10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2007
o        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: 2-17039
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
COLORADO	84-0467208
(State of Incorporation)	(I.R.S. Employer Identification Number)
850 EAST ANDERSON LANE
AUSTIN, TEXAS 78752-1602	(512) 836-1010
(Address of Principal Executive Offices)	(Telephone Number)
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 þ   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o     Accelerated filer  þ     Non-accelerated filer   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No þ
As of November 7, 2007, the number of shares of Registrant's common stock outstanding was:   Class A – 3,422,324 and Class B - 200,000.

TABLE OF CONTENTS
	Page
Part I.  Financial Information:	3
Item 1.  Financial Statements	3
Condensed Consolidated Balance Sheets	3
September 30, 2007 (Unaudited) and December 31, 2006
Condensed Consolidated Statements of Earnings	5
For the Three Months Ended September 30, 2007 and 2006 (Unaudited)
Condensed Consolidated Statements of Earnings	6
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Condensed Consolidated Statements of Comprehensive Income	7
For the Three Months Ended September 30, 2007 and 2006 (Unaudited)
Condensed Consolidated Statements of Comprehensive Income	8
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Condensed Consolidated Statements of Stockholders' Equity	9
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Condensed Consolidated Statements of Cash Flows	10
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)	12
Item 2.  Management's Discussion and Analysis of	24
Financial Condition and Results of Operations
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.  Controls and Procedures	48
Part II.  Other Information:	48
Item 1.   Legal Proceedings	48
Item 1A.  Risk Factors	48
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.   Exhibits	49
Signatures	50

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
	(Unaudited)
	September 30,		December 31,
	2007		2006
ASSETS
Investments:
Securities held to maturity, at amortized cost	$	3,750,933		3,603,434
Securities available for sale, at fair value		1,893,854		1,902,568
Mortgage loans, net of allowances for possible
losses ($3,566 and $2,100)		98,852		103,325
Policy loans		84,377		86,856
Derivatives		51,797		72,012
Other long-term investments		16,965		22,822
Total investments		5,896,778		5,791,017
Cash and short-term investments		41,036		49,901
Deferred policy acquisition costs		653,893		643,964
Deferred sales inducements		101,888		93,139
Accrued investment income		63,469		64,393
Federal income tax receivable		10,922		-
Other assets		47,197		51,029
	$	6,815,183		6,693,443

Note:  The condensed consolidated balance sheet at December 31, 2006, has been derived from the audited consolidated financial statements as of that date.

See accompanying notes to condensed consolidated financial statements.

3

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
	(Unaudited)
	September 30,			December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY	2007			2006
LIABILITIES:
Future policy benefits:
Traditional life and annuity contracts	$	138,720			138,382
Universal life and annuity contracts		5,454,962			5,395,075
Other policyholder liabilities		117,342			112,449
Federal income tax liability:
Current		-			1,666
Deferred		46,366			32,207
Other liabilities		77,727			80,680
Total liabilities		5,835,117			5,760,459
COMMITMENTS AND CONTINGENCIES (Note 5 and 9)
STOCKHOLDERS' EQUITY:
Common stock:
Class A - $1 par value; 7,500,000 shares authorized; 3,422,324 and
3,420,824 issued and outstanding in 2007 and 2006		3,422			3,421
Class B - $1 par value; 200,000 shares authorized, issued,
and outstanding in 2007 and 2006		200			200
Additional paid-in capital		36,236			36,110
Accumulated other comprehensive loss		(9,458	)		(3,731	)
Retained earnings		949,666			896,984
Total stockholders' equity		980,066			932,984
	$	6,815,183			6,693,443

Note:  The condensed consolidated balance sheet at December 31, 2006, has been derived from the audited consolidated financial statements as of that date.

See accompanying notes to condensed consolidated financial statements.

4

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands, except per share amounts)
	2007			2006
Premiums and other revenue:
Traditional life and annuity premiums	$	4,755			3,654
Universal life and annuity contract revenues		30,025			26,923
Net investment income		75,075			96,049
Other income		3,786			3,064
Realized gains (losses) on investments		(1,505	)		190
Total premiums and other revenue		112,136			129,880
Benefits and expenses:
Life and other policy benefits		11,337			9,212
Amortization of deferred acquisition costs		25,238			24,430
Universal life and annuity contract interest		38,219			59,065
Other operating expenses		12,871			12,513
Total benefits and expenses		87,665			105,220
Earnings before Federal income taxes		24,471			24,660
Provision (benefit) for Federal income taxes:
Current		(2,836	)		8,214
Deferred		11,685			374
Total Federal income taxes		8,849			8,588
Net earnings	$	15,622			16,072
Basic Earnings Per Share	$	4.31			4.44
Diluted Earnings Per Share	$	4.28			4.40
See accompanying notes to condensed consolidated financial statements.

5

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands, except per share amounts)
	2007		2006
Premiums and other revenue:
Traditional life and annuity premiums	$	14,074		11,742
Universal life and annuity contract revenues		87,474		79,477
Net investment income		260,033		261,059
Other income		10,461		11,271
Realized gains on investments		2,901		3,229
Total premiums and other revenue		374,943		366,778
Benefits and expenses:
Life and other policy benefits		32,748		28,300
Amortization of deferred acquisition costs		74,660		69,443
Universal life and annuity contract interest		143,037		138,678
Other operating expenses		43,354		51,611
Total benefits and expenses		293,799		288,032
Earnings before Federal income taxes		81,144		78,746
Provision (benefit) for Federal income taxes:
Current		6,551		28,987
Deferred		18,448		(2,585	)
Total Federal income taxes		24,999		26,402
Net earnings	$	56,145		52,344
Basic Earnings Per Share	$	15.50		14.46
Diluted Earnings Per Share	$	15.37		14.32
See accompanying notes to condensed consolidated financial statements.

6

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)
	2007		2006
Net earnings	$	15,622		16,072
Other comprehensive income (loss), net of effects of
deferred policy acquisition costs and taxes:
Net unrealized gains on securities:
Net unrealized holding gains arising during period		4,860		15,866
Reclassification adjustment for (gains) and losses included
in net earnings		16		(42	)
Amortization of net unrealized gains
related to transferred securities		25		6
Net unrealized gains on securities		4,901		15,830
Foreign currency translation adjustments		47		(317	)
Benefit plan adjustment		308		-
Other comprehensive income		5,256		15,513
Comprehensive income	$	20,878		31,585
See accompanying notes to condensed consolidated financial statements.

7

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)
	2007			2006
Net earnings	$	56,145			52,344
Other comprehensive income (loss), net of effects of
deferred policy acquisition costs and taxes:
Net unrealized losses on securities:
Net unrealized holding losses arising during period		(3,745	)		(4,394	)
Reclassification adjustment for gains included in net earnings		(2,848	)		(1,740	)
Amortization of net unrealized gains (losses)
related to transferred securities		79			(90	)
Net unrealized losses on securities		(6,514	)		(6,224	)
Foreign currency translation adjustments		(139	)		(152	)
Benefit plan adjustment		926			-
Other comprehensive loss		(5,727	)		(6,376	)
Comprehensive income	$	50,418			45,968
See accompanying notes to condensed consolidated financial statements.

8

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)
	2007			2006
Common stock:
Balance at beginning of year	$	3,621			3,613
Shares exercised under stock option plan		1			8
Balance at end of period		3,622			3,621
Additional paid-in capital:
Balance at beginning of year		36,110			37,923
Shares exercised under the stock option plan		126			510
Adjustment for stock option liability classification		-			(1,211	)
Balance at end of period		36,236			37,222
Accumulated other comprehensive income:
Unrealized gains (losses) on securities:
Balance at beginning of year		3,148			10,401
Change in unrealized losses during period		(6,514	)		(6,224	)
Balance at end of period		(3,366	)		4,177
Foreign currency translation adjustments:
Balance at beginning of year		3,122			3,300
Change in translation adjustments during period		(139	)		(152	)
Balance at end of period		2,983			3,148
Benefit plan liability adjustment:
Balance at beginning of year		(10,001	)		(3,137	)
Change in benefit plan liability adjustment during period		926			-
Balance at end of period		(9,075	)		(3,137	)
Accumulated other comprehensive loss at end of period		(9,458	)		4,188
Retained earnings:
Balance at beginning of year		896,984			821,908
Cumulative effect of change in accounting principle, net of tax		(2,195	)		-
Net earnings		56,145			52,344
Stockholder dividends		(1,268	)		(1,267	)
Balance at end of period		949,666			872,985
Total stockholders' equity	$	980,066			918,016
See accompanying notes to condensed consolidated financial statements.

9

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)
	2007			2006
Cash flows from operating activities:
Net earnings	$	56,144			52,344
Adjustments to reconcile net earnings to net cash
from operating activities:
Universal life and annuity contract interest		143,037			138,678
Surrender charges and other policy revenues		(26,776	)		(24,226	)
Realized gains on investments		(2,901	)		(3,229	)
Accrual and amortization of investment income		(3,829	)		(3,793	)
Depreciation and amortization		746			1,030
(Increase) decrease in value of derivatives		26,393			(7,901	)
Increase in deferred policy acquisition and sales inducement costs		(9,730	)		(6,479	)
(Increase) decrease in accrued investment income		924			(615	)
(Increase) decrease in other assets		582			(7,126	)
Increase (decrease) in liabilities for future policy benefits		338			(612	)
Increase in other policyholder liabilities		4,893			15,913
Increase (decrease) in Federal income tax liability		6,861			987
Increase (decrease) in other liabilities		(5,924	)		14,941
Other		168			(72	)
Net cash provided by operating activities		190,926			169,840
Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity		5,175			-
Securities available for sale		28,418			21,502
Other investments		33,255			32,951
Proceeds from maturities and redemptions of:
Securities held to maturity		106,023			199,590
Securities available for sale		268,999			86,848
Purchases of:
Securities held to maturity		(256,014	)		(254,994	)
Securities available for sale		(284,742	)		(160,576	)
Other investments		(35,619	)		(33,039	)
Principal payments on mortgage loans		21,623			8,867
Cost of mortgage loans acquired		(18,480	)		(3,999	)
Decrease in policy loans		(2,309	)		(29	)
Other		(2,006	)		(247	)
Net cash used in investing activities		(135,677	)		(103,126	)
	(Continued on next page)

10

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 30, 2007 and 2006
(Unaudited)
(In thousands)
	2007			2006
Cash flows from financing activities:
Deposits to account balances for universal life
and annuity contracts	$	380,708			419,003
Return of account balances on universal life
and annuity contracts		(444,877	)		(393,077	)
Issuance of common stock under stock option plan		127			510
Net cash (used in) provided by financing activities		(64,042	)		26,436
Effect of foreign exchange		(72	)		738
Net increase (decrease) in cash and short-term investments		(8,865	)		93,888
Cash and short-term investments at beginning of year		49,901			31,355
Cash and short-term investments at end of period	$	41,036			125,243
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine month period for:
Interest	$	30			30
Income taxes		19,155			24,990
See accompanying notes to condensed consolidated financial statements.

11

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

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 annual financial statements.  In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2007, and the results of its operations and its cash flows for the three months and nine months ended September 30, 2007 and 2006.  The results of operations for the three months and nine months ended September 30, 2007 and 2006 are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 accessible free of charge through the Company's internet site at www.nationalwesternlife.com or the Securities and Exchange Commission internet site at www.sec.gov.

The accompanying condensed consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly-owned subsidiaries ("Company"), The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., and NWL Financial, Inc.  All significant intercorporate transactions and accounts have been eliminated in consolidation.

Certain reclassifications have been made to the prior periods to conform to the reporting categories used in 2007.

(2)  CHANGES IN ACCOUNTING PRINCIPLES

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1") which is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract.  The Company has an impact related to the adoption of SOP 05-1 for contracts which have annuitized and relative to reinstatements of contracts in that the unamortized deferred acquisition costs and deferred sales inducement assets must be written-off at the time of annuitization and may not be continued related to reinstatements.  SOP 05-1 results in changes in assumptions relative to estimated gross profits which affects unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement balances as of the beginning of the year.  The effect of this SOP on beginning retained earnings as of January 1, 2007 was a decrease of $2.2 million, net of tax, as detailed below.

	Amounts
	(In thousands)
Write-off of deferred acquisition cost	$	3,321
Adjustment to deferred annuity revenue		56
		3,377
Federal income tax		(1,182	)
Cumulative effect of change in accounting for
internal replacements and investment contracts	$	2,195

12

The FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"), dated June, 2006. The interpretation requires public companies to recognize the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. The amount recognized would be the amount that represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability would be recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess. FIN 48 requires a tabular reconciliation of the change in the aggregate unrecognized tax benefits claimed, or expected to be claimed, in tax returns and disclosure relating to accrued interest and penalties for unrecognized tax benefits. Discussion is required for those uncertain tax positions where it is reasonably possible that the estimate of the tax benefit will change significantly in the next 12 months. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Company's consolidated financial statements.

On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivatives and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Hybrid financial instruments are single financial instruments that contain an embedded derivative. Under SFAS No. 155, entities can elect to record certain hybrid financial instruments at fair value as individual financial instruments. Prior to this amendment, certain hybrid financial instruments were required to be separated into two instruments – a derivative and host – and generally only the derivative was recorded at fair value. SFAS No. 155 also requires that beneficial interests in securitized assets be evaluated for either freestanding or embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued after January 1, 2007.  SFAS No. 155 did not have a material effect on the Company's consolidated financial statements on the date of adoption.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1, 2008. The Company is currently assessing the impact of SFAS No. 157 on the Company's consolidated financial position and results of operations.

In February of 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The Company is currently assessing the impact of SFAS No. 159.

(3)  STOCKHOLDERS' EQUITY

The Company is restricted by state insurance laws as to dividend amounts which may be paid to stockholders without prior approval from the Colorado Division of Insurance.  The Company paid no cash dividends on common stock during the nine months ended September 30, 2007 and 2006.  However, the Company declared a cash dividend on August 24, 2007 payable November 29, 2007 to stockholders on record as of October 31, 2007.  The dividends declared were $0.36 per common share to Class A stockholders and $0.18 per common share to Class B stockholders.  The dividend payment was approved by the Colorado Division of Insurance.  A dividend in the same amounts per share on Class A and Class B shares was declared in August and payable in November of 2006.

13

(4)  EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income by the weighted-average basic common shares outstanding during the period.  Diluted earnings per share assumes the issuance of common shares applicable to stock options in the denominator.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
	(In thousands, except per share data)
Numerator for basic and diluted
earnings per share:
Earnings available to common stockholders
before and after assumed conversions	$	15,622		16,072		56,145		52,344
Denominator:
Basic earnings per share -
weighted-average shares		3,622		3,621		3,622		3,620
Effect of dilutive stock options		31		34		31		36
Diluted earnings per share -
adjusted weighted-average
shares for assumed conversions		3,653		3,655		3,653		3,656
Basic earnings per share	$	4.31		4.44		15.50		14.46
Diluted earnings per share	$	4.28		4.40		15.37		14.32

(5)  PENSION AND OTHER POSTRETIREMENT PLANS

(A)  Defined Benefit Pension Plans

The Company sponsors a qualified defined benefit pension plan covering substantially all employees. The Plan provides benefits based on the participants' years of service and compensation. The Company makes annual contributions to the plan that complies with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").  The following summarizes the components of net periodic benefit cost.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands)
Service cost	$	180			175			540			518
Interest cost		272			279			815			766
Expected return on plan assets		(275	)		(255	)		(825	)		(710	)
Amortization of prior service cost		1			1			3			3
Amortization of net loss		80			99			240			264
Net periodic benefit cost	$	258			299			773			841

The Company has contributed $1.8 million to the qualified plan in 2007.  No further contributions are expected in 2007.

14

Effective October 19, 2007, the Company’s Board of Directors approved an amendment to freeze the Plan as of December 31, 2007.  As of that date, the freeze will cease future benefit accruals to all participants and close the Plan to any new participants.  In addition, all participants will become immediately 100% vested in their accrued benefits as of that date.  Using estimated assumptions the cumulative estimated minimum required contribution for the next five years is $2.1 million at which time the Plan is expected to be fully funded.  Future pension expense is projected to be minimal.

The Company also sponsors a non-qualified defined benefit plan primarily for senior officers. The plan provides benefits based on the participants' years of service and compensation.  The pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO"). ANICO has guaranteed the payment of pension obligations under the plan.  However, the Company has a contingent liability with respect to the pension plan should these entities be unable to meet their obligations under the existing agreements.  Also, the Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with the Company beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan.  If any of these conditions are met, the Company would be responsible for any additional pension obligations resulting from these items.  Amendments were made to the plan to allow an additional employee to participate and to change the benefit formula for the Chairman of the Company.  As previously mentioned, these additional obligations are a liability to the Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the Chairman and the President of the Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, the Company established a second non-qualified defined benefit plan for the benefit of the Chairman of the Company.  This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed non-qualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, the Company established a third non-qualified defined benefit plan for the benefit of the President of the Company.  This plan is intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first non-qualified plan as previously discussed, while complying with the requirements of the Act.

The following summarizes the components of net periodic benefit costs for these non-qualified plans.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Service cost	$	194		574		580		1,222
Interest cost		240		385		721		531
Amortization of prior service cost		260		457		780		780
Amortization of net loss		101		137		303		137
Net periodic benefit cost	$	795		1,553		2,384		2,670

The Company expects to contribute $1.4 million to these plans in 2007.  As of September 30, 2007, the Company has contributed $1.0 million to the plan.

15

(B)  Defined Benefit Postretirement Plans

The Company sponsors two healthcare plans to provide postretirement benefits to certain fully-vested individuals.  The following summarizes the components of net periodic benefit costs.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Interest cost	$	36		38		106		88
Amortization of prior service cost		25		26		77		77
Amortization of net loss		7		-		22		-
Net periodic benefit cost	$	68		64		205		165

As previously disclosed in its financial statements for the year ended December 31, 2006, the Company expects to contribute minimal amounts to the plan in 2007.

16

(6)  SEGMENT AND OTHER OPERATING INFORMATION

Under Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures About Segments of an Enterprise and Related Information, the Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. These segments are organized based on product types and geographic marketing areas.  A summary of segment information for the quarters ended September 30, 2007 and 2006 is provided below.

Selected Segment Information.
	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others		Totals
	(In thousands)
September 30, 2007:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	57,063		189,866		508,852		-		755,781
Total segment assets		392,465		769,225		5,513,462		104,786		6,779,938
Future policy benefits		318,171		541,526		4,733,985		-		5,593,682
Other policyholder liabilities		10,915		17,225		89,202		-		117,342
Three Months Ended
September 30, 2007:
Condensed Income Statements:
Premiums and contract
revenues	$	6,875		21,826		6,079		-		34,780
Net investment income		4,774		6,460		62,833		1,008		75,075
Other income		7		19		543		3,217		3,786
Total revenues		11,656		28,305		69,455		4,225		113,641
Life and other policy benefits		3,969		6,353		1,015		-		11,337
Amortization of deferred
policy acquisition costs		2,229		8,045		14,964		-		25,238
Universal life and annuity
contract interest		2,396		6,131		29,692		-		38,219
Other operating expenses		2,877		3,616		3,593		2,785		12,871
Federal income taxes (benefit)		42		1,457		7,314		563		9,376
Total expenses		11,513		25,602		56,578		3,348		97,041
Segment earnings	$	143		2,703		12,877		877		16,600

17

	Domestic			International
	Life			Life				All
	Insurance			Insurance		Annuities		Others		Totals
	(In thousands)
Nine Months Ended
September 30, 2007:
Condensed Income Statements:
Premiums and contract
revenues	$	19,522			64,061		17,965		-		101,548
Net investment income		13,967			21,075		220,263		4,728		260,033
Other income		34			106		909		9,412		10,461
Total revenues		33,523			85,242		239,137		14,140		372,042
Life and other policy benefits		12,727			17,330		2,691		-		32,748
Amortization of deferred
policy acquisition costs		5,041			25,401		44,218		-		74,660
Universal life and annuity
contract interest		7,028			19,227		116,782		-		143,037
Other operating expenses		9,084			12,388		13,673		8,209		43,354
Federal income taxes (benefit)		(109	)		3,340		18,936		1,817		23,984
Total expenses		33,771			77,686		196,300		10,026		317,783
Segment earnings (losses)	$	(248	)		7,556		42,837		4,114		54,259

18

Selected Segment Information.
	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others		Totals
	(In thousands)
September 30, 2006:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	49,041		177,482		499,212		-		725,735
Total segment assets		377,777		691,455		5,414,024		98,269		6,581,525
Future policy benefits		312,671		479,838		4,671,975		-		5,464,484
Other policyholder liabilities		9,702		21,680		85,089		-		116,471
Three Months Ended
September 30, 2006:
Condensed Income Statements:
Premiums and contract
revenues	$	5,932		19,364		5,281		-		30,577
Net investment income		4,545		6,771		83,900		833		96,049
Other income		10		21		106		2,927		3,064
Total revenues		10,487		26,156		89,287		3,760		129,690
Life and other policy benefits		3,505		4,984		723		-		9,212
Amortization of deferred
policy acquisition costs		1,496		6,951		15,983		-		24,430
Universal life and annuity
contract interest		2,293		7,185		49,587		-		59,065
Other operating expenses		2,533		3,131		4,027		2,822		12,513
Federal income taxes		212		1,376		6,598		336		8,522
Total expenses		10,039		23,627		76,918		3,158		113,742
Segment earnings	$	448		2,529		12,369		602		15,948

19

	Domestic			International
	Life			Life				All
	Insurance			Insurance		Annuities		Others		Totals
	(In thousands)
Nine Months Ended
September 30, 2006:
Condensed Income Statements:
Premiums and contract
revenues	$	17,465			57,448		16,306		-		91,219
Net investment income		14,761			18,958		223,307		4,033		261,059
Other income		25			66		2,968		8,212		11,271
Total revenues		32,251			76,472		242,581		12,245		363,549
Life and other policy benefits		11,536			14,204		2,560		-		28,300
Amortization of deferred
policy acquisition costs		4,868			16,462		48,113		-		69,443
Universal life and annuity
contract interest		6,836			16,399		115,443		-		138,678
Other operating expenses		9,995			14,956		18,987		7,673		51,611
Federal income taxes (benefit)		(328	)		4,836		19,235		1,529		25,272
Total expenses		32,907			66,857		204,338		9,202		313,304
Segment earnings (losses)	$	(656	)		9,615		38,243		3,043		50,245

Reconciliations of segment information to the Company's condensed consolidated financial statements are provided below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Premiums and Other Revenue:
Premiums and contract revenues	$	34,780			30,577		101,548		91,219
Net investment income		75,075			96,049		260,033		261,059
Other income		3,786			3,064		10,461		11,271
Realized gains (losses) on investments		(1,505	)		190		2,901		3,229
Total consolidated premiums and
other revenue	$	112,136			129,880		374,943		366,778

20

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Federal Income Taxes:
Total segment Federal income taxes	$	9,376			8,522		23,984		25,272
Taxes on realized gains (losses)
on investments		(527	)		66		1,015		1,130
Total consolidated Federal
income taxes	$	8,849			8,588		24,999		26,402

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Net Earnings:
Total segment earnings	$	16,600			15,948		54,259		50,245
Realized gains (losses) on
investments, net of taxes		(978	)		124		1,886		2,099
Total consolidated net earnings	$	15,622			16,072		56,145		52,344

	September 30,
	2007		2006
	(In thousands)
Assets:
Total segment assets	$	6,779,938		6,581,525
Other unallocated assets		35,245		20,156
Total consolidated assets	$	6,815,183		6,601,681

(7)  SHARE-BASED PAYMENTS

The Company has a stock and incentive plan ("Plan") which provides for the grant of any or all of the following types of awards to eligible employees:  (1) stock options, including incentive stock options and nonqualified stock options;  (2)  stock appreciation rights, in tandem with stock options or freestanding;  (3)  restricted stock; (4)  incentive awards; and (5)  performance awards.  The Plan began on April 21, 1995, and was to terminate on April 20, 2005, unless terminated earlier by the Board of Directors.  The Plan was amended on June 25, 2004 to extend the termination date to April 20, 2010.  The number of shares of Class A, $1.00 par value, common stock which may be issued under the Plan, or as to which stock appreciation rights or other awards may be granted, may not exceed 300,000.  These shares may be authorized and unissued shares.  The Company has only issued nonqualified stock options.

All of the employees of the Company and its subsidiaries are eligible to participate in the Plan.  In addition, directors of the Company, other than Compensation and Stock Option Committee members, are eligible for restricted stock awards, incentive awards, and performance awards.  Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options. The directors' stock options vest 20% annually following one full year of service to the Company from the date of grant.  The officers' stock options vest 20% annually following three full years of service to the Company from the date of grant.  Options issued expire after ten years.  No awards were issued in 2007 or 2006.

21

Through December 31, 2005, the Company classified the Plan as equity, and as such, utilized the grant date fair value method to measure compensation.  Effective March 10, 2006, as more fully described below, the Company's Plan classification was changed to liability and accordingly, the Company began using the current fair value method to measure compensation cost.  A summary of shares available for grant and stock option activity is detailed below.

			Options Outstanding
						Weighted-
	Shares					Average
	Available					Exercise
	For Grant		Shares			Price
Balance at January 1, 2007		26,477		128,465		$	123.00
Stock Options:
Exercised		-		(31,690	)		106.08
Forfeited		1,110		(1,110	)		131.23
Expired		81		(81	)		85.13
Balance at September 30, 2007		27,668		95,584		$	128.54

The total intrinsic value of options exercised was $4.6 million and $3.2 million for the nine months ended September 30, 2007 and 2006, respectively.  The total share-based liabilities paid were $4.3 million for the nine months ended September 30, 2007.  The total fair value of shares vested during the nine months ended September 30, 2007 and 2006 was $3.2 million and $2.6 million, respectively.

The following table summarizes information about stock options outstanding at September 30, 2007.

		Options Outstanding
			Weighted-
			Average
		Number	Remaining		Options
		Outstanding	Contractual Life		Exercisable
Exercise prices:
$  105.25		7,130	1.0 years		7,130
112.38		4,800	1.2 years		4,800
92.13		20,154	4.1 years		13,286
95.00		7,000	4.2 years		7,000
150.00		56,500	7.1 years		13,100
Totals		95,584			45,316
Aggregate intrinsic value
(in thousands)	$	12,179		$	6,455

The aggregate intrinsic value in the table above is based on the closing stock price of $255.96 per share on September 30, 2007.

22

In estimating the fair value of the options outstanding at September 30, 2007, the Company employed the Black-Scholes option pricing model with assumptions as detailed below.

	2007		2006
Expected term of options	2 to 6 years		2 to 6 years
Expected volatility:
Range	16.21% to 23.19%		15.31% to 24.73%
Weighted-average		19.55%		19.73%
Expected dividends	$	0.36		-
Risk-free rate:
Range	3.95% to 4.35%		4.49% to 4.85%
Weighted-average		4.12%		4.61%

The Company reviewed the contractual term relative to the options as well as perceived future behavior patterns of exercise.  Volatility is based on historical volatility over the expected term.

The pre-tax compensation cost recognized in the financial statements related to the Plan was $2.6 million and $12.7 million for the nine months ended September 30, 2007 and 2006, respectively.  The related tax benefit recognized was $0.9 million and $4.4 million for the nine months ended September 30, 2007 and 2006, respectively.

Effective March 10, 2006, the Company adopted and implemented a limited stock buy-back program which provides option holders the additional alternative of selling shares acquired through the exercise of options directly back to the Company.  Option holders may elect to sell such acquired shares back to the Company at any time within ninety (90) days after the exercise of options at the prevailing market price as of the date of notice of election. The buy-back program did not alter the terms and conditions of the Plan, however the program necessitated a change in accounting from the equity classification to the liability classification.  The modification affected 35 plan participants who had options outstanding on the date of modification and resulted in $11.7 million of total incremental pre-tax compensation cost due to the change from the equity to liability classification.

As of September 30, 2007, the total compensation cost related to nonvested options not yet recognized was $2.1 million.  This amount is expected to be recognized over a weighted-average period of 1.2 years.  The Company recognizes compensation cost over the graded vesting periods.

For the nine months ended September 30, 2007 and 2006, the total cash received from the exercise of options under the Plan was $0.1 million and $0.5 million, respectively.

(8)  FEDERAL INCOME TAXES

During the second quarter of 2007, upon the completion of a detailed review of the deferred tax items, the Company identified a $2.3 million error in the net deferred tax liability. The error, which occurred during various periods prior to 2005, was corrected in the second quarter of 2007 and resulted in a decrease in the net deferred tax liability and deferred tax expense.  The adjustment was not material to the current period or any prior period financial statements.

(9)  LEGAL PROCEEDINGS

In the course of an audit of a charitable tax-exempt foundation, the Internal Revenue Service (“IRS”) raised an issue under the special provisions of the Internal Revenue Code (“IRC”) governing tax-exempt private foundations as to certain interest-bearing loans from the Company to another corporation in which the tax-exempt foundation owns stock. The issue was whether such transactions constitute indirect self-dealing by the foundation, the result of which would be excise taxes on the Company by virtue of its participation in such transactions. By letter to the Company dated August 21, 2003, the IRS proposed an initial excise tax liability in the total amount approximating one million dollars as a result of such transactions. The Company disagreed with the IRS analysis. The Company contested and requested that this issue instead be referred to the IRS National Office for technical advice. The IRS audit team agreed and the matter was referred in November of 2003 to the IRS National Office. Such technical advice was subsequently issued by the IRS National Office in the form of a memorandum analyzing the issue which concluded that such loans do not constitute indirect self-dealing.  This technical advice memorandum is binding on the IRS audit team.

23

The Company is a defendant in three class action lawsuits.  The Court has certified a class consisting of certain California policyholders age 65 and older alleging violations under California Business and Professions Code section 17200.  The court has additionally certified a subclass of 36 policyholders alleging fraud against their agent, and vicariously, against NWL.  Management believes that the Company has good and meritorious defenses and intends to continue to vigorously defend itself against these claims.

The Company is involved or may become involved in various other legal actions, in the normal course of business, in which claims for alleged economic and punitive damages have been or may be asserted, some for substantial amounts. Although there can be no assurances, at the present time, the Company does not anticipate that the ultimate liability arising from potential, pending, or threatened legal actions, will have a material adverse effect on the financial condition or operating results of the Company.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.  Certain information contained herein or in other written or oral statements made by or on behalf of National Western Life Insurance Company or its subsidiaries is or may be viewed as forward-looking.  Although the Company has used appropriate care in developing any such information, forward-looking information involves risks and uncertainties that could significantly impact actual results.  These risks and uncertainties include, but are not limited to, matters described in the Company's filings with the Securities and Exchange Commission ("SEC") such as exposure to market risks, anticipated cash flows or operating performance, future capital needs, and statutory or regulatory related issues.  However National Western, as a matter of policy, does not make any specific projections as to future earnings, nor does it endorse any projections regarding future performance that may be made by others.  Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments.  Also, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise.

OVERVIEW

Insurance Operations - Domestic

The Company is currently licensed to do business in all states except for New York.  Products marketed are annuities, universal life insurance, fixed indexed annuities and indexed universal life, and traditional life insurance, which include both term and whole life products.  The Company’s domestic sales have historically been more heavily weighted toward annuity products, which include single and flexible premium deferred annuities, single premium immediate annuities, and fixed indexed annuities.  Most of these annuities can be sold as tax qualified or nonqualified products.  At September 30, 2007, the Company maintained approximately 121,300 annuity policies in force.

National Western markets and distributes its domestic products primarily through independent national marketing organizations ("NMOs"). These NMOs assist the Company in recruiting, contracting, and managing independent agents. The Company currently has approximately 5,800 independent agents contracted.  Roughly 26% of these contracted agents have submitted policy applications to the Company in the past twelve months.

Insurance Operations - International

The Company's international operations focus on foreign nationals in upper socioeconomic classes.  Insurance products are issued primarily to residents of countries in Central and South America, the Caribbean, Eastern Europe, Asia and the Pacific Rim. Issuing policies to residents of countries in these different regions provides diversification that helps to minimize large fluctuations that could arise due to various economic, political, and competitive pressures that may occur from one country to another.  Products issued to international residents are almost entirely universal life and traditional life insurance products.  However, certain annuity and investment contracts are also available. At September 30, 2007, the Company had approximately 71,000 international life insurance policies in force representing approximately $14.2 billion in face amount of coverage.

24

International applications are submitted by independent contractor consultants and broker-agents. The Company has approximately 4,900 independent international consultants and brokers currently contracted, 44% of which have submitted policy applications to the Company in the past twelve months.

There are some inherent risks of accepting international applications which are not present within the domestic market that are reduced substantially by the Company in several ways.  As previously described, the Company accepts applications from foreign nationals in upper socioeconomic classes who have substantial financial resources.  This targeted customer base coupled with the Company's conservative underwriting practices have historically resulted in claims experience, due to natural causes, similar to that in the United States.  The Company minimizes exposure to foreign currency risks by requiring payment of premiums, claims and other benefits almost entirely in United States dollars.  Finally, the Company's forty years of experience with the international products and its longstanding independent consultant and broker-agents relationships further serve to minimize risks.

SALES

Life Insurance

The following table sets forth information regarding the Company's life insurance sales activity as measured by annualized first year premiums. While the figures shown below are in accordance with industry practice and represent the amount of new business sold during the periods indicated, they are considered a non-GAAP financial measure. The Company believes sales are a measure of distribution productivity and are a leading indicator of future revenue trends. However, revenues are driven by sales in prior periods as well as in the current period and therefore, a reconciliation of sales to revenues is not meaningful or determinable.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
International:
Universal life	$	2,544		1,858		6,695		5,329
Traditional life		1,454		969		4,946		3,105
Fixed indexed life		6,397		4,673		16,176		12,875
		10,395		7,500		27,817		21,309
Domestic:
Universal life		1,826		2,074		3,158		3,231
Traditional life		66		109		194		259
Fixed indexed life		1,962		1,233		4,817		2,659
		3,854		3,416		8,169		6,149
Totals	$	14,249		10,916		35,986		27,458

Life insurance sales as measured by annualized first year premiums increased 31% in the third quarter of 2007 as compared to the third quarter of 2006 and also increased 31% for the first nine months of 2007 versus 2006. Both of the Company's life lines of business, international and domestic, posted increases over the comparable results in the third quarter of 2007 with international sales up 39% and domestic sales 13% greater.

25

Company management has placed considerable emphasis on building domestic life insurance sales as a strategic focus and in response to comments from outside rating agencies reviewing the Company. Domestic operations have generally focused more heavily on annuity sales than on life insurance sales. The Company spent the greater part of 2003 and 2004 revamping its domestic life operations by changing the way it contracts distribution for life business, eliminating products and distribution that have not contributed significantly to earnings, and creating new and competitive products. A single premium universal life ("SPUL") product was launched at the end of 2003 beginning a diversification of the Company's product portfolio away from smaller dollar face amount policies. The Company released its first fixed equity-indexed universal life ("EIUL") product for its domestic markets at the end of the third quarter of 2005 and began receiving applications. This product accounted for 59% of domestic life insurance sales in the first nine months of 2007 and management anticipates this share to continue throughout the remainder of the year. With the introduction of the EIUL and SPUL products and the discontinued marketing of smaller premium and volume life insurance policies, the Company has seen an increase in the average amount of per policy coverage purchased in its domestic markets as shown in the following table:

	Average New Policy Face Amount
	Domestic		International
Year ended December 31, 2003	$	76,100		219,600
Year ended December 31, 2004		101,700		234,500
Year ended December 31, 2005		137,900		245,900
Year ended December 31, 2006		315,800		254,700
Nine months ended September 30, 2007		388,000		247,000

The Company's international life business consists of applications submitted from residents in various regions outside of the United States, the volume of which typically varies based upon changes in the socioeconomic climates of these regions. Historically, the Company has experienced a simultaneous combination of rising and declining sales in various countries; however, the appeal of the Company's dollar-denominated life insurance products overcomes many of the local and national difficulties. Applications submitted from residents of Latin America and the Pacific Rim perennially have comprised the majority of the Company's international life insurance sales. Over the past few years, effort has been directed toward the sale of a traditional endowment form of life insurance product for residents of Eastern European and the Commonwealth of Independent States (former Soviet Union). More recently, the Company's universal life product offerings have been made available to residents of these countries. While business is still in a formative phase, sales from these countries have gradually become a larger percentage of overall international sales as shown below.

	Nine Months Ended September 30,
	2007			2006
Percentage of International Sales:
Latin America		68.7	%		75.2	%
Pacific Rim		13.7			11.7
Eastern Europe		17.6			13.1
Totals		100.0	%		100.0	%

Year-to-date, the Company has recorded sales to residents outside of the United States in over thirty different countries with Brazil (33%), Taiwan (13%), and Kazakhstan (9%) making up the largest markets.

26

The table below sets forth information regarding the Company's life insurance in force for each date presented.

	Insurance In Force as of September 30,
	2007		2006
	($ in thousands)
Universal life:
Number of policies		74,120		77,160
Face amounts	$	8,020,940		8,034,930
Traditional life:
Number of policies		52,180		53,440
Face amounts	$	1,802,340		1,752,000
Fixed-indexed life:
Number of policies		22,880		18,700
Face amounts	$	5,161,250		3,937,350
Rider face amounts	$	1,946,640		1,695,190
Total life insurance:
Number of policies		149,180		149,300
Face amounts	$	16,931,170		15,419,470

Annuities

The following table sets forth information regarding the Company's annuity sales activity as measured by single and annualized first year premiums. Similar to life insurance sales, these figures are considered a non-GAAP financial measure but are shown in accordance with industry practice and depict the Company's sales productivity.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Fixed indexed annuities	$	90,895		85,997		245,163		224,763
Other deferred annuities		22,680		36,650		80,569		130,625
Immediate annuities		782		2,160		3,274		9,910
Totals	$	114,357		124,807		329,006		365,298

Annuity sales for the third quarter of 2007 were 8% lower than the comparable period in 2006 and were 10% lower of the first nine months of the year, continuing a trend that began in the first quarter of 2004. Annuity sales in the first quarter of 2004 represented the tail end of the increase in fixed annuity sales that began in 2003 when the Company achieved nearly $1.2 billion in sales. Annuity sales began trending lower due to a combination of declining interest rates, investors returning to alternative investment vehicles and the Company managing its targeted levels of risk and statutory capital and surplus. During the past several years interest rate levels have experienced an infrequent occurrence in which the yield curve is inverted, that is, longer term interest rate levels were below shorter term interest rate levels. In such an environment, consumers opt for short term investment vehicles such as bank certificates of deposits rather than longer term choices which include fixed rate annuities.

The Company's mix of annuity sales has shifted the past few years. With a stronger performance in the equity market, sales of fixed indexed annuity products became more prevalent beginning in 2004 and have continued thus far in 2007. Over the past several years sales of fixed indexed products have consistently accounted for more than one-half of all annuity sales and were 75% during the first nine months of 2007. For all fixed indexed products, the Company purchases over the counter options to hedge the equity return feature. The options are purchased relative to the issuance of the annuity contracts in such a manner to minimize timing risk. Generally, the index return during the indexing period (if the underlying index increases), becomes a component in a formula (set forth in the annuity), the result of which is credited as interest to contract holders electing the index formula crediting method at the beginning of the indexing period. The formula result can never be less than zero. The Company does not deliberately mismatch or under hedge for the equity feature of these products.

27

The sizable increase in annuity sales volume the past several years has required a greater level of asset/liability analysis. The Company monitors its asset/liability matching within the self-constraints of desired capital levels and risk tolerance. Despite the amounts of new business, the company's capital level remains substantially above industry averages and regulator targets.

The following table sets forth information regarding annuities in force for each date presented.

	Annuities in Force as of September 30,
	2007		2006
	($ in thousand)
Fixed indexed annuities
Number of policies		32,000		29,690
GAAP annuity reserves	$	1,937,730		1,730,620
Other deferred annuities
Number of policies		75,970		81,260
GAAP annuity reserves	$	2,540,270		2,690,100
Immediate annuities
Number of policies		13,320		12,850
GAAP annuity reserves	$	253,050		248,270
Total annuities
Number of policies		121,290		123,800
GAAP annuity reserves	$	4,731,050		4,668,990

Critical Accounting Estimates

Accounting policies discussed below are those considered critical to an understanding of the Company's financial statements.

Impairment of Investment Securities. The Company's accounting policy requires that a decline in the value of a security below its amortized cost basis be evaluated to determine if the decline is other-than-temporary.  The primary factors considered in evaluating whether a decline in value for fixed income and equity securities is other-than-temporary include: (a) the length of time and the extent to which the fair value has been less than cost, (b) the financial conditions and near-term prospects of the issuer, (c) whether the debtor is current on contractually obligated principal and interest payments, and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery.  In addition, certain securitized financial assets with contractual cash flows are evaluated periodically by the Company to update the estimated cash flows over the life of the security.  If the Company determines that the fair value of the securitized financial asset is less than its carrying amount and there has been a decrease in the present value of the estimated cash flows since the previous estimate, then an other-than-temporary impairment charge is recognized.  When a security is deemed to be impaired a charge is recorded as net realized losses equal to the difference between the fair value and amortized cost basis of the security.  Once an impairment charge has been recorded, the fair value of the impaired investment becomes its new cost basis and the Company continues to review the other-than-temporarily impaired security for appropriate valuation on an ongoing basis.  Under U.S. generally accepted accounting principles, the Company is not permitted to increase the basis of impaired securities for subsequent recoveries in value.

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Deferred Policy Acquisition Costs ("DAC").  The Company is required to defer certain policy acquisition costs and amortize them over future periods.  These costs include commissions and certain other expenses that vary with and are primarily associated with acquiring new business.  The deferred costs are recorded as an asset commonly referred to as deferred policy acquisition costs. The DAC asset balance is subsequently charged to income over the lives of the underlying contracts in relation to the anticipated emergence of revenue or profits.  Actual revenue or profits can vary from Company estimates resulting in increases or decreases in the rate of amortization.  The Company regularly evaluates to determine if actual experience or other evidence suggests that earlier estimates should be revised. Assumptions considered significant include surrender and lapse rates, mortality, expense levels, investment performance, and estimated interest spread.  Should actual experience dictate that the Company change its assumptions regarding the emergence of future revenues or profits (commonly referred to as "unlocking"), the Company would record a charge or credit to bring its DAC balance to the level it would have been if using the new assumptions from the inception date of each policy.

DAC is also subject to periodic recoverability and loss recognition testing.  These tests ensure that the present value of future contract-related cash flows will support the capitalized DAC balance to be amortized in the future.  The present value of these cash flows, less the benefit reserve, is compared with the unamortized DAC balance and if the DAC balance is greater, the deficiency is charged to expense as a component of amortization and the asset balance is reduced to the recoverable amount.

Deferred Sales Inducements.  Costs related to sales inducements offered on sales to new customers, principally on investment type contracts and primarily in the form of additional credits to the customer's account value or enhancements to interest credited for a specified period, which are beyond amounts currently being credited to existing contracts, are deferred and recorded as other assets.  All other sales inducements are expensed as incurred and included in interest credited to contract holders' funds.  Deferred sales inducements are amortized to income using the same methodology and assumptions as DAC, and are included in interest credited to contract holders' funds.  Deferred sales inducements are periodically reviewed for recoverability.

Future Policy Benefits.  Because of the long-term nature of insurance contracts, the Company is liable for policy benefit payments many years into the future.  The liability for future policy benefits represents estimates of the present value of the Company's expected benefit payments, net of the related present value of future net premium collections.  For traditional life insurance contracts, this is determined by standard actuarial procedures, using assumptions as to mortality (life expectancy), morbidity (health expectancy), persistency, and interest rates, which are based on the Company's experience with similar products.  The assumptions used are those considered to be appropriate at the time the policies are issued.  An additional provision is made on most products to allow for possible adverse deviation from the assumptions used.  For universal life and annuity products, the Company's liability is the amount of the contract's account balance.  Account balances are also subject to minimum liability calculations as a result of minimum guaranteed interest rates in the policies. While management and Company actuaries have used their best judgment in determining the assumptions and in calculating the liability for future policy benefits, there is no assurance that the estimate of the liabilities reflected in the financial statements represents the Company's ultimate obligation. In addition, significantly different assumptions could result in materially different reported amounts.

Revenue Recognition.  Premium income for the Company's traditional life insurance contracts is generally recognized as the premium becomes due from policyholders.  For annuity and universal life contracts, the amounts collected from policyholders are considered deposits and are not included in revenue. For these contracts, fee income consists of policy charges for policy administration, cost of insurance charges and surrender charges assessed against policyholders' account balances which are recognized in the period the services are provided.

Investment activities of the Company are integral to its insurance operations. Since life insurance benefits may not be paid until many years into the future, the accumulation of cash flows from premium receipts are invested with income reported as revenue when earned. Anticipated yields on investments are reflected in premium rates, contract liabilities, and other product contract features.  These anticipated yields are implied in the interest required on the Company's net insurance liabilities (future policy benefits less deferred acquisition costs) and contractual interest obligations in its insurance and annuity products.  The Company benefits to the extent actual net investment income exceeds the required interest on net insurance liabilities and manages the rates it credits on its products to maintain the targeted excess or "spread" of investment earnings over interest credited. The Company will continue to be required to provide for future contractual obligations in the event of a decline in investment yield. For more information concerning revenue recognition, investment accounting, and interest sensitivity, please refer to Note 1, Summary of Significant Accounting Policies, and Note 3, Investments, in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, and the discussions under Investments in Item 3 of this report.

29

Pension Plans and Other Postretirement Benefits.  The Company sponsors a qualified defined benefit pension plan covering substantially all employees and three nonqualified defined benefit plans covering certain senior officers.  In addition, the Company also has postretirement healthcare benefits for certain senior officers.  In accordance with prescribed accounting standards, the Company annually reviews plan assumptions.

The Company annually reviews its pension benefit plan assumptions which include the discount rate, the expected long-term rate of return on plan assets, and the compensation increase rate.  The assumed discount rate is set based on the rates of return on high quality long-term fixed income investments currently available and expected to be available during the period to maturity of the pension benefits.  The assumed long-term rate of return on plan assets is generally set at the rate expected to be earned based on long-term investment policy of the plans and the various classes of the invested funds, based on the input of the plan's investment advisors and consulting actuary and the plan's historic rate of return.  The compensation rate increase assumption is generally set at a rate consistent with current and expected long-term compensation and salary policy, including inflation.  These assumptions involve uncertainties and judgment and therefore actual performance may not be reflective of the assumptions.

Other postretirement benefit assumptions include future events affecting retirement age, mortality, dependency status, per capita claims costs by age, healthcare trend rates, and discount rates.  Per capita claims cost by age is the current cost of providing postretirement healthcare benefits for one year at each age from the youngest age to the oldest age at which plan participants are expected to receive benefits under the plan.  Healthcare trend rates involve assumptions about the annual rate(s) of change in the cost of healthcare benefits currently provided by the plan, due to factors other than changes in the composition of the plan population by age and dependency status.  These rates implicitly consider estimates of healthcare inflation, changes in utilization, technological advances and changes in health status of the participants.  These assumptions involve uncertainties and judgment, and therefore actual performance may not be reflective of the assumptions.

Other significant accounting policies, although not involving the same level of measurement uncertainties as those discussed above but nonetheless important to an understanding of the financial statements, are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

RESULTS OF OPERATIONS

The Company's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In addition, the Company regularly evaluates operating performance using non-GAAP financial measures which exclude or segregate derivatives and realized investment gains and losses from operating revenues and earnings. Similar measures are commonly used in the insurance industry in order to assess profitability and results from ongoing operations. The Company believes that the presentation of these non-GAAP financial measures enhances the understanding of the Company's results of operations by highlighting the results from ongoing operations and the underlying profitability factors of the Company's business. The Company excludes or segregates derivatives and realized investment gains and losses because such items are often the result of events which may or may not be at the Company's discretion and the fluctuating effects of these items could distort trends in the underlying profitability of the Company's business. Therefore, in the following sections discussing consolidated operations and segment operations appropriate reconciliations have been included to report information management considers useful in enhancing an understanding of the Company's operations to reportable GAAP balances reflected in the consolidated financial statements.

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Consolidated Operations

Revenues.  The following details Company revenues.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Traditional life and annuity premiums	$	4,755			3,654		14,074		11,742
Universal life and annuity
contract revenues		30,025			26,923		87,474		79,477
Net investment income
(excluding derivatives)		82,821			80,217		249,095		247,379
Other income		3,786			3,064		10,461		11,271
Operating revenues		121,387			113,858		361,104		349,869
Derivative income (loss)		(7,746	)		15,832		10,938		13,680
Realized gains (losses) on investments		(1,505	)		190		2,901		3,229
Total revenues	$	112,136			129,880		374,943		366,778

Traditional life and annuity premiums - Traditional life and annuity premiums increased 30.1% and 19.9% for the three and nine months ended September 30, 2007 compared to the same period in 2006.  Increasing life sales has been a strategic focus over the past several years.  Traditional life insurance premiums for products such as whole life and term life are recognized as revenues over the premium-paying period.

Universal life and annuity contract revenues - Revenues for universal life and annuity contract revenues increased 11.5% for the three months ended September 30, 2007 and 10.1% for the first nine months of the current year compared to 2006 and consist of policy charges for the cost of insurance, administration charges, and surrender charges assessed against policyholder account balances.  Revenues in the form of cost of insurance charges were $18.7 million and $54.8 million for the three and nine months of 2007 compared to $17.1 million and $50.2 million for the three and nine months ended September 30, 2006.  Surrender charges assessed against policyholder account balances upon withdrawal increased to $8.4 million and $24.3 million for the three and nine months of 2007 versus $7.2 million and $21.9 million for the three and nine months ended September 30, 2006.

Net investment income - A detail of net investment income is provided below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Gross investment income:
Debt securities	$	77,843			76,037		231,418		229,151
Mortgage loans		2,206			1,837		6,540		6,513
Policy loans		1,582			1,564		4,698		4,711
Short-term investments		1,622			882		5,284		1,493
Other invested assets		556			660		3,565		7,770
Total investment income		83,809			80,980		251,505		249,638
Investment expenses		988			763		2,410		2,259
Net investment income
(excluding derivatives)		82,821			80,217		249,095		247,379
Derivative income (loss)		(7,746	)		15,832		10,938		13,680
Net investment income	$	75,075			96,049		260,033		261,059

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Short-term investments contributed $1.6 million and $5.3 million to income for the three months and nine months ended September 30, 2007 compared to $0.9 million and $1.5 million for the same period in 2006.  This increase in 2007 is attributable to higher asset holdings in these investments compared to 2006.  Income from other invested assets for the nine months ended September 30, 2006 includes a profit participation interest of $1.6 million and residual profits of $1.1 million from the sale of equity loans contributing to higher income year to date.  Derivative gains and losses are recorded as a component of investment income but may fluctuate substantially from period to period based on the performance of the S&P 500^® Composite Stock Price Index ("S&P 500 Index^®").  See the discussion that follows this section relating to index options and derivatives.

To ensure the Company will be able to pay future commitments to policyholders and provide a financial return, the funds received as premium payments and deposits are invested in high quality investments, primarily debt securities.  The income from these investments is closely monitored by the Company due to its significant impact on the business.

Net investment income performance is summarized as follows:

	Nine Months Ended September 30,
	2007			2006
	(In thousands)
Excluding derivatives:
Net investment income	$	249,095			247,379
Average invested assets, at amortized cost	$	5,715,069			5,430,366
Annual yield on average invested assets		5.81	%		6.07	%
Including derivatives:
Net investment income	$	260,033			261,059
Average invested assets, at amortized cost	$	5,769,681			5,462,464
Annual yield on average invested assets		6.01	%		6.37	%

The higher yield in 2006 compared to 2007 is due to the additional income recognized from the other invested assets of $2.7 million as previously described.  Net investment income performance is analyzed excluding the derivative income which is a common practice in the insurance industry in order to assess underlying profitability and results from ongoing operations.

Other income - Other income primarily pertains to the Company's operations involving a nursing home.  Revenues associated with this operation were $9.4 million and $8.2 million for the nine months ended September 30, 2007 and 2006, respectively.  In addition, included in other income for the nine months ended September 30, 2006 is $2.6 million resulting from lawsuit settlements.

Derivative income (loss) - Index options are derivative financial instruments used to fully hedge the equity return component of the Company's fixed-indexed products. Index options are intended to act as hedges to match closely the returns on the S&P 500 Index^®.  With an increase or decline in this index, the index option values likewise increase or decline.  Any income or loss from the sale or expiration of the options, as well as period-to-period changes in fair values, are reflected as a component of net investment income. However, increases or decreases in income from these options are substantially offset by corresponding increases or decreases in amounts credited to fixed-indexed annuity and life policyholders.

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Derivative components included in net investment income and the corresponding contract interest amounts are detailed below for each date presented.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007			2006
	(In thousands)
Derivatives:
Unrealized income (loss)	$	(27,754	)		14,807		(26,393	)		7,902
Realized income		20,008			1,025		37,331			5,778
Total income (loss) included
in net investment income	$	(7,746	)		15,832		10,938			13,680
Total contract interest	$	38,219			59,065		143,037			138,678

Realized gains (losses) on investments - The third quarter loss in 2007 is due to an additional valuation allowance related to one mortgage loan.  Net gains for the nine months ended September 30, 2007 include a gain of $3.7 million in the second quarter from a sale of a previously impaired bond.  The gains in 2006 are primarily due to sales of collateralized bond obligation holdings from the debt securities portfolio which had previously been impaired.

Benefits and Expenses.  The following details benefits and expenses.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Life and other policy benefits	$	11,337		9,212		32,748		28,300
Amortization of deferred policy
acquisition costs		25,238		24,430		74,660		69,443
Universal life and annuity
contract interest		38,219		59,065		143,037		138,678
Other operating expenses		12,871		12,513		43,354		51,611
Totals	$	87,665		105,220		293,799		288,032

Life and other policy benefits - Death claims increased from $7.5 million and $21.7 million during the three and nine months of the third quarter of 2006 to $8.0 million and $23.6 million for the same period ended September 30, 2007.  While death claim amounts are subject to variation from period to period, the Company's mortality experience has generally been consistent with its product pricing assumptions.

Amortization of deferred acquisition costs - Life insurance companies are required to defer certain expenses associated with acquiring new business.  The majority of these acquisition expenses consist of commissions paid to agents, underwriting costs, and certain marketing expenses and sales inducements.  The Company defers sales inducements in the form of first year interest bonuses on annuity and universal life products that are directly related to the production of new business.  These charges are deferred and amortized using the same methodology and assumptions used to amortize other capitalized acquisition costs and the amortization is included in contract interest.  Recognition of these deferred policy acquisition costs in the financial statements occurs over future periods in relation to the emergence of profits priced into the products sold.  This emergence of profits is based upon assumptions regarding premium payment patterns, mortality, persistency, investment performance, and expense patterns.  Companies are required to review these assumptions periodically to ascertain whether actual experience has deviated significantly from that assumed. If it is determined that a significant deviation has occurred, the emergence of profits pattern is to be "unlocked" and reset based upon the actual experience.  While the Company is required to evaluate its emergence of profits continually, management believes that the current amortization patterns of deferred policy acquisition costs are reflective of actual experience.

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In accordance with the newly adopted SOP 05-1, the Company’s amortization of these deferred policy acquisition costs is expected to increase in the future.  Under this pronouncement, annuitizations and certain internal replacements of contracts result in the associated unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement assets being written off.

Universal life and annuity contract interest - The Company closely monitors its credited interest rates on interest sensitive policies, taking into consideration such factors as profitability goals, policyholder benefits, product marketability, and economic market conditions.  As long term interest rates change, the Company's credited interest rates are often adjusted accordingly, taking into consideration the factors as described above. The difference between yields earned over policy credited rates is often referred to as the "interest spread".  Raising policy credited rates can typically have more of an immediate impact than higher market rates on the Company's investment portfolio yield, making it more difficult to maintain the current interest spread.

The Company's approximated average credited rates are as follows:

	September 30,						September 30,
	2007			2006			2007			2006
	(Excluding derivative products)						(Including derivative products)
Annuity		3.43	%		3.36	%		3.30	%		3.34	%
Interest sensitive life		3.32	%		4.26	%		5.00	%		4.88	%

Contract interest also includes the performance of the fixed-index component of the Company's derivative products as noted which resulted in losses of $7.7 million and income of $10.9 million in the three months ended September 30, 2007 and 2006, respectively, and income of $15.8 million and $13.7 million for the nine months ended September 30, 2007 and 2006, respectively. As previously noted, the recent market performance of these fixed-index features is included in contract interest expense while also being a component of the Company's investment income given the hedge nature of the options purchased for these products.

Other operating expenses - Other operating expenses consist of general administrative expenses, licenses and fees, and commissions not subject to deferral.  Like revenues from other income, nursing home operation expenses are included in other operating expenses in the amount of $2.8 million and $8.2 million for the three and nine months ended September 30, 2007 and $2.8 million and $7.7 million for the same period in 2006. Compensation cost recorded in the three and nine months ended September 30, 2007 totaled $0.1 million and $2.7 million. Other operating expenses for the nine months ended September 30, 2006 included compensation cost of $13.7 million as a result of implementation of liability classification under SFAS 123(R) for the Company's stock option plan.  Implementation of liability classification resulted in a current charge for option costs related to outstanding vested and unvested options.

Federal Income Taxes.  Federal income taxes on earnings from continuing operations reflect effective tax rates of 30.8% and 33.5% for the first nine months of 2007 and 2006, respectively.  The effective tax rate is lower than the Federal rate of 35% primarily due to tax-exempt investment income related to municipal securities and dividends-received deductions on income from stocks.

During the second quarter of 2007, upon the completion of a detailed review of the deferred tax items, the Company identified a $2.3 million error in the net deferred tax liability. The error, which occurred during various periods prior to 2005, was corrected in the second quarter of 2007 and resulted in a decrease in the net deferred tax liability and deferred tax expense.  The adjustment was not material to the current period or any prior period financial statements.

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Segment Operations

Summary of Segment Earnings

A summary of segment earnings for the three months and nine months ended September 30, 2007 and 2006 is provided below.  The segment earnings exclude realized gains and losses on investments, net of taxes.

	Domestic			International
	Life			Life				All
	Insurance			Insurance		Annuities		Others		Totals
	(In thousands)
Segment earnings (losses):
Three months ended:
September 30, 2007	$	143			2,703		12,877		877		16,600
September 30, 2006	$	448			2,529		12,369		602		15,948
Nine months ended:
September 30, 2007	$	(248	)		7,556		42,837		4,114		54,259
September 30, 2006	$	(656	)		9,615		38,243		3,043		50,245

Domestic Life Insurance Operations

A comparative analysis of results of operations for the Company's domestic life insurance segment is detailed below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007			2006
	(In thousands)
Premiums and other revenue:
Premiums and contract revenues	$	6,875		5,932		19,522			17,465
Net investment income		4,774		4,545		13,967			14,761
Other income		7		10		34			25
Total premiums and other revenue		11,656		10,487		33,523			32,251
Benefits and expenses:
Life and other policy benefits		3,969		3,505		12,727			11,536
Amortization of deferred policy
acquisition costs		2,229		1,496		5,041			4,868
Universal life insurance contract
interest		2,396		2,293		7,028			6,836
Other operating expenses		2,877		2,533		9,084			9,995
Total benefits and expenses		11,471		9,827		33,880			33,235
Segment earnings (losses) before
Federal income taxes		185		660		(357	)		(984	)
Provision (benefit) for Federal
income taxes		42		212		(109	)		(328	)
Segment earnings (losses)	$	143		448		(248	)		(656	)

35

Revenues from domestic life insurance operations include life insurance premiums on traditional type products and revenues from universal life insurance.  Revenues from traditional products are simply premiums collected, while revenues from universal life insurance consist of policy charges for the cost of insurance, policy administration fees, and surrender charges assessed during the period.  A comparative detail of premiums and contract revenues is provided below.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands)
Universal life insurance revenues	$	5,857			4,714			16,272			13,371
Traditional life insurance premiums		1,760			1,617			5,396			5,286
Reinsurance premiums		(742	)		(399	)		(2,146	)		(1,192	)
Totals	$	6,875			5,932			19,522			17,465

The Company's U.S. operations have typically emphasized annuity product sales over life product sales but recent efforts have been made to attract new independent agents and to promote life products to improve domestic sales.  It is the Company's goal to increase domestic life product sales through increased recruiting of new distribution and the development of new life insurance products. 

Premiums collected on universal life products are not reflected as revenues in the Company's statements of earnings in accordance with GAAP.  Actual universal life premiums collected are detailed below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Universal life insurance:
First year and single premiums	$	4,279		4,244		10,650		10,463
Renewal premiums		3,825		3,620		11,883		10,628
Totals	$	8,104		7,864		22,533		21,091

Amortization of deferred policy acquisition costs increased by $0.7 million for the three months ended September 30, 2007 due to a true-up in the current period related to surrender rates, portfolio rates, mortality, expenses and credited rates.  Other operating expenses for the nine months ended September 30, 2006 include an additional expense related to compensation costs from the implementation of liability classification under SFAS 123(R).

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International Life Insurance Operations

A comparative analysis of results of operations for the Company's international life insurance segment is detailed below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Premiums and other revenue:
Premiums and contract revenues	$	21,826		19,364		64,061		57,448
Net investment income		6,460		6,771		21,075		18,958
Other income		19		21		106		66
Total premiums and other revenue		28,305		26,156		85,242		76,472
Benefits and expenses:
Life and other policy benefits		6,353		4,984		17,330		14,204
Amortization of deferred policy
acquisition costs		8,045		6,951		25,401		16,462
Universal life insurance contract
interest		6,131		7,185		19,227		16,399
Other operating expenses		3,616		3,131		12,388		14,956
Total benefits and expenses		24,145		22,251		74,346		62,021
Segment earnings before Federal
income taxes		4,160		3,905		10,896		14,451
Provision for Federal income taxes		1,457		1,376		3,340		4,836
Segment earnings	$	2,703		2,529		7,556		9,615

As with domestic operations, revenues from the international life insurance segment include both premiums on traditional type products and revenues from universal life insurance. A comparative detail of premiums and contract revenues is provided below.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands)
Universal life insurance revenues	$	21,555			19,729			63,212			58,165
Traditional life insurance premiums		3,646			2,560			10,619			8,021
Reinsurance premiums		(3,375	)		(2,925	)		(9,770	)		(8,738	)
Totals	$	21,826			19,364			64,061			57,448

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International operations have emphasized universal life policies over traditional life insurance products.  Premiums collected on universal life products are not reflected as revenues in the Company's statements of earnings in accordance with GAAP.  Actual universal life premiums collected are detailed below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Universal life insurance:
First year and single premiums	$	11,423		9,473		31,121		26,405
Renewal premiums		23,335		20,854		66,269		59,356
Totals	$	34,758		30,327		97,390		85,761

The Company's international life operations have been a significant part of the Company's business which is based upon a long standing reputation in the international market.  The Company reported increased sales of fixed-indexed universal life products for international life operations with premiums approximating $19.8 million and $54.1 million for the three and nine months ended September 30, 2007 and $16.3 million and $43.0 million for the same periods in 2006.  As previously noted, net investment income and contract interest include an increase due to the S&P 500 Index^® performance relative to fixed-indexed products in the three and nine months of 2007 compared to the same period in 2006.

A detail of net investment income for international life insurance operations is provided below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Net investment income
(excluding derivatives)	$	6,812			5,954		19,782		18,508
Derivative income (loss)		(352	)		817		1,293		450
Net investment income	$	6,460			6,771		21,075		18,958

Amortization of deferred policy acquisition costs increased approximately 54% comparing the first nine months of 2007 to the same period in 2006.  This increase is due primarily to the application of SOP 05-1 which requires the write-off of deferred balances on contracts that are considered substantially changed under this new guidance.  These balances were previously carried and amortized over the projected life of the contract.

Other operating expenses for the nine months ended September 30, 2006, include an additional expense from an increase in compensation costs under SFAS 123(R) as a result of the implementation of liability classification for stock options.

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Annuity Operations

The Company's annuity operations are almost exclusively in the United States.  Although some of the Company's investment contracts are available to international residents, current sales are small relative to total annuity sales.  A comparative analysis of results of operations for the Company's annuity segment is detailed below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Premiums and other revenue:
Premiums and contract revenues	$	6,079		5,281		17,965		16,306
Net investment income		62,833		83,900		220,263		223,307
Other income		543		106		909		2,968
Total premiums and other revenue		69,455		89,287		239,137		242,581
Benefits and expenses:
Life and other benefits		1,015		723		2,691		2,560
Amortization of deferred policy
acquisition costs		14,964		15,983		44,218		48,113
Annuity contract interest		29,692		49,587		116,782		115,443
Other operating expenses		3,593		4,027		13,673		18,987
Total benefits and expenses		49,264		70,320		177,364		185,103
Segment earnings before Federal
income taxes		20,191		18,967		61,773		57,478
Provision for Federal income taxes		7,314		6,598		18,936		19,235
Segment earnings	$	12,877		12,369		42,837		38,243

Revenues from annuity operations primarily include surrender charges and recognition of deferred revenues relating to immediate or payout annuities. A comparative detail of the components of premiums and annuity contract revenues is provided below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Surrender charges	$	4,969		4,320		14,703		13,176
Payout annuity and other revenues		1,100		952		3,239		3,107
Traditional annuity premiums		10		9		23		23
Totals	$	6,079		5,281		17,965		16,306

The Company's earnings are dependent upon annuity contracts persisting or remaining in force.  While premium and contract revenues decline with a reduction in surrender charges, the Company's investment earnings benefit as more policies remain in force.

39

Deposits collected on annuity contracts are not reflected as revenues in the Company's statements of earnings in accordance with GAAP. Actual annuity deposits collected for the nine months ended September 30, 2007 and 2006 are detailed below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Fixed-indexed annuities	$	87,815		82,599		239,819		229,590
Other deferred annuities		25,394		44,398		87,424		137,939
Immediate annuities		611		1,384		3,012		7,645
Totals	$	113,820		128,381		330,255		375,174

Sales of fixed-indexed annuities increased 6.3% and 4.5% comparing September 30, 2007 three and nine months deposits compared to the same period of 2006.  Fixed-indexed product sales typically follow the stock market in that sales are higher when confidence is high in the stock market and lower if the stock market is showing poor performance.  Since the Company does not offer variable products or mutual funds, these fixed-indexed products provide an interest crediting alternative to the Company's existing fixed annuity products and have continued to be a significant portion of the Company’s annuity business.

Other deferred annuity deposits decreased as of September 30, 2007 versus September 30, 2006 with $25.4 million and $87.4 million collected as compared to $44.4 million and $137.9 million for the three and nine months, respectively.  These product sales have been trending lower over the past few years due to low interest rates and investor preferences.  As a selling inducement, many of the deferred products include a first year interest bonus in addition to a base interest rate.  These bonus rates are deferred in conjunction with other capitalized policy acquisition costs.  The amount deferred and amortized over future periods amounted to approximately $5.6 million and $15.7 million for the three and nine months ended September 30, 2007 and $4.9 million and $15.6 million in 2006, respectively.

A detail of net investment income for annuity operations is provided below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(In thousands)
Net investment income
(excluding derivatives)	$	70,228			68,885		210,618		210,077
Derivative income (loss)		(7,395	)		15,015		9,645		13,230
Net investment income	$	62,833			83,900		220,263		223,307

Derivative income and loss fluctuate from period to period based on the S&P 500 Index^® performance.

Other income reported for the nine months ended September 30, 2006 includes $2.6 million relating to lawsuit settlements.

The Company is required to periodically adjust deferred policy acquisition amortization factors for actual experience that varies from assumptions.  In the third quarters of 2007 and 2006, a true-up of assumptions based upon actual results increased amortization for the nine months ended September 30, by $2.3 million and $2.0 million, respectively.  Amounts reported for three and nine months totaled $15.0 million and $44.2 million for 2007 and $16.0 million and $48.1 million for the same period in 2006.

40

Annuity contract interest includes any equity component interest associated with the Company's fixed-indexed annuities.  The detail of fixed-indexed annuity contract interest compared to contract interest for all other annuities is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands)
Fixed-indexed annuities	$	9,350			27,993			53,110			48,577
All other annuities		23,728			24,856			71,550			75,825
Gross contract interest		33,078			52,849			124,660			124,402
Bonus interest deferred and capitalized		(5,560	)		(4,883	)		(15,653	)		(15,582	)
Bonus interest amortization		2,174			1,621			7,775			6,623
Total contract interest	$	29,692			49,587			116,782			115,443

As previously noted, contract interest reflects variations due to the S&P 500 Index^® performance relative to the fair values of fixed-indexed products, increasing and decreasing in 2007 compared to the same period in 2006.

Other operating expenses during the nine months ended September 30, 2006, include an additional expense from implementing liability classification related to the Company's stock option plan under SFAS 123(R) accounting guidance.

Other Operations

National Western's primary business encompasses its domestic and international life insurance operations and its annuity operations.  However, National Western also has small real estate, nursing home, and other investment operations through its wholly-owned subsidiaries.  Nursing home operations generated $1.2 million and $0.5 million of operating earnings in the first nine months of 2007 and 2006, respectively.

INVESTMENTS

General

The Company's investment philosophy emphasizes the prudent handling of policyowners' and stockholders' funds to achieve security of principal, to obtain the maximum possible yield while maintaining security of principal, and to maintain liquidity in a measure consistent with current and long-term requirements of the Company.

41

The Company's overall conservative investment philosophy is reflected in the allocation of its investments, which is detailed below as of September 30, 2007 and December 31, 2006.  The Company emphasizes investment grade debt securities, with smaller holdings in mortgage loans and policy loans.

	Composition of Investments
	September 30, 2007				December 31, 2006
	Amount		%		Amount		%
	(In thousands)				(In thousands)
Debt securities	$	5,623,778		95.4	$	5,484,799		94.7
Mortgage loans		98,852		1.7		103,325		1.8
Policy loans		84,377		1.4		86,856		1.5
Derivatives		51,797		0.9		72,012		1.2
Equity securities		21,009		0.4		21,203		0.4
Real estate		12,103		0.2		12,113		0.2
Other		4,862		-		10,709		0.2
Totals	$	5,896,778		100.0	$	5,791,017		100.0

Debt and Equity Securities

The Company maintains a diversified portfolio which consists primarily of corporate, mortgage-backed, and public utilities fixed income securities. Investments in mortgage-backed securities include primarily U.S. government agency pass-through securities and collateralized mortgage obligations ("CMOs"). As of September 30, 2007 and December 31, 2006, the Company's debt securities portfolio consisted of the following:

	Composition of Debt Securities
	September 30, 2007				December 31, 2006
	Amount		%		Amount		%
	(In thousands)				(In thousands)
Corporate	$	2,401,924		42.7	$	2,384,762		43.5
Mortgage-backed securities		1,910,242		34.0		1,817,532		33.1
Public utilities		667,467		11.9		623,649		11.4
U.S. government/agencies		438,640		7.8		447,573		8.2
Asset-backed securities		110,266		2.0		122,101		2.2
States & political subdivisions		64,616		1.1		58,627		1.1
Foreign governments		30,623		0.5		30,555		0.5
Totals	$	5,623,778		100.0	$	5,484,799		100.0

The Company has expanded its holdings of U.S. government and private mortgage-backed securities over the past several years given attractive yields and spreads.  Because the Company's holdings of mortgage-backed securities are subject to prepayment and extension risk, the Company has substantially reduced these risks by investing primarily in collateralized mortgage obligations, which have more predictable cash flow patterns than pass-through securities.  These securities, known as planned amortization class I ("PAC I") and sequential tranches are designed to amortize in a more predictable manner than other CMO classes or pass-throughs.  Using this strategy, the Company can more effectively manage and reduce prepayment and extension risks, thereby helping to maintain the appropriate matching of the Company's assets and liabilities.

42

Within the debt securities portfolio, the Company holds approximately $110.3 million in asset-backed securities at September 30, 2007, which include manufactured housing bonds and home equity loans. The Company does not have any holdings in collaterized bond obligations (CBOs), collateralized debt obligations (CDOs), or collateralized loan obligations (CLOs). Principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ priority in the issuer’s capital structure, the adequacy of and ability to realize proceeds from collateral and the potential for prepayments. Credit risks include corporate credit risks or consumer credit risks for financing such as subprime mortgages. Capital market risks include the general level of interest rates and the liquidity for these securities in the marketplace. As of September 30, 2007, the Company held investments in asset-backed securities collateralized by subprime mortgages with a carrying value of $55 million, less than 1% of invested assets. None of these securities are rated below “AAA” and over 50% are insured. In addition, all of the subprime related asset-backed securities were purchased prior to 2005, the commencement of the period during which management believes the quality of underwriting was lessened. In light of the high credit quality of these securities, the Company does not expect to incur any material losses despite the recent increase in default rates and market concern over future performance of this asset class. The Company also does not have investments in bond funds with subprime exposure.

In addition to diversification, an important aspect of the Company's investment approach is managing the credit quality of its investments in debt securities.  As of September 30, 2007, 98% of the Company's debt securities were investment grade quality.  Thorough credit analysis is performed on potential corporate investments including examination of a company's credit and industry outlook, financial ratios and trends, and event risks.  This emphasis is reflected in the high average credit rating of the Company's portfolio.  In addition, the Company is monitoring the bond portfolio in reference to the possibility of leveraged buyouts that would likely result in lower credit quality ratings.  In the table below, investments in debt securities are classified according to credit ratings by Standard and Poor's ("S&P^®"), or other nationally recognized statistical rating organizations if securities were not rated by S&P^® .

	September 30, 2007				December 31, 2006
	Amount		%		Amount		%
	(In thousands)				(In thousands)
AAA and U.S. government	$	2,576,275		45.8	$	2,485,122		45.3
AA		304,296		5.4		284,965		5.2
A		1,342,781		23.9		1,330,980		24.3
BBB		1,289,290		22.9		1,237,151		22.5
BB and other below investment grade		111,136		2.0		146,581		2.7
Totals	$	5,623,778		100.0	$	5,484,799		100.0

The Company does not purchase below investment grade securities.  Investments held in debt securities below investment grade are the result of subsequent downgrades of the securities.  During the first nine months of 2007, the Company's percentage of below investment grade securities decreased from 2.7% of the portfolio to 2.0%.  The Company's holdings of below investment grade securities as a percentage of total invested assets is relatively small compared to industry averages.  These holdings are summarized below.

	Below Investment Grade Debt Securities
					Estimated		% of
	Amortized		Carrying		Fair		Invested
	Cost		Value		Value		Assets
	(In thousands except percentages)
September 30, 2007	$	114,396		111,136		109,341		1.9	%
December 31, 2006	$	145,858		146,581		146,170		2.5	%
December 31, 2005	$	168,423		170,455		167,770		3.1	%

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The Company closely monitors its other below investment grade holdings by reviewing investment performance indicators including information such as issuer operating performance, debt ratings, analyst reports and other economic factors that may affect these specific investments.  While additional losses are not currently anticipated based on the existing status and condition of these securities, continued credit deterioration of some securities is possible, which may result in further writedowns.  Holdings in below investment grade securities by category are summarized below.

	Below Investment Grade Debt Securities as of September 30,
	Amortized		Carrying		Fair		Fair
	Cost		Value		Value		Value
	2007		2007		2007		2006
	(In thousands)
Retail	$	21,965		21,780		21,799		21,723
Utilities/Energy		21,444		22,664		22,890		23,259
Telecommunication		19,998		17,532		17,532		17,999
Auto finance		13,000		12,493		11,668		12,481
Asset-backed		11,570		11,571		10,706		10,944
Medical		6,153		6,153		5,722		6,200
Manufacturing		5,492		5,492		5,573		5,466
Transportation		2,288		2,767		2,767		3,109
Other		12,486		10,684		10,684		10,467
Totals	$	114,396		111,136		109,341		111,648

The Company is required to classify its investments in debt and equity securities into one of three categories:  (a) trading securities, (b) securities available for sale, or (c) securities held to maturity.  The Company purchases securities with the intent to hold to maturity and accordingly does not maintain a portfolio of trading securities.  Of the remaining two categories, available for sale and held to maturity, the Company makes a determination based on various factors including the type and quality of the particular security and how it will be incorporated into the Company's overall asset/liability management strategy. As shown in the table below, at September 30, 2007, approximately 33.9% of the Company's total debt and equity securities, based on fair values, were classified as securities available for sale.  This slight increase in available for sale securities is a result of short-term investments in bonds.  These holdings provide the Company flexibility to react to market opportunities and conditions and to practice active management within the portfolio to provide adequate liquidity to meet policyholder obligations and other cash needs.

	Fair		Amortized		Unrealized
	Value		Cost		Gains (Losses)
	(In thousands)
Securities held to maturity:
Debt securities	$	3,699,411		3,750,933		(51,522	)
Securities available for sale:
Debt securities		1,872,845		1,901,219		(28,374	)
Equity securities		21,009		12,203		8,806
Totals	$	5,593,265		5,664,355		(71,090	)

In accordance with SFAS No. 115, Accounting for Certain Debt and Equity Securities, during the first nine months of 2007 one security was sold from the held to maturity portfolio due to significant credit deterioration.  The amortized cost of the bond was $5.2 million and resulted in a realized gain of $19,000.  No securities were sold during the first nine months of 2006.  No securities were transferred from the held to maturity portfolio during the first nine months of 2007 or 2006.

Proceeds from sales of securities available for sale totaled $15.2 million and $0.1 million during the third quarter of 2007 and 2006, respectively, which resulted in realized losses of $0.3 million in 2007 and minimal realized gains in 2006.  For the nine months ended September 30, 2007 and 2006, proceeds from sales of securities available for sale totaled $28.4 million and $21.5 million, respectively.  These sales resulted in gains of $4.3 million and $1.7 million, respectively.

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Market Risk

Market risk is the risk of change in market values of financial instruments due to changes in interest rates, currency exchange rates, commodity prices, or equity prices.  The most significant market risk exposure for National Western is interest rate risk. The fair values of fixed income debt securities correlate to external market interest rate conditions.  Because interest rates are fixed on almost all of the Company's debt securities, market values typically increase when market interest rates decline, and decrease when market interest rates rise.  However, market values may fluctuate for other reasons, such as changing economic conditions or increasing event-risk concerns.

The correlation between fair values and interest rates for debt securities is reflected in the tables below.

	September 30,			June 30,			December 31,
	2007			2007			2006
	(In thousands except percentages)
Debt securities - fair value	$	5,572,256			5,459,172			5,448,990
Debt securities - amortized cost	$	5,652,152			5,598,374			5,498,461
Fair value as a percentage of amortized cost		98.59	%		97.51	%		99.10	%
Unrealized losses	$	(79,896	)		(139,201	)		(49,471	)
Ten-year U.S. Treasury bond – increase (decrease)
in yield for the quarter		(0.44	)%		0.38	%

	Unrealized Losses Balance
										Qtr		YTD
	At			At			At			Change in		Change in
	September 30,			June 30,			December 31,			Unrealized		Unrealized
	2007			2007			2006			Losses		Losses
Debt securities held to
maturity	$	(51,522	)		(95,719	)		(35,809	)		44,197		(15,713	)
Debt securities available
for sale		(28,374	)		(43,482	)		(13,662	)		15,108		(14,712	)
Totals	$	(79,896	)		(139,201	)		(49,471	)		59,305		(30,425	)

Changes in interest rates typically have a significant impact on the fair values of the Company's debt securities. Market interest rates of the ten-year U.S. Treasury bond decreased approximately 44 basis points from the second quarter of 2007, decreasing the unrealized loss to $80.0 million on a portfolio of approximately $5.6 billion.  The Company would expect similar results in the future from any significant upward or downward movement in market rates.  However, since the majority of the Company's debt securities are classified as held to maturity, which are recorded at amortized cost, as the Company has the ability and intent to hold these securities, changes in fair values due to interest rate risk have relatively small effects on the Company's consolidated balance sheet.

The Company manages interest rate risk through on-going cash flow testing required for insurance regulatory purposes. Computer models are used to perform cash flow testing under various commonly used stress test interest rate scenarios to determine if existing assets would be sufficient to meet projected liability outflows.  Sensitivity analysis allows the Company to measure the potential gain or loss in fair value of its interest-sensitive instruments and to protect its economic value and achieve a predictable spread between what is earned on invested assets and what is paid on liabilities.  The Company seeks to minimize the impact of interest risk through surrender charges that are imposed to discourage policy surrenders.  Interest rate changes can be anticipated in the computer models and the corresponding risk addressed by management actions affecting asset and liability instruments.  However, potential changes in the values of financial instruments indicated by hypothetical interest rate changes will likely be different from actual changes experienced, and the differences could be significant.

The Company performed detailed sensitivity analysis as of December 31, 2006, for its interest rate-sensitive assets and liabilities.  The changes in market values of the Company's debt securities in the third quarter of 2007 were reasonable given the expected range of results of this analysis.

45

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity requirements are met primarily by funds provided from operations. Premium deposits and revenues, investment income, and investment maturities are the primary sources of funds while investment purchases, policy benefits, and operating expenses are the primary uses of funds.  The Company historically has not been put in the position of liquidating invested assets to provide cash flow.  However, investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs.  The Company may also borrow up to $40 million on its bank line of credit for short-term cash needs.

A primary liquidity concern for life insurers is the risk of an extraordinary level of early policyholder withdrawals.  The Company includes provisions within its annuity and universal life insurance policies, such as surrender charges, that help limit and discourage early withdrawals.

The actual amounts paid by product line in connection with surrenders and withdrawals for the periods ended September 30 are noted in the table below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In thousands)
Product Line:
Traditional Life	$	2,036		1,359		4,753		3,416
Universal Life		9,691		7,564		25,758		23,073
Annuities		103,523		89,585		318,653		271,172
Total	$	115,250		98,508		349,164		297,661

The above contractual withdrawals, as well as the level of surrenders experienced, were generally consistent with the Company's assumptions in asset/liability management, and the associated cash outflows did not have an adverse impact on overall liquidity. Individual life insurance policies are less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may incur surrender charges and undergo a new underwriting process in order to obtain a new insurance policy. Cash flow projections and tests under various market interest rate scenarios are also performed to assist in evaluating liquidity needs and adequacy.  The Company currently expects available liquidity sources and future cash flows to be more than adequate to meet the demand for funds.

In the past, cash flows from the Company's insurance operations have been sufficient to meet current needs.  Cash flows from operating activities were $190.9 million and $169.8 million for the nine months ended September 30, 2007 and 2006, respectively. The Company also has significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments.  These cash flows totaled $375.0 million and $286.4 million for the nine months ended September 30, 2007 and 2006, respectively.  These cash flow items could be reduced if interest rates rise.  Net cash inflows (outflows) from the Company's universal life and investment annuity deposit product operations totaled $(64.2) million and $25.9 million during the nine months ended September 30, 2007 and 2006, respectively.

Capital Resources

The Company relies on stockholders' equity for its capital resources as there is no long-term debt outstanding and the Company does not anticipate the need for any long-term debt in the near future.  As of September 30, 2007, the Company had commitments of approximately $8.9 million remaining to be funded of a $12.0 million commitment which was approved by the Company's Board of Directors for the construction of a nursing home facility in Central Texas.  The construction of the new facility began in 2007.

46

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

It is not Company practice to enter into off-balance sheet arrangements nor is it Company policy to issue guarantees to third parties, other than in the normal course of issuing insurance contracts.  Commitments related to insurance products sold are reflected as liabilities for future policy benefits.  Insurance contracts guarantee certain performances by the Company.

Insurance reserves are the means by which life insurance companies determine the liabilities that must be established to assure that future policy benefits are provided for and can be paid.  These reserves are required by law and based upon standard actuarial methodologies to ensure fulfillment of commitments guaranteed to policyholders and their beneficiaries, even though the obligations may not be due for many years. Refer to Note (1) in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 for a discussion of reserving methods.

The table below summarizes future estimated cash payments under existing contractual obligations.

	Payment Due by Period
			Less Than			1 - 3		3 - 5	More Than
	Total		1 Year		Years		Years		5 Years
	(In thousands)
Operating lease obligations (1)	$	2,325		808		1,300		217		-
Loan commitments		8,882		8,882		-		-		-
Life claims payable (2)		46,029		46,029		-		-		-
Other long-term reserve
liabilities reflected on the
balance sheet under GAAP (3)		370,453		72,988		108,289		55,158		134,018
Total	$	427,689		128,707		109,589		55,375		134,018

(1)  Refer to Note 9 in the Notes to Consolidated Financial Statements relating to leases in the Company’s Annual Report on Form 10-K.

(2)  Life claims payable include benefit and claim liabilities for which the Company believes the amount and timing of the payment is essentially fixed and determinable.  Such amounts generally relate to incurred and reported death and critical illness claims including an estimate of claims incurred but not reported.

(3)  Other long-term reserve liabilities include obligations that are reported within the Company's reserve liabilities that reflect determinable payout patterns related to immediate annuities.  The above amounts are undiscounted whereas the amounts included in future policy benefit liabilities are discounted in accordance with GAAP.  Liabilities for future policy benefits and other policyholder liabilities of approximately $5.2 billion as of September 30, 2007 have been excluded from the contractual obligations table.  These excluded liabilities include future policy benefits relating to life insurance products, deferred annuities, and universal life products.  Amounts excluded from the table are comprised of policies or contracts where (a) the Company is not currently making payments and will not make payments in the future until the occurrence of a payment triggering event, such as death or (b) the occurrence of a payment triggering event, such as a surrender of a policy or contract, which is outside of the control of the Company.  The timing of these payments is not reasonably fixed and determinable.  These uncertainties are considered in the Company's asset/liability management program as previously noted.

CHANGES IN ACCOUNTING PRINCIPLES AND CRITICAL ACCOUNTING POLICIES

Changes in Accounting Principles

Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements.

47

REGULATORY AND OTHER ISSUES

Statutory Accounting Practices

Regulations that affect the Company and the insurance industry are often the result of efforts by the National Association of Insurance Commissioners ("NAIC").  The NAIC routinely publishes new regulations as model acts or laws which states subsequently adopt as part of their insurance regulations.  Currently, the Company is not aware of any NAIC regulatory matter material to its operations or reporting of financial results.

Risk-Based Capital Requirements

The NAIC established risk-based capital ("RBC") requirements to help state regulators monitor the financial strength and stability of life insurers by identifying those companies that may be inadequately capitalized.  Under the NAIC's requirements, each insurer must maintain its total capital above a calculated threshold or take corrective measures to achieve the threshold.  The threshold of adequate capital is based on a formula that takes into account the amount of risk each company faces on its products and investments.  The RBC formula takes into consideration four major areas of risk which are:  (i) asset risk which primarily focuses on the quality of investments; (ii) insurance risk which encompasses mortality and morbidity risk; (iii) interest rate risk which involves asset/liability matching issues; and (iv) other business risks. Statutory laws prohibit public dissemination of certain RBC information.  However, the Company's current statutory capital and surplus is significantly in excess of the threshold RBC requirements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

This information is included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Investments in Debt and Equity Securities section.

ITEM 4.  CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based on such evaluation, the Company's Chief Executive Officer and Chief Finanical Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

There have been no changes in the Company's internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 9 "Legal Proceedings" of the accompanying financial statements included in this Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no changes relative to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

48

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Effective March 10, 2006, the Company adopted and implemented a limited stock buy-back program associated with the Company's 1995 Stock Option and Incentive Plan ("Plan") which provides Option Holders the additional alternative of selling shares acquired through the exercise of options directly back to the Company. Option Holders may elect to sell such acquired shares back to the Company at any time within ninety (90) days after the exercise of options at the prevailing market price as of the date of notice of election.

During the months ended August and September 2007, the Company purchased 6,350 shares and 1,780 shares from option holders at an average price of $261.96 and $247.98, respectively.  These purchased shares are reported in the Company's condensed consolidated financial statements as authorized and unissued.

ITEM 6.  EXHIBITS

(a) Exhibits

Exhibit 3 ii (g)	-	National Western Life Insurance Company Bylaws changes effective August 24, 2007.
Exhibit 31(a)	-	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31(b)	-	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32(a)	-	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Registrant)
Date:  November 8, 2007	/S/ Ross R. Moody
	Ross R. Moody
	President, Chief Operating Officer,
	and Director
	(Authorized Officer)
Date:  November 8, 2007	/S/ Brian M. Pribyl
	Brian M. Pribyl
	Senior Vice President,
	Chief Financial & Administrative
	Officer and Treasurer
	(Principal Financial Officer)
Date:  November 8, 2007	/S/ Kay E. Osbourn
	Kay E. Osbourn
	Vice President,
	Controller and Assistant Treasurer
	(Principal Accounting Officer)

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EX-3.II G

Exhibit 3 ii (g)

BYLAWS

OF

NATIONAL WESTERN LIFE INSURANCE COMPANY

ARTICLE I

Offices

Section 1.01.  Home Office.

The Home Office of the Company shall be in Denver, Colorado.

Section 1.02.  Other Offices.

The Corporation may also have offices at such other places, both within and without the State of Colorado, as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

Section 2.01.  Place.

Meetings of shareholders for any purpose may be held at such time and place, within or without the State of Colorado, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof, except as may be provided by law.

Section 2.02.  Annual Meetings.

An annual meeting of the stockholders shall be held after March 31 but not later than July 31 of each calendar year, at a date to be selected by the Board of Directors, at which time the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.

Section 2.03.  Special Meetings.

Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation or by these Bylaws, may be called by the Chairman of the Board of Directors or the President, the Board of Directors, or the holders of not less than one-fourth of all the shares entitled to vote at the meeting.

Section 2.04.  Notice.

Written or printed notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than forty days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at the meeting.

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Section 2.05.  Quorum.

The shareholders present in person or represented by proxy at any meeting, whether or not there shall be a quorum, shall have power to adjourn or recess the meeting from time to time, without notice other than announcement at the meeting.  At such adjourned or recessed meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

Section 2.06.  Majority Vote.

When a quorum is present at any meeting, the vote of the holders of a majority of the shares having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question.  The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

Section 2.07.  Stockholders Entitled to Vote.

Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation.  At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such shareholder, or by his duly authorized attorney-in-fact.  Such proxy shall be filed with the Secretary of the Corporation prior to or at the time of the meeting.  The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such record date to be not less than ten nor more than forty-five days prior to such meeting, or the Board of Directors may close the stock transfer books for such purpose for a period of not less than ten nor more than forty-five days prior to such meeting.  In the absence of any action by the Board of Directors, the date upon which the notice of the meeting is mailed shall be the record date.

ARTICLE III

Directors

Section 3.01.Authority.

The business and affairs of the Corporation shall be managed by its Board of Directors, who may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders.

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Section 3.02.  Number and Election.

The Board of Directors shall consist of not less than seven (7) and not more than twenty-seven (27) Directors, none of whom need be residents of the State of Colorado.  The Directors shall be elected at the annual meeting of the shareholders, except as hereinafter provided, and each Director elected shall hold office until his successor shall be elected and shall qualify.

Section 3.03.  Removal.

Any Director may be removed, either for or without cause, at any special meeting of shareholders by the affirmative vote of a majority in number of shares of the shareholders present in person or by proxy at such meeting and entitled to vote for the election of such Director, if notice of the intention to act upon such matter shall have been given in the notice calling such meeting.  Any Director may be removed, either for or without cause, at any meeting of Directors by the affirmative vote of two-thirds of all members of the Board of Directors.  If any vacancies occur in the Board of Directors because of death, resignation, retirement, disqualification, or removal from office of any Director or otherwise, a majority of the Directors then in office, though less than a quorum, may choose a successor or successors, or a successor or successors may be chosen at a special meeting of shareholders called for that purpose; and each successor Director so chosen shall be elected for the unexpired term of his predecessor in office.  Any directorship to be filled by reason of an increase in the number of Directors may be filled by election at any meeting of shareholders, or may be filled by affirmative vote of a majority of all members of the Board of Directors then in office.

Section 3.04.  Method of Election.

Directors shall be elected by plurality vote.  Cumulative voting shall not be permitted.

Section 3.05.  Place of Meetings.

Directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Colorado, except as may be provided by law.

Section 3.06.  First Meeting.

The first meeting of each newly-elected Board shall be held without further notice immediately following the annual meeting of shareholders, and at the same place, unless by unanimous consent of the Directors then elected and serving such time or place shall be changed.

Section 3.07.  Regular Meetings.

Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board.

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Section 3.08.  Special Meetings.

Special meetings of the Board of Directors may be called by either the Chairman of the Board or President or Secretary, on three days' notice to each Director, either personally or by mail or by telegram.  Special meetings shall be called by either the Chairman of the Board, President, or Secretary, in like manner and on like notice, on the written request of four or more Directors.  Except as may be otherwise expressly provided by statute or by the Articles of Incorporation or by these Bylaws, neither the business to be transacted at, nor the purpose of, any special meeting of Directors need be specified in a notice or waiver of notice.

Section 3.09.  Quorum.

At all meetings of the Board of Directors, the presence of a majority of the Directors shall be necessary and sufficient to constitute a quorum for the transaction of any business except any matter which, under these Bylaws, is to be done or performed by a majority of all members of the Board of Directors.  If a quorum shall not be present at any meeting of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 3.10.  Executive Committee.

The Board of Directors may, by resolution passed by a majority of the whole Board, designate an Executive Committee to consist of Directors of the Corporation, one of whom shall be either the Chairman of the Board of Directors or the President.  The Executive Committee shall have and may exercise all the authority of the Board of Directors in the management of the business and affairs of the corporation, except where action of a majority of all members of the Board of Directors is required by statute or by the Articles of Incorporation or by these Bylaws, and shall have power to authorize the seal of the corporation to be affixed to all papers which may require it.

Section 3.11.  Executive Committee Minutes.

The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required.

Section 3.12.  Compensation.

Directors, by resolution of the Board, shall receive a fixed sum, and expenses of attendance if any, for attendance at each regular or special meeting of the Board and, in addition thereto, may receive a retainer for their services, the amount to be authorized by resolution of the Board of Directors; provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

Members of the Executive Committee may, by resolution of the Board of Directors, be allowed a fixed sum, and expenses of attendance if any, for attendance at the Committee's meetings.

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Section 3.13.  Other Committees.

The Board may name and appoint such other special committees composed of Directors, officers, or employees of the Company as it deems necessary and important to the affairs of the Company, and may vest in such committees such authority as it deems appropriate to the functions of the Company.

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ARTICLE IV

Officers

Section 4.01.  Number.

The officers of the Corporation shall be elected by the Directors and shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, and a Treasurer.  The Board of Directors may also choose one or more Assistant Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers.  Any two or more offices may be held by the same person, except that the offices of President and Secretary shall not be held by the same person.

Section 4.02.  Election.

The Board of Directors at its first meeting after each annual meeting of shareholders shall elect the said officers, and the Chairman of the Board and the President shall be elected by the Board from its members.

Section 4.03.  Additional Officers.

The Board of Directors may appoint such other officers as its shall deem necessary, who shall be appointed for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

Section 4.04.  Salaries.

The salaries of all officers of the Corporation shall be fixed by the Board of Directors.

Section 4.05.  Removal.

Each officer of the Corporation shall hold office until his successor is chosen and qualified in his stead or until his death or until his resignation or removal from office.  Any officer elected or appointed by the Board of Directors may be removed at any time by the vote of the Board of Directors.  If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

Section 4.06.  Chairman of the Board.

The Chairman of the Board shall be the Chief Executive Officer of the Company and shall preside at all meetings of the Board of Directors and shareholders.  He shall have general and active management responsibilities of the business and affairs of the Company, and shall see that all orders and resolutions of the Board are carried into effect, and shall perform such other duties and have such other powers as the Bylaws, Board of Directors, or Executive Committee may prescribe.

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Section 4.07.  The President.

The President, in the absence or disability of the Chairman of the Board, shall perform the duties and exercise the powers of the Chairman of the Board.  He shall be the principal administrative officer of the company, his activities as such subject to the direction and approval of the Chief Executive Officer, and shall be responsible for the implementation of the details of managing the administrative affairs of the Company, and shall perform such other duties and have such other powers as the Bylaws, Board of Directors, or Executive Committee may prescribe.

Section 4.08.  Vice Presidents.

Each Vice President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer or President may from time to time delegate to him.

Section 4.09.  Secretary.

The Secretary shall attend all sessions of the Board of Directors and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for the purpose and shall perform like duties for the Executive Committee.  He shall give, or cause to be given, notice of all meetings of the shareholders and shall perform such other duties as may be prescribed by the Board of Directors or Chief Executive Officer or President, under whose supervision he shall be.  He shall keep in safe custody the minute book and seal of the corporation and affix the seal to any instrument requiring it, and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary.

Section 4.10.  Assistant Secretaries.

Each Assistant Secretary shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer or President may from time to time delegate to him.

Section 4.11.  Treasurer.

The Treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.  The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer or President and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as the Board of Directors may prescribe.

Section 4.12.  Assistant Treasurers.

Each Assistant Treasurer shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer or President may from time to time delegate to him.

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ARTICLE V

Stock and Stock Certificates

Section 5.01.  Stock Shares With and Without Certificates; Direct Registration Program.

(1)   At the option of the shareholder, shares of the Company may, but need not, be represented by certificates.  Unless some statute expressly provides otherwise, the rights and obligations of shareholders are not affected by the fact that their shares are not represented by certificates.  The Company is hereby authorized to issue any and all of its shares, classes, or series, with or without certificates.  The authorization does not affect shares already represented by certificates until they are surrendered to the Company.

(2)   Certificates.  Certificates in such form as may be determined by the Board of Directors may be delivered representing shares to which shareholders are entitled. Such certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued.  Each certificate shall state on the face thereof the holder’s name, the number and class of shares, and the par value of such shares or a statement that such shares are without par value.  They shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary and may be sealed with the seal of the Corporation or a facsimile thereof.  If any certificate is countersigned by a transfer agent or a transfer clerk, the signature of any such officer may be facsimile.

(3)   Uncertificated Shares.  The issuance of shares that are not represented by physical certificates are eligible to participate in the Direct Registration Program of the transfer agent and the Depository Trust Corporation.  Within a reasonable time after the issuance or transfer of shares without certificates, the Company’s Transfer Agent shall send to the shareholder a written statement containing the following information:  (a) The name of the Company and that it is incorporated under the laws of the State of Colorado; (b) the name of the person who is the shareholder; (c) the number and class of shares evidenced by the statement, and the description of the series; and (d) a summary of the designations, preferences, limitations, and relative rights applicable to each class, the variation in preferences, limitations, and rights determined for each series, and the authority of the Board of Directors to determine variations for future classes or series.

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Section 5.02.  Lost Certificates.

The Board of Directors may direct a new certificate representing shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificates to be lost or destroyed.  When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

Section 5.03.  Transfer of Shares.

Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney.  Upon surrender to the Corporation, or the Transfer Agent of the Corporation, of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, it shall be the duty of the Corporation or the Transfer Agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books.

Section 5.04.  Registered Shareholders.

The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

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ARTICLE VI

General Provisions

Section 6.01.  Dividends.

Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting.  Dividends may be paid in cash, in property, or in shares of the Corporation, subject to the provisions of the statutes and the Articles of Incorporation.  The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to receive payment of any dividend, such record date to be not more than forty days prior to the payment date of such dividend, or the Board of Directors may close the stock transfer books for such purpose for a period of not more than forty days prior to the payment date of such dividend.  In the absence of any action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring such dividend shall be the record date.

Section 6.02.  Reserves.

There may be created by resolution of the Board of Directors out of the earned surplus of the Corporation such reserve or reserves as the Directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the corporation, or for such other purpose as the Directors shall think beneficial to the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created.

Section 6.03.  Checks.

All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 6.04.  Seal.

The Corporation seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal."  Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced.

Section 6.05.  Indemnification.

Subsection 6.05.1.  Definitions.  In this Section:

(a) “Indemnitee" means (i) any present or former Director or officer of the Corporation, (ii) any person who, while serving in any of the capacities referred to in clause (i) hereof, served at the Corporation's request as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) the Board of Directors or any committee thereof to serve in any of the capacities referred to in clauses (i) and (ii) hereof.

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(b)

"Official Capacity" means (i) when used with respect to a Director, the office of Director of the Corporation, and (ii) when used with respect to a person other than a Director, the elective or appointive office of the Corporation held by such person or the employment or agency relationship undertaken by such person on behalf of the Corporation, but in each case does not include service for any other foreign or domestic corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise.

(c)

"Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investi-gative, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding.

Subsection 6.05.2.  Indemnification.  The Corporation shall indemnify every indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement, and reasonable expenses actually incurred by the Indemnitee in connection with any proceeding to which he was, is, or is threatened to be named defendant or respondent, or in which he was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, in any of the capacities referred to in Subsection 6.05.1., if it is determined in accordance with Subsection 6.05.4. that the Indemnitee (i) conducted himself in good faith, (ii) reasonably believed, in the case of conduct in his official capacity, that his conduct was in the Corporation's best interests and, in all other cases, that his conduct was at least not opposed to the Corporation's best interests, and (iii) in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful; provided, however, that in the event a determination is made that a person is entitled to indemnification pursuant to this Subsection 6.05.2. in connection with a proceeding brought by or on behalf of the Corporation, such indemnification shall be limited to the reasonable expenses (including court costs and attorney's fees) actually incurred by the Indemnitee in connection with the proceeding.  No indemnification shall be made under this Subsection 6.05.2. in respect of any judgment, penalty, fine, or amount paid in settlement in connection with any proceeding in which such Indemnitee shall have been (a) found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the Indemnitee's official capacity, or (b) found liable to the Corporation.  The termination of any proceeding by judgment, order, settlement, or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the requirements set forth in clauses (i), (ii), or (iii) in the first sentence of this Subsection 6.05.2.

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Subsection 6.05.3.  Successful Defense.  Without limitation of Subsection 6.05.2. and in addition to the indemnification provided for in Subsection 6.05.2., the Corporation shall indemnify every Indemnitee against reasonable expenses incurred by such person in connection with any proceeding in which he is a witness or a named defendant or respondent because he served in any of the capacities referred to in Section 6.05.1., if such person has been wholly successful, on the merits or otherwise, in defense of the proceeding.

Subsection 6.05.4.  Determinations.  Any indemnification under Subsection 6.05.2. (unless ordered by a court of competent jurisdiction) shall be made by the Corporation only upon a determination that indemnification of the Indemnitee is proper in the circumstances because he has met the applicable standard of conduct.  Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of Directors who, at the time of such vote, are not named defendants or respondents in the proceeding; (b) if such a quorum cannot be obtained, then by a majority vote of a committee of the Board of Directors, duly designated to act in the matter by a majority vote of all Directors (in which designation Directors who are named defendants or respondents in the proceeding may participate), such committee to consist solely of two or more Directors who, at the time of the committee vote, are not named defendants or respondents in the proceeding; (c) by special legal counsel selected by the Board of Directors or a committee thereof by vote as set forth in clauses (a) or (b) of this Subsection 6.05.4., or, if the requisite quorum of all of the Directors cannot be obtained therefor and such committee cannot be established, by a majority vote of all of the Directors (in which Directors who are named defendants or respondents in the proceeding may participate); or (d) by the shareholders in a vote that excludes the shares held by Directors that are named defendants or respondents in the proceeding.  Determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that, if the determination that indemnification is permissible is made by special legal counsel, determination as to reasonableness of expenses must be by special legal counsel.  In the event a determination is made under this Subsection 6.05.4. that the Director or officer has met the applicable standard of conduct as to some matters but not as to others, amounts to be indemnified may be reasonably prorated.

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Subsection 6.05.5.  Advancement of Expenses.  Reasonable expenses (including court costs and attorneys' fees) incurred by an Indemnitee who was or is a witness or was, is, or is threatened to be made a named defendant or respondent in a proceeding shall be paid by the Corporation at reasonable intervals in advance of the final disposition of such proceeding after a determination is made in the manner specified by Subsection 6.05.4. that the facts then known to those making the determination (without undertaking further investigation for purposes thereof) do not establish that indemnification would be impermissible under Subsection 6.05.2. and upon receipt by the Corporation of (i) a written affirmation by such Indemnitee of his good faith belief that he has met the standard of conduct necessary for indemnification by the Corporation under this Article and (ii) a written undertaking by or on behalf of such Indemnitee to repay the amount paid or reimbursed by the Corporation if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article.  Such written undertaking shall be an unlimited obligation of the Indemnitee but need not be secured, and it may be accepted without reference to financial ability to make repayment.  Notwithstanding any other provision of this Section, the Corporation may pay or reimburse expenses incurred by an Indemnitee in connection with his appearance as a witness or other participation in a proceeding at a time when he is not named a defendant or respondent in the proceeding.

Subsection 6.06.6.  Employee Benefit Plans.  For purposes of this Section, the Corporation shall be deemed to have requested an Indemnitee to serve an employee benefit plan whenever the performance by him of his duties to the Corporation also imposes duties on or otherwise involves services by him to the plan or participants or beneficiaries of the plan.  Excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed fines.  Action taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of his duties for a purpose reasonably believed by him to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation.

Subsection 6.05.7.  Other Indemnification and Insurance.  The indemnification provided by this Section shall (i) not be deemed exclusive of, or to preclude, any other rights to which those seeking indemnification may at any time be entitled under the Corporation's Articles of Incorporation, any law, agreement, or vote of shareholders or disinterested Directors, or otherwise, or under any policy or policies of insurance purchased and maintained by the Corporation on behalf of any Indemnitee, both as to action in his official capacity and as to action in any other capacity, (ii) continue as to a person who has ceased to be in the capacity by reason of which he was an Indemnitee with respect to matters arising during the period he was in such capacity, and (iii) inure to the benefit of the heirs, executors, and administrators of such a person.

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Subsection 6.05.8.  Notice.  Any indemnification of or advance of expenses to a present or former Director of the Corporation in accordance with this Article shall be reported in writing to the shareholders of the Corporation with or before the notice or waiver of notice of the next shareholders' meeting or with or before the next submission to shareholders of a consent to action without a meeting and, in any case, within the twelve-month period immediately following the date of the indemnification or advance.

Subsection 6.05.9.  Construction.  The indemnification provided by this Section shall be subject to all valid and applicable laws, including, without limitation, Article 7-3-101.5 of the Colorado Corporation Code, and, in the event this Section or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control, and this Section shall be regarded as modified accordingly, and, as so modified, to continue in full force and effect.

Subsection 6.05.10.  Continuing Offer, Reliance, etc.  The provisions of this Section (i) are for the benefit of, and may be enforced by, each Director and officer of the Corporation, the same as if set forth in their entirety in a written instrument duly executed and delivered by the Corporation and such Director or officer and (ii) constitute a continuing offer to all present and future Directors and officers of the Corporation.  The Corporation, by its adoption of these Bylaws, (i) acknowledges and agrees that each present and future Director and officer of the Corporation has relied upon and will continue to rely upon the provisions of this Article in accepting and serving in any of the capacities referred to in Subsection 6.05.1. of this Section, (ii) waives reliance upon, and all notices of acceptance of, such provisions by such Directors and officers, and (iii) acknowledges and agrees that no present or future Director or officer of the Corporation shall be prejudiced in his right to enforce the provisions of this Section in accordance with their terms by any act or failure to act on the part of the Corporation.

Subsection 6.05.11.  Effect of Amendment.  No amendment, modification, or repeal of this Section or any provision hereof shall in any manner terminate, reduce, or impair the right of any past, present, or future Director or officer of the Corporation to be indemnified by the Corporation, nor the obligation of the Corporation to indemnify any such Director or officer, under and in accordance with the provisions of the Section as in effect immediately prior to such amendment, modification, or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification, or repeal, regardless of when such claims may arise or be asserted.

Section 6.06.  Notices.

Whenever, under the provisions of the statutes or of the Articles of Incorporation or of these Bylaws, notice is required to be given to any Director or shareholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such Director or shareholder at such address as appears on the books of the Corporation.  Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same shall be thus deposited in the United States mail as aforesaid.

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Section 6.07.  Waiver of Notice.

Whenever any notice is required to be given to any shareholder or Director of the Corporation under the provisions of the statutes or of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice.

Section 6.08.  Bond.

Each officer and each employee shall give the Corporation a bond in such form, in such sum, and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the Corporation in case of his death, resignation, retirement, or removal from office of all books, papers, vouchers, money, and other property, of whatever kind, in his possession or under his control belonging to the Corporation.  The Corporation shall pay all insurance premiums for such bonds.

Section 6.09.  Approval of Acts.

The Corporation shall be deemed to have waived any claim against any officer of the Corporation for any act or deed approved or ratified by the Board of Directors, and the Corporation and all stockholders shall be deemed to have waived any claim against any Director or officer of the Corporation for any act or deed approved or ratified by a majority of the stockholders present in person or by proxy at any meeting of stockholders of the Corporation, whether or not such meeting was called for such purpose and whether or not the notice of such meeting specified that such matter is to be considered or voted upon.

ARTICLE VII

Amendments

Section 7.01.  By Stockholders.

These Bylaws may be altered, amended, or repealed at any meeting of the shareholders at which a quorum is present or represented, by the affirmative vote of the holders of a majority of the shares present or represented at such meeting and entitled to vote thereat.

Section 7.02.  By Directors.

These Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting, provided notice of the proposed alteration, amendment, or repeal be contained in the notice of such meeting.

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As Amended April 27, 1971

And on        June 21, 1972

And on        November 13, 1974

And on        November 15, 1979

And on        May 21, 1980

And on        December 30, 1986

And on        April 24, 1987

And on        August 24, 2007

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EX-31.A

EXHIBIT 31(a)
CERTIFICATION
I, Robert L. Moody, certify that:
1.	I have reviewed this report on Form 10-Q of National Western Life Insurance Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter  (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2007	/S/ Robert L. Moody
	Robert L. Moody
	Chairman of the Board and
	Chief Executive Officer

EX-31.B

EXHIBIT 31(b)
CERTIFICATION
I, Brian M. Pribyl, certify that:
1.	I have reviewed this report on Form 10-Q of National Western Life Insurance Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter  (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2007	/S/ Brian M. Pribyl
	Brian M. Pribyl
	Senior Vice President,
	Chief Financial and
	Administrative Officer, and
	Treasurer

EX-32.A

EXHIBIT 32(a)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of National Western Life Insurance Company ("Company") on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on or about the date hereof ("Report"), I, Robert L. Moody, Chairman of the Board and Chief Executive Officer of the Company and I, Brian M. Pribyl, Senior Vice President, Chief Financial and Administrative Officer, and Treasurer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   to my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 8, 2007
	/S/Robert L. Moody
	Robert L. Moody
	Chairman of the Board and
	Chief Executive Officer
	/S/Brian M. Pribyl
	Brian M. Pribyl
	Senior Vice President,
	Chief Financial and
	Administrative Officer, and
	Treasurer