values are obtained and unadjusted from third party vendors. Realized gains (losses) on debt securities are reported in the Consolidated Statements of Earnings as net investment gains (losses) with liabilities reported as expenses. Unrealized gains (losses) on available-for-sale debt securities are reported as Other comprehensive income (loss) within the stockholders’ equity section of the Consolidated Balance Sheets. Unrealized gains (losses) on trading debt securities are reported in the Consolidated Statements of Earnings as Net investment income.

The fair value hierarchy classifications are reviewed each reporting period. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. Reclassifications are reported as transfers into and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. During the fourth quarter of the year ended December 31, 2021, private placement and alternative structured securities included in debt securities available-for-sale were reclassified from Level 2 into Level 3 due to the unobservable inputs now included in their valuation.

GAAP defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. Fair value is based on an exit price, which is 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. The objective of a fair value measurement is to determine that price for each financial instrument at each measurement date. GAAP also establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a variety of factors including the type of instrument and the characteristics of instruments. Financial instruments with readily available active quoted prices or those for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measures.

Fixed maturity securities. Fair values for debt securities are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from various independent pricing services with any adjustments based upon observable data. In the cases where prices are unavailable for these sources, values are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments.

Equity securities. Fair values for equity securities are based upon quoted market prices, where available. For equity securities that are not actively traded, estimated values are based on values of comparable issues or audited financial statements of the issuer.

Cash and cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate their fair values due to the relatively short time between the purchase of the instrument and its expected repayment or maturity.

Mortgage and other loans. The fair values of performing mortgage and other loans are estimated by discounting scheduled cash flows through the scheduled maturities of the loans, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Fair values for significant nonperforming loans are based on recent internal or external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.

Policy Loans. Policy loans with fixed interest rates are classified within Level 3. The estimated fair values for these loans are determined using a discounted cash flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are developed by applying a weighted-average interest rate to the outstanding principal balance of the respective group of policy loans and an estimated average maturity. These cash flows are discounted using current risk-free interest rates with no adjustment for borrower credit risk as these loans are collateralized by the cash surrender value of the underlying insurance policy.

Derivatives. Fair values for index (call) options are based on counterparty market prices. The counterparties use market standard valuation methodologies incorporating market inputs for volatility and risk free interest rates in arriving at a fair value for each option contract. Prices are monitored for reasonableness by the Company using analytical tools. There are no performance obligations related to the call options purchased to hedge the Company’s fixed-index life and annuity policy liabilities. Fair values for embedded derivatives on reinsurance contracts are classified consistently with the underlying assets withheld under coinsurance funds withheld agreements, which were Level 2 fixed maturity securities. Valuations are obtained from third party pricing services for identical or comparable assets or determined through use of valuation methodologies using observable market inputs.

Life interest in Libbie Shearn Moody Trust. The fair value of the life interest asset is determined annually based on assumptions as to future distributions from the Trust over the life expectancy of Robert L. Moody, Sr., Chairman Emeritus of the Board of Directors of NWLGI. These estimated cash flows are discounted at a rate consistent with uncertainties relating to the amount and timing of future cash distributions subject to the maximum amount to be received by the Company from life insurance proceeds in the event of Mr. Moody's death. The carrying value or cost basis of the life interest asset is amortized ratably over the remaining expected life of Mr. Moody, updated for changes in expected mortality.

Annuity and supplemental contracts. Fair values for the Company's insurance contracts other than annuity contracts are not required to be disclosed. This includes the Company's traditional and universal life products. Fair values for immediate annuities without mortality features are based on the discounted future estimated cash flows using current market interest rates for similar maturities. Fair values for deferred annuities, including fixed-index annuities, are determined using estimated projected future cash flows discounted at the rate that would be required to transfer the liability in an orderly transaction. The fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance and annuity contracts.

The Company utilizes independent third-party pricing services to determine the majority of its fair values of investment securities. The independent pricing services provide quoted market prices when available or otherwise incorporate a variety of observable market data in their valuation techniques including reported trading prices, broker-dealer quotes, bids and offers, benchmark securities, benchmark yields, credit ratings, and other reference data. The Company reviews prices received from service providers for unusual fluctuations to ensure that the prices represent a reasonable estimate of fair value but generally accepts the price identified from the primary pricing service.

When quoted market prices in active markets are unavailable, the Company determines fair values using various valuation techniques and models based on a range of observable market inputs including pricing models, quoted market price of publicly traded securities with similar duration and yield, time value, yield curve, prepayment speeds, default rates and discounted cash flow. In most cases, these estimates are determined based on independent third party valuation information, and the amounts are disclosed in Level 2 of the fair value hierarchy. Generally, the Company obtains a single price or quote per instrument from independent third parties to assist in establishing the fair value of these investments.

Fair value measurements for investment securities where there exists limited or no observable data are calculated using the Company’s own estimates based on current interest rates, credit spreads, liquidity premium or discount, the economic and competitive environment, unique characteristics of the security and other pertinent factors. These estimates are derived a number of ways including, but not limited to, pricing provided by brokers where the price indicates reliability as to value, fair values of comparable securities incorporating a spread adjustment (for maturity differences, credit quality, liquidity, and collateralization), discounted cash flow models and margin spreads, bond yield curves, and observable market prices and exchange transaction information not provided by external pricing services. The resulting prices may not be realized in an actual sale or immediate settlement and there may be inherent weaknesses in any calculation technique. In addition, changes in underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.


	December 31, 2021
	Total			Level 1		Level 2		Level 3
	(In thousands)

Debt securities, available-for-sale:
Priced by third-party vendors	$	8,955,678		—		8,741,984		213,694
Priced internally	113,268			—		—		113,268
Subtotal	9,068,946			—		8,741,984		326,962

Debt securities, trading:
Priced by third-party vendors	1,077,438			—		1,002,616		74,822
Priced internally	—			—		—		—
Subtotal	1,077,438			—		1,002,616		74,822

Equity securities:
Priced by third-party vendors	28,217			23,795		4,422		—
Priced internally	—			—		—		—
Subtotal	28,217			23,795		4,422		—

Mortgage loans:
Priced by third-party vendors	—			—		—		—
Priced internally	8,469			—		—		8,469
Subtotal	8,469			—		—		8,469

Derivatives, index options:
Priced by third-party vendors	101,622			—		—		101,622
Priced internally	—			—		—		—
Subtotal	101,622			—		—		101,622






Total	$	10,284,692		23,795		9,749,022		511,875

Percent of total	100.0		%	0.2	%	94.8	%	5.0	%


	December 31, 2021
				Fair Value Hierarchy Level
	Carrying Values		Fair Values	Level 1	Level 2	Level 3
	(In thousands)

ASSETS

Debt securities, available-for-sale	$	9,068,946	9,068,946	—	8,741,984	326,962

Debt securities, trading	1,077,438		1,077,438	—	1,002,616	74,822
Cash and cash equivalents	714,624		714,624	702,632	11,992	—
Mortgage loans	487,304		513,246	—	—	513,246
Real estate	28,606		47,027	—	—	47,027
Policy loans	71,286		110,492	—	—	110,492
Other loans	24,266		25,085	—	—	25,085
Derivatives, index options	101,622		101,622	—	—	101,622
Equity securities	28,217		28,217	23,795	4,422	—
Life interest in Libbie Shearn Moody Trust	8,254		12,775	—	—	12,775
Other investments	4,537		24,876	—	—	24,876

LIABILITIES
Deferred annuity contracts	$	6,463,314	4,703,331	—	—	4,703,331
Immediate annuity and supplemental contracts	422,209		457,787	—	—	457,787


	December 31, 2020
				Fair Value Hierarchy Level
	Carrying Values		Fair Values	Level 1	Level 2	Level 3
	(In thousands)

ASSETS

Debt securities, available-for-sale	$	10,770,923	10,770,923	—	10,770,923	—

Cash and cash equivalents	581,059		581,059	581,059	—	—
Mortgage loans	332,521		348,175	—	—	348,175
Real Estate	33,783		48,577	—	—	48,577
Policy loans	74,083		121,260	—	—	121,260
Other loans	23,396		23,691	—	—	23,691
Derivatives, index options	132,821		132,821	—	—	132,821
Equity Securities	17,744		17,744	17,744	—	—
Life interest in Libbie Shearn Moody Trust	9,083		12,775	—	—	12,775
Other investments	4,513		22,580	—	—	22,580

LIABILITIES
Deferred annuity contracts	$	6,662,730	5,192,663	—	—	5,192,663
Immediate annuity and supplemental contracts	412,526		467,538	—	—	467,538

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.