nwl10ka.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2009

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

(Address of Principal Executive Offices)

(512) 836-1010

(Telephone Number)

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

		Name of each exchange on which
Title of each class to be so registered:		each class is to be registered:
Class A Common Stock, $1.00 par value		The NASDAQ Stock Market LLC

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

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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. (Check One)

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company 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

The aggregate market value of the common stock (based upon the closing price) held by non-affiliates of the Registrant on June 30, 2009 was $399,981,531.

As of March 11, 2010, the number of shares of Registrant's common stock outstanding was: Class A - 3,425,966 and Class B - 200,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the annual meeting of shareholders held June 29, 2010, are incorporated by reference into Part III of this report.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (“Amendment”) amends National Western Life Insurance Company’s (the “Company”) previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2009 as filed on March 16, 2010 (“Original Filing”). This Amendment is being filed to reflect the changes made in response to a comment letter received by the Company from the Staff of the Securities and Exchange Commission (SEC) in connection with the Staff’s review of the Company’s Annual Report and Proxy Statement on Schedule 14A. The Company’s consolidated balance sheets and consolidated statements of earnings for the periods presented have not been restated from the consolidated balance sheets and consolidated statements of earnings reported in the Original Filing. The Company is only filing the items of its Annual Report that have been revised in response to the Staff’s comment letter and all other information in the Annual Report remains unchanged. Accordingly, this Amendment should be read in conjunction with the Annual Report in the Original Filing. Pursuant to the Rules of the SEC, currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed or furnished herewith, as applicable.

	TABLE OF CONTENTS


		Page

	PART II

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4

	PART III

Item 11.	Executive Compensation	33

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	54

	Signatures	129

ITEM 7. 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 are or may be viewed as forward-looking. Although the Company has taken 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 SEC filings such as exposure to market risks, anticipated cash flows or operating performance, future capital needs, and statutory or regulatory related issues. However, National West ern, 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.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) of National Western Life Insurance Company for the three years ended December 31, 2009 follows. This discussion should be read in conjunction with the Company’s consolidated financial statements and related notes beginning on page 60 of this report.

Overview

The Company provides life insurance products on a global basis for the savings and protection needs of policyholders and annuity contracts for the asset accumulation and retirement needs of contract holders both domestically and internationally. The Company accepts funds from policyholders or contract holders and establishes a liability representing future obligations to pay the policy or contract holders and their beneficiaries. To ensure the Company will be able to pay these future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed income securities.

Due to the business of accepting funds to pay future obligations in later years and the underlying economics, the relevant factors affecting the Company’s business and profitability include the following:

Ÿ	the level of sales and premium revenues collected

Ÿ	persistency of policies and contracts

Ÿ	returns on investments sufficient to produce acceptable spread margins over interest crediting rates

Ÿ	investment credit quality which minimizes the risk of default or impairment

Ÿ	levels of policy benefits and costs to acquire business

Ÿ	the level of operating expenses

Ÿ	effect of interest rate changes on revenues and investments including asset and liability matching

Ÿ	maintaining adequate levels of capital and surplus

Ÿ	actual levels of surrenders, withdrawals, claims and interest spreads and changes in assumptions for amortization of deferred policy acquisition expenses and deferred sales inducements

Ÿ	changes in the fair value of derivative index options and embedded derivatives pertaining to fixed-index life and annuity products

The Company monitors these factors continually as key business indicators. The discussion that follows in this Item 7 includes these indicators and presents information useful to an overall understanding of the Company’s business performance in 2009, incorporating required disclosures in accordance with the rules and regulations of the Securities and Exchange Commission.

Critical Accounting Policies

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 reasons for the decline in value (credit event, interest rate related, credit spread widening), (c) the overall financial condition as well as the near-term prospects of the issuer, (d) whether the debtor is current on contractually obligated principal and interest payments, and (e) the Company does not i ntend to sell the investment prior to 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 purchase or prior impairment, then an other-than-temporary impairment charge is recognized. The Company would recognize impairment of securities due to changing interest rates or market dislocations only if the Company intended to sell the securities prior to recovery. When a security is deemed to be impaired a charge is recorded equal to the difference between the fair value and amortized cost basis of the security. In compliance with GAAP guidance the estimated credit versus the non-credit components are bifurcated , and the non-credit component reclassified as unrealized losses in other comprehensive income. 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. However, the new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value.

Deferred Policy Acquisition Costs (“DPAC”). 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 DPAC 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 does regular evaluations of its universa l life and annuity contracts 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 DPAC balance to the level it would have been if using the new assumptions from the inception date of each policy.

DPAC 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 DPAC balance to be amortized in the future. The present value of these cash flows, less the benefit reserve, is compared with the unamortized DPAC balance and if the DPAC balance is greater, the deficiency is charged to expense as a component of amortization and the asset balance is reduced to the recoverable amount. For more information about accounting for DPAC see Note 1, Summary of Significant Accounting Policies, of the consolidated financial statements.

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 DPAC, and are included in interest credited to contract holders’ funds. Deferred sales inducements are periodically revi ewed for recoverability. For more information about accounting for DPAC see Note 1, Summary of Significant Accounting Policies, of the consolidated financial statements.

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 assumed. 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. A discussion of the assumptions used to calculate the liability for future policy benefits is reported in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Fina ncial Statements.

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 th e 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, Note 3, Investments, in the Notes to Consolidated Financial Statements, and the discussions under Investments in Item 7 of this report.

Pension Plans and Other Postretirement Benefits. The Company sponsors a qualified defined benefit pension plan, which was frozen effective December 31, 2007, covering substantially all employees, and three nonqualified defined benefit plans covering certain senior officers. In addition, the Company has postretirement health care benefits for certain senior officers. The freeze of the qualified benefit pension plan ceased future benefit accruals to all participants and closed the Plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. In accordance with prescribed accounting standards, the Company annually reviews plan assumptions.

The Company annually reviews its pension benefit plans 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 the long-term investment policy of the plans, the various classes of the invested funds, 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 curre nt 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, health care trend rates, and discount rates. Per capita claims cost by age is the current cost of providing postretirement health care 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. Health care trend rates involve assumptions about the annual rate(s) of change in the cost of health care 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 health care inflation, changes in utilization, technological advances, and chang es in health status of the participants.

Share-Based Payments. Liability awards under a share-based payment arrangement have been measured based on the awards’ fair value at the reporting date. The Black-Scholes valuation method is used to estimate the fair value of the options. This fair value calculation of the options include assumptions relative to the following:

Ÿ	exercise price

Ÿ	expected term based on contractual term and perceived future behavior relative to exercise

Ÿ	current price

Ÿ	expected volatility

Ÿ	risk-free interest rates

Ÿ	expected dividends

These assumptions are continually reviewed by the Company and adjustments may be made based upon current facts and circumstances.

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 Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

Impact of Recent Business Environment

The financial markets began experiencing stress during the second half of 2007 which significantly increased during 2008 and on into the first half of 2009. Volatility and disruption in the financial markets caused the availability and cost of credit to be materially affected. Consumer confidence declined in the face of depressed home prices, increasing foreclosures, and higher unemployment. Eventually, these factors precipitated a severe recession in many ways akin to the Great Depression.

This combination of economic conditions began to negatively impact our sales in 2008, particularly in the domestic life and international life segments. Although the financial markets and the economy began to show improvement in the latter half of 2009, international life insurance sales, as measured by placed annualized target premium, declined 15% from 2008 levels and domestic life insurance sales dropped 74%. Economic indicators are currently pointing toward the economy as having emerged from the trough of the recession and possibly toward a line of growth in the immediate future. However, high unemployment, massive Federal government budget deficits, instability in the European economic markets, and the threat of looming inflation make the prospects of future economic stability and prosperity anything but certain. Consequently, dem and for our life insurance products may continue to be adversely impacted during this period of economic uncertainty. It is also uncertain what impact, if any, the current environment may have upon the incidence of claims, policy lapses, or surrenders of policies.

The economic backdrop did not have a similar influence on our annuity product sales. Annuity sales in 2009 increased 106% over the levels attained in 2008. Several factors may explain this outcome including: (1) during uncertain economic periods, consumers follow a flight to safety toward lower risk assets such as annuity products; (2) the Company’s strong financial position, upgrade in financial strength rating from A.M. Best during the year and ample capital resources enhanced our presence in the annuity marketplace with independent distributors and end market consumers; and (3) many of the Company’s competitors incurred reductions in their capital base due to a deterioration in the quality of their investment portfolios, including investment impairments and losses, which caused them to curtail sales activity and recruitm ent of independent distribution. Despite the growth in annuity sales, it is unclear what effect ongoing economic challenges may have upon future business levels.

The fixed income markets, our primary investment source, have experienced a high level of turmoil and constrained market liquidity conditions. Recently, there have been some improvements in this market although the low interest rate environment and tightening of interest spreads over U.S. treasury investment rates present a different set of tests. Credit downgrades of fixed income instruments by rating agencies were fairly prevalent during the first nine months of calendar 2009 with the fourth quarter producing much less activity in this regard. Market analysts generally anticipate events of default to continue into 2010 with moderation occurring during the second half of the year. The Company has experienced minimal impairment and degradation of quality in its fixed income holdings thus far although future events may not produce the s ame success in this regard.

These volatile market conditions have also increased the difficulty of valuing certain securities as trading is less frequent and/or market data is less observable. Certain securities that were in active markets with significant observable data became illiquid due to the current financial environment resulting in valuations that require greater estimation and judgment as well as valuation methods which are more complex. Such valuations may not ultimately be realizable in a market transaction and may change very rapidly as market conditions change and valuation assumptions need to be modified. Some market sectors remain dislocated with market valuations not indicative of true economic value.

Credit spreads (difference between bond yields and risk-free interest rates) on fixed maturity securities increased markedly during 2008 given the market conditions but tightened throughout 2009 and on into 2010. While the increase in credit spreads in 2008 and early in 2009 generated higher yields making our products more attractive to consumers, the subsequent spread tightening caused investment yields to fall dramatically. The lower investment yields not only cause the Company’s products to appear less appealing to consumers but also require skillful management of the Company’s earnings margin relative to minimum interest guarantee levels. It also caused us to hold a higher amount of cash and short-term investments at very low interest rates while portfolio managers searched for investment securities meeting the Company& #8217;s criteria for quality, diversification, duration and yield.

Our operating strategy is to maintain capital levels substantially above regulatory and rating agency requirements. While not significant, our capital levels incurred declinations for impairment losses on investments during 2008 and 2009. Despite these modest reductions in capital, the Company maintains resources more than adequate to fund future growth and absorb abnormal periods of cash outflows.

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 derivative and realized investment gains and losses from operating revenues. 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 derivative 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.

Consolidated Operations

Revenues. The following details Company revenues:

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Universal life and annuity contract charges	$	145,651			133,424			119,677
Traditional life and annuity premiums		17,043			17,752			19,513
Net investment income (excluding derivatives)		348,186			339,038			334,799
Other revenues		17,348			12,769			13,683

Operating revenues		528,228			502,983			487,672
Derivative income (loss)		45,345			(65,676	)		(16,662	)
Net realized investment (losses) gains		(5,167	)		(26,228	)		3,497

Total revenues	$	568,406			411,079			474,507

Universal life and annuity contract revenues - Revenues for universal life and annuity contract revenues increased 9.2% in 2009 compared to 2008. Revenues for these products consist of policy charges for the cost of insurance, administration charges, and surrender charges assessed against policyholder account balances, less reinsurance premiums. Cost of insurance charges were $83.6 million in 2009 compared to $82.9 million in 2008 and $74.3 million in 2007. Administrative charges were $25.4 million, $25.0 million and $20.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. Surrender charges assessed against policyholder account balances upon withdrawal were $50.0 million in 2009 compared to $39.1 million in 2008 and $33.4 million in 2007.

Traditional life and annuity premiums - Traditional life and annuity premiums decreased 4.0% in 2009 compared to 2008. Traditional life insurance premiums for products such as whole life and term life are recognized as revenues over the premium-paying period. The Company’s life insurance sales focus has been primarily centered around universal life products. Universal life products, especially the Company’s equity indexed universal life products, offer the opportunity for consumers to acquire life insurance protection and receive credited interest linked in part to an outside market index such as the S&P 500 Index®.

Net investment income (with and without derivatives) - A detail of net investment income is provided below.

	Years Ended December 31,
	2009		2008			2007
	(In thousands)
Gross investment income:
Debt securities	$	332,207		321,234			315,271
Mortgage loans		6,346		7,223			8,513
Policy loans		5,901		6,096			6,302
Short-term investments		116		956			1,496
Other investments		6,982		5,934			6,087

Total investment income		351,552		341,443			337,669
Less: investment expenses		3,366		2,405			2,870

Net investment income
(excluding derivatives)		348,186		339,038			334,799

Derivative income (loss)		45,345		(65,676	)		(16,662	)

Net investment income	$	393,531		273,362			318,137

Investment grade debt securities generated approximately 95.4% of net investment income, excluding derivatives, in 2009. The decrease in short-term investment income in 2009 is attributable to the very low interest rates available on money market funds during all of 2009. Interest income earned on other investments increased due to new investments in collateralized loans made during the second half of 2009.

Net investment income performance is analyzed excluding derivative income (loss), which is a common practice in the insurance industry, in order to assess underlying profitability and results from ongoing operations. Net investment income performance is summarized as follows:

	Years Ended December 31,
	2009			2008			2007
	(In thousands except percentages)
Excluding derivatives:
Net investment income	$	348,186			339,038			334,799
Average invested assets, at amortized cost	$	6,056,042			5,762,688			5,732,212
Yield on average invested assets		5.75	%		5.88	%		5.84	%

Including derivatives:
Net investment income	$	393,531			273,362			318,137
Average invested assets, at amortized cost	$	6,083,722			5,814,439			5,789,502
Yield on average invested assets		6.47	%		4.70	%		5.50	%

The average invested asset yield, excluding derivatives, decreased in 2009 due to the Company obtaining lower yields on newly invested cash inflows. The Company invests substantially most of its net cash flows in debt securities whose yields fell during 2009 with the decline in U.S. Treasury yields. Although the Company’s average credit spread on debt securities purchased for insurance operations widened to approximately 270 basis points during 2009 from 240 basis points in 2008, the overall drop in interest rate levels more than offset the incremental spread on new investments. The average invested asset yield, including derivatives, increased due to the recovery in the equity markets during 2009. Refer to the derivatives discussion following this section for a more detailed explanatio n.

Other revenues - Other revenues consists primarily of gross income associated with nursing home operations of $15.7 million, $12.5 million and $12.6 million in 2009, 2008 and 2007, respectively. In addition, the Company received $0.5 million related to lawsuit settlements during 2007.

Derivative income (loss) - Index options are derivative financial instruments used to fully hedge the equity return component of the Company’s fixed-indexed products, which were first introduced for sale in 1997. In 2002, the Company began selling a fixed-indexed universal life product in addition to its fixed-indexed annuities. 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.

Income and losses from index options are due to market conditions. Index options are intended to act as hedges to match the returns on the product’s underlying reference index and the rise or decline in the index causes option values to likewise rise or decline. The Company does not elect hedge accounting relative to these derivative instruments. While income from index options fluctuates with the underlying index, the contract interest expense to policyholder accounts for the Company’s fixed-indexed products also fluctuates in a similar manner and direction. In 2009, the reference indices increased and the Company recorded income from index options and likewise increased contract interest expenses. In 2008 and 2007, the reference indices decreased resulting in index option losses and a reduction in contract interest expenses.

The table below summarized the derivate income (loss) amounts and total contract interest by year.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Derivatives:
Unrealized income (loss)	$	93,085			(17,480	)		(56,204	)
Realized income (loss)		(47,740	)		(48,196	)		39,542

Total income (loss) included in net investment income	$	45,345			(65,676	)		(16,662	)

Total contract interest	$	242,816			138,960			164,391

Net realized investment (losses) gains - Realized losses on investments have primarily resulted from impairment write-downs on investments in debt securities and valuation allowances recorded on mortgage loans. The net losses reported in 2009 of $5.2 million consisted of gross gains of $2.2 million primarily from calls and sales of debt securities, offset by gross losses of $7.4 million, which includes other-than-temporary impairment losses.

The Company records impairment write-downs when a decline in value is considered to be other-than-temporary and full recovery of the investment is not expected. Impairment write-downs are summarized in the following table.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)
Impairment or valuation write-downs:
Bonds	$	5,105		21,803		67
Equities		416		5,412		-
Mortgage loans		1,461		1,020		1,467

	$	6,982		28,235		1,534

Due to events providing evidence of a significant deterioration in the issuers’ credit worthiness, one security was transferred from the held to maturity to the available for sale classification, and was ultimately sold.

The equity impairments represent mark-to-market write-downs on various equity holdings. In addition, the 2008 amount includes Fannie Mae and Freddie Mac preferred stock impairments of $4.6 million.

The mortgage loan valuation writedown in 2009 relates to a property located in Steubenville, Ohio. The writedown in 2008 principally involves a property located in Ft. Smith, Arkansas. The 2007 mortgage loan valuation writedown involves a New Orleans, Louisiana property whose value was negatively impacted by Hurricane Katrina.

Benefits and Expenses. The following details benefits and expenses.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Life and other policy benefits	$	48,997		39,759		41,326
Amortization of deferred policy acquisition costs		115,163		127,161		88,413
Universal life and annuity contract interest		242,816		138,960		164,391
Other operating expenses		92,192		55,630		55,130

Totals	$	499,168		361,510		349,260

Life and other policy benefits - Life and other policy benefits include death claims of $30.2 million, $29.6 million and $28.5 million for 2009, 2008 and 2007, respectively.

The Company is implementing new actuarial reserving systems that will enhance its ability to provide estimates used in establishing future policy liabilities, monitor the deferred acquisition cost asset and the deferred sales inducement asset as well as support other actuarial processes within the Company. The Company is installing a vendor software product for use in calculating the GAAP reserve liability for future policy benefits of its products. The vendor system provides actuarial formula calculations producing refined estimates of reserves in accordance with GAAP. The previous reserving system produced estimated liabilities on state regulated actuarial formulas which were supplemented with adjustments in order to produce GAAP reserve estimates. The Company elected to pur chase and install the new reserving system as growth in its lines of businesses created a need for more refined and controlled actuarial reserve computations in accordance with GAAP. The implementation of these new reserving systems for specific blocks of business began in the second quarter of 2009 and is expected to be completed in 2010. As the Company applies these new systems to a line of business, current reserving assumptions are reviewed and updated as appropriate. During the year ended December 31, 2009, loss recognition testing was performed on certain products that were converted to the new reserving system. As a result of the loss recognition testing, unlocking of historical assumptions resulted in an increase of $11.6 million in reserves and policy benefit expenses. Specifically, the Company unlocked assumptions for discount interest rates which accounted for $7.8 million of the increase as well as mortality assumptions which accounted for the remaining $3.8 million.

Amortization of deferred policy 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 con solidated financial statements occurs over future periods in relation to the expected 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 universal life and annuity contract 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 profit patterns is to be "unlocked" and reset based upon the actual experience.

An unlocking adjustment was recorded in 2009 which resulted in an increase of amortization of $5.2 million. This unlocking adjustment was based upon changes to future mortality assumptions reflecting current experience studies and assumption changes regarding the level of future policy maintenance expenses. Mortality experience is monitored regularly and future mortality assumptions are unlocked when a continued trend in actual mortality experience deviates from current assumptions and is expected to continue. Although not a prediction of future impact, prior period mortality assumption unlocking has resulted in changes of the DPAC balance between $2 million and $(7.5) million in the period of the unlocking. Policy maintenance expenses are also reviewed regularly and future assumptions are unlocked when a continued trend in the actual policy maintenance expense deviates from the current assumptions. Although not a prediction of the impact of future changes the policy maintenance expense assumptions, similar unlocking of maintenance expense assumptions could result in DPAC balance changes between $1.5 million and $4.5 million.

An unlocking adjustment was also recorded in 2008 which resulted in an increase of amortization by $8.1 million. This unlocking adjustment was based upon assumption changes to future annuitizations and full surrenders reflecting current experience studies. An unlocking adjustment was recorded in 2007 which resulted in a decrease in amortization of $10.4 million. This unlocking adjustment was based upon changes to future mortality assumptions reflecting current experience studies and assumption changes to future cost of insurance rates. 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.

In accordance with GAAP guidance the Company writes off deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement assets upon internal replacement of certain contracts as well as annuitizations of deferred annuities.

The Company is required to periodically adjust for actual experience that varies from that assumed. True-up adjustments were recorded in 2009, 2008 and 2007 relative to partial surrender rates, mortality rates, credited interest rates and earned rates for the current year’s experience resulting in $8.4 million, $16.2 million, and $1.0 million increases in amortization, respectively.

Universal life and annuity contract interest - The Company closely monitors 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 described above. The difference between yields earned on investments over policy credited rates is often referred to as the "interest spread". Raising policy credited rates can typically have an impact sooner 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 were as follows:

	December 31,									December 31,
	2009			2008			2007			2009			2008			2007
	(Excluding equity-indexed products)									(Including equity-indexed products)

Annuity		2.83	%		3.01	%		3.41	%		4.11	%		2.42	%		2.84	%
Interest sensitive life		3.80	%		3.92	%		3.23	%		6.83	%		3.39	%		4.28	%

Contract interest includes the performance of the derivative component of the Company's equity-indexed products. As previously noted, the recent market performance of these derivative features increased contract interest expense in 2009 and 2007, and decreased contract interest expense in 2008, with corresponding offsetting effects in the Company's investment income given the hedge nature of the options. With these credited rates, the Company generally realized its targeted interest spread on its products.

Other operating expenses - Other operating expenses consist of general administrative expenses, legal costs, licenses and fees, commissions not subject to deferral, and expenses of nursing home operations. As discussed previously in Item 3. Legal Proceedings, and in reports on Form 8-K which the Company issued on February 9, 2010 and February 22, 2010, the Company is currently involved in various legal actions in the normal course of its business. In accordance with generally accepted accounting principles, the Company accrued $23.0 million during the year ended December 31, 2009 for potential future costs pertaining to these various matters.

During 2009, the Company started or accelerated major information system initiatives to enhance actuarial, accounting, policy acquisition, and policy administration processes. Non-capitalizable expenses associated with these various system development efforts were approximately $1.5 million higher than amounts incurred in 2008. Deprecation expense increased $0.9 million in association with new system implementations.

Guaranty fund assessment expenses increased to $0.5 million in 2009 from $0.3 million and $(0.2) million in 2008 and 2007, respectively.

Nursing home expenses amounted to $14.9 million, $11.4 million and $11.0 million in 2009, 2008 and 2007, respectively. The higher level of expenses during 2009 is primarily related to the start-up of operations of the Company’s second nursing home during 2009.

Compensation costs related to stock options totaled $1.6 million in 2009, $(1.4) million in 2008 and $(1.1) million in 2007 as a result of marking the options to fair value under the liability method of accounting.

Federal income taxes - Federal income taxes on earnings from continuing operations for 2009, 2008 and 2007 reflect effective tax rates of 34.3%, 32.1% and 31.8%, respectively, which are lower than the expected Federal rate of 35% primarily due to tax-exempt investment income related to investments in municipal securities and dividends-received deductions on income from stock investments.

During 2008, the Company was notified that its 2005 tax return amendment, which was filed September 2007, was being audited by the IRS. The audit is currently in progress. Adjustments to the amended return, if any, are not expected to have a material effect on the financial condition or operating results of the Company.

During the second quarter of 2007, upon the completion of a detailed review of 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 2007 or any prior period financial statements.

Segment Operations

Summary of Segment Earnings

A summary of segment earnings from continuing operations for the years ended December 31, 2009, 2008 and 2007 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:

2009	$	426		14,663		25,460		8,294		48,843
2008		717		15,350		27,842		6,781		50,690
2007		342		20,179		56,299		6,278		83,098

Domestic Life Insurance Operations

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

	Years Ended December 31,
	2009		2008		2007
	(In thousands)
Premiums and other revenue:
Premiums and contract charges	$	34,414		27,919		25,879
Net investment income		19,498		20,254		18,863
Other revenues		25		20		41

Total premiums and other revenue		53,937		48,193		44,783

Benefits and expenses:
Life and other policy benefits		13,884		14,478		14,922
Amortization of deferred policy acquisition costs and deferred sales inducements		16,423		12,416		7,998
Universal life insurance contract interest		9,014		9,171		9,463
Other operating expenses		13,968		11,057		11,898

Total benefits and expenses		53,289		47,122		44,281

Segment earnings before Federal income taxes		648		1,071		502

Federal income taxes		222		354		160

Segment earnings	$	426		717		342

Revenues from domestic life insurance operations include life insurance premiums on traditional type products and contract 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.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Universal life insurance revenues	$	32,993			26,978			23,028
Traditional life insurance premiums		6,378			5,849			6,629
Reinsurance premiums		(4,957	)		(4,908	)		(3,778	)

Totals	$	34,414			27,919			25,879

The Company’s premiums and contract revenues increased 23% from 2008 coinciding with sales growth in recent years of domestic life products. It is the Company's marketing plan to increase domestic life product sales through increased recruiting, new distribution and the development of new life insurance products. The Company had approximately 7,300 contracted agents as of December 31, 2009, an increase of 3,000 contracted agents from December 31, 2008.

In accordance with generally accepted accounting principles, premiums collected on universal life products are not reflected as revenues in the Company's consolidated statements of earnings. Actual domestic universal life premiums are detailed below.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Universal life insurance:
First year and single premiums	$	13,640		15,272		15,592
Renewal premiums		21,978		19,948		16,639

Totals	$	35,618		35,220		32,231

Net investment income decreased slightly to $19.5 million in 2009 as compared to $20.3 million in 2008 and $18.9 million in 2007, due to lower investment yields from debt security investment purchases backing the obligations of the line of business.

Policy benefits in 2009, 2008 and 2007 were consistent with Company expectations. Other operating expenses were $2.9 million higher in 2009 reflecting the factors discussed in the other operating expense section of consolidated operations above.

During the current year, unlocking of the projected universal life per policy maintenance expense and projected mortality assumptions decreased the DPAC asset balance and increased life DPAC amortization by $2.7 million. Current year true-up adjustments increased amortization expense by $1.9 million. No unlocking adjustments were recorded in 2008. True-up adjustments increased DPAC amortization $1.4 million for the year. During 2007, the Company recorded an unlocking adjustment for changes in mortality assumptions which reduced the DPAC asset and increased DPAC amortization expense by $2.2 million. True-up adjustments increased DPAC amortization expense by $0.6 million.

International Life Insurance Operations

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

	Years Ended December 31,
	2009		2008		2007
	(In thousands)
Premiums and other revenue:
Premiums and contract charges	$	104,016		97,661		88,782
Net investment income		44,540		17,350		24,690
Other revenues		68		62		126

Total premiums and other revenue		148,624		115,073		113,598

Benefits and expenses:
Life and other policy benefits		19,522		21,292		22,810
Amortization of deferred policy acquisition costs and deferred sales inducements		41,849		37,525		24,959
Universal life insurance contract interest		45,868		16,803		20,993
Other operating expenses		19,048		16,502		15,271

Total benefits and expenses		126,287		92,122		84,033

Segment earnings before Federal income taxes		22,337		22,951		29,565

Federal income taxes		7,674		7,601		9,386

Segment earnings	$	14,663		15,350		20,179

In general, as the amount of international life insurance in force grows, the Company anticipates operating earnings to increase as well. The amount of international life insurance in force grew from $14.8 billion at December 31, 2007 to $15.9 billion at December 31, 2008. However, international life insurance in force declined slightly to $15.7 billion at December 31, 2009, in reaction to the U.S. financial market crisis.

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.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Universal life insurance revenues	$	106,601			98,458			85,633
Traditional life insurance premiums		13,113			14,727			15,692
Reinsurance premiums		(15,698	)		(15,524	)		(12,543	)

Totals	$	104,016			97,661			88,782

International operations have emphasized universal life policies over traditional life insurance products. In accordance with generally accepted accounting principles, premiums collected on universal life products are not reflected as revenues in the Company's consolidated statements of earnings. Actual international universal life premiums collected are detailed below.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)
Universal life insurance
First year and single premiums	$	35,147		39,257		44,426
Renewal premiums		102,403		96,456		91,621

Totals	$	137,550		135,713		136,047

The Company's international life operations historically have been a significant factor in the Company's overall earnings performance and represent a market niche where the Company believes it has a competitive advantage. A productive agency force has been developed given the Company's longstanding reputation for supporting its international life products coupled with the instability of competing companies in international markets. In particular, the Company has experienced growth with its fixed-indexed universal life products and has collected related premiums of $81.9 million, $78.5 million and $76.8 million for the years ended 2009, 2008 and 2007, respectively.

The appealing feature to a consumer purchasing a fixed-indexed universal life policy is the interest crediting component linked in part to an equity index. With the growth in this block of business, the period-to-period changes in fair values of the underlying options used to hedge this interest crediting feature have had an increasingly greater impact on net investment and contract interest. A detail of net investment income for international life insurance operations is provided below.

	Years Ended December 31,
	2009		2008			2007
	(In thousands)

Net investment income
(excluding derivatives)	$	34,130		28,687			26,519
Derivative income (loss)		10,410		(11,337	)		(1,829	)

Net investment income	$	44,540		17,350			24,690

In 2009, the Company recorded an unlocking adjustment of $2.5 million relative to changes in projected universal life per policy maintenance expenses, and projected mortality assumptions, that reduced the DPAC asset and increased amortization expense. True-up adjustments of $1.5 million were also recorded that increased amortization expense. Amortization of deferred policy acquisition costs in 2008, were impacted as the Company recorded true-up adjustments that reduced the DPAC asset and increased amortization by $3.7 million. The Company recorded an unlocking adjustment benefit in 2007 totaling $9.0 million relative to improved mortality assumptions that resulted in an increase to the DPAC asset balance and a decrease in amortization expense. In addition, a true-up adjustment of $1.7 million was also r ecorded in 2007 resulting in a decrease to amortization. Offsetting the decrease to 2007 amortization for the unlocking and true-up adjustments was an increase in amortization due primarily to the application of new GAAP guidance in 2007 which required the write-off of deferred balances on contracts considered substantially changed. These balances were previously carried and amortized over the projected life of the contract.

Contract interest expense includes fluctuations that are the result of underlying equity indices performance relative to the equity-indexed universal life products. The associated stock market gains (losses) increase (decrease) the amounts the Company credits to policyholders. With the recovery in the equity markets during 2009, the segment reported significant increases in net investment income and contract interest expense. For more details about the Company’s use of index options to hedge equity indices performance refer to the derivative income (loss) discussion in the Consolidated Operations section of Item 7.

Other operating expenses reported in 2009 were 15.4% higher compared to 2008, reflecting the factors discussed in the other operating expense section of Consolidated Operations previously.

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.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Premiums and other revenue:
Premiums and contract charges	$	24,264		25,596		24,529
Net investment income		317,703		226,683		266,953
Other revenues		1,535		232		920

Total premiums and other revenue		343,502		252,511		292,402

Benefits and expenses:
Life and other policy benefits		15,666		3,990		3,594
Amortization of deferred policy acquisition costs and deferred sales inducements		56,891		77,219		55,456
Annuity contract interest		187,934		112,986		133,935
Other operating expenses		44,227		16,685		16,931

Total benefits and expenses		304,718		210,880		209,916

Segment earnings before Federal income taxes		38,784		41,631		82,486

Federal income taxes		13,324		13,789		26,187

Segment earnings	$	25,460		27,842		56,299

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.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Surrender charges	$	21,302		20,502		20,238
Payout annuity and other revenues		2,941		5,071		4,263
Traditional annuity premiums		21		23		28

Totals	$	24,264		25,596		24,529

In accordance with generally accepted accounting principles, deposits collected on annuity contracts are not reflected as revenues in the Company's consolidated statements of earnings. Actual annuity deposits collected are detailed below.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Fixed-indexed annuities	$	488,352		281,649		316,848
Other deferred annuities		325,959		121,319		116,280
Immediate annuities		23,266		7,165		4,637

Totals	$	837,577		410,133		437,765

Fixed-indexed products are more attractive for consumers when interest rate levels remain low and equity markets produce positive returns. Fixed-indexed annuity deposits as a percentage of total annuity deposits recorded were 58.4%, 68.7% and 72.4% for the years ended December 31, 2009, 2008 and 2007, respectively, with the equity market turmoil accounting for the declining percentage during this period. Since the Company does not offer variable products or mutual funds, fixed-indexed products provide an important alternative to the Company's existing fixed interest rate annuity products. Although fixed-indexed sales declined as a percent of overall annuity sales, the recovery of the equity markets during 2009 was a contributing factor to the 73.4% increase in fixed index annuity sales. The 225% increas e in immediate annuities sales is reflective of consumers shift in risk tolerance to guaranteed performance and payouts offered by these types of annuities. Other factors contributing to the increase in both fixed-indexed and other deferred annuities sales include the increase in contracted agents during the year and competitors having to slow down their acceptance of new business in order to maintain solvency ratios. Due to the Company’s strong capital and high solvency ratios, the Company was able to continue to accept new business without any constraints.

Other deferred annuity deposits increased 169% in 2009 compared to 2008. These product sales had been trending lower over the past few years due to low interest rates and investor preferences. As a selling inducement, many annuity products include a first year premium or interest rate bonus in addition to the base first year deposit interest rate. These bonuses are credited to the policyholder account but are deferred by the Company and amortized over future periods. The amount deferred was approximately $36.8 million, $19.4 million and $20.8 million for the years ended December 31, 2009, 2008 and 2007, respectively.

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

	Years Ended December 31,
	2009		2008			2007
	(In thousands)

Net investment income
(excluding derivatives)	$	284,149		279,925			281,553
Derivative income (loss)		33,554		(53,242	)		(14,600	)

Net investment income	$	317,703		226,683			266,953

As previously described, derivatives are used to hedge the equity return component of the Company's fixed-indexed annuity products with any gains or losses from the sale or expiration of the options, as well as period-to-period changes in fair values, reflected in net investment income. Derivative income and losses fluctuate from period to period based on the performance of the indices underlying fixed-indexed products.

With respect to deferred policy acquisition costs, the Company is required to periodically adjust for actual experience that varies from that assumed. A true-up of assumptions in 2009 resulted in increased amortization of deferred policy acquisition costs of $5.1 million. During 2008, the Company recorded an unlocking adjustment of $8.1 million and a true-up adjustment of $11.1 million that together increased amortization by $19.2 million. During 2007 the Company recorded an unlocking adjustment of $1.8 million and true-up adjustments of $3.3 million resulting in decreased amortization of deferred acquisition costs. While management does not currently anticipate any impact from unlocking in 2010, facts and circumstances may arise in the future which require that the factors be reexamined.

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

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Fixed-indexed annuities	$	150,062			42,224			50,743
All other annuities		60,891			74,596			94,632

Gross contract interest		210,953			116,820			145,375
Bonus interest deferred and capitalized		(36,747	)		(19,442	)		(20,796	)
Bonus interest amortization		13,728			15,608			9,356

Total contract interest	$	187,934			112,986			133,935

In comparison by year, the fluctuation in reported contract interest amounts for fixed-indexed annuities is due to sales levels and the positive or negative performance of equity markets on option values. In 2008, the Company increased its amortization of bonus interest (deferred sales inducements) by approximately $3.5 million for updates in future expected gross profit assumptions.

Other operating expenses in 2009 were $27.5 million higher compared to 2008 primarily due to various legal actions that arose in the normal course of business over the past several years. In accordance with generally accepted accounting principles, the Company accrued $23.0 million during 2009 pertaining to these various matters and for potential future costs. The balance of the increase in operating expenses reflects the other factors previously discussed in the Other Operating Expenses section of consolidated operations.

Other Operations

National Western's primary business encompasses its domestic and international life insurance operations and its annuity operations. However, the Company also has small real estate, nursing home, and other investment operations through its wholly-owned subsidiaries. Most of the income from the Company's subsidiaries is from a life interest in a trust. Gross income distributions from the trust totaled $3.9 million in 2009 and $4.1 million in both 2008 and 2007.

The Company owns two nursing home facilities which are operated by affiliated entities, whose financial operating results are consolidated with those of the Company. Daily operations and management of the nursing homes are performed by an experienced management company through a contract with the limited partnership. Nursing home operations generated $0.8 million, $1.1 million and $1.6 million of operating earnings in 2009, 2008 and 2007, respectively. The lower level of earnings in 2009 is primarily related to start-up costs associated with the opening of the Company’s second nursing home during the year.

INVESTMENTS

General

The Company's investment philosophy emphasizes the careful 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.

The Company's overall conservative investment philosophy is reflected in the allocation of its investments, which is detailed below as of December 31, 2009 and 2008. The Company emphasizes investment grade debt securities, with smaller holdings in mortgage loans and policy loans.

	2009				2008
	Carrying				Carrying
	Value		%		Value		%
	(In thousands)				(In thousands)

Debt securities	$	6,212,726		95.2	$	5,563,000		96.3
Mortgage loans		98,200		1.5		90,733		1.6
Policy loans		78,336		1.2		79,277		1.4
Derivatives, index options		89,915		1.4		11,920		0.2
Equity securities		14,014		0.2		13,683		0.2
Real estate		20,056		0.3		10,828		0.2
Other		12,773		0.2		3,340		0.1

Totals	$	6,526,020		100.0	$	5,772,781		100.0

Debt and Equity Securities

The Company maintains a diversified portfolio which consists mostly of corporate, mortgage-backed, and public utility fixed income securities. Investments in mortgage-backed securities primarily include U.S. government agency pass-through securities and collateralized mortgage obligations ("CMO"). The Company's investment guidelines prescribe limitations by type of security as a percent of the total investment portfolio and all holdings were within these threshold limits. As of December 31, the Company's debt securities portfolio consisted of the following:

	2009				2008
	Carrying				Carrying
	Value		%		Value		%
	(In thousands)				(In thousands)

Corporate	$	2,921,425		47.0	$	2,453,404		44.0
Mortgage-backed securities		1,967,303		31.7		2,001,060		36.0
Public utilities		964,390		15.5		790,419		14.2
U.S. Agencies		103,176		1.7		119,674		2.2
U.S. Treasury		1,916		0.0		1,923		-
Home equity		37,661		0.6		46,959		0.9
Manufactured housing		36,211		0.6		41,319		0.7
States & political subdivisions		159,364		2.6		86,962		1.6
Foreign governments		21,280		0.3		21,280		0.4

Totals	$	6,212,726		100.0	$	5,563,000		100.0

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 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"), very accurately defined maturity ("VADM") and sequential tranches are designed to amortize in a more predictable manner than other CMO classes or pass-throughs. The Company does not purchase tranches, such as PAC II and support tranches, that subject the portfolio to greater than average prepayment risk. Using this strategy, the Company can more effectively manage and reduce prepayment and extension risks, thereby helping to maintain the appropriate matchi ng of the Company's assets and liabilities.

The Company holds approximately $73.9 million in asset-backed securities as of December 31, 2009. This portfolio includes $36.2 million of manufactured housing bonds and $37.7 million of home equity loans (also referred to as subprime securities). The Company does not have any holdings in collaterized bond obligations (“CBO”s), collateralized debt obligations (“CDO”s), or collateralized loan obligations (“CLO”s). 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 suc h as subprime mortgages. Capital market risks include the general level of interest rates and the liquidity for these securities in the marketplace.

The mortgage-backed portfolio includes one Alt-A security with a carrying value of $3.6 million. The Alt-A sector is a sub-sector of the jumbo prime MBS sector. The average FICO for an Alt-A borrower is approximately 715 compared to a score of 730 for a jumbo prime borrower. The Company’s exposure to the Alt-A and subprime sectors is limited to investments in the senior tranches of structured securities collateralized by Alt-A or subprime residential mortgage loans. The subprime sector is generally categorized under the asset-backed sector. This sector lends to borrowers who do not qualify for prime interest rates due to poor or insufficient credit history. Subprime borrowers generally have FICO scores of 660 or below. The slowing housing market, rising interest rates, and relaxed underwriting sta ndards for loans originated after 2005 resulted in higher delinquency rates and losses beginning in 2007. These events caused illiquidity in the market and volatility in the market prices of subprime securities during 2008 and 2009. With the government intervention initiatives in 2009, the housing market began to show signs of stabilizing at the end of the year. There was an improvement in the prices of subprime securities as the bond market also became more liquid. All of the loans classified as Alt-A or subprime in the Company’s portfolio as of December 31, 2009 were underwritten prior to 2005 as noted in the table below.

Investment	December 31, 2009				December 31, 2008
Origination Year	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)

Subprime:
1998	$	10,776		8,467		12,125		11,157
2002		469		469		1,123		556
2003		4,608		3,664		6,894		3,779
2004		21,808		19,404		26,817		21,970

Subtotal subprime	$	37,661		32,004		46,959		37,462

Alt A:
2004	$	3,626		3,626		3,821		3,821

As of December 31, 2009, 9 of the subprime securities were rated AAA, 1 was rated AA, 1 was rated A, 1 was rated BB and 1 was rated CC.

In addition to diversification, an important aspect of the Company's investment approach is managing the credit quality of its investments in debt securities. 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 debt securities portfolio with 97.5% held in investment grade securities. 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 ®.

	2009				2008
	Carrying				Carrying
	Value		%		Value		%
	(In thousands)				(In thousands)

AAA and U.S. government	$	2,183,561		35.2	$	2,306,694		41.5
AA		360,634		5.8		205,729		3.7
A		1,461,055		23.5		1,431,703		25.7
BBB		2,052,193		33.0		1,546,720		27.8
BB and other below investment grade		155,283		2.5		72,154		1.3

Totals	$	6,212,726		100.0	$	5,563,000		100.0

National Western does not purchase below investment grade securities. Investments held in debt securities below investment grade are the result of subsequent downgrades of the securities. These holdings are summarized below.

	Below Investment Grade Debt Securities
							% of
	Amortized		Carrying		Fair		Invested
	Cost		Value		Value		Assets
	(In thousands except percentages)

December 31, 2009	$	155,110		155,283		141,895		2.4	%

December 31, 2008	$	84,229		72,154		67,375		1.2	%

The Company's percentage of below investment grade securities compared to total invested assets increased from 2008 due to issues being downgraded during the year as the economic environment prompted rating agencies to revise their credit outlooks. Despite the increases, the Company's holdings of below investment grade securities is relatively small as a percentage of total invested assets and is low compared to industry averages.

Holdings in below investment grade securities by category as of December 31, 2009 are summarized below, including 2009 and 2008 fair values for comparison. The Company is continually monitoring developments in these industries that may affect security valuation issues.

	Below Investment Grade Debt Securities
	Amortized		Carrying		Fair		Fair
	Cost		Value		Value		Value
Industry Category	2009		2009		2009		2008
	(In thousands)

Retail	$	18,958		20,478		20,478		8,184
Telecommunications		6,320		10,600		10,600		3,806
Home equity		5,625		5,625		3,815		4,609
Manufactured housing		7,434		8,152		7,637		4,705
Mortgage-backed		9,888		6,740		6,740		7,457
Transportation		1,635		1,739		1,739		1,144
Manufacturing		32,056		31,786		31,306		23,213
Utilities		1,999		2,137		2,137		1,839
Banking/finance		58,987		57,804		47,268		40,305
Other		12,208		10,222		10,175		8,554

Totals	$	155,110		155,283		141,895		103,816

The Company closely monitors its 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 or the markets in general is possible, which may result in further write-downs.

Generally accepted accounting principles require that investments in debt securities be written down to fair value when declines in value are judged to be other-than-temporary. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price methodology). Refer to Note 14, Fair Values of Financial Instruments, of the accompanying consolidated financial statements.

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 on categorization 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 December 31, 2009, approximately 32% of the Company's total debt and equity securities, based on fair values, were classified as securities available for sale. These holdings provide flexibility to the Company 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.

	December 31 ,2009
	Fair		Amortized		Unrealized
	Value		Cost		Gains
	(In thousands)
Securities held to maturity:
Debt securities	$	4,331,077		4,176,661		154,416
Securities available for sale:
Debt securities		2,036,065		1,961,412		74,653
Equity securities		14,014		5,953		8,061

Totals	$	6,381,156		6,144,026		237,130

During the twelve months ended December 31, 2009 the Company recorded other-than-temporary impairment credit related write-downs on debt securities totaling $5.1 million and $0.4 million on equity securities. See Note 3, Investments Debt and Equity Securities, of the accompanying consolidated financial statements.

As of April 1, 2009, the Company adopted the GAAP guidance on the recognition and accounting for other-than-temporary impairments. See Note 1, Summary of Significant Accounting Policies, and Note 3, Investments, in the accompanying consolidated financial statements. Since adoption of this new guidance, the Company recognized $8.7 million of other-than-temporary impairments; of which $0.3 million was deemed credit related and recognized as realized investment losses in earnings, and $8.4 million was deemed a non credit related impairment and recognized in other comprehensive income.

Mortgage Loans and Real Estate

In general, the Company originates loans on high quality, income-producing properties such as shopping centers, freestanding retail stores, office buildings, industrial and sales or service facilities, selected apartment buildings, motels, and health care facilities. The location of these properties is typically in major metropolitan areas that offer a potential for property value appreciation. Credit and default risk is minimized through strict underwriting guidelines and diversification of underlying property types and geographic locations. In addition to being secured by the property, mortgage loans with leases on the underlying property are often guaranteed by the lessee. This approach has proven to result in quality mortgage loans with few defaults.

The Company requires a minimum specified yield on mortgage loan investments. Until recently the low interest rate environment resulted in fewer loan opportunities being available which met the Company's required rate of return. This environment has recently started to change and the Company again made new mortgage loans which resulted in an increase in total loans at year-end.

The Company's direct investments in real estate are not a significant portion of its total investment portfolio as many of these investments were acquired through mortgage loan foreclosures. Due to the bankruptcy filing by Circuit City in 2009, the Company foreclosed on one mortgage loan during 2009, and has started foreclosure proceedings on a second mortgage loan which should be completed in the first half of 2010. The Company also participates in several real estate joint ventures and limited partnerships that invest primarily in income-producing retail properties. These investments have enhanced the Company's overall investment portfolio returns.

The Company held net investments in mortgage loans totaling $98.2 million and $90.7 million at December 31, 2009 and 2008, respectively. The diversification of the portfolio by geographic region and by property type was as follows:

	2009				2008
Geographic Region:	Amount		%		Amount		%
	(In thousands)				(In thousands)

West South Central	$	57,238		58.3	$	62,123		68.5
Mountain		22,007		22.4		7,919		8.7
East North Central		10,686		10.9		12,030		13.3
South Atlantic		3,570		3.6		3,666		4.0
Pacific		2,340		2.4		2,562		2.8
Middle Atlantic		2,359		2.4		2,433		2.7

Totals	$	98,200		100.0	$	90,733		100.0

	2009				2008
Property Type:	Amount		%		Amount		%
	(In thousands)				(In thousands)

Retail	$	63,928		65.1	$	70,954		78.2
Hotel/Motel		19,996		20.4		6,320		7.0
Apartments		6,167		6.3		3,600		3.9
Office		5,634		5.7		5,971		6.6
Land/Lots		2,473		2.5		3,885		4.3
All other		2		-		3		-

Totals	$	98,200		100.0	$	90,733		100.0

The Company does not recognize interest income on loans past due ninety days or more. The Company had two mortgage loans past due six months or more with the principal balance totaling $7.0 million at December 31, 2009, 2008 and 2007. Interest income not recognized for past due loans totaled approximately $0.4 million in both 2008 and 2007. There was no interest income not recognized in 2009.

The Company recognized valuation losses of $1.4 million, $1.0 million and $1.5 million for the years ended December 31, 2009, 2008 and 2007, respectively, based on information which indicated that the Company may not collect all amounts in accordance with the mortgage agreement. While the Company closely monitors its mortgage loan portfolio, future changes in economic conditions can result in impairments beyond those currently identified.

The contractual maturities of mortgage loan principal balances at December 31, 2009 are as follows:

	Principal
	Due
	(In thousands)

Due in one year or less	$	15,407
Due after one year through five years		22,678
Due after five years through ten years		64,032
Due after ten years through fifteen years		1,650
Due after fifteen years		-

Total	$	103,767

The Company's real estate investments totaled approximately $20.1 million and $10.8 million at December 31, 2009 and 2008, respectively, and consist primarily of income-producing properties which are being operated by a wholly-owned subsidiary of the Company. The Company recognized operating income on these properties of approximately $1.2 million, $0.9 million and $1.0 million for the years ended December 31, 2009, 2008 and 2007, respectively. The Company monitors the conditions and market values of these properties on a regular basis and makes repairs and capital improvements to keep the properties in good condition. The Company recorded net realized investment losses of $0.1 million in 2008 and gains of $0.2 million in 2007, respectively, associated with these properties. There was no recorded net re alized gain or loss in 2009.

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, market dislocations or increasing event-risk concerns.

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

	December 31,
	2009			2008
	(In thousands except percentages)

Debt securities - fair value	$	6,367,142			5,458,936
Debt securities - amortized cost	$	6,138,073			5,728,363

Fair value as a percentage of amortized cost		103.73	%		95.30	%
Unrealized gains (losses) at year-end	$	229,069			(269,427	)
Ten-year U.S. Treasury bond – increase (decrease)
in yield for the year		1.093	%		(1.81	) %

	Unrealized Gains (Losses) Balance
	Net Balance at		Net Balance at
	December 31,		December 31,			Change in
	2009		2008			Net Balance
	(In thousands)

Debt securities held to maturity	$	154,416		(104,064	)		258,480
Debt securities available for sale		74,653		(165,363	)		240,016

Totals	$	229,069		(269,427	)		498,496

Changes in interest rates typically have a significant impact on the fair values of the Company's debt securities. During 2009, market interest rates of the ten-year U.S. Treasury bond increased 109 basis points from year end 2008. However, with the improved liquidity in the corporate bond market, the spread between corporate bonds and treasuries’ narrowed causing the prices of the Company’s corporate bonds to rise. The decrease in spread contributed to the increase in the unrealized gain balance of $498.5 million on a portfolio of approximately $6.4 billion. This amount is reasonable based upon the current market factors and the current investment portfolio characteristics. The Company would expect similar results in the future from a significant upward or downward mov ement 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, changes in fair values have relatively small effects on the Company's financial results.

The Company manages interest rate risk through ongoing cash flow testing required for insurance regulatory purposes. Business 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 rate risk through surrender charges that are imposed to discourage policy surrenders and to offset unamortized acquisition costs. Interest rate changes can be antic ipated 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 following table illustrates the market risk sensitivity of the Company's interest rate-sensitive assets. The table shows the effect of a change in interest rates on the fair value of the portfolio using models that measure the change in fair value arising from an immediate and sustained change in interest rates in increments of 100 basis points.

	Fair Values of Assets
	Changes in Interest Rates in Basis Points
		-100	0	+ 100	+ 200	+ 300
	(In thousands)

Debt and equity securities	$	6,670,470	6,381,156	6,063,767	5,746,319	5,444,656
Mortgage loans		100,976	97,763	94,726	91,854	89,137
Other loans		13,685	13,304	12,938	12,587	12,251
Derivatives		88,817	89,915	91,040	92,173	93,310

Expected maturities of debt securities may differ from contractual maturities due to call or prepayment provisions. The models assume that prepayments on mortgage-backed securities are influenced by agency and pool types, the level of interest rates, loan age, refinancing incentive, month of the year, and underlying coupon. During periods of declining interest rates, principal payments on mortgage-backed securities and collateralized mortgage obligations tend to increase as the underlying mortgages are prepaid. Conversely, during periods of rising interest rates, the rate of prepayment slows. Both of these situations can expose the Company to the possibility of asset-liability cash flow and yield mismatch. The model uses a proprietary method of sampling interest rate paths along with a mortga ge prepayment model to derive future cash flows. The initial interest rates used are based on the current U.S. Treasury yield curve as well as current mortgage rates for the various types of collateral in the portfolio.

Mortgage and other loans were modeled by discounting scheduled cash flows through the scheduled maturities of the loans, starting with interest rates currently being offered for similar loans to borrowers with similar credit ratings. Policy loans were modeled by discounting estimated cash flows using U.S. Treasury Bill interest rates as the base rates at December 31, 2009. The estimated cash flows include assumptions as to whether such loans will be repaid by the policyholders or settled upon payment of death or surrender benefits on the underlying insurance contracts and incorporate both Company experience and mortality assumptions associated with such contracts.

In addition to the securities analyzed above, the Company invests in index options which are derivative financial instruments used to hedge the equity return component of the Company's indexed annuity and life products. The values of these options are primarily impacted by equity price risk, as the options' fair values are dependent on the performance of the underlying reference index. However, increases or decreases in investment returns from these options are substantially offset by corresponding increases or decreases in amounts paid to indexed policyholders, subject to minimum guaranteed policy interest rates.

The Company's market risk liabilities, which include policy liabilities for annuity and supplemental contracts, are managed for interest rate risk through cash flow testing as previously described. As part of this cash flow testing, the Company has analyzed the potential impact on net earnings of a 100 basis point decrease and increases in increments of 100 basis points in the U.S. Treasury yield curve as of December 31, 2009. The potential impact on net earnings from these interest rate changes are summarized below.

	Changes in Interest Rates in Basis Points
		-100		+100	+200	+300
	(In thousands)

Impact on net earnings	$	(2,795	)	1,025	2,478	2,388

These estimated impacts in earnings are net of tax effects and the estimated effects of deferred policy acquisition costs.

The above described scenarios produce estimated changes in cash flows as well as cash flow reinvestment projections. Estimated cash flows in the Company's model assume cash flow reinvestments, which are representative of the Company's current investment strategy. Calls and prepayments include scheduled maturities and those expected to occur which would benefit the security issuers. Assumed policy surrenders consider differences and relationships between credited interest rates and market interest rates as well as surrender charges on individual policies. The impact to earnings also includes the expected effects on amortization of deferred policy acquisition costs. The model considers only annuity and supplemental contracts in force at December 31, 2009, and does not consider new pr oduct sales or the possible impact of interest rate changes on sales.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity requirements are met primarily by funds provided from operations. Premium deposits and annuity considerations, investment income, and investment maturities and prepayments are the primary sources of funds while investment purchases, policy benefits in the form of claims, and payments to policyholders and contract holders in connection with surrenders and withdrawals as well as operating expenses are the primary uses of funds. To ensure the Company will be able to pay future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will meet the ongoing cash flow needs of the Company. The approach of matching asse t and liability durations and yields requires an appropriate mix of investments. Although the Company historically has not been put in the position of liquidating invested assets to provide cash flow, its 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 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 and market value adjustment charges, that help limit and discourage early withdrawals. The following table sets forth withdrawal characteristics of the Company's annuity reserves and deposit liabilities (based on statutory liability values) as of the dates indicated.

	December 31, 2009					December 31, 2008
			% of					% of
	Amount		Total			Amount		Total
	(In thousands except percentages)

Not subject to discretionary withdrawal
provisions	$	425,163		8.7	%	$	369,405		8.3	%
Subject to discretionary withdrawal,
with adjustment:
With market value adjustment		1,434,212		29.4	%		1,305,478		29.3	%
At contract value less current
surrender charge of 5% or more		2,612,171		53.6	%		2,347,156		52.6	%

Subtotal		4,471,546		91.7	%		4,022,039		90.2	%
Subject to discretionary withdrawal at
contract value with no surrender charge
or surrender charge of less than 5%		405,544		8.3	%		440,694		9.8	%

Total annuity reserves and deposit
liabilities	$	4,877,090		100.0	%	$	4,462,733		100.0	%

The actual amounts paid by product line in connection with surrenders and withdrawals for the years ended December 31 are noted in the table below.

	2009		2008		2007
	(In thousands)
Product Line:
Traditional Life	$	5,327		5,763		6,408
Universal Life		55,861		41,430		34,356
Annuities		359,903		391,879		435,800

Total	$	421,091		439,072		476,564

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 $138 million, $195 million and $260 million in 2009, 2008 and 2007, respectively. The Company also has significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows totaled $1,050 million, $727 million and $477 million in 2009, 2008 and 2007, respectively. Cash flows from security maturities, redemptions, and prepayments were relatively higher over the last three years due to the decline in interest rates. These cash flow items could be reduced if interest rates rise in 2010. Net cash flows from the Company's universal life and annuity deposit product operations totaled $337 millio n, $(118) million and $(93) million in 2009, 2008 and 2007, 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 December 31, 2009, the Company had no commitments beyond its normal operating and investment activities.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

It is Company practice not to enter into off-balance sheet arrangements or 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, Summary of Significant Accounting Policies, of the accompanying consolidated financial statements 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)	$	390		213		177		-		-
Life claims payable (2)		49,383		49,383		-		-		-
Other long-term reserve liabilities
reflected on the balance sheet
under GAAP (3)		7,043,349		683,241		1,516,943		1,837,839		3,005,326

Total	$	7,093,122		732,837		1,517,120		1,837,839		3,005,326

(1) Refer to Note 9, Commitments and Contingencies, of the accompanying consolidated financial statements relating to Company leases.

(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 liabilities include estimated life and annuity obligations related to death claims, policy surrenders, policy withdrawals, maturities and annuity payments based on mortality, lapse, annuitization, and withdrawal assumptions consistent with the Company’s historical experience. These estimated life and annuity obligations are undiscounted projected cash outflows that assume interest crediting and market growth consistent with assumptions used in amortizing deferred acquisition costs. They do not include any offsets for future premiums or deposits. Other long-term liabilities also include determinable payout patterns related to immediate annuities. In contrast to this table, the majority of the Company’s liabilities for future obligations recorded on the consolidated balance sheet do not incorpor ate future credited interest and market growth. Therefore, the estimated life and annuity obligations presented in this table significantly exceed the life and annuity liabilities recorded in the reserves for future life and annuity obligations. Due to the significance of the assumptions used, the actual cash outflows will differ both in amount and timing, possibly materially, from these estimates.

ACCOUNTING STANDARDS AND CHANGES IN ACCOUNTING

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued new guidance to provide a single definition of fair value, a framework for measuring fair value, and required additional disclosure about the use of fair value to measure assets and liabilities. The Company adopted it for its reporting of financial assets and financial liabilities on January 1, 2008. The effective date for implementation to non financial assets and non financial liabilities was delayed by the FASB until the first reporting period after November 15, 2008. The Company adopted this portion of the guidance effective January 1, 2009. The adoption of fair value measurements did not have a material impact on the Company’s consolidated financial statements and results of operations.

In December 2007, the FASB issued new guidance establishing accounting and reporting standards for entities that have equity investments that are not attributable directly to the parent, called noncontrolling interests or minority interests. More specifically, the guidance addresses where and how to report noncontrolling interests in the consolidated statements of financial position and operations, how to account for changes in noncontrolling interests and provides disclosure requirements. The Company adopted this guidance effective January 1, 2009 and it did not have a material impact on the Company’s consolidated financial condition and results of operations.

In December 2007, the FASB issued new guidance establishing how an entity accounts for the identifiable assets acquired, liabilities assumed, and any noncontrolling interests acquired, how to account for goodwill acquired and determines what disclosures are required as part of a business combination, and it applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted this guidance effective January 1, 2009 and it did not have an impact on the Company’s consolidated financial condition or results of operations.

In March 2008, the FASB issued new guidance to require companies with derivative instruments to disclose information about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This guidance became effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company adopted it on January 1, 2009 with no material impact on the consolidated financial statements. Please see Note 14, Fair Values of Financial Instruments, of the accompanying consolidated financial statements for additional information pertaining to this guidance.

In September 2008, the FASB issued new guidance establishing disclosure requirements by entities that assume credit risk through the sale of credit derivatives, including credit derivatives embedded in a hybrid instrument, to enable users of financial statements to assess the potential effect on its financial position, financial performance, and cash flows from these credit derivatives, and requires additional disclosure about the current status of the payment/performance risk of a guarantee. The Company adopted the guidance effective January 1, 2009 and it did not have a material effect on the Company’s consolidated financial condition and results of operations.

In December 2008, the FASB issued new guidance which requires information to be disclosed on an annual basis pertaining to postretirement benefit plan assets. The Company would be required to separate plan assets into the three fair value hierarchy levels and provide a rollforward of the changes in fair value of plan assets classified as Level 3. The disclosures about plan assets are effective for fiscal years ending after December 15, 2009, but will have no effect on the Company’s consolidated financial condition and results of operations.

In January 2009, the FASB issued new guidance to enhance guidance on impairments to remove the exclusive reliance on a “market participant” estimate of future cash flows to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows. This allows management to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. It was effective for the Company as of December 31, 2008 and its adoption did not have a significant impact on the consolidated financial statements of the Company.

In March 2009, the FASB issued new guidance establishing enhanced disclosures regarding an entity’s derivative and hedging activity to enable investors to better understand the effects on an entity’s financial position, financial performance, and cash flows. The Company adopted the guidance as of January 1, 2009. See Note 15, Derivative Investments, of the accompanying consolidated financial statements for disclosures regarding derivative instruments and hedging activities.

On April 9, 2009 the FASB issued new guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate a transaction is not orderly. This guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability, and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance is effective for interim and annual re porting periods ending after June 15, 2009. As further discussed in Note 14, Fair Values of Financial Instruments, of the accompanying consolidated financial statements, the adoption of this guidance did not have a material impact on the Company’s consolidated financial condition and results of operations.

On April 9, 2009 the FASB issued new guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It was effective for the Company as of June 30, 2009 and did not have a significant impact on the consolidated financial position or results of operations. See Note 14, Fair Values of Financial Instruments, of the accompanying consolidated financial statements for additional disclosures.

On April 9, 2009 the FASB issued new guidance which amended the other-than-temporary impairment guidance for debt securities to make the guidance more operational, and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This guidance was effective for the Company as of June 30, 2009. The impact of its adoption is discussed in Note 3, Investments, of the accompanying consolidated financial statements.

On May 28, 2009 the FASB issued new guidance establishing general standards of accounting for the disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. It was effective for the Company as of June 30, 2009 and did not have a significant impact on the consolidated financial position or results of operations. See Note 18, Subsequent Events, of the accompanying consolidated financial statements for additional disclosures.

On June 12, 2009 the FASB issued new guidance that changes the way entities account for securitizations and special purpose entities. The guidance is effective as of the beginning of the Company’s first annual reporting period beginning after November 15, 2009 and is not expected to have a significant impact on the consolidated financial position, results of operations or disclosures.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

Change in Accounting

During the second quarter of 2009, the Company reviewed all previously recorded other-than-temporary impairments of securities, in compliance with newly issued FASB GAAP guidance, and estimated the credit versus the non-credit component of prior impairments consistent with the methodology used in the current period to analyze and bifurcate impairments into credit and non-credit components. As a result, the Company determined that $0.8 million in previously recorded other-than-temporary impairments had been due to non-credit impairments.

For each security the Company developed its best estimate of the net present value of the cash flows expected to be received. The credit component of the impairment for these securities was determined to be the difference between the amortized cost of the security and the projected net cash flows. The non-credit component was determined to be the difference between projected net cash flows and fair value. The Company also determined whether management had the intent to sell the security, or if it was more likely than not that it will be required to sell the security, prior to the recovery of the non-credit component.

As a result of the implementation, during the second quarter of 2009, the Company recorded a net of tax opening balance adjustment that increased retained earnings in the amount of $0.5 million and increased accumulated other comprehensive loss in the amount of $0.5 million. See Note 1, Summary of Significant Accounting Policies, of the accompanying consolidated financial statements for further discussion.

In September 2005, the FASB issued new GAAP guidance regarding internal replacements occurring in fiscal years beginning after December 15, 2006. An internal replacement is 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 adoption of this new guidance impacted the accounting for contracts which have annuitized and reinstatements of contracts. Under the new guidance the unamortized deferred acquisition costs and deferred sales inducement assets must now be written-off at the time of annuitization and may not be continued for reinstatements. ;The new guidance resulted in changes in assumptions relative to estimated gross profits which affect unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement balances as of the beginning of the year. The effect of this new guidance was as $2.2 million decrease (net of tax) on beginning retained earnings as of January 1, 2007.

	Amounts
	(In thousands)

Write-off of deferred acquisition costs	$	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

PART III

The information required by Part III is incorporated by reference from our definitive proxy statement on Schedule 14A filed with the SEC on April 30, 2010 for our annual meeting of shareholders held June 29, 2010. The discussion that follows reflects the changes made in response to the comment letter received from the Staff of the SEC.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Purpose

The Compensation Committee is appointed by and serves at the discretion of the Company’s Board of Directors. The Compensation Committee consists of no fewer than three members who meet the independence requirements of the listing standards of NASDAQ. The purpose of the Compensation Committee is to discharge the Board of Directors’ responsibilities for reviewing and establishing the compensation not just for the Chief Executive Officer, Chief Financial Officer, and the other three most highly paid executive officers, but for all of the Company’s officers. These compensation elements include base salary, annual incentive bonuses, discretionary bonuses and awards, stock option and stock appreciation right grants, and any other officer compensation arrangements.

To assist the Compensation Committee with its responsibilities, it is supported by the Company’s Human Resource, Legal, and Financial departments. The Compensation Committee may retain, and has retained, independent compensation consultants who report directly to the members of the Compensation Committee. Meetings of the Compensation Committee are scheduled during the year with additional meetings on an as-necessary interim basis and include sessions without members of management present. The Compensation Committee reports to the Board of Directors on its actions and recommendations.

Compensation Philosophy and Objectives

The Company’s overall philosophy in setting compensation policies is to align pay with performance while at the same time providing a competitive compensation that allows the Company to retain and attract talented individuals. Within this overall philosophy, the Compensation Committee has adopted several key principles to help guide compensation decisions for executive officers:

·	Provide a competitive total compensation package so the Company can attract, retain, and motivate talented individuals;

·	Tie compensation in part to overall Company financial performance so that executives are held accountable through their compensation for the performance of the business;

·	Tie compensation in part to the Company’s stock performance through stock options and stock appreciation rights to align executives’ interests with those of the Company’s stockholders; and

·	Maintain a committee of the Board of Directors independent of senior management that may engage independent compensation consultants as needed to review and establish compensation for executive officers.

Elements of Executive Compensation

Officer compensation arrangements, including executive officers, are reviewed and approved annually by the Compensation Committee. The Compensation Committee focuses primarily on the following components in forming the total compensation package for each Company executive officer:

·	Base salary;

·	Annual cash incentive bonus based on Company performance versus predetermined targets;

·	Discretionary cash bonus based upon individual performance; and

·	Long-term incentive compensation in the form of stock options and stock appreciation rights.

The mix of executive compensation elements is based upon a philosophy of correlating a portion of executive compensation with the Company’s financial results and stock performance thus putting a segment of executive officer annual and long-term compensation at-risk. This structure provides upside potential and downside risk for senior executive positions in recognition that these roles have greater influence on the Company’s performance. The Compensation Committee believes that these factors, together with a balance of cash and equity awards, and short-term and long-term incentives, help ensure that our compensation program does not create risks that are reasonably likely to have a material adverse effect on the Company.

Base Salaries

To ensure that compensation levels are reasonably competitive with market rates, the Compensation Committee engages independent compensation consultants from time-to-time to conduct a survey of executive compensation in a defined group of companies comparable to the Company. The surveyed companies are selected based on similar products and product lines, comparable financial size in terms of assets and revenues, and other known competitive factors. This process was most recently completed during 2008 and is expected to be performed again to some degree in 2010 with respect to compensation policies for 2011. While the primary focus of the survey was upon base salaries, the independent consultants were also asked to provide total compensation data for the various officer positions and levels in order to t arget current and future appropriate compensation levels. The Compensation Committee’s past practice has been to generally target base salaries between the 25th and 75th percentile range of the identified peer group.

For the most recent survey, the Company engaged independent compensation consultants (Towers Perrin) to update the work previously performed in 2005 following the same criteria and scope as was done at the time of a previous study. Companies to be considered in the benchmarking process include American Equity Investment Life, American Fidelity Life, AVIVA, Best Meridian Insurance, Citizens Insurance Company, Lincoln National Life, Old Mutual Financial Network, Pan-American Life, and Sammons Financial Group.

In addition to market information, the Compensation Committee also subjectively reviews and evaluates the level of performance of the Company and of each officer. In approving salary and incentive compensation for individuals other than the Chief Executive Officer and the President and Chief Operating Officer, the Compensation Committee considers recommendations from these two individuals concerning the other Company officers incorporating such factors as individual performance, the scope and complexity of their current responsibilities, length of time in their current positions, value of the executive’s position to the market, and difficulty of replacement of the officer. This evaluation focuses most heavily on the base salary levels for each officer.

Annual Incentive Compensation

For executive officer positions, the Compensation Committee has determined that annual incentive bonuses are an integral part of the executive’s compensation package as the cash bonuses create a direct link between executive compensation and individual and business performance. Consequently, there are four bonus programs in effect which are reviewed and approved annually by the Compensation Committee. The Compensation Committee has approved similar incentive bonus programs for 2010, but changed the Senior Vice President Bonus Program into the Officer Bonus Program, and it covers all Company officers not included in any of the other bonus programs. The 2009 Bonus Programs are as follows:

·	Executive Officer Bonus Program

·	Domestic Marketing Officer Bonus Program

·	International Marketing Officer Bonus Program

·	Senior Vice President Bonus Program

Executive Officer Bonus Program. Currently, the participants in the Executive Officer Bonus Program (“Executive Bonus”) are the Chairman and Chief Executive Officer (Mr. Robert L. Moody) and the President and Chief Operating Officer (Mr. Ross R. Moody). In order to tie the compensation under the program with the Company’s financial performance, the Executive Bonus includes metrics associated with the Company’s annual sales performance, expense management and profitability. In accordance with the program, the Compensation Committee set performance targets for each metric at various levels equating to various bonus level percentages as follows:

Financial Performance Metric		Bonus % Range*

Sales		0% to 21%
Expense Management		0% to 20%
Profitability		0% to 30%

*Max aggregate bonus is 50%.

The sum of the achieved bonus percentages for each metric, subject to a maximum aggregate percentage of 50%, is applied to the base salary approved by the Compensation Committee for each participant to determine the earned bonus amount. The profitability metric is based upon the Company’s audited financial statements for the year. Bonus awards are generally paid in the year following the annual financial performance concurrent with the completion of the Company’s audit of the year-end financial statements and approval of the award amounts by the Compensation Committee. Accordingly, the Executive Bonus payments paid in 2009 were primarily based upon the results achieved for 2008 financial performance metrics established by the Compensation Committee and the Executive Bonus payments earned based on 2009 financial p erformance were paid on February 18, 2010. The bonus percentage achieved under the program was 33% and 18% in 2009 and 2008, respectively. The 2009 bonus percentage achieved is comprised of 13% for Sales, 20% for Expense Management, and 0% for Profitability as shown in the following table.

Financial Performance Metric	Target Level	Achieved Level	Bonus %

Annuity Sales	$382.5 million	$835.3 million	7.00%
International Life Sales	$27.0 million	$29.6 million	6.00%
Domestic Life Sales	$7.7 million	$3.6 million	0.00%
Total Sales Metric			13.00%
Expense Management	74% ratio	54% ratio	20.00%
Profitability	9.5% ROE	4.9% ROE	0.00%
Total Bonus Percentage			33.00%

For information regarding awards made in 2009 to our Named Executive Officers, see the Summary Compensation Table on page 41.

Domestic Marketing Officer Bonus Program. Participants in the Domestic Marketing Officer Bonus Program (“Domestic Bonus”) are all domestic marketing officers including assistant vice presidents, vice presidents, and the senior vice president (Mr. S. Christopher Johnson). As these individuals are most able to influence the outcome of the Company’s financial performance in terms of sales, the program is heavily weighted toward this metric. The measures associated with this program include the Company’s annual sales performance, persistency of policies sold, and expense management. These measures were incorporated into the program to award not only the amount o f sales but the quality of sales and the management of the costs incurred to acquire the business sold. Unlike the Executive Bonus, the Domestic Bonus metrics assume a targeted level of performance or “par” level to which the Compensation Committee assigned a targeted bonus percentage in order to reflect a disproportionate weighting of the potential bonus award toward the sales metric. If the targeted par level for each metric is attained, the sum of the metrics is equal to a bonus percentage of 100% which is applied to the average weighted base salary of each vice president and senior vice president participant while one-half, or 50%, is applied to the average weighted base salary of each assistant vice president participant as approved by the Compensation Committee. The performance metrics set by the Compensation Committee equating to various bonus level percentages under the program are as follows:

Financial Performance Metric	Par Bonus Level	Bonus % Range

Sales	75%	0% to no limit
Persistency	15%	0% to 30%
Expense Management	10%	0% to 22.5%

The Domestic Bonus also differs from the Executive Bonus in that the composite bonus percentage is not subject to a cap and bonus amounts may be advanced quarterly based upon the year-to-date results achieved. Life insurance sales metric amounts under the program above the par level increase incrementally with an additional bonus percentage added for every increment of additional life insurance sales established by the Compensation Committee (annuity sales are subject to a cap). However, if the aggregate sum of the three performance metrics exceeds 100%, the bonus award paid at the end of the calendar year is limited to 100% for each participant. The bonus percentage above 100% is applied to the weighted average base salaries of all participants to create a pool which is paid out to participants in the subsequent calendar year based upon the recommendation of the Domestic Marketing senior vice president and subject to approval by the President and Chief Operating Officer. The Domestic Bonus percentage achieved under the program was 73.5% and 32.5% in 2009 and 2008, respectively.

International Marketing Officer Bonus Program. Participants in the International Marketing Officer Bonus Program (“International Bonus”) are all international marketing officers including assistant vice presidents, vice presidents, and the senior vice president (Mr. Scott Arendale). The International Bonus is identical in format to the Domestic Bonus with the exception that the metric targets established by the Compensation Committee are customized for the differences between the domestic and international lines of business. The performance metrics set by the Compensation Committee equating to various bonus level percentages under the program are as follows:

Financial Performance Metric	Par Bonus Level	Bonus % Range

Sales	70%	0% to no limit
Persistency	15%	0% to 30%
Expense Management	15%	0% to 30%

All other features are similarly administrated. The International Bonus percentage achieved under the program was 83.0% and 44.0% in 2009 and 2008, respectively. The 2009 bonus percentage achieved is comprised of 50% for Sales, 3% for Persistency, and 30% for Expense Management as shown in the following table.

Financial Performance Metric	Target Level	Achieved Level	Bonus %

International Life Sales	$30.0 million	$29.0 million	50.00%
Expense Management	5.50% ratio	4.83% ratio	30.00%
Persistency	100.0%	89.8%	3.00%
Total Bonus Percentage			83.00%

For information regarding awards made in 2009 to our Named Executive Officers, see the Summary Compensation Table on page 41.

Senior Vice President Bonus Program. Participants in the Senior Vice President Bonus Program (“Senior VP Bonus”) are all Senior Vice Presidents not otherwise included in any of the other three officer bonus programs. Currently, these individuals include Senior Vice President, Chief Financial Officer and Treasurer (Mr. Brian Pribyl), Senior Vice President, Chief Administrative Officer (Mr. Michael Hydanus), Senior Vice President, Chief Actuary (Mr. Paul Facey), Senior Vice President, Mortgage Loans and Real Estate (Mr. Charles Milos), Senior Vice President, Secretary (Mr. James Payne) and Senior Vice President, Chief Investment Officer (Ms. Patricia Scheuer). The Plan is essentially comparable to the Executive Bonus, except for the bonu s award percentages, incorporating three measurable performance metrics associated with the Company’s annual sales performance, expense management, and profitability. In accordance with the program, the Compensation Committee set performance targets for each metric at various levels equating to various bonus level percentages as follows:

Financial Performance Metric		Bonus % Range

Sales		0% to 9.0%
Expense Management		0% to 9.5%
Profitability		0% to 19.0%

The sum of the achieved bonus percentages for each metric, subject to a maximum aggregate percentage of 30%, is applied to the base salary for each participant approved by the Compensation Committee to determine the earned bonus amount. Like the Executive Bonus, the profitability metric is based upon the Company’s audited financial statements for the year. Bonus awards are generally paid in the year following the annual financial performance concurrent with the completion of the Company’s audit of the year-end financial statements and approval of the award amounts by the Compensation Committee. Accordingly, the Senior Vice President Bonus payments in 2009 were primarily based upon the results achieved for 2008 financial performance metrics established by the Compensation Committee. 0;The bonus percentage achieved under the program was 15.25% and 0% in 2009 and 2008, respectively. The 2009 bonus percentage achieved is comprised of 5.75% for Sales, 9.5% for Expense Management, and 0% for Profitability as shown in the following table.

Financial Performance Metric	Target Level	Achieved Level	Bonus %

Annuity Sales	$382.5 million	$835.3 million	3.00%
International Life Sales	$27.0 million	$29.6 million	2.75%
Domestic Life Sales	$7.7 million	$3.6 million	0.00%
Total Sales Metric			5.75%
Expense Management	74% ratio	54% ratio	9.50%
Profitability	9.5% ROE	4.9% ROE	0.00%
Total Bonus Percentage			15.25%

For information regarding awards made in 2009 to our Named Executive Officers, see the Summary Compensation Table on page 41.

Discretionary Bonus Awards

For officers who are not participants in any of the four bonus programs above, the Compensation Committee considers from time-to-time circumstances which merit the need to recognize outstanding performance in the form of a discretionary bonus. Although many of these situations may be deemed within the normal responsibilities of officers, the Compensation Committee on occasion may provide one-time recognition bonuses to identified officers where the demands of the situation and the results of the effort warrant such recognition. There were no discretionary bonuses awarded in 2009 or 2008.

Long-Term Incentive Compensation

Under the Company’s 1995 Stock and Incentive Plan and 2008 Incentive Plan, the Compensation Committee provides Company officers with long-term incentive awards through grants of stock options or stock appreciation rights (“SARs”) directly aligning the interest of the officers with stockholder interests. The stock options and SARs have a graded five-year vesting period that begins on the third anniversary date of the grant in order to promote a long-term perspective and to encourage key employees to remain at the Company. All options and SARs to date have been granted at the fair market value of the Company’s Class A common stock on the date of the grant. The Compensation Committee believes that stock options and SARs are inherently performance-based and a form of at-risk compensa tion since the recipient does not benefit unless the Company’s common stock price subsequently rises.

The Compensation Committee is responsible for determining the recipients of the grants, when the grants should be made, and the number of shares to be granted. The size of the awards generally reflect each officer’s position relative to other officers in the Company with consideration to total compensation targets obtained from the peer group information previously discussed. In addition, as is the case with base salaries, the Compensation Committee considers the grant recommendations of the Chairman and Chief Executive Officer and the President and Chief Operating Officer for other Company officers.

The Compensation Committee may consider granting stock options at any time but generally coordinates the issuance of grants concurrent with its annual review of officer compensation. In February 2009 the Compensation Committee approved the issuance of 29,393 SARs to selected officers. Prior to that the Compensation Committee approved the issuance of 2,750 SARs to new officers during the third quarter of 2008 and 28,268 stock options to selected officers in April 2008. Included in these grant awards were the following option/SARs amounts to named executive officers.

	Grant	Grant
	2/19/09	4/18/08

Robert L. Moody	7,500	7,500

Ross R. Moody	5,518	5,518

Brian M. Pribyl	1,000	1,000

Scott E. Arendale	1,000	1,000

Charles D. Milos	1,000	1,000

As noted above, the Compensation Committee determines the timing of awards, the recipients, and the number of option shares or SARs to be granted to each participant. Prior to the April 18, 2008 grant awards to officers, the previous award determined by the Compensation Committee was made during 2004. The grant made in April 2008 represented the remaining stock options available for award (excluding grant awards to directors) under the 1995 Plan and coincided with the scheduled termination of that plan. The stock options granted at that date were given a strike price equivalent to the market closing value of the Company’s Class A common shares of $255.13.

Subsequent to the April 2008 stock option awards, the Company’s Class A common shares dropped approximately 75% as a consequence of the severe recession and financial crisis that enveloped the United States economy. The Compensation Committee recognized the precipitous drop in the Company’s Class A common share value substantially removed the long-term incentive objective of the April 2008 grant awards. Accordingly, the Compensation Committee determined to make substantially the same grant award effective February 19, 2009 with a strike price of $114.64 representing the market closing value of the Company’s Class A common shares that day.

The Compensation Committee has followed a practice of allocating grant awards based upon the level of the officer receiving the award with each officer level receiving an identified proportionate share. Historically, the Chairman of the Board and Chief Executive Officer has been allotted 25% to 35% of the total grant award and the President and Chief Operating Officer 15% to 25% of the total grant. Officers at the senior vice president level receive the same number of grant awards while all officers at the vice president level receive the same number of grant awards although at a lesser amount than that of the senior vice presidents.

Retirement and Other Benefits

The Company’s executive officers are eligible to participate in the health and welfare, 401(k) and defined benefit retirement benefit plans that are offered to other Company employees (the Company’s qualified defined benefit pension plan was frozen as of December 31, 2007). In addition, if eligible, executive officers may participate in the following plans:

Group Excess Benefit Plan

Company officers at the senior vice president level and above, including named executive officers, as well as those hired or promoted to the vice president level prior to May 1, 2007, are eligible to participate in a group excess benefit plan which supplements the Company’s core medical insurance plan. Administered by a third party insurer, the group excess benefit plan provides coverage for co-pays, deductibles, and other out-of-pocket expenses not covered by the core medical insurance plan. Offering such a plan to the selected Company officer levels is viewed as a key component of the overall compensation strategy for attracting and retaining talented executive officers. The benefits provided to each named executive officer are reported in the “All Other Compensation Column” of the S ummary Compensation Table.

Non-Qualified Defined Benefit Plan

This plan covers those officers of the Company who were in a senior vice president position or above prior to 1991. The plan provides retirement benefits to those individuals affected by the revisions to the Company’s qualified defined benefit pension plan precipitated by the limitations imposed by Internal Revenue Code Section 401(a)(17) and 415. As of December 31, 2009 and 2008, the active officers participating in this plan were Mr. Robert L. Moody and Mr. Charles Milos. Benefits associated with this plan are disclosed in the Pension Benefits table in the Pension Benefits section.

Non-Qualified Deferred Compensation Plan

This plan allows Company senior officers, including named executive officers, to defer payment of a percentage of their compensation and to provide for up to a 2% matching and 2% profit sharing contribution on plan compensation that exceeds certain qualified plan limits, and additional Company discretionary matching contribution of up to 2% of plan compensation. Company contributions are subject to a vesting schedule based upon each officer’s years of service. Benefit information associated with this plan is disclosed in the Non-Qualified Deferred Compensation table below and Company contributions are included in the “All Other Compensation” column in the Summary Compensation Table.

Non-Qualified Defined Benefit Plan for Robert L. Moody

This plan specifically covers the Company’s Chairman of the Board and Chief Executive Officer, Mr. Robert L. Moody, and is intended to supplement the retirement benefits of the Non-Qualified Defined Benefit Plan, mentioned above, that were limited by the American Jobs Creation Act of 2004. Mr. Moody’s benefits associated with this plan are disclosed in the Pension Benefits table in the Pension Benefits section.

Non-Qualified Defined Benefit Plan for the President of National Western Life Insurance Company

Similar to the immediately preceding plan, this plan specifically covers the Company’s President and Chief Operating Officer, Mr. Ross R. Moody, and is intended to provide the retirement benefits that comply with the American Jobs Creation Act of 2004. Mr. Moody’s benefits associated with this plan are disclosed in the Pension Benefits table in the Pension Benefits section.

National Western Life Insurance Company Retirement Bonus Program for Robert L. Moody

This program provides an annual payment to Mr. Robert L. Moody equal to 2% of his compensation and is not correlated in any manner to individual or Company performance. For reporting and disclosure purposes, the payment made in 2009 related to 2008 compensation is included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation table.

Postretirement Benefits

The Company’s basic health plan and group excess benefit plan have a provision for individuals serving in the positions of Chairman of the Board or President for seven years or more subsequent to 1980 to continue to receive lifetime health benefits for themselves and their dependents upon retirement. Mr. Robert L. Moody and Mr. Ross R. Moody currently meet this eligibility criteria.

Perquisites and Other Personal Benefits

The Compensation Committee periodically reviews executive officer perquisites and other benefits based upon information supplied to it by the Company’s Human Resources, Legal, and Financial departments. In addition to base salaries and annual and long-term bonus incentives, the Company provides its executive officers with certain and varying perquisites and benefits.

The perquisites and personal benefits provided to each named executive officer are reported in the “All Other Compensation Column” of the Summary Compensation Table included in this Compensation Discussion and Analysis and are described in further detail in the footnotes to that table.

Stock Ownership Guidelines

The Company requires that its directors be shareholders, but the Company does not require its directors or executive officers to own a particular amount of the Company’s common stock and accordingly has not established a set of stock ownership guidelines. The Compensation Committee is satisfied that the long-term incentive compensation offered to directors and officers in the form of stock options and SARs adequately aligns this group’s interest with those of the Company’s stockholders.

Employment Agreements

The Company does not utilize employment agreements with its executive officers or other employees. The Company’s practice has been to issue offer letters to executive officer candidates when recruited to their positions. In addition to outlining the executive officer’s responsibilities, each offer letter specifies the beginning base salary and eligibility for any additional compensation programs overseen by the Compensation Committee. Accordingly, the Company does not have any contractual obligations to its executive officers for severance payments in connection with any termination or change-in-control.

Financial Restatements

The Compensation Committee has not formally adopted a policy with respect to whether retroactive adjustments to any form of compensation paid under arrangements for executive officers will be made where the prior payment was related to financial results of the Company that are subsequently restated. As this situation has not previously been experienced, the Compensation Committee believes that such an issue is best addressed at the time it occurs and all facts and circumstances surrounding the restatement are known.

Tax and Accounting Treatment of Compensation

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for non-performance based compensation over $1 million paid in any one year to each of the individuals who were, at the end of the year, the corporation’s chief executive officer and the four other most highly compensated executive officers. Except for the Chairman and Chief Executive Officer of the Company, the levels of non-performance based salary, bonus, and other compensation paid do not typically exceed this level.

The Compensation Committee reserves the right to award compensation to executive officers that may not qualify under Section 162(m) as deductible compensation, however, it will continue to consider all elements of cost to the Company of providing such compensation, including the potential impact, if any, of Section 162(m).

The Company accounts for long-term incentive compensation in the form of stock options and SARs to executive officers under GAAP guidance which requires the Company to estimate and expense each award of equity compensation over the service period of the award. Other accounting guidance requires that cash compensation be recorded as an expense at the time the obligation is accrued.

Compensation Committee Report

The Compensation Committee has reviewed each element of executive officer compensation and believes that the compensation philosophy and practices are designed to serve the best interests of the Company and its stockholders. The Compensation Committee also believes that the compensation of the Company’s executive officers is both appropriate and consistent with the objectives set by this committee.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth with the Company’s management. Based on its reviews and discussions, the Compensation Committee approved and recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement on Schedule 14A.

	Members of the Compensation Committee

	E. J. Pederson (Chairman)
	Stephen E. Glasgow
	Louis E. Pauls

Summary Compensation Table

The following table sets forth all of the compensation awarded to, earned by, or paid to the Company’s principal executive officer, principal financial officer, and the three other highest paid executive officers for the years ended December 31, 2009, 2008, and 2007.

									Change in
									Pension
						Non-Equity			Value and
						Incentive			Nonqualified
Name and						Plan			Deferred			All Other
Principal				Option/SAR		Compen-			Compensation			Compen-
Position	Year	Salary (a)		Awards (b)		sation			Earnings (e)			sation (f)		Total

Robert L. Moody	2009	$	1,692,703	$	474,707	$	552,393	(c)	$	(367,985	)	$	693,056	$	3,044,874
Chairman of the Board	2008		1,648,582		903,076		263,757			1,100,754			703,007		4,619,176
and Chief Executive	2007		1,588,653		-		495,251			2,733,499			686,181		5,503,584
Officer

Ross R. Moody	2009		605,888		336,039		189,678	(c)		113,121			71,053		1,315,779
President and Chief	2008		588,956		579,765		90,490			123,587			88,626		1,471,424
Operating Officer	2007		565,534		-		160,520			126,568			121,963		974,585

Brian M. Pribyl	2009		269,283		52,240		40,655	(d)		22,190			25,640		410,008
Senior Vice President,	2008		253,165		93,064		41,863			4,580			34,937		427,609
Chief Financial Officer	2007		252,665		-		74,695			15,239			36,405		379,004
and Treasurer

Charles D. Milos	2009		258,728		100,024		34,145	(d)		218,201			56,941		668,039
Senior Vice President,	2008		249,130		159,321		-			88,350			44,980		541,781
Mortgage Loans and	2007		239,569		-		-			81,780			50,598		371,947
Real Estate

Scott E. Arendale	2009		160,102		52,240		137,044	(d)		44,796			14,445		408,627
Senior Vice President,	2008		158,878		93,064		321,700			15,271			20,403		609,316
International Marketing	2007		150,050		-		178,101			33,595			17,570		379,316

Note: Columns with no data have been omitted.

(a)	The 2009 amounts in this column include Company and subsidiary Board of Director fees of $30,700 for Mr. Robert L. Moody, $3,250 for Mr. Pribyl, $33,950 for Mr. Ross R. Moody, and $33,700 for Mr. Milos.
(b)	The amounts in this column represent the fair value on grant date of option awards received during the year.
(c)	The amounts for Mr. Robert L. Moody, Mr. Ross R. Moody represent bonuses earned under the 2009 Executive Officer Bonus Program. Also included in Mr. Robert L. Moody’s amount is $29,761 representing the bonus earned under the NWLIC Retirement Bonus Program.
(d)	The amount for Mr. Pribyl and Mr. Milos represents the bonus earned under the 2009 Senior Vice President Bonus Program. The amount for Mr. Arendale represents the bonus earned under the 2009 International Marketing Officer Bonus Program.
(e)	The amounts in this column represent the change in the accumulated pension benefit under the Company’s qualified defined benefit plan for Messrs. Pribyl and Arendale and the change in the accumulated pension benefit under the Company’s qualified and non-qualified defined benefit plans for Messrs. Robert L. Moody and Ross R. Moody. For a discussion of the assumptions made in the calculation of these amounts, refer to the Notes to Consolidated Financial Statements section of this Annual Report on Form 10-K.
(f)	The amounts in this column include the items summarized in the following table:

All Other Compensation

		Company
		Paid		Excess		Company		Company						Total
Name and		Benefit		Benefit		Contributions		Paid						All Other
Principal		Premiums		Claims		To Savings		Taxes/			Other			Compen-
Position	Year	(1)		Paid (2)		Plans (3)		Insurance			Perquisites			Sation

Robert L. Moody	2009	$	3,466	$	37,708	$	2,450	$	617,143	(4)	$	32,289	(5)	$	693,056
Chairman of the	2008		5,264		8,613		2,300		670,684			16,146			703,007
Board and Chief	2007		4,995		2,021		4,500		669,135			5,530			686,181
Executive Officer

Ross R. Moody	2009		2,742		27,315		33,837		-			7,159	(6)		71,053
President and Chief	2008		4,284		7,296		32,557		-			16,493			60,630
Operating Officer	2007		3,884		64,032		34,057		-			19,990			121,963

Brian M. Pribyl	2009		5,656		5,433		13,851		-			700	(7)		25,640
Senior Vice President,	2008		8,540		9,638		13,854		-			2,905			34,937
Chief Financial	2007		8,040		10,499		15,435		-			2,431			36,405
Officer and Treasurer

Charles D. Milos	2009		5,656		27,128		15,561		-			8,596	(8)		56,941
Senior Vice President,	2008		8,670		21,496		13,043		-			1,771			44,980
Mortgage Loans and	2007		8,170		26,116		14,346		-			1,966			50,598
Real Estate

Scott E. Arendale	2009		3,475		-		8,179		-			2,791	(9)		14,445
Senior Vice President,	2008		5,305		3,065		8,286		-			3,747			20,403
International	2007		4,943		-		9,297		-			3,330			17,570
Marketing

(1)	The Company provides its officers additional compensation equivalent to the premiums for health, dental and accidental death and dismemberment coverage offered to all employees.
(2)	The amounts in this column represent claims paid under the Company’s Group Excess Benefit Program.
(3)	The amounts in this column represent Company contributions to the Company’s qualified and non-qualified savings plans. The Company’s 401(k) plan is available to all employees with the same contribution criteria.
(4)	Mr. Robert L. Moody contributed a life interest in a trust estate to the Company as a capital contribution in 1964. The Company, in turn, issued term policies on the life of Mr. Moody in excess of the amount of the asset contributed which excess was assigned to Mr. Moody. The value of the excess amount of insurance was $392,194 in 2009 and represents additional compensation to Mr. Moody. In addition, the Company reimburses Mr. Moody the applicable taxes associated with this benefit which was $224,949 in 2009.

(5)	Mr. Robert L. Moody’s amounts in this column include $30,889 for Office of the Chairman expenses and $1,400 in gifts.
(6)	Mr. Ross R. Moody’s amounts in this column include $3,154 for car expense, $855 in membership dues, $1,750 for personal tax return preparation and $1,400 in officer and director gifts.
(7)	Mr. Pribyl’s amounts in this column include $700 in officer gifts.
(8)	Mr. Milos’s amounts in this column include $6,179 for guest travel on Company business trips, $1,017 for car expense and $1,400 in officer and director gifts.
(9)	Mr. Arendale’s amounts in this column include $2,091 for guest travel on Company business trips and $700 in officer gifts.

Grants of Plan-Based Awards

The following table provides information regarding grants under the Company’s 2009 Executive Officer Bonus Program, Senior Vice President Bonus Program and International Marketing Officer Bonus Program for the executive officers named in the Summary Compensation Table.

	Estimated Future Payouts
	Under Non-Equity Incentive
	Plan Awards (a)
Name	Threshold		Target		Maximum (b)

Robert L. Moody
2009 Executive Officer Bonus Program:
International life sales	$	50,218	$	83,696	$	117,174
Domestic life sales		50,218		83,696		117,174
Annuities sales		50,218		83,696		117,174
Expense management		167,392		251,088		334,784
Company profitability		167,392		334,784		502,175

Ross R. Moody
2009 Executive Officer Bonus Program:
International life sales		17,239		28,732		40,224
Domestic life sales		17,239		28,732		40,224
Annuities sales		17,239		28,732		40,224
Expense management		57,463		86,195		114,926
Company profitability		57,463		114,926		172,389

Brian M. Pribyl
2009 Senior Vice President Bonus Program:
International life sales		5,306		6,632		7,958
Domestic life sales		5,306		6,632		7,958
Annuities sales		5,306		6,632		7,958
Expense management		14,590		19,896		25,202
Company profitability		13,264		33,792		50,403

Scott E. Arendale
2009 International Marketing Officer Bonus Program:
International life sales		33,023		115,579	No limit
International life persistency		4,953		24,767		49,534
Expense management		4,953		24,767		49,534

Charles D. Milos
2009 Senior Vice President Bonus Program:
International life sales		4,478		5,598		6,717
Domestic life sales		4,478		5,598		6,717
Annuities sales		4,478		5,598		6,717
Expense management		12,315		16,793		21,271
Company profitability		11,195		33,585		42,541

Note: Columns with no data have been omitted.

(a)	Amounts that have been or are expected to be paid in 2010 pertaining to the 2009 programs are reflected in the Summary Compensation Table. The 2009 program bonus amounts are based upon the base salary reflected in the applicable program addendums.
(b)	Although the Executive Officer and Senior Vice President Bonus Programs have stated maximums per program component, the aggregate bonus amount cannot exceed 50% and 30%, respectively, of base salaries.

The following table provides information regarding stock appreciation right (SAR) grants awarded during the year ended December 31, 2009 under the Company’s 2008 Incentive Plan for the executive officers named in the Summary Compensation Table.

Name	Grant Date	All Other Option Awards: Number of Securities Underlying SARs		Exercise or Base Price of SAR Awards		Grant Date Fair Value of SAR Awards

Robert L. Moody	2/19/2009		7,500	$	114.64	$	356,691

Ross R. Moody	2/19/2009		5,518	$	114.64	$	262,429

Brian M. Pribyl	2/19/2009		1,000	$	114.64	$	47,559

Scott E. Arendale	2/19/2009		1,000	$	114.64	$	47,559

Charles D. Milos	2/19/2009		1,000	$	114.64	$	47,559

Outstanding Equity Awards at December 31, 2009

The following table provides information regarding outstanding stock options and SARs held by the executive officers named in the Summary Compensation Table as of December 31, 2009.

	Option/SAR Awards
				Number of
	Number of			Securities
	Securities			Underlying
	Underlying			Unexercised		Option		Option/SAR
	Options/SARs (#)			Options/SARs (#)		Exercise/SAR		Expiration
Name	Exercisable			Unexercisable		Price		Date

Robert L. Moody Grants:
4/20/2001		2,300	(*)		-	$	92.13	4/20/2011
6/22/2001		1,000	(*)		-		95.00	6/22/2011
4/23/2004		12,000			8,000		150.00	4/23/2014
6/25/2004 (director)		1,000	(*)		-		150.00	6/25/2014
4/18/2008		-			7,500		255.13	4/18/2018
6/20/2008 (director)		200			800		208.05	6/20/2018
2/19/2009 (director)		-			1,000		114.64	2/19/2019
2/19/2009		-			7,500		114.64	2/19/2019

Ross R. Moody Grants:
4/20/2001		5,000	(*)		-		92.13	4/20/2011
6/22/2001		1,000	(*)		-		95.00	6/22/2011
4/23/2004		6,000			4,000		150.00	4/23/2014
6/25/2004 (director)		1,000	(*)		-		150.00	6/25/2014
4/18/2008		-			5,518		255.13	4/18/2018
6/20/2008 (director)		200			800		208.05	6/20/2018
2/19/2009 (director)		-			1,000		114.64	2/19/2019
2/19/2009		-			5,518		114.64	2/19/2019

	Option/SAR Awards
				Number of
	Number of			Securities
	Securities			Underlying
	Underlying			Unexercised		Option		Option/SAR
	Options/SARs (#)			Options/SARs (#)		Exercise/SAR		Expiration
Name	Exercisable			Unexercisable		Price		Date

Brian M. Pribyl Grants:
4/23/2004		400			800		150.00	4/23/2014
4/18/2008		-			1,000		255.13	4/18/2018
2/19/2009		-			1,000		114.64	2/19/2019

Scott E. Arendale Grants:
4/20/2001		140	(*)		-		92.13	4/20/2011
4/23/2004		300			300		150.00	4/23/2014
4/18/2008		-			1,000		255.13	4/18/2018
2/19/2009		-			1,000		114.64	2/19/2019

Charles D. Milos Grants:
4/20/2001		1,300	(*)		-		92.13	4/20/2011
6/22/2001		1,000	(*)		-		95.00	6/22/2011
4/23/2004		1,200			800		150.00	4/23/2014
6/25/2004 (director)		1,000	(*)		-		150.00	6/25/2014
4/18/2008		-			1,000		255.13	4/18/2018
6/20/2008 (director)		200			800		208.05	6/20/2018
2/19/2009 (director)		-			1,000		114.64	2/19/2019
2/19/2009		-			1,000		114.64	2/19/2019

Note: Columns with no data have been omitted.

(*) – Fully vested.

Officer stock options and SARs vest 20% annually following three full years of service to the Company from the date of grant. Stock options and SARs granted to members of the Board of Directors vest 20% annually following one full year of service to the Company from the date of grant. Accordingly, the unexercisable options and SARs shown in the previous table are scheduled to vest during the following years:

									2014		Total
	2010		2011		2012		2013		to 2016		Unexercisable

Robert L. Moody
Grants:
4/23/2004		4,000		4,000		-		-		-		8,000
4/18/2008		-		1,500		1,500		1,500		3,000		7,500
6/20/2008 (director)		200		200		200		200		-		800
2/19/2009 (director)		200		200		200		200		200		1,000
2/19/2009		-		-		1,500		1,500		4,500		7,500

Ross R. Moody
Grants:
4/23/2004		2,000		2,000		-		-		-		4,000
4/18/2008		-		1,103		1,104		1,104		2,207		5,518
6/20/2008 (director)		200		200		200		200		-		800
2/19/2009 (director)		200		200		200		200		200		1,000
2/19/2009		-		-		1,104		1,104		3,310		5,518

Brian M. Pribyl
Grants:
4/23/2004		400		400		-		-		-		800
4/18/2008		-		200		200		200		400		1,000
2/19/2009		-		-		200		200		600		1,000

Scott E. Arendale
Grants:
4/23/2004		150		150		-		-		-		300
4/13/2008		-		200		200		200		400		1,000
2/19/2009		-		-		200		200		600		1,000

Charles D. Milos
Grants:
4/23/2004		400		400		-		-		-		800
4/18/2008		-		200		200		200		400		1,000
6/20/2008 (director)		200		200		200		200		-		800
2/19/2009 (director)		200		200		200		200		200		1,000
2/19/2009		-		-		200		200		600		1,000

Option Exercises and Stock Vested

There were no option exercises by any of the executive officers named in the summary compensation table for the year ended December 31, 2009. The Company does not have stock award plans with stock awards subject to vesting.

Pension Benefits

The following table provides information regarding benefits under the Company’s Pension Plan, Non-Qualified Defined Benefit Plan, Non-qualified Defined Benefit Plan for Robert L. Moody, and Non-Qualified Defined Benefit Plan for the President of National Western Life Insurance Company (NWLIC).

		Number of
		Years of		Present Value of		Payments
		Credited		Accumulated		During
Name	Plan Name	Service		Benefit		Last Fiscal Year

Robert L. Moody	NWLIC Pension Plan		44	$	1,247,137	$	153,509

	NWLIC Grandfathered
	Non-Qualified
	Defined Benefit Plan		45		5,257,959		713,258

	NWLIC Non-Qualified
	Defined Benefit Plan for
	Robert L. Moody		45		12,645,711		1,715,423

Ross R. Moody	NWLIC Pension Plan		17		189,750		-

	Non-Qualified Defined
	Benefit Plan for the
	President of NWLIC		19		293,254		-

Brian M. Pribyl	NWLIC Pension Plan		7		98,668		-

Charles D. Milos	NWLIC Pension Plan		25		521,415		-

	NWLIC Grandfathered
	Non-Qualified		27		238,316		-
	Defined Benefit Plan

	NWLIC Non-Qualified
	Defined Benefit Plan		27		203,622		-

Scott E. Arendale	NWLIC Pension Plan		14		264,967		-

Note: Columns with no data have been omitted.

Pension Plan. The qualified defined benefit plan covers substantially all employees and officers of the Company and provides benefits based on the participant’s 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. Annual pension benefits for those employees who became eligible participants prior to January 1, 1991, are generally calculated as the sum of the following:

(1) 50% of the participant’s final 5-year average annual eligible compensation at December 31, 1990, less 50% of their primary social security benefit determined at December 31, 1990; this net amount is then prorated for less than 15 years of benefit service at normal retirement date. This result is multiplied by a fraction which is the participant’s years of benefit service at December 31, 1990, divided by the participant’s years of benefit service at normal retirement date.

(2) 1.5% of the participant’s eligible compensation earned during each year of benefit service after December 31, 1990 and through December 31, 2007.

Annual pension benefits for those employees who become eligible participants on or subsequent to January 1, 1991, are generally calculated as 1.5% of their compensation earned during each year of benefit service through December 31, 2007.

On October 19, 2007, the Company’s Board of Directors approved an amendment to freeze the Pension Plan as of December 31, 2007. The freeze ceased future benefit accruals to all participants and closed the Plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. Accordingly future pension expense is projected to be minimal.

Non-Qualified Defined Benefit Plan. This plan covers officers of the Company who were in the position of senior vice president or above prior to 1991. The plan provides benefits based on the participant’s years of service and compensation. No minimum funding standards are required.

The benefit to be paid pursuant to this plan to a participant, other than the Chairman of the Company, who retires at his normal retirement date shall be equal to (a) minus (b) minus (c), but the benefit may not exceed (d) minus (b) where:

(a) is the benefit which would have been payable at the participant’s normal retirement date under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, and,

(b) is the benefit which actually becomes payable under the terms of the Pension Plan at the participant’s normal retirement date, and,

(c) is the actuarially equivalent life annuity which may be provided by an accumulation of 2% of the participant’s compensation for each year of service on and after January 1, 1991, accumulated at an assumed interest rate of 8.5% to the participant’s normal retirement date, and,

(d) is the benefit which would have been payable at the participant’s normal retirement date under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a)(17) and 415 limits, except that the proration over 15 years shall instead be calculated over 30 years.

The Chairman of the Company, Robert L. Moody, is currently receiving in-service benefits from this plan. The benefit that Mr. Moody began receiving as of his normal retirement date pursuant to the plan was equal to (a) minus (b) minus (c) where:

(a) was his years of service (up to 45), multiplied by 1.66667%, and then multiplied by the excess of his eligible compensation over his primary social security benefit under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, and,

(b) was the benefit payable to him under the terms of the Pension Plan, and,

(c) was the actuarially equivalent life annuity provided by an accumulation of 2% of his compensation for each year of service on and after January 1, 1991, accumulated at an assumed interest rate of 8.5% to his normal retirement date.

This benefit was increased for additional service and changes in eligible compensation through December 31, 2004. The benefit was frozen as of December 31, 2004 in connection with plan changes required by the American Jobs Creation Act of 2004.

Non-Qualified Defined Benefit Plan for Robert L. Moody. This plan covers the current Chairman of the Company, Robert L. Moody, and is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed Non-Qualified Defined Benefit Plan, while complying with the American Jobs Creation Act of 2004. No minimum funding standards are required. The annual benefit paid to the Chairman of the Company on an in-service basis effective July 1, 2005 was equal to (a) minus (b) minus (c) where:

(a) was his years of service on his normal retirement date, multiplied by 1.66667%, and then multiplied by the excess of his eligible compensation over his primary social security benefit under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, less the actuarially equivalent life annuity which may be provided by an accumulation of 2% of his compensation for each year of service on and after January 1, 1991, accumulated at an assumed interest rate of 8.5% to his normal retirement date, and, multiplied by the ratio of his years of service on July 1, 2005 to his years of service on his normal retirement date, multiplied by the ratio of his eligible compensation as of July 1, 2005 to his eligible compensation as of his normal retirement date, and,

(b) was the benefit payable to him under the terms of the Pension Plan as of July 1, 2005, and,

Subsequent to July 1, 2005, the annual benefit was increased monthly for additional service and changes in eligible compensation.

Non-Qualified Defined Benefit Plan for the President of National Western Life Insurance Company. This plan covers the President of the Company and is intended to provide benefit accruals that comply with the American Jobs Creation Act of 2004. No minimum funding standards are required.

The annual benefit to be paid to the President of the Company who retires at his normal retirement date shall be equal to (a) minus (b) minus (c) where:

(a) equals his years of service (up to 45), multiplied by 1.66667%, and then multiplied by the excess of his eligible compensation over his primary social security benefit under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, and,

(b) equals the actuarially equivalent life annuity provided by an accumulation of 2% of his compensation for each year of service on and after his date of hire, accumulated at an assumed interest rate of 8.5% to his normal retirement date, and,

The plan provides for a monthly in-service benefit if the President of the Company continues employment after his normal retirement date.

Non-Qualified Deferred Compensation

The following table provides information regarding the Company’s non-qualified deferred compensation plan for the executive officers named in the Summary Compensation Table as of December 31, 2009.

									Aggregate
	Executive		Registrant		Aggregate				Balance
	Contributions		Contributions		Earnings		Aggregate		at Last
	in Last		in Last		in Last		Withdrawals/		Fiscal
Name	Fiscal Year		Fiscal Year (a)		Fiscal Year (b)		Distributions		Year-End (c)

Robert L. Moody	$	-	$	-	$	2,620	$	40,816	$	-

Ross R. Moody		34,164		26,487		124,022		-		620,533

Brian M. Pribyl		10,885		6,501		13,753		-		191,748

Charles D. Milos		11,520		8,211		93,325		-		407,827

Scott E. Arendale		6,523		3,272		4,409		-		51,240

Note: Columns with no data have been omitted.

(a)	Registrant contributions are reflected in the “All Other Compensation” column in the Summary Compensation Table and are not additional earned compensation.
(b)	The investment options under the plan consist of a selection of mutual funds identical to those available to all employees through the 401(k) plan.
(c)	Balances in the plan are settled in cash upon the termination event selected by the officer and distributed either in a lump sum or in annual installments. Deferred amounts represent unsecured obligations of the Company.

Potential Payments Upon Termination or Change in Control

Other than the Company’s 1995 Stock Option and Incentive Plan and 2008 Incentive Plan, the Company has no contract, agreement, plan, or arrangement, written or unwritten, that provides for payment to any officer at, following, or in connection with any termination, severance, retirement or a constructive termination, or a change in control of the Company or a change in any officer’s responsibilities.

The 1995 Stock Option and Incentive Plan governs certain of the stock option grants held by our executive officers. Our executive officers are not entitled to any benefits under our 1995 Stock Option and Incentive Plan that are not available to other participants. The 1995 Stock Option and Incentive Plan includes the following change in control provisions, which would result in the accelerated vesting of outstanding option grants: In the event of a Change of Control, all outstanding Awards shall immediately vest and become exercisable or satisfiable, as applicable. The Committee, in its discretion, may determine that upon the occurrence of a Change in Control, each Award outstanding hereunder shall terminate within a specified number of days after notice to the Holder, and such Holder sh all receive, with respect to each share of Common Stock subject to such Award, cash in an amount equal to the excess of (i) the higher of (x) the Fair Market Value of such share of Common Stock immediately prior to the occurrence of such Change of Control or (y) the value of the consideration to be received in connection with such Change of Control for one share of Common Stock over (ii) the exercise price per share, if applicable, of Common Stock set forth in such Award. The provisions contained in the preceding sentence shall be inapplicable to an Award granted within six (6) months before the occurrence of a Change of Control if the Holder of such Award is subject to the reporting requirements of Section 16(a) of the 1934 Act. If the consideration offered to shareholders of the Company in any transaction described in this paragraph consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other th an cash. The provisions contained in this paragraph shall not terminate any rights of the Holder to further payments pursuant to any other agreement with the Company following a Change of Control.

The 2008 Incentive Plan governs certain of the stock option grants and/or SARs held by our executive officers and provides for the acceleration of vesting of all awards upon a change in control of the Company. The 2008 Incentive Plan includes the following change in control provisions, which would result in the accelerated vesting of outstanding award grants: The Committee may provide in an option agreement and/or Stock Appreciation Rights agreement that in the event of a Change in Control of the Company, (i) all or a portion of the stock options and/or any Stock Appreciation Rights awarded under such agreement shall become fully vested and immediately exercisable and/or (ii) the vesting of all performance-based stock options shall be determined as if the performance period or cycle applicable to such stock options had ended immediately upon such Change in Control.

Our executive officers hold option grants under both the 1995 Stock Option and Incentive Plan and the 2008 Incentive Plan. Option Grants under the 1995 Stock Option and Incentive Plan and the 2008 Incentive Plan will immediately vest upon a change in control. The following table depicts potential benefits for our executive officers as a result of a change in control. Such termination is assumed to occur on January 1, 2010.

		Intrinsic Value of
Named Executive Officer		Accelerated Equity (1)($)

Robert L. Moody	$	690,290.00

Ross R. Moody		478,911.64

Brian M. Pribyl		77,876.00

Charles D. Milos		136,856.00

Scott E. Arendale		66,066.00

(1) Value is based upon the closing selling price per share of our Class A common stock on the NASDAQ Global Select Market on December 31, 2009, which was $173.62.

Director Compensation

The following table sets forth the compensation for 2009 for those individuals who served as members of the Company’s Board of Directors during 2009 (excluding named executive officers whose director compensation is included in the Summary Compensation Table).

	Fees Earned or		Option		All Other
Name	Paid in Cash		Awards (a)		Compensation			Total

Stephen E. Glasgow	$	36,900	$	47,784	$	45,812	(b)	$	130,496

E. Douglas McLeod		26,400		47,784		952	(c)		75,136

Russell S. Moody		26,400		47,784		20,499	(d)		94,683

Frances A. Moody-Dahlberg		26,400		47,784		29,687	(e)		103,871

Louis E. Pauls Jr.		32,500		47,784		8,860	(f)		89,144

E. J. Pederson		32,000		47,784		952	(c)		80,736

Note: Columns with no data have been omitted.

(a)	The amounts in this column represent the fair value on grant date of option awards received during the year.
(b)	The amount shown for Mr. Glasgow includes $38,461 value of the Company’s Group and Excess Benefit Plans, $252 for the taxable value of supplemental life coverage, $6,399 in guest travel and $700 in gifts.
(c)	The amounts shown for Messrs. McLeod and Pederson represent $252 for the taxable value of supplemental life coverage and $700 in gifts.
(d)	The amount shown for Mr. Moody is $252 for the taxable value of supplemental life coverage, $19,547 in guest travel and $700 in gifts.
(e)	The amount shown for Ms. Moody-Dahlberg is $28,874 value of the Company’s Excess Benefit Plans, $113 in guest travel and $700 in gifts.
(f)	The amount shown for Mr. Pauls includes $6,046 value of the Company’s Group Benefit Plans, $20 for the taxable value of supplemental life coverage, $2,094 in guest travel and $700 in gifts.

All directors of the Company currently receive $24,000 a year and $600 for each board meeting attended. They are also reimbursed for actual travel expenses incurred in performing services as directors. An additional $600 is paid for each committee meeting attended. However, a director attending multiple meetings on the same day receives only one meeting fee. The amounts paid pursuant to these arrangements are included in the Summary Compensation Table of this Item. The directors and their dependents are also eligible to participate in the Company’s group insurance program.

Directors of the Company are eligible for restricted stock awards, incentive awards, and performance awards under the National Western Life Insurance Company 1995 Stock Option and Incentive Plan and 2008 Incentive Plan. Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options.

Directors of the Company’s subsidiary, NWL Investments, Inc., receive $250 annually. Directors of the Company’s subsidiary, NWLSM, Inc., receive $1,000 per board meeting attended. Nonemployee directors of the Company’s subsidiary, NWL Services, Inc., receive $1,000 per board meeting attended. Directors of the Company’s downstream subsidiaries, Regent Care General Partner, Inc., and Regent Care Operations General Partner, Inc., receive $250 per board meeting attended. Directors of the Company’s downstream subsidiary, Regent Care Limited Partner, Inc., receive $500 per board meeting attended.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Listing of Financial Statements

See Attachment A, Index to Financial Statements and Schedules, on page 60 for a list of financial statements included in this report.

(a) 2. Listing of Financial Statement Schedules

See Attachment A, Index to Financial Statements and Schedules, on page 60 for a list of financial statement schedules included in this report.

All other schedules are omitted because they are not applicable, not required, or because the information required by the schedule is included elsewhere in the financial statements or notes.

(a) 3. Listing of Exhibits

The exhibits listed below, as part of Form 10-K, are numbered in accordance with the numbering used in Item 601 of Regulation S-K of The Securities and Exchange Commission.

Exhibit 2	-	Order Confirming Third Amended Joint Consensual Plan Of Reorganization Proposed By The Debtors And The Official Committee Of Unsecured Creditors (As Modified As of August 28, 1998) (incorporated by reference to Exhibit 2 to the Company's Form 8-K dated August 28, 1998).

Exhibit 3(a)	-	Restated Articles of Incorporation of National Western Life Insurance Company dated April 10, 1968 (incorporated by reference to Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 3(b)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated July 29, 1971 (incorporated by reference to Exhibit 3(b) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 3(c)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated May 10, 1976 (incorporated by reference to Exhibit 3(c) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 3(d)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated April 28, 1978 (incorporated by reference to Exhibit 3(d) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 3(e)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated May 1, 1979 (incorporated by reference to Exhibit 3(e) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 3(f)	-	Bylaws of National Western Life Insurance Company as amended through April 24, 1987 (incorporated by reference to Exhibit 3(f) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 3ii(g)	-	Bylaws of National Western Life Insurance Company dated August 24, 2007 (incorporated by reference to Exhibit 3ii(g) to the Company’s Form 10-Q September 30, 2007).

Exhibit 10(a)	-	National Western Life Insurance Company Non-Qualified Defined Benefit Plan dated July 26, 1991 (incorporated by reference to Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 10(c)	-	National Western Life Insurance Company Non-Qualified Deferred Compensation Plan, as amended and restated, dated March 27, 1995 (incorporated by reference to Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 10(d)	-	First Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective July 1, 1995 (incorporated by reference to Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 10(e)	-	National Western Life Insurance Company 1995 Stock and Incentive Plan (incorporated by reference to Exhibit 10(e) to the Company's Form 10-K for the year ended December 31, 1995).

Exhibit 10(f)	-	First Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(f) to the Company's Form 10-K for the year ended December 31, 1996).

Exhibit 10(g)	-	Second Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(g) to the Company's Form 10-K for the year ended December 31, 1996).

Exhibit 10(h)	-	Second Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(h) to the Company's Form 10-K for the year ended December 31, 1996).

Exhibit 10(i)	-	Third Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1996).

Exhibit 10(j)	-	Fourth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective June 20, 1997 (incorporated by reference to Exhibit 10(j) to the Company's Form 10-K for the year ended December 31, 1997).

Exhibit 10(k)	-	First Amendment to the National Western Life Insurance Company 1995 Stock and Incentive Plan effective June 19, 1998 (incorporated by reference to Exhibit 10(k) to the Company's Form 10-Q for the quarter ended June 30, 1998).

Exhibit 10(m)	-	Fifth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective July 1, 1998 (incorporated by reference to Exhibit 10(m) to the Company's Form 10-Q for the quarter ended September 30, 1998).

Exhibit 10(n)	-	Sixth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective August 7, 1998 (incorporated by reference to Exhibit 10(n) to the Company's Form 10-K for the year ended December 31, 1998).

Exhibit 10(o)	-	Third Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective August 7, 1998 (incorporated by reference to Exhibit 10(o) to the Company's Form 10-K for the year ended December 31, 1998).

Exhibit 10(p)	-	Exchange Agreement by and among National Western Life Insurance Company, NWL Services, Inc., Alternative Benefit Management, Inc., and American National Insurance Company effective November 23, 1998 (incorporated by reference to Exhibit 10(p) to the Company's Form 10-K for the year ended December 31, 1998).

Exhibit 10(s)	-	Seventh Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective August 7, 1998 (incorporated by reference to Exhibit 10(s) to the Company's Form 10-K for the year ended December 31, 2000).

Exhibit 10(u)	-	Eighth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective December 1, 2000 (incorporated by reference to Exhibit 10(u) to the Company's Form 10-K for the year ended December 31, 2000).

Exhibit 10(v)	-	Fourth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 1, 2000 (incorporated by reference to Exhibit 10(v) to the Company's Form 10-K for the year ended December 31, 2000).

Exhibit 10(w)	-	Second Amendment to the National Western Life Insurance Company 1995 Stock and Incentive Plan (incorporated by reference to Exhibit 10(w) to the Company's Form 10-Q for the quarter ended September 30, 2001).

Exhibit 10(z)	-	Fifth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective January 1, 2001 (incorporated by reference to Exhibit 10(z) to the Company's Form 10-K for the year ended December 31, 2001).

Exhibit 10(ae)	-	Sixth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective August 23, 2002 (incorporated by reference to Exhibit 10(ae) to the Company's Form 10-Q for the quarter ended September 30, 2002).

Exhibit 10(af)	-	Seventh Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective October 18, 2002 (incorporated by reference to Exhibit 10(af) to the Company's Form 10-Q for the quarter ended September 30, 2002).

Exhibit 10(ai)	-	Eighth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective January 1, 2003 (incorporated by reference to Exhibit 10(ai) to the Company's Form 10-K for the year ended December 31, 2002).

Exhibit 10(am)	-	Ninth amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective November 1, 2003 (incorporated by reference to Exhibit 10(am) to the Company's Form 10-K for the year ended December 31, 2003).

Exhibit 10(an)	-	Ninth amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 5, 2003 (incorporated by reference to Exhibit 10(an) to the Company's Form 10-K for the year ended December 31, 2003.)

Exhibit 10(ar)	-	Third Amendment to the National Western Life Insurance Company 1995 Stock and Incentive Plan (incorporated by reference to Exhibit 10(ar) to the Company's Form 10-Q for the quarter ended September 30, 2004).

Exhibit 10(as)	-	Amendment to the National Western Life Insurance Company Group Excess Benefit Plan effective December 15, 2004 (incorporated by reference to Exhibit 10(as) to the Company's Form 10-K for the year ended December 31, 2004).

Exhibit 10(at)	-	The National Western Life Insurance Company Employee Health Plan was amended and restated effective August 20, 2004 (incorporated by reference to Exhibit 10(at) to the Company's Form 10-K for the year ended December 31, 2004).

Exhibit 10(au)	-	Tenth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 31, 2004 (incorporated by reference to Exhibit 10(au) to the Company's Form 10-K for the year ended December 31, 2004).

Exhibit 10(az)	-	National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody (Exhibit 10(az) to 8-K dated July 1, 2005).

Exhibit 10(ba)	-	First Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody (Exhibit 10(ba) to 8-K dated August 22, 2005).

Exhibit 10(bb)	-	Second Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody (Exhibit 10(bb) to 8-K dated December 15, 2005).

Exhibit 10(bc)	-	Tenth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan (Exhibit 10(bc) to 8-K dated December 15, 2005).

Exhibit 10(bd)	-	National Western Life Insurance Company Retirement Bonus Program for Robert L. Moody (Exhibit 10(bd) to 8-K dated December 15, 2005).

Exhibit 10(be)	-	Eleventh Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan (Exhibit 10(be) to 8-K dated December 15, 2005).

Exhibit 10(bf)	-	Non-Qualified Defined Benefit Plan for the President of the National Western Life Insurance Company (Exhibit 10(bf) to 8-K dated December 15, 2005).

Exhibit 10(bg)	-	National Western Life Insurance Company 2006 Executive Officer Bonus Program (Exhibit 10(bg) to 8-K dated February 17, 2006).

Exhibit 10(bh)	-	National Western Life Insurance Company 2006 Executive Officer Bonus Program (as amended) (Exhibit 10(bh) to 8-K dated April 21, 2006).

Exhibit 10(bi)	-	2006 International Marketing Officer Bonus Program (Exhibit 10(bi) to 8-K dated June 23, 2006).

Exhibit 10(bj)	-	2006 Domestic Marketing Officer Bonus Program (Exhibit 10(bj) to 8-K dated June 23, 2006).

Exhibit 10(bk)	-	National Western Life Insurance Company Harvest Nonqualified Deferred Compensation Plan (Exhibit 10(bk) to 8-K dated June 23, 2006).

Exhibit 10(bl)	-	Amendment No. 16 to Loan Agreement (Exhibit 10(bl) to 8-K dated July 31, 2006).

Exhibit 10(bm)	-	Life Systems, Incorporated Termination Agreement (Exhibit 10(bm) to 8-K dated March 30, 2007).

Exhibit 10(bn)	-	National Western Life Insurance Company 2007 Executive Officer Bonus Program (Exhibit 10(bn) to 8-K dated April 19, 2007).

Exhibit 10(bo)	-	National Western Life Insurance Company 2007 Domestic Marketing Officer Bonus Program (Exhibit 10(bo) to 8-K dated April 19, 2007).

Exhibit 10(bp)	-	National Western Life Insurance Company 2007 International Marketing Officer Bonus Program (Exhibit 10(bp) to 8-K dated April 19, 2007).

Exhibit 10(bq)	-	National Western Life Insurance Company 2008 Executive Officer Bonus Program (Exhibit 10(bq) to 8-K dated March 17, 2008).

Exhibit 10(br)	-	National Western Life Insurance Company 2008 Domestic Marketing Officer Bonus Program (Exhibit 10(br) to 8-K dated August 22, 2008).

Exhibit 10(bs)	-	National Western Life Insurance Company 2008 International Marketing Officer Bonus Program (Exhibit 10(bs) to 8-K dated August 22, 2008).

Exhibit 10(bt)	-	National Western Life Insurance Company 2008 Domestic Marketing Officer Bonus Program (as amended) (Exhibit 10(bt) to 8-K dated October 16, 2008).

Exhibit 10(bu)	-	National Western Life Insurance Company 2008 Incentive Plan (Exhibit 10(bu) to S-8 dated September 2, 2008).

Exhibit 10(bv)	-	National Western Life Insurance Company 2008 Senior Vice President Bonus Program Program (Exhibit 10(bv) to Form 10-K dated December 31, 2008).

Exhibit 10(bw)	-	National Western Life Insurance Company 2009 Executive Officer Bonus Program (Exhibit 10(bw) to 8-K dated February 19, 2009).

Exhibit 10(bx)	-	National Western Life Insurance Company 2009 Domestic Marketing Officer Bonus Program (Exhibit 10(bx) to 8-K dated February 19, 2009).

Exhibit 10(by)	-	National Western Life Insurance Company 2009 International Marketing Officer Bonus Program (Exhibit 10(by) to 8-K dated February 19, 2009).

Exhibit 10(bz)	-	National Western Life Insurance Company 2009 Senior Vice President Bonus Program (Exhibit 10(bz) to 8-K dated February 19, 2009).

Exhibit 10(ca)	-	National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody As Amended and Restated Effective as of January 1, 2009 (Exhibit 10(ca) to Form 10-K dated December 31, 2008).

Exhibit 10(cb)	-	Non-Qualified Defined Benefit Plan for the President of National Western Life Insurance Company As Amended and Restated Effective as of January 1, 2009 (Exhibit 10(cb) to Form 10-K dated December 31, 2008).

Exhibit 10(cc)	-	National Western Life Insurance Company Grandfathered Non-Qualified Defined Benefit Plan As Amended and Restated Effective as of December 31, 2004 (Exhibit 10(cc) to Form 10-K dated December 31, 2008).

Exhibit 10(cd)	-	National Western Life Insurance Company Non-Qualified Defined Benefit Plan As Amended and Restated Effective as of January 1, 2009 (Exhibit 10(cd) to Form 10-K dated December 31, 2008).

Exhibit 10(ce)	-	National Western Life Insurance Company Grandfathered Non-Qualified Deferred Compensation Plan As Amended and Restated Effective as of December 31, 2004 (Exhibit 10(ce) to Form 10-K dated December 31, 2008).

Exhibit 10(cf)	-	National Western Life Insurance Company Non-Qualified Deferred Compensation Plan As Amended and Restated Effective as of January 1, 2009 (Exhibit 10(cf) to Form 10-K dated December 31, 2008).

Exhibit 10(cg)	-	First Amendment to The National Western Life Insurance Company Pension Plan As Amended and Restated Effective as of January 1, 2007 (Exhibit 10(cg) to Form 10-K dated December 31, 2008).

Exhibit 10(ch)	-	Amended National Western Life Insurance Company Group Excess Benefit Plan, effective May 1, 2009 (Exhibit 10(ch) to Form 10-Q dated March 31, 2009).

Exhibit 10(ci)	-	Revolving Credit Loan Agreement with Moody National Bank (Exhibit 10(ci) to 8-K dated August 31, 2009).

Exhibit 10(cj)	-	National Western Life Insurance Company 2009 Executive Officer Bonus Program (Exhibit 10(cj) to 8-K dated December 16, 2009).

Exhibit 10(ck)	-	National Western Life Insurance Company 2009 Domestic Marketing Officer Bonus Program (Exhibit 10(ck) to 8-K dated December 16, 2009).

Exhibit 10(cl)	-	National Western Life Insurance Company 2009 International Marketing Officer Bonus Program (Exhibit 10(cl) to 8-K dated December 16, 2009).

Exhibit 10(cm)	-	National Western Life Insurance Company 2009 Officer President Bonus Program (Exhibit 10(cm) to 8-K dated December 16, 2009).

Exhibit 10(cp)	-	Management/Consultant Agreement dated March 29, 2000 by and between Regent Care Operations, Limited Partnership and Regent Management Services, Limited Partnership.

Exhibit 10(cq)		Management Agreement dated October 1, 2008 by and between Regent Care San Marcos B-3, Limited Partnership and Regent Management Services, Limited Partnership.

Exhibit 10(cr)		Administrative Services Only Agreement dated January 1, 2001 by and between National Western Life Insurance Company and American National Insurance Company (ANICO) pertaining to ANICO Excess Benefit Plan.

Exhibit 10(cs)		Premium Payment Agreement dated January 1, 2001 by and between National Western Life Insurance Company and American National Insurance Company (ANICO) pertaining to ANICO Excess Benefit Plan.

Exhibit 10(ct)		Administrative Services Only Agreement dated January 1, 2001 by and between National Western Life Insurance Company and American National Insurance Company (ANICO) pertaining to ANICO Excess Benefit Plan.

Exhibit 10(cu)		Premium Payment Agreement dated January 1, 2001 by and between National Western Life Insurance Company and American National Insurance Company (ANICO) pertaining to ANICO Excess Benefit Plan.

Exhibit 21	-	Subsidiaries of the Registrant.

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)	-	Certifications 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.

(b) Exhibits

Exhibits required by Regulation S-K are listed as to location in the Listing of Exhibits in Item 15.(a)3 above. Exhibits not referred to have been omitted as inapplicable or not required.

The financial statement schedules required by Regulation S-K are listed as to location in Attachment A, Index to Financial Statements and Schedules, on page 60 of this report.

ATTACHMENT A

Index to Financial Statements and Schedules



		Page

Report of Independent Registered Public Accounting Firm		61

Consolidated Balance Sheets, December 31, 2009 and 2008		62

Consolidated Statements of Earnings for the years ended December 31, 2009, 2008 and 2007		64

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2009, 2008 and 2007		65

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2009, 2008 and 2007		66

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007		68

Notes to Consolidated Financial Statements		70

Schedule I - Summary of Investments Other Than Investments in Related Parties, December 31, 2009		125

Schedule V - Valuation and Qualifying Accounts for the years ended December 31, 2009, 2008 and 2007		126

All other schedules are omitted because they are not applicable, not required, or because the information required by the schedule is included elsewhere in the consolidated financial statements or notes.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

National Western Life Insurance Company:

We have audited the accompanying consolidated balance sheets of National Western Life Insurance Company and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of earnings, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules I and V. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Western Life Insurance Company and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for other-than-temporary impairments in 2009 and deferred acquisition costs in connection with modifications or exchanges of insurance contracts in 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), National Western Life Insurance Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

KPMG LLP

Dallas, Texas

March 16, 2010

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(In thousands)


ASSETS	2009		2008

Investments:
Securities held to maturity, at amortized cost (fair value: $4,331,077
and $3,727,353)	$	4,176,661		3,831,417
Securities available for sale, at fair value (cost: $1,967,365 and $1,904,053)		2,050,079		1,745,266
Mortgage loans, net of allowance for possible losses ($5,033 and $4,587)		98,200		90,733
Policy loans		78,336		79,277
Derivatives, index options		89,915		11,920
Other long-term investments		32,829		14,168

Total Investments		6,526,020		5,772,781

Cash and short-term investments		108,866		67,796
Deferred policy acquisition costs		626,440		701,984
Deferred sales inducements		122,232		120,955
Accrued investment income		71,572		64,872
Federal income tax receivable		-		1,820
Other assets		63,605		56,272

	$	7,518,735		6,786,480

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(In thousands except share amounts)


LIABILITIES AND STOCKHOLDERS' EQUITY	2009		2008

LIABILITIES:

Future policy benefits:
Traditional life and annuity contracts	$	133,169		137,530
Universal life and annuity contracts		5,988,665		5,424,968
Other policyholder liabilities		128,931		131,963
Deferred Federal income tax liability		32,818		26,506
Federal income tax payable		13,197		-
Other liabilities		107,902		79,300

Total liabilities		6,404,682		5,800,267


COMMITMENTS AND CONTINGENCIES (Notes 4, 7, and 9)

STOCKHOLDERS' EQUITY:

Common stock:
Class A - $1 par value; 7,500,000 shares authorized; 3,425,966 shares issued and outstanding in 2009 and 2008		3,426		3,426
Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2009 and 2008		200		200
Additional paid-in capital		36,680		36,680
Accumulated other comprehensive income (loss)		17,760		(65,358	)
Retained earnings		1,055,987		1,011,265

Total stockholders' equity		1,114,053		986,213

	$	7,518,735		6,786,480

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands except per share amounts)

	2009			2008			2007
Premiums and other revenue:
Traditional life and annuity premiums	$	17,043			17,752			19,513
Universal life and annuity contract charges		145,651			133,424			119,677
Net investment income		393,531			273,362			318,137
Other revenues		17,348			12,769			13,683
Net realized investment (losses) gains:
Total other-than-temporary impairment (“OTTI”) losses		(13,847	)		(27,215	)		(67	)
Portion of OTTI losses recognized in other comprehensive income		8,326			-			-
Net OTTI losses recognized in earnings		(5,521	)		(27,215	)		(67	)
Other net investment gains		354			987			3,564
Total net realized investment (losses) gains		(5,167	)		(26,228	)		3,497

Total revenues		568,406			411,079			474,507

Benefits and expenses:
Life and other policy benefits		48,997			39,759			41,326
Amortization of deferred policy acquisition costs and deferred sales inducements		115,163			127,161			88,413
Universal life and annuity contract interest		242,816			138,960			164,391
Other operating expenses		92,192			55,630			55,130

Total benefits and expenses		499,168			361,510			349,260

Earnings before Federal income taxes		69,238			49,569			125,247

Federal income taxes		23,754			15,927			39,876

Net earnings	$	45,484			33,642			85,371

Basic Earnings Per Share:
Class A		12.90			9.54			24.24
Class B		6.45			4.77			12.12

Diluted Earnings Per Share:
Class A		12.87			9.48			23.95
Class B		6.45			4.77			12.12

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)


	2009			2008			2007

Net earnings	$	45,484			33,642			85,371

Other comprehensive income (loss), net of effects of deferred costs and taxes:
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during period		82,686			(66,789	)		1,035
Net unrealized liquidity losses		(3,312	)		-			-
Reclassification adjustment for net amounts included in net earnings		2,756			11,866			(3,103	)
Amortization of net unrealized (gains) losses
related to transferred securities		(34	)		(31	)		104

Net unrealized gains (losses) on securities		82,096			(54,954	)		(1,964	)

Foreign currency translation adjustments		(73	)		(112	)		(44	)

Benefit plans:
Amortization of net prior service cost and net gain		1,095			(3,227	)		1,235
Net loss arising during the period		-			-			(2,561	)

Other comprehensive income (loss)		83,118			(58,293	)		(3,334	)

Comprehensive income (loss)	$	128,602			(24,651	)		82,037

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)

	2009			2008			2007
Common stock:
Balance at beginning of period	$	3,626			3,622			3,621
Shares exercised under stock option plan		-			4			1

Balance at end of period		3,626			3,626			3,622

Additional paid-in capital:
Balance at beginning of period		36,680			36,236			36,110
Shares exercised under stock option plan		-			444			126

Balance at end of period		36,680			36,680			36,236

Accumulated other comprehensive income (loss):
Unrealized (losses) gains on non-impaired securities:
Balance at beginning of period		(53,770	)		1,184			3,148
Change in unrealized gains (losses) during period		85,409			(54,954	)		(1,964	)

Balance at end of period		31,639			(53,770	)		1,184

Unrealized losses on impaired held to maturity securities:
Balance at beginning of period		-			-			-
Cumulative effect of change in accounting principle (See Note 1)		(507	)		-			-
Amortization		43			-			-
Other-than-temporary impairments		(2,287	)		-			-

Balance at end of period		(2,751	)		-			-

Unrealized losses on impaired available for sale securities:
Balance at beginning of period		-			-			-
Other-than-temporary impairments		(581	)		-			-
Recoveries		19			-			-

Balance at end of period		(562	)		-			-

Foreign currency translation adjustments:
Balance at beginning of period		2,966			3,078			3,122
Change in translation adjustments during period		(73	)		(112	)		(44	)
Balance at end of period		2,893			2,966			3,078

Benefit plan liability adjustment:
Balance at beginning of period		(14,554	)		(11,327	)		(10,001	)
Amortization of net prior service cost and net gain		1,095			(3,227	)		(1,326	)

Balance at end of period		(13,459	)		(14,554	)		(11,327	)

Accumulated other comprehensive income (loss) at end of period		17,760			(65,358	)		(7,065	)

(Continued on next page)

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)


	2009			2008			2007

Retained earnings:
Balance at beginning of period		1,011,265			978,892			896,984
Cumulative effect of change in accounting principle, net of tax (See Note 1)		507			-			(2,195	)
Net earnings		45,484			33,642			85,371
Stockholder dividends		(1,269	)		(1,269	)		(1,268	)

Balance at end of period		1,055,987			1,011,265			978,892

Total stockholders' equity	$	1,114,053			986,213			1,011,685

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)


	2009			2008			2007

Cash flows from operating activities:
Net earnings	$	45,484			33,642			85,371
Adjustments to reconcile net earnings to net cash provided by operating activities:
Universal life and annuity contract interest		242,816			142,707			175,768
Surrender charges and other policy revenues		(54,588	)		(41,027	)		(36,191	)
Realized losses (gains) on investments		4,145			26,228			(3,497	)
Accrual and amortization of investment income		(2,095	)		(4,520	)		(4,693	)
Depreciation and amortization		(502	)		2,292			1,467
(Increase) decrease in value of derivatives		(93,085	)		17,480			56,204
(Increase) decrease in deferred policy acquisition and sales inducement costs		(34,348	)		16,418			(38,151	)
(Increase) decrease in accrued investment income		(6,699	)		162			(642	)
(Increase) decrease in other assets		(8,544	)		(9,394	)		8,378
(Decrease) increase in liabilities for future policy benefits		(4,361	)		(1,142	)		290
Increase in other policyholder liabilities		35,037			11,563			7,951
(Decrease) increase in Federal income tax liability		(23,898	)		2,572			18,893
Increase (decrease) in other liabilities		37,415			(2,108	)		(11,247	)
Other, net		748			(248	)		25

Net cash provided by operating activities		137,525			194,625			259,926

Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity		-			-			5,934
Securities available for sale		19,781			1,722			33,616
Other investments		1,920			1,404			5,684
Proceeds from maturities and redemptions of:
Securities held to maturity		958,491			520,839			136,752
Securities available for sale		91,378			206,510			340,681
Derivatives		56,808			53,805			44,047
Purchases of:
Securities held to maturity		(1,245,032	)		(566,764	)		(321,609	)
Securities available for sale		(243,824	)		(218,874	)		(366,238	)
Derivatives		(41,718	)		(58,010	)		(53,073	)
Other investments		(21,245	)		(261	)		(289	)
Principal payments on mortgage loans		11,533			16,609			22,561
Cost of mortgage loans acquired		(21,551	)		(14,239	)		(19,578	)
Decrease in policy loans		941			4,495			3,084
Other, net		-			-			(2,205	)

Net cash used in investing activities		(432,518	)		(52,764	)		(170,633	)

(Continued on next page)

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)


	2009			2008			2007

Cash flows from financing activities:
Stockholders dividends	$	(1,269	)		(1,269	)		(1,268	)
Deposits to account balances for universal life and annuity contracts		900,773			472,776			510,647
Return of account balances on universal life and annuity contracts		(563,371	)		(591,114	)		(603,450	)
Issuance of common stock under stock option plan		-			448			127

Net cash provided by (used in) financing activities		336,133			(119,159	)		(93,944	)

Effect of foreign exchange		(70	)		(112	)		(44	)

Net increase (decrease) in cash and short-term investments		41,070			22,590			(4,695	)
Cash and short-term investments at beginning of year		67,796			45,206			49,901

Cash and short-term investments at end of year	$	108,866			67,796			45,206

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:
Interest	$	33	41	41
Income taxes		47,659	11,687	19,298

Noncash operating activities:
Deferral of sales inducements		22,917	3,747	11,377

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Principles of Consolidation. The accompanying consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly owned subsidiaries (“National Western” or "Company"), The Westcap Corporation, Regent Care San Marcos Holdings, LLC, NWL Investments, Inc., NWL Services, Inc., NWLSM, Inc., and NWL Financial, Inc. All significant intercorporate transactions and accounts have been eliminated in consolidation.

(B) Basis of Presentation. The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs, (4) commitments and contingencies, (5) valuation allowances for deferred tax assets, (6) other-than-temporary impairment losses on debt securities, and (7) valuation allowances for mortgage loans and real estate.

The Company also files financial statements with insurance regulatory authorities which are prepared on the basis of statutory accounting practices prescribed or permitted by the Colorado Division of Insurance which are significantly different from consolidated financial statements prepared in accordance with GAAP. These differences are described in detail in the statutory information section of this note.

Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.

(C) Investments. Investments in debt securities the Company purchases with the intent to hold to maturity are classified as securities held to maturity. The Company has the ability to hold the securities until maturity, as it would be unlikely that forced sales of securities would be required, prior to maturity, to cover payments of liabilities. As a result, securities held to maturity are carried at amortized cost less declines in fair value that are deemed other-than-temporary.

Investments in debt and equity securities that are not classified as securities held to maturity are reported as securities available for sale. Securities available for sale are reported in the accompanying consolidated financial statements at fair value. Valuation changes resulting from changes in the fair value of the securities are reflected as a component of stockholders' equity in accumulated other comprehensive income (loss). These unrealized gains or losses in stockholders' equity are reported net of taxes and adjustments to deferred policy acquisition costs.

Transfers of securities between categories are recorded at fair value at the date of transfer.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. For mortgage-backed and asset-backed securities, the effective interest method is used based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied at the time of acquisition. This adjustment is reflected in net investment income.

Quarterly the Company reviews its investment portfolio for market value changes to identify changes caused by issuer credit deterioration, changes in market interest rates and changes in economic conditions. If this review indicates a decline in fair value that is other-than-temporary, the Company’s carrying amount in the investment is reduced to its estimated fair value. In accordance with GAAP guidance the estimated credit versus non-credit components are bifurcated. The credit component is taken through earnings. The non-credit component is reclassified as unrealized loss in other comprehensive income. The Company would not recognize impairment of securities due to changing of interest rates or market dislocations unless the Company had the intent to sell the securities pr ior to recovery or maturity.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company considers a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline in fair value, 4) the intent and ability to hold the investment until recovery, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures co nsidered.

Realized gains and losses for securities available for sale and securities held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold or called. Decline in the fair value below cost that is deemed other-than-temporary is charged to earnings. The decline in fair value is then bifurcated in credit and noncredit declines. The noncredit related declines are reclassified as unrealized losses in accumulated other comprehensive income (loss). Credit losses result in the establishment of a new cost basis for the security. The new discount or reduced premium amount is amortized over the remaining life of the impaired debt security prospectively based on the amount and timing of future estimated cash flows.

Mortgage loans and other long-term investments are stated at cost, less unamortized discounts, deferred fees, and allowances for possible losses. Policy loans are stated at their aggregate unpaid balances. Real estate is stated at the lower of cost or fair value less estimated costs to sell.

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans include (1) nonaccrual loans, (2) loans which are 90 days or more past due, unless they are well secured and are in the process of collection, and (3) other loans which management believes are impaired. Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate, (2) the loan's observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's impaired loans are measured at the fair value of the collateral . In limited cases, the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

While the Company closely manages its investment portfolio, future changes in issuer facts and circumstances can result in impairments beyond those currently identified.

(D) Cash and Short-Term Investments. For purposes of the consolidated statements of cash flows, the Company considers all short-term investments with a maturity at the date of purchase of three months or less to be cash equivalents.

(E) Derivatives. Fixed-indexed products combine features associated with traditional fixed annuities and universal life contracts, with the option to have interest rates linked in part to an underlying equity index. The equity return component of such policy contracts is identified separately and accounted for in future policy benefits as embedded derivatives on the consolidated balance sheet. The remaining portions of these policy contracts are considered the host contracts and are recorded separately as fixed annuity or universal life contracts. The host contracts are accounted for under debt instrument type accounting. The host contracts are recorded as discounted debt instruments that are accreted, using the effective yield method, to their minimum account values at their projected maturities or termination dates.

The Company purchases over-the-counter indexed options, which are derivative financial instruments, to hedge the equity return component of its indexed annuity and life products. The amounts which may be credited to policyholders are linked, in part, to the returns of the underlying Index. The indexed options act as hedges to match closely the returns on the underlying Index. Cash is exchanged upon purchase of the indexed options and no principal or interest payments are made by either party during the option periods. Upon maturity or expiration of the options, cash is paid to the Company based on the underlying Index performance and terms of the contract. As a result, amounts credited to policyholders' account balances are substantially offset by changes in the value of the options.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company does not elect hedge accounting relative to derivative instruments. The derivatives are reported at fair value in the accompanying consolidated financial statements. Changes in the values of the indexed options and changes in the policyholder liabilities are both reflected in the statement of earnings. Any gains or losses from the sale or expiration of the options, as well as period-to-period changes in values, are reflected as net investment income in the statement of earnings. Any changes relative to the embedded derivatives associated with policy contracts are reflected in contract interest in the consolidated statement of earnings.

Although there is credit risk in the event of nonperformance by counterparties to the indexed options, the Company does not expect any counterparties to fail to meet their obligations, given their high credit ratings. In addition, credit support agreements are in place with all counterparties for option holdings in excess of specific limits, which may further reduce the Company's credit exposure. At December 31, 2009 and 2008, the fair values of indexed options owned by the Company totaled $89.9 million and $11.9 million, respectively.

(F) Insurance Revenues and Expenses. Premiums on traditional life insurance products are recognized as revenues as they become due from policyholders. Benefits and expenses are matched with premiums in arriving at profits by providing for policy benefits over the lives of the policies and by amortizing acquisition costs over the premium-paying periods of the policies. For universal life and annuity contracts, revenues consist of policy charges for the cost of insurance, policy administration, and surrender charges assessed during the period. Expenses for these policies include interest credited to policy account balances, benefit claims incurred in excess of policy account balances and amortization of deferred policy acquisition costs and sales inducements.

Under GAAP, commissions, sales inducements, and certain expenses related to policy issuance and underwriting, all of which generally vary with and are related to the production of new business, are deferred. For traditional products, these costs are amortized over the premium-paying period of the related policies in proportion to the ratio of the premium earned to the total premium revenue anticipated, using the same assumptions as to interest, mortality, and withdrawals as were used in calculating the liability for future policy benefits. For universal life and annuity contracts, these costs are amortized in relation to the present value of expected gross profits on these policies. The Company evaluates the recoverability of deferred policy acquisition and sales inducement costs on a quarterly basis. In this eval uation, the Company considers estimated future gross profits or future premiums, as applicable for the type of contract. The Company also considers expected mortality, interest earned and credited rates, persistency, and expenses.

A summary of information relative to deferred policy acquisition costs is provided in the table below.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Deferred policy acquisition costs, beginning of year	$	701,984			664,805			643,964

Policy acquisition costs deferred:
Agents' commissions		121,138			100,254			109,323
Other		5,758			6,742			7,180

Total costs deferred		126,896			106,996			116,503

Amortization of deferred policy acquisition costs		(115,163	)		(127,161	)		(88,413	)
Adjustments for unrealized (gains) losses
on investment securities		(87,277	)		57,344			(3,928	)
Change in accounting principal		-			-			(3,321	)

Deferred policy acquisition costs, end of year	$	626,440			701,984			664,805

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of information relative to deferred sales inducements is provided in the table below.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Deferred sales inducements, beginning of year	$	120,955			104,029			93,139

Sales inducement costs deferred		36,755			19,462			20,837
Amortization of sales inducements		(13,838	)		(15,715	)		(9,460	)
Adjustments for unrealized (gains) losses
on investment securities		(21,640	)		13,179			(487	)

Deferred sales inducements, end of year	$	122,232			120,955			104,029

Amortization of deferred policy acquisition costs decreased to $115.2 million for the year ended December 31, 2009 compared to $127.1 million reported in 2008, while up from $88.4 million in 2007. An unlocking adjustment was recorded in the current year which resulted in an increase of amortization of $5.2 million. This unlocking adjustment was based upon changes to future mortality assumptions reflecting current experience studies and assumption changes to future policy maintenance expenses. An unlocking adjustment was recorded in 2008 which resulted in an increase of amortization of $6.3 million. This unlocking adjustment was based upon changes to future annuitizations and full surrenders reflecting current experience studies. An unlocking adjustment was recorded in 2007 which re sulted in a decrease in amortization of $10.4 million. This unlocking adjustment was based upon changes to future mortality assumptions reflecting current experience studies and assumption changes to future cost of insurance rates. True-up adjustments were also recorded in 2009, 2008 and 2007 relative to partial surrender rates, mortality rates, credited interest rates and earned rates for the current year’s experience resulting in $8.4 million, $16.2 million and $1.0 million increases in amortization, respectively.

Under GAAP, the liability for future policy benefits on traditional products has been calculated using assumptions as to future mortality (based on the 1965-1970 and 1975-1980 Select and Ultimate mortality tables), interest ranging from 4% to 8%, and withdrawals based on Company experience. For universal life and annuity contracts, the liability for future policy benefits represents the account balance. Fixed-indexed products combine features associated with traditional fixed annuities and universal life contracts, with the option to have interest rates linked in part to an equity index. In accordance with GAAP guidance, the equity return component of such policy contracts must be identified separately and accounted for as embedded derivatives. The remaining portions of these policy contracts are considered the host contracts and are recorded separately as fixed annuity or universal life contracts. The host contracts are accounted for under GAAP guidance provisions that require debt instrument type accounting. The host contracts are recorded as discounted debt instruments that are accreted, using the effective yield method, to their minimum account values at their projected maturities or termination dates. The embedded derivatives are recorded at fair values.

(G) Deferred Federal Income Taxes. Federal income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred tax as sets is provided if all or some portion of the deferred tax asset may not be realized. An increase or decrease in a valuation allowance that results from a change in circumstances that affects the realizability of the related deferred tax asset is included in income in the period the change occurs.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(H) Depreciation of Property, Equipment, and Leasehold Improvements. Depreciation is based on the estimated useful lives of the assets and is calculated on the straight-line and accelerated methods. Leasehold improvements are amortized over the lesser of the economic useful life of the improvement or the term of the lease.

(I) Statutory Information. Domiciled in Colorado, the Company prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the Colorado Division of Insurance. The Colorado Division of Insurance has adopted the provisions of the National Association of Insurance Commissioners' ("NAIC") Statutory Accounting Practices (“SSAP”) as the basis for its statutory accounting practices.

The following are major differences between GAAP and accounting practices prescribed or permitted by the Colorado Division of Insurance (“statutory accounting practices”).

1. The Company accounts for universal life and annuity contracts based on the provisions of GAAP guidance. The basic difference between GAAP guidance and statutory accounting practices with respect to certain long-duration contracts is that deposits for universal life and annuity contracts are not reflected as revenues, and surrenders and certain other benefit payments are not reflected as expenses. Only contracts with no insurance risk qualify for such treatment under statutory accounting practices. For all other contracts, statutory accounting practices do reflect such items as revenues and expenses.

A summary of direct premiums and deposits collected is provided below.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Annuity deposits	$	837,577		410,133		437,765
Universal life insurance deposits		173,167		170,933		168,279
Traditional life and other premiums		19,580		20,698		22,310

Totals	$	1,030,324		601,764		628,354

2. Statutory accounting practices require commissions and related costs to be expensed as incurred, whereas under GAAP, these items are deferred and amortized.

3. For statutory accounting purposes, liabilities for future policy benefits for life insurance policies are calculated by the net level premium method or the commissioners reserve valuation method. Future policy benefit liabilities for annuities are calculated based on the continuous commissioners annuity reserve valuation method and provisions of Actuarial Guidelines 33 and 35.

4. Deferred Federal income taxes are provided for temporary differences which are recognized in the consolidated financial statements in a different period than for Federal income tax purposes. Deferred taxes are also recognized in statutory accounting practices; however, there are limitations as to the amount of deferred tax assets that may be reported as admitted assets. The change in the deferred taxes is recorded in surplus, rather than as a component of income tax expense.

5. For statutory accounting purposes, debt securities are recorded at amortized cost, except for securities in or near default, which are reported at fair value. Under GAAP, debt securities are carried at amortized cost or fair value based on their classification as either held to maturity or available for sale.

6. Investments in subsidiaries are recorded at their respective SSAP investment value, whereas the financial statements of the subsidiaries have been consolidated with those of the Company under GAAP.

7. Compensation costs related to the Company’s share based compensation plans are not recognized in income under statutory accounting. Share based compensation costs are recognized as a charge to additional paid in capital when exercised.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. The calculation of pension liabilities and net periodic benefit costs are recognized for both statutory and GAAP accounting. However, in accordance with SSAP No. 89, the accumulated benefit obligation in excess of the fair value of plan assets, including unfunded accrued pension costs, is recognized as an additional minimum liability with an equal amount recognized as a non-admitted intangible asset.

9. The asset valuation reserve and interest maintenance reserve, which are investment valuation reserves prescribed by statutory accounting practices, have been eliminated, as they are not required under GAAP.

10. The table below provides the Company’s net gain from operations, net income, unassigned surplus (retained earnings) and capital and surplus (stockholder’s equity), on the statutory basis used to report to regulatory authorities for the years ended December 31.

	2009		2008		2007
	(In thousands)

Net gain from operations	$	140,226		48,853		37,369

Net income		72,944		9,643		32,290

Unassigned surplus		763,134		659,490		672,793

Capital and surplus		817,042		696,574		710,935

(J) Stock Compensation. The Company accounts for its share-based compensation for GAAP reporting using liability accounting, and measures compensation cost using the fair value method at each reporting date. For stock options, fair value is determined using an option pricing model that takes into account various information and assumptions including the Company's stock price, volatility, option price, vesting dates, exercise dates and projected option lapses. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock.

(K) Accounting Standards and Changes in Accounting

In February 2007, the FASB issued new guidance whereby entities are permitted to choose upon adoption, or at specified election dates, to measure at fair value many financial instruments and certain other items. The Company adopted this guidance effective January 1, 2008, with no impact to the Company’s consolidated financial statements as no eligible financial assets or liabilities were elected to be measured at fair value upon initial adoption. Management will continue to evaluate eligible financial assets and liabilities on their election dates, and will disclose any future elections in accordance with provisions outlined in this guidance.

In December 2007, the FASB issued new guidance establishing accounting and reporting standards for entities that have equity investments that are not attributable directly to the parent, called noncontrolling interests or minority interests. More specifically, the guidance addresses where and how to report noncontrolling interests in the consolidated statements of financial position and operations, how to account for changes in noncontrolling interests and provides disclosure requirements. The Company adopted it effective January 1, 2009, and it did not have a material impact on the Company’s consolidated financial condition and results of operations.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the FASB issued new guidance establishing how an entity accounts for the identifiable assets acquired, liabilities assumed, and any noncontrolling interests acquired, how to account for goodwill acquired and determines what disclosures are required as part of a business combination, and it applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted this guidance effective January 1, 2009. Adoption of this guidance did not have an impact on the Company’s consolidated financial condition or results of operations.

In October 2008, the FASB issued guidance clarifying the application of fair value in a market that is not active and illustrates key considerations including the use of an entity’s own assumptions about future cash flows and appropriately risk-adjusted discount rates, appropriate risk adjustments for nonperformance and liquidity risks, and the reliance that an entity should place on quotes that do not reflect the result of market transactions. This guidance was preceded by a press release that was jointly issued by the Office of the Chief Accountant of the SEC and the FASB staff on September 30, 2008 which provided immediate clarification on fair value accounting. The guidance was effective upon issuance and did not have a material impact on the Company’s consolidated financial statements. See Note 14, Fair Values of Financial Instruments, for disclosures regarding the Company’s fair value measurements.

In March 2008, the FASB issued new guidance to require companies with derivative instruments to disclose information about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This guidance became effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company adopted it on January 1, 2009 with no material impact on the consolidated financial statements. See Note 14, Fair Values of Financial Instruments, for additional information pertaining to this guidance.

In April 2008, the FASB issued guidance amending the prior factors to be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The provisions of this guidance are to be applied prospectively to intangible assets acquired after January 1, 2009, although the disclosure provisions are required for all intangible assets as of or subsequent to January 1, 2009. The adoption of this guidance did not impact the Company’s consolidated financial condition and results of operations.

In September 2008, the FASB issued new guidance establishing disclosure requirements by entities that assume credit risk through the sale of credit derivatives, including credit derivatives embedded in a hybrid instrument, to enable users of financial statements to assess the potential effect on its financial position, financial performance, and cash flows from these credit derivatives, and requires additional disclosure about the current status of the payment/performance risk of a guarantee. The Company adopted the guidance effective January 1, 2009 and adoption of this guidance did not have a material effect on the Company’s consolidated financial condition and results of operations.

In March 2009, the FASB issued new guidance establishing enhanced disclosures regarding an entity’s derivative and hedging activity to enable investors to better understand the effects on an entity’s financial position, financial performance, and cash flows. The Company adopted the guidance as of January 1, 2009. See Note 15, Derivative Investments, for disclosures regarding derivative instruments and hedging activities.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On April 9, 2009 the FASB issued new guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased, and includes guidance on identifying circumstances that indicate a transaction is not orderly. This guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability, and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance is effective for interim and annual r eporting periods ending after June 15, 2009. As further discussed in Note 14, Fair Values of Financial Instruments, the adoption of this guidance did not have a material impact on the Company’s consolidated financial condition and results of operations.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.

Change in Accounting

During the second quarter of 2009, the Company reviewed all previously recorded other-than-temporary impairments of securities, in compliance with new FASB GAAP guidance, and estimated the credit versus the non-credit component consistent with the methodology used in the current period to analyze and bifurcate impairments into credit and non-credit components. As a result, the Company determined that $0.8 million in previously recorded other-than-temporary impairments had been due to non-credit impairments.

For each security, the Company developed its best estimate of the net present value of the cash flows expected to be received. The credit component of the impairment for these securities was determined to be the difference between the amortized cost of the security and the projected net cash flows. The non-credit component was determined to be the difference between projected net cash flows and fair value. The Company also determined whether management had the intent to sell the security, or if it was more likely than not that it will be required to sell the security, prior to the recovery of the non-credit component.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2005, the FASB issued new GAAP guidance regarding internal replacements occurring in fiscal years beginning after December 15, 2006. An internal replacement is 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 adoption of this new guidance impacted the accounting for contracts which have annuitized and reinstatements of contracts. Under the new guidance the unamortized deferred acquisition costs and deferred sales inducement assets must now be written-off at the time of annuitization and may not be continued for reinstatements. 0;The new guidance resulted 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 new guidance was a $2.2 million decrease (net of tax) on beginning retained earnings as of January 1, 2007.

	Amounts
	(In thousands)

Write-off of deferred acquisition costs	$	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

(2) DEPOSITS WITH REGULATORY AUTHORITIES

The following assets were on deposit with state and other regulatory authorities as required by law, at the end of each year.

	December 31,
	2009		2008
	(In thousands)

Debt securities held to maturity	$	15,584		13,633
Debt securities available for sale		669		557
Short-term investments		500		500

Totals	$	16,753		14,690

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTMENTS

(A) Investment Income

The major components of net investment income are as follows:

	Years Ended December 31,
	2009		2008			2007
	(In thousands)
Gross investment income:
Debt securities	$	332,207		321,234			315,271
Mortgage loans		6,346		7,223			8,513
Policy loans		5,901		6,096			6,302
Derivative gains (losses)		45,345		(65,676	)		(16,662	)
Money market investments		116		956			1,496
Other investment income		6,982		5,934			6,087

Total investment income		396,897		275,767			321,007
Investment expenses		3,366		2,405			2,870

Net investment income	$	393,531		273,362			318,137

The Company had real estate investments that were non-income producing for the preceding twelve months totaling $2.8 million, $1.5 million and $1.8 million at December 31, 2009, 2008 and 2007, respectively.

(B) Mortgage Loans and Real Estate

Concentrations of credit risk arising from mortgage loans exist in relation to certain groups of borrowers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have a significant exposure to any individual customer or counterparty.

Mortgage loans with carrying values totaling $4.2 million, $4.6 million and $3.3 million, were considered impaired as of December 31, 2009, 2008 and 2007, respectively. For the years ended December 31, 2009, 2008 and 2007, average investments in impaired mortgage loans were $3.9 million, $3.7 million and $4.7 million, respectively. Interest income recognized on impaired loans for the years ended December 31, 2009, 2008 and 2007, was $451,000, $497,000 and $469,000, respectively. Impaired loans are typically placed on nonaccrual status, and no interest income is recognized. However, if cash is received on the impaired loan, it is applied to principal and interest on past due payments, beginning with the most delinquent payment.

At December 31, 2009 and 2008, the Company owned investment real estate totaling $20.1 million and $10.8 million, respectively, which is reflected in other long-term investments in the accompanying consolidated financial statements. The Company records real estate at the lower of cost or fair value less estimated costs to sell. Real estate values are monitored and evaluated at least annually by the use of independent appraisals or internal evaluations. Changes in market values affecting carrying values are recorded as a valuation allowance which is reflected in realized gains or losses on investments.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2009.

	Securities Held to Maturity
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Debt securities:
U.S. Agencies	$	103,176		2,450		810		104,816

U.S. Treasury		1,916		401		-		2,317

States and political subdivisions		140,393		2,379		1,054		141,718

Foreign governments		9,963		792		-		10,755

Public utilities		625,661		33,345		897		658,109

Corporate		1,511,565		71,255		27,804		1,555,016

Mortgage-backed		1,730,319		83,911		3,515		1,810,715

Home equity		28,910		196		5,853		23,253

Manufactured housing		24,758		384		764		24,378

Totals	$	4,176,661		195,113		40,697		4,331,077

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents amortized costs and fair values of securities available for sale at December 31, 2009.

	Securities Available for Sale
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Debt securities:
U.S. Agencies	$	-		-		-		-

U.S. Treasury		-		-		-		-

States and political subdivisions		20,490		-		1,519		18,971

Foreign governments		10,358		959		-		11,317

Public utilities		322,653		16,845		769		338,729

Corporate		1,349,878		72,862		12,880		1,409,860

Mortgage-backed		233,841		8,661		5,518		236,984

Home equity		13,508		-		4,757		8,751

Manufactured housing		10,684		794		25		11,453
		1,961,412		100,121		25,468		2,036,065

Equity private		195		6,962		-		7,157

Equity public		5,758		1,277		178		6,857

Totals	$	1,967,365		108,360		25,646		2,050,079

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents amortized costs and fair values of securities held to maturity at December 31, 2008.

	Securities Held to Maturity
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Debt securities:
U.S. Agencies	$	119,674		3,975		-		123,649

U.S. Treasury		1,923		592		-		2,515

States and political subdivisions		23,123		3		801		22,325

Foreign governments		9,955		438		-		10,393

Public utilities		527,277		5,073		31,530		500,820

Corporate		1,334,157		13,580		118,204		1,229,533

Mortgage-backed		1,747,104		44,213		8,210		1,783,107

Home equity		37,808		37		9,533		28,312

Manufactured housing		30,396		93		3,790		26,699

Totals	$	3,831,417		68,004		172,068		3,727,353

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents amortized costs and fair values of securities available for sale at December 31, 2008.

	Securities Available for Sale
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Debt securities:
U.S. Agencies	$	-		-		-		-

U.S. Treasury		-		-		-		-

States and political subdivisions		77,160		332		13,653		63,839

Foreign governments		10,418		907		-		11,325

Public utilities		287,927		300		25,085		263,142

Corporate		1,239,712		6,503		126,968		1,119,247

Mortgage-backed		255,910		5,739		7,693		253,956

Home equity		13,877		-		4,726		9,151

Manufactured housing		11,942		-		1,019		10,923
Total debt securities		1,896,946		13,781		179,144		1,731,583

Equity securities - private		195		6,995		-		7,190

Equity securities - public		6,912		486		905		6,493

Totals	$	1,904,053		21,262		180,049		1,745,266

The Company's investment policy is to invest in high quality securities with the primary intention of holding these securities until the stated maturity. Such as, the portfolio has exposure to interest rate risk which is the risk that funds are invested today at a market interest rate and in the future interest rates rise causing the current market price on that investment to be lower. This risk is not a significant factor relative to the Company's buy and hold portfolio, since the original intention was to receive the stated interest rate and principal at maturity to match liability requirements to policyholders. Also, the Company takes steps to manage these risks. For example, the Company purchases the type of mortgage-backed securities that have more predictable cash flow patterns.< /div>

In addition, the Company is exposed to credit risk which is continually monitored relating to security holdings. Credit risk is the risk that an issuer of a security will not be able to fulfill their obligations relative to a security payment schedule. The Company has reviewed relative information for all issuers in an unrealized loss position at December 31, 2009 including market pricing history, credit ratings, analyst reports, as well as data provided by the issuers themselves. The Company then made a determination on each specific issuer relating to other-than-temporary impairment. For the securities that have not been impaired at December 31, 2009, the Company does not intend to sell these securities until recovery in fair value and expects to receive all amounts due relative to principa l and interest.

The Company held below investment grade debt securities totaling $155.3 million and $72.2 million at December 31, 2009 and 2008, respectively. These amounts represent 2.4% and 1.2% of total invested assets for December 31, 2009 and 2008, respectively. Below investment grade holdings are the result of downgrades subsequent to purchase, as the Company only invests in high quality securities with ratings quoted as investment grade. Below investment grade securities generally have greater default risk than higher rated corporate debt. The issuers of these securities are usually more sensitive to adverse industry or economic conditions than are investment grade issuers.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2009, 2008 and 2007, the Company recorded realized losses totaling $5.1 million, $21.8 million and $0.1 million, respectively, for other-than-temporary impairment write-downs on investments in debt securities.

The following table shows the gross unrealized losses and fair values of the Company's held to maturity investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2009.

	Held to Maturity
	Less than 12 Months				12 Months or Greater				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Debt securities:
U.S. Government
agencies	$	69,188		810		-		-		69,188		810

U.S. Treasury		-		-		-		-		-		-

State and political
subdivisions		60,382		954		3,284		100		63,666		1,054

Foreign governments		-		-		-		-		-		-

Public utilities		48,130		308		19,364		589		67,494		897

Corporate bonds		130,981		1,510		236,663		26,294		367,644		27,804

Mortgage-backed		33,917		489		57,337		3,026		91,254		3,515

Home equity		3,030		976		13,815		4,877		16,845		5,853

Manufactured housing		1,341		69		7,423		695		8,764		764

Total temporarily
impaired securities	$	346,969		5,116		337,886		35,581		684,855		40,697

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the gross unrealized losses and fair values of the Company's available for sale investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2009.

	Available For Sale
	Less than 12 Months				12 Months or Greater				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Debt securities:
U.S. Government
agencies	$	-		-		-		-		-		-

U.S. Treasury		-		-		-		-		-		-

State and political
subdivisions		-		-		18,971		1,519		18,971		1,519

Foreign governments		-		-		-		-		-		-

Public utilities		16,597		272		17,118		497		33,715		769

Corporate bonds		18,730		166		199,968		12,714		218,698		12,880

Mortgage-backed		21,953		370		21,036		5,148		42,989		5,518

Home equity		-		-		8,751		4,757		8,751		4,757

Manufactured housing		3,774		24		119		1		3,893		25
		61,054		832		265,963		24,636		327,017		25,468

Equity public		196		21		1,316		157		1,512		178

Total temporarily
impaired securities	$	61,250		853		267,279		24,793		328,529		25,646

Liquidity in the bond market improved in 2009 as economic and market conditions started to stabilize. Although the unrealized losses declined substantially in 2009, there continues to be uncertainty in the bond markets regarding the economic recovery and some unrealized losses remain in the Company’s portfolio. The Company does not consider these investments to be other-than-temporarily impaired because the Company does not intend to sell these securities until recovery in fair value and expects to receive all amounts due relative to principal and interest.

The Company does not consider securities to be other-than-temporarily impaired where the market decline is attributable to factors such as market volatility, liquidity, spread widening and credit quality where we anticipate a recovery of all amounts due under the contractual terms of the security and have the intent and ability to hold until recovery or maturity. Based on the Company’s review in concert with the Company’s ability and intent not to sell these securities until maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2009. The Company will monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

Debt securities. The gross unrealized losses for debt securities are made up of 180 individual issues, or 21.4% of the total debt securities held by the Company. The market value of these bonds as a percent of amortized cost averages 93.7%. Of the 180 securities, 106, or approximately 58.9%, fall in the 12 months or greater aging category; and 163 were rated investment grade at December 31, 2009. Additional information on debt securities by investment category is summarized below.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. treasury. No securities had a gross unrealized loss.

U.S. government agencies. Four securities had unrealized losses. All are rated AAA.

State and political subdivisions. The unrealized losses on these investments are the result of holdings in 53 securities. Of these securities, all are rated A or above except 2 which are rated BB and BBB+. Based on these facts and the Company's intent to hold to maturity, no other-than-temporary loss was recognized as of December 31, 2009.

Foreign governments. No securities had a gross unrealized loss.

Public utilities. Of the 17 securities, all are rated BBB or above except 1, which is priced at 96.2% of par. At this time, the Company does not consider any of these unrealized losses as other-than-temporary.

Corporate bonds. Corporate securities with unrealized losses are reviewed based on monitoring procedures described previously; including review of the amount of the unrealized loss, the length of time that the issue has been in an unrealized loss position, credit ratings, analyst reports, and recent issuer financial information. A total of 72 securities had unrealized losses; with 10 issues rated below investment grade. More extensive analysis was performed on these 10 issues. Based on the work performed, none of the unrealized losses are considered other-than-temporarily impaired at December 31, 2009.

Mortgage-backed securities. Of the 18 securities, all are rated AAA except 2, which are rated CCC. The Company generally purchases these investments at a discount relative to their face amount and it is expected that the securities will not be settled at a price less than the stated par. Because the decline in market value is attributable to the current illiquidity in the market and not credit quality, and because the Company has the ability and intent to hold these securities until a recovery of fair value, which may be maturity, and based on the lack of adverse changes in expected cash flows, the Company does not consider these AAA rated investments and 1 CCC rated investment to be other-than-temporarily impaired at December 31, 2009. The Compan y recognized an other-than-temporary loss in 2009 for the other CCC rated security.

Home equity. Of the 9 securities, 7 are rated AAA, 1 is rated AA and 1 is rated CC. The Company performs a quarterly cash flow analysis on asset-backed securities that are rated below AA. Based on the lack of adverse changes in expected cash flows, the 1 issue rated below AA is not considered impaired. One AAA security was other-than-temporarily impaired due to adverse cash flows.

Manufactured housing. Of the 7 securities with an unrealized loss, 3 are rated AAA and 4 are rated A or below. Based on lack of adverse changes in expected cash flows, 3 of the securities below A are not considered other-than-temporarily impaired. One security was other-than-temporarily impaired due to adverse cash flows.

Equity securities. The gross unrealized losses for equity securities are made up of 28 individual issues. These holdings are reviewed for impairment quarterly. As of December 31, 2009, 19 equity securities were other-than-temporarily impaired. Total other-than-temporary impairments taken in 2009 on equities were $0.4 million.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Held to Maturity
	Less than 12 Months				12 Months or Greater				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Debt securities:
U.S. Government
agencies	$	-		-		-		-		-		-

U.S. Treasury		-		-		-		-		-		-

State and political
subdivisions		9,687		631		2,635		170		12,322		801

Foreign governments		-		-		-		-		-		-

Public utilities		312,575		21,485		84,474		10,045		397,049		31,530

Corporate bonds		518,841		52,581		278,975		65,623		797,816		118,204

Mortgage-backed		4,624		299		54,582		7,911		59,206		8,210

Home equity		5,901		559		19,657		8,974		25,558		9,533

Manufactured housing		17,507		1,404		7,024		2,386		24,531		3,790

Total temporarily
impaired securities	$	869,135		76,959		447,347		95,109		1,316,482		172,068

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Available For Sale
	Less than 12 Months				12 Months or Greater				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Debt securities:
U.S. Agencies	$	-		-		-		-		-		-

U.S. Treasury		-		-		-		-		-		-

State and political
subdivisions		45,848		8,675		13,486		4,978		59,334		13,653

Foreign governments		-		-		-		-		-		-

Public utilities		148,901		9,286		105,498		15,799		254,399		25,085

Corporate bonds		560,028		56,214		367,933		70,754		927,961		126,968

Mortgage-backed		-		-		48,540		7,693		48,540		7,693

Home equity		2,289		2,624		6,862		2,102		9,151		4,726

Manufactured housing		9,456		988		1,467		31		10,923		1,019
Total debt securities		766,522		77,787		543,786		101,357		1,310,308		179,144

Equity securities - public		2,057		577		1,205		328		3,262		905

Total temporarily
impaired securities	$	768,579		78,364		544,991		101,685		1,313,570		180,049

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and fair value of investments in debt securities at December 31, 2009, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Debt Securities				Debt Securities
	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)

Due in 1 year or less	$	30,292		30,877		110,160		110,750

Due after 1 year through 5 years		983,829		1,026,140		863,606		892,570

Due after 5 years through 10 years		658,670		693,283		1,193,562		1,242,720

Due after 10 years		30,588		28,577		225,346		226,691
		1,703,379		1,778,877		2,392,674		2,472,731

Mortgage and asset-backed securities		258,033		257,188		1,783,987		1,858,346

Total	$	1,961,412		2,036,065		4,176,661		4,331,077

The Company uses the specific identification method in computing realized gains and losses. The table below details the nature of realized gains and losses, excluding impairments, during the year.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Available for sale debt securities:
Realized gains on disposal	$	356			1,811			4,830
Realized losses on disposal		(280	)		-			(359	)
Held to maturity debt securities:
Realized gains on redemption		1,628			154			19
Realized losses on redemption		(19	)		-			-
Equity securities realized gains		189			102			250
Real estate		(52	)		-			72
Mortgage loans		(1,461	)		(1,020	)		(1,467	)
Other		(7	)		(60	)		219

Totals	$	354			987			3,564

Due to significant credit deterioration, one bond from the held to maturity portfolio was transferred to available for sale and subsequently sold in 2009 and one was sold directly from held to maturity in 2007. These sales resulted in insignificant realized gains in 2009 and 2007.

Except for U.S. government agency mortgage-backed securities, the Company had no other investments in any entity in excess of 10% of stockholders' equity at December 31, 2009 or 2008.

For the year ended December 31, 2009, the Company recorded other-than-temporary impairment write-downs on debt securities consisting of Kellwood ($4.0 million) and eight other securities ($1.1 million).

The $5.4 million of equity impairments in 2008 include Fannie Mae and Freddie Mac preferred stock holdings ($4.6 million) and mark-to-market write-downs on various other equity holdings.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents net impairment losses recognized in earnings for the periods indicated.

	December 31,
	2009			2008			2007
	(In thousands)

Total other-than-temporary
impairment losses on
debt securities	$	(13,491	)		(21,803	)		(67	)
Portion of loss recognized
in comprehensive income		8,386			-			-

Net impairment losses on debt
securities recognized in earnings		(5,105	)		(21,803	)		(67	)
Equity securities impairments		(416	)		(5,412	)		-

Totals	$	(5,521	)		(27,215	)		(67	)

For the nine months ended December 31, 2009, the Company recognized $6.8 million as other-than-temporary impairments on four held to maturity asset-backed securities of which $0.2 million was recognized in earnings as a credit loss and the remaining $6.6 million recognized in other comprehensive income as a non-credit loss. Since the adoption of the new FASB guidance issued on April 9, 2009 (see Note 1) which amended the other-than-temporary guidance for debt securities, the Company has recognized $13.9 million as other-than-temporary impairments on one available for sale mortgage-backed security and four held to maturity asset-backed securities of which $5.5 million was recognized in earnings as a credit loss and the remaining $8.4 million recognized in other comprehensive income as a non-credit loss. The credit component o f the impairment was determined to be the difference between amortized cost and the present value of the cash flows expected to be received, discounted at the original yield. The significant inputs used to project cash flows are estimated future prepayment rates, default rates and default loss severity. Prior to adoption of the new guidance, the amount of impairment recognized in earnings was the difference between amortized cost and fair value.

The table below presents a roll forward of credit losses on securities for which the Company also recorded non-credit other-than-temporary impairments under the new guidance in other comprehensive loss.

	Nine Months*
	Ended
	December 31, 2009

Beginning balance, cumulative credit losses related
to other-than-temporary impairments	$	28
Additions for credit losses not previously recognized in
other-than-temporary impairments		299

Ending balance, cumulative credit losses related to
other-than-temporary impairments	$	327

*Since the adoption date of the new FASB GAAP guidance.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(D) Net Unrealized Gains (Losses) on Available for Sale Securities

Net unrealized gains (losses) on investment securities included in stockholders' equity at December 31, 2009 and 2008, are as follows:

	December 31,
	2009			2008
	(In thousands)

Gross unrealized gains	$	108,360			21,262
Gross unrealized losses		(32,922	)		(180,049	)
Adjustments for:
Deferred policy acquisition costs and sales inducements		(32,567	)		76,075
Deferred Federal income (tax expense) recoverable		(15,006	)		28,949

		27,865			(53,763	)
Net unrealized gains (losses) related to securities
transferred to held to maturity		461			(7	)

Net unrealized gains (losses) on investment securities	$	28,326			(53,770	)

(E) Transfer of Securities

For the twelve months ended December 31, 2009, the Company made transfers totaling $55.2 million to the held to maturity category from securities available for sale. Lower holdings of securities available for sale reduces the Company's exposure to market price volatility, while still providing securities available for liquidity and asset/liability management purposes. The transfers of securities were recorded at fair value in accordance with GAAP, which requires that the $0.8 million unrealized holding gain at the date of the transfer continue to be reported in a separate component of stockholders' equity and be amortized over the remaining lives of the securities as an adjustment of yield, in a manner consistent with the amortization of any premium or discount.

(4) REINSURANCE

Effective January 1, 2004, the Company began reinsuring any risk on any one life in excess of $250,000, subject to a minimum amount ceded of $50,000. The Company's general policy prior to December 31, 2003 was to reinsure that portion of any risk in excess of $200,000 on the life of any one individual. The Company is party to several reinsurance agreements. Total life insurance in force was $18.7 billion and $18.8 billion at December 31, 2009 and 2008, respectively. Of these amounts, life insurance in force totaling $5.9 billion was ceded to reinsurance companies, primarily on a yearly renewable term basis, at December 31, 2009 and 2008. In accordance with the reinsurance contracts, reinsurance receivables including amounts related to claims incurred but not reported and liabilitie s for future policy benefits totaled $12.6 million and $8.2 million at December 31, 2009 and 2008, respectively. Premiums and contract revenues were reduced by $20.7 million, $20.4 million and $16.3 million for reinsurance premiums incurred during 2009, 2008 and 2007, respectively. Benefit expenses were reduced by $16.0 million, $7.7 million and $8.5 million, for reinsurance recoveries during 2009, 2008 and 2007, respectively. A contingent liability exists with respect to reinsurance, as the Company remains liable if the reinsurance companies are unable to meet their obligations under the existing agreements. The Company does not assume reinsurance.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) FEDERAL INCOME TAXES

Total Federal income taxes were allocated as follows:

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Taxes (benefits) on earnings from continuing operations:
Current	$	62,678			19,871			7,622
Deferred		(38,924	)		(3,944	)		32,254

Taxes on earnings		23,754			15,927			39,876

Taxes (benefits) on components of stockholders' equity:
Net unrealized gains and losses on
securities available for sale		44,454			(29,590	)		(1,056	)
Foreign currency translation adjustments		(40	)		(60	)		(24	)
Change in benefit liability		590			(1,738	)		(714	)

Total Federal income taxes (benefit)	$	68,758			(15,461	)		38,082

The provisions for Federal income taxes attributable to earnings from continuing operations vary from amounts computed by applying the statutory income tax rate to earnings before Federal income taxes. The reasons for the differences and the corresponding tax effects are as follows:

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

Income tax expense at statutory rate	$	24,234			17,349			43,837
Dividend received deduction		(1,059	)		(1,155	)		(1,192	)
Tax exempt interest		(1,699	)		(1,374	)		(813	)
Deferred tax liability correction		-			-			(2,389	)
Non deductible salary expense		373			-			-
Tax adjustment on foreign operations		537			422			231
Tax adjustment related to return		408			240			-
Nondeductible insurance		160			134			134
Nondeductible meals		109			139			108
Amortization of LSM Trust		112			111			110
Other		579			61			(150	)

Taxes on earnings from continuing operations	$	23,754			15,927			39,876

There were no deferred taxes attributable to enacted tax rate changes for the years ended December 31, 2009, 2008 and 2007.

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 2007 or any prior financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2009 and 2008 are presented below.

	December 31,
	2009			2008
	(In thousands)
Deferred tax assets:
Future policy benefits, excess of financial
accounting liabilities over tax liabilities	$	198,967			160,390
Investment securities write-downs for financial
accounting purposes		10,032			12,357
Net unrealized losses on securities available for sale		-			28,951
Pension liabilities		6,791			7,862
Real estate, principally due to write-downs
for financial accounting purposes		-			49
Accrued operating expenses recorded for financial
accounting purposes not currently tax deductible		13,325			4,430
Mortgage loans, principally due to valuation
allowances for financial accounting purposes		1,762			1,605
Accrued and unearned investment income
recognized for tax purposes and deferred for
financial accounting purposes		175			163
Capital loss carryforward		2,778			-
Other		244			401

Total gross deferred tax assets		234,074			216,208

Deferred tax liabilities:
Deferred policy acquisition and sales inducement
costs, principally expensed for tax purposes		(241,008	)		(232,400	)
Debt securities, principally due to deferred
market discount for tax		(6,014	)		(5,601	)
Real estate, principally due to adjustments for
financial accounting purposes		(83	)		-
Net unrealized gains on securities available for sale		(15,503	)		-
Foreign currency translation adjustments		(1,926	)		(1,768	)
Fixed assets, due to different bases		(2,358	)		(2,945	)

Total gross deferred tax liabilities		(266,892	)		(242,714	)

Net deferred tax liabilities	$	(32,818	)		(26,506	)

There was no valuation allowance for deferred tax assets at December 31, 2009 and 2008. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with GAAP, the Company assessed whether it had any significant uncertain tax positions and determined that there were none. Accordingly, no reserve for uncertain tax positions was recorded. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company's policy to record such accruals in its income tax accounts; no such accruals exist as of December 31, 2009 or 2008. The Company and its corporate subsidiaries file a consolidated U.S. Federal income tax return, which is subject to examination for all years after 2004.

During 2008, the Company was notified that its 2005 tax return amendment, which was filed September 2007, was being audited by the IRS. The audit is currently in progress. Adjustments to the amended return are not expected to have any material effect on the financial condition or operating results of the Company.

The Company files a consolidated Federal income tax return with its subsidiaries. Allocation of the consolidated tax liability is based on separate return calculations pursuant to the "wait-and-see" method as described in sections 1.1552-1(a)(1) and 1.1502-33(d)(2) of the current Treasury Regulations. Under this method, consolidated group members are not given current credit for net losses until future net taxable income is generated to realize such credits.

(6) TRANSACTIONS WITH CONTROLLING STOCKHOLDER

Robert L. Moody, Chairman of the Board of Directors, owns 99% of the total outstanding shares of the Company's Class B common stock and 33.8% of the Class A common stock as of December 31, 2009.

Holders of the Company's Class A common stock elect one-third of the Board of Directors of the Company, and holders of the Class B common stock elect the remainder. Any cash or in-kind dividends paid on each share of Class B common stock shall be only one-half of the cash or in-kind dividends paid on each share of Class A common stock. Also, in the event of liquidation of the Company, the Class A stockholders shall first receive the par value of their shares; then the Class B stockholders shall receive the par value of their shares; and the remaining net assets of the Company shall be divided between the stockholders of both Class A and Class B common stock, based on the number of shares held.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) 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 comply with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On October 19, 2007, the Company’s Board of Directors approved an amendment to freeze the Pension Plan as of December 31, 2007. The freeze ceased future benefit accruals to all participants and closed the Plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. Going forward future qualified defined benefit plan expense is projected to be minimal. Fair values of plan assets and liabilities are measured as of December 31 for each year. A detail of plan disclosures is provided below.

Obligations and Funded Status

	December 31,
	2009			2008
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	17,764			18,614
Service cost		-			-
Interest cost		1,048			1,036
Plan curtailment		-			-
Actuarial loss (gain)		779			(817	)
Benefits paid		(1,096	)		(1,069	)

Projected benefit obligations at end of year		18,495			17,764

Changes in plan assets:
Fair value of plan assets at beginning of year		12,031			15,226
Actual return on plan assets		1,998			(3,176	)
Contributions		2,139			1,050
Benefits paid		(1,096	)		(1,069	)

Fair value of plan assets at end of year		15,072			12,031

Funded status at end of year	$	(3,423	)		(5,733	)

	December 31,
	2009			2008
	(In thousands)

Amounts recognized in the Company's consolidated
financial statements:
Assets	$	-			-
Liabilities		(3,423	)		(5,733	)

Net amount recognized	$	(3,423	)		(5,733	)

Amounts recognized in accumulated other
comprehensive income:
Net loss	$	7,965	8,863
Prior service cost		23	27

Net amount recognized	$	7,988	8,890

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accumulated benefit obligation was $18.5 million and $17.8 million at December 31, 2009 and 2008, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Components of net periodic benefit costs:
Service cost	$	-			-			720
Interest cost		1,048			1,036			1,086
Expected return on plan assets		(914	)		(1,140	)		(1,100	)
Amortization of prior service cost		4			4			4
Amortization of net loss		593			242			321

Net periodic benefit cost		731			142			1,031

Other changes in plan assets and benefit obligations
recognized in other comprehensive income:
Net (gain) loss		(305	)	3,497
Amortization of prior service cost		(4	)	(4	)
Amortization of net gain		(593	)	(242	)

Total recognized in other comprehensive income		(902	)	3,251

Total recognized in net periodic benefit cost
and other comprehensive income	$	(171	)	3,393

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over 2010 will be based on the average expected future service of plan participants. The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over 2010 will be minimal.

Assumptions

	December 31,
	2009			2008
Weighted-average assumptions used to determine
benefit obligations:
Discount rate		5.75	%		6.00	%
Rate of compensation increase		n/a			n/a

	December 31,
	2009			2008			2007

Weighted-average assumptions used to determine
net periodic benefit cost:
Discount rate		6.00	%		6.00	%		6.00	%
Expected long-term return on plan assets		7.50	%		7.50	%		7.50	%
Rate of compensation increase		n/a			n/a			4.50	%

The assumed long-term rate of return on plan assets is generally set at the rate expected to be earned based on the long-term investment policy of the plan and the various classes of invested funds, based on the input of the plan’s investment advisors and consulting actuary and the plan’s historic rate of return. As of December 31, 2009, the plan’s average 10-year and inception-to-date returns were 1.89% and 6.53%, respectively.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In setting the annual discount rate assumption, the Pension Committee reviews the current 10 year and 30 year corporate bond yields, the current spread to treasuries and their relative change during the past twelve months. It also calculates the present value of the projected benefit payment stream based on the Citigroup Pension Discount Curve. Based on the facts and circumstances currently existing, the Pension Committee elected to use the Citigroup Pension Discount Curve.

In setting the annual portfolio rate of return assumption, the Pension Committee considers the Plan’s actual long-term performance, the portfolio’s current allocation and individual investment holdings, the Committee’s and the Investment Manager’s expectations for future long term investment strategy and expected performance, and the advice of consultants knowledgeable about overall market expectations and benchmark rates of return used by comparable companies.

Plan Assets

As discussed in Note 14, Fair Values of Financial Instruments, the Company adopted GAAP guidance which defines fair value and establishes a framework for measuring fair value of financial assets. Using this guidance, the Company has categorized its pension plan assets into a three level hierarchy, based on the priority of inputs to the valuation process. The fair value hierarchy classifications are reviewed annually. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. The following table sets forth the Company’s pension plan assets within the fair value hierarchy as of December 31, 2009.

	December 31, 2009
	Total		Level 1		Level 2		Level 3
	(In thousands)

Cash	$	1,185		1,185		-		-
Equity securities
Domestic		8,219		8,219		-		-
International		539		539		-		-
Debt securities
U.S. government agencies		3,761		-		3,761		-
Corporate bonds		1,350		-		1,350		-
Other		18		18		-		-

Total	$	15,072		9,961		5,111		-

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

Cash and short-term investments. The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

The plan’s weighted-average asset allocations by asset category are as follows:

	December 31,
	2009			2008			2007

Asset Category:
Equity securities		58	%		58	%		59	%
Debt securities		34	%		36	%		35	%
Cash and cash equivalents		8	%		6	%		6	%

Total		100	%		100	%		100	%

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has established and maintains an investment policy statement for the assets held in the plan's trust. The investment strategies are of a long-term nature and are designed to meet the following objectives:

·	ensure that funds are available to pay benefits as they become due

·	set forth an investment structure detailing permitted assets and expected allocation ranges among classes

·	ensure that plan assets are managed in accordance with ERISA

The Pension Plan is a highly diversified portfolio; the 67% of the pension assets not invested in cash or U.S. Government agencies is allocated among 154 different investments, with no single credit representing more than 2% of the fair value of the portfolio. The investment policy statement sets forth the following acceptable ranges for each asset's class.

		Acceptable Range

Asset Category:
Equity securities		55-65%
Debt securities		30-40%
Cash and cash equivalents		0-15%

Deviations from these ranges are permitted if such deviations are consistent with the duty of prudence under ERISA. Investments in natural resources, venture capital, precious metals, futures and options, real estate, and other vehicles that do not have readily available objective valuations are not permitted. Short sales, use of margin or leverage, and investment in commodities and art objects are also prohibited.

The investment policy statement is reviewed annually to ensure that the objectives are met considering any changes in benefit plan design, market conditions, or other material considerations.

Contributions

The Company expects to contribute $776,000 to the plan during 2010 although additional amounts may be contributed. The plan’s funding status is reviewed periodically throughout the year by the Company’s Pension Plan Committee. The Company intends to contribute at least the minimum amounts necessary for tax compliance and to maintain an Adjusted Funding Target Attainment Percentage (AFTAP) of over 80% to meet the Pension Protection Act Plan’s threshold.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2010	$	1,131
2011		1,202
2012		1,232
2013		1,249
2014		1,245
2015-2019		6,381

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company also sponsors three non-qualified defined benefit pension plans. The first plan covers certain senior officers and provides benefits based on the participants' years of service and compensation. The primary 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"), a related party. ANICO has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the 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, t he 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 this 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.

A detail of plan disclosures related to the amendments of the original plan and the additional two plans is provided below:

Obligations and Funded Status

	December 31,
	2009			2008
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	20,740			17,104
Service cost		149			586
Interest cost		1,234			1,190
Actuarial loss		1,257			3,764
Benefits paid		(1,982	)		(1,904	)

Projected benefit obligations at end of year		21,398			20,740

Change in plan assets:
Fair value of plan assets at beginning of year		-			-
Contributions		1,982			1,904
Benefits paid		(1,982	)		(1,904	)

Fair value of plan assets at end of year		-			-

Funded status at end of year	$	(21,398	)		(20,740	)

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	December 31,
	2009			2008
	(In thousands)
Amounts recognized in the Company's consolidated
financial statements:
Assets	$	-			-
Liabilities		(21,398	)		(20,740	)

Net amount recognized	$	(21,398	)		(20,740	)

Amounts recognized in accumulated other
comprehensive income:
Net loss	$	10,055	9,589
Prior service cost		1,512	2,551

Net amount recognized	$	11,567	12,140

The accumulated benefit obligation was $18.9 million and $17.4 million at December 31, 2009 and 2008 respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2009		2008		2007
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	149		586		773
Interest cost		1,233		1,190		962
Amortization of prior service cost		1,039		1,039		1,039
Amortization of net loss		792		707		404

Net periodic benefit cost		3,213		3,522		3,178

Other changes in plan assets and benefit obligations
recognized in other comprehensive income:
Net loss		1,257		3,764
Amortization of prior service cost		(1,039	)	(1,039	)
Amortization of net gain		(792	)	(707	)

Total recognized in other comprehensive income		(574	)	2,018

Total recognized in net periodic benefit cost
and other comprehensive income	$	2,639		5,540

The estimated net loss to be amortized from accumulated other comprehensive income into net periodic benefit cost over 2010 will be based on the average expected future service of plan participants. The estimated prior service cost to be amortized from accumulated other comprehensive income into net periodic benefit cost over 2010 will be $0.5 million.

100

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumptions

	December 31,
	2009			2008
Weighted-average assumptions used to determine
benefit obligations:
Discount rate		5.75	%		6.00	%
Rate of compensation increase		4.00	%		4.00	%

	December 31,
	2009			2008			2007

Weighted-average assumptions used to determine
net periodic benefit costs:
Discount rate		6.00	%		6.00	%		6.00	%
Expected long-term return on plan assets		n/a			n/a			n/a
Rate of compensation increase		4.00	%		4.00	%		4.00	%

The plan is unfunded and therefore no assumption has been made related to the expected long-term return on plan assets.

Plan Assets

The plan is unfunded and therefore had no assets at December 31, 2009 or 2008.

Contributions

The Company expects to contribute $2.0 million to the plan in 2010.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2010	$	1,982
2011		1,982
2012		1,982
2013		1,982
2014		1,982
2015-2019		9,908

(B) Defined Contribution Pension Plans

In addition to the defined benefit pension plans, the Company sponsors a qualified 401(k) plan for substantially all employees and a non-qualified deferred compensation plan primarily for senior officers. The Company made annual contributions to the 401(k) plan of one percent and two percent of each employee's compensation in 2009 and 2008, respectively. Additional Company matching contributions of up to two percent of each employee's compensation are also made each year based on the employee's personal level of salary deferrals to the plan. All Company contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2009, 2008 and 2007, Company contributions totaled $351,000, $344,000 and $432,000, respectively.

The non-qualified deferred compensation plan was established to allow eligible employees to defer the payment of a percentage of their compensation and to provide for additional Company contributions. Company contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2009, 2008 and 2007, Company contributions totaled $60,000, $46,000 and $61,000, respectively.

101

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company sponsors two health care plans that were amended in 2004 to provide postretirement benefits to certain fully-vested individuals. The plans are unfunded. The Company uses a December 31 measurement date for the plans. A detail of plan disclosures related to these plans is provided below:

Obligations and Funded Status

	December 31,
	2009			2008
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	2,330			2,450
Interest cost		130			134
Actuarial (gain)		(105	)		(195	)
Benefits paid		(4	)		(59	)

Projected benefit obligations at end of year		2,351			2,330

Changes in plan assets:
Fair value of plan assets at beginning of year		-			-
Contributions		4			59
Benefits paid		(4	)		(59	)

Fair value of plan assets at end of year		-			-

Funded status at end of year	$	(2,351	)		(2,330	)

	December 31,
	2009			2008
	(In thousands)
Amounts recognized in the Company's consolidated
financial statements:
Assets	$	-			-
Liabilities		(2,351	)		(2,330	)

Net amount recognized	$	(2,351	)		(2,330	)

Amounts recognized in accumulated other
comprehensive income:
Net loss	$	171	277
Prior service cost		979	1,082

Net amount recognized	$	1,150	1,359

102

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Components of net periodic benefit cost:
Interest cost	$	130		134		141
Amortization of prior service costs		103		103		103
Amortization of net loss		-		7		29

Net periodic benefit cost		233		244		273

Other change in plan assets and benefit obligations
recognized in other comprehensive income:
Net (gain) loss		(106	)	(195	)
Amortization of prior service cost		(103	)	(103	)
Amortization of net gain		-		(7	)

Total recognized in other comprehensive income		(209	)	(305	)

Total recognized in net periodic benefit cost
and other comprehensive income	$	24		(61	)

Assumptions

	December 31,
	2009			2008
Weighted-average assumptions used to determine
benefit obligations:
Discount rate		5.75	%		6.00	%
Expected long-term return on plan assets		n/a			n/a

For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2010 and future years.

Assumed health care trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects for the years ended December 31:

	2009					2008
	1% Point		1% Point			1% Point		1% Point
	Increase		Decrease			Increase		Decrease
	(In thousands)
Effect on total of service and interest
cost components	$	24		(19	)		20		(27	)

Effect on postretirement benefit obligation	$	445		(351	)		472		(368	)

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Assets

The plans are unfunded and therefore had no assets at December 31, 2009 and 2008.

Contributions

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2010	$	86
2011		93
2012		101
2013		109
2014		117
2015-2019		743

(8) SHORT-TERM BORROWINGS

The Company has available a $40 million bank line of credit (with Moody National Bank, a related party) primarily for cash management purposes relating to investment transactions. The Company is required to maintain a collateral security deposit in trust with the sponsoring bank equal to 110% of any outstanding liability. The Company had no outstanding liabilities with the bank at December 31, 2009 or 2008. The Company had assets having an amortized value of $44.3 million on deposit with the lender at year end 2009.

(9) COMMITMENTS AND CONTINGENCIES

(A) Legal Proceedings

The Company was a defendant in a class action lawsuit initially filed on September 17, 2004, in the Superior Court of the State of California for the County of Los Angeles. The California state court certified a class consisting of certain California policyholders age 65 and older alleging violations under California Business and Professions Code section 17200. The court additionally certified a subclass of 36 policyholders alleging fraud against their agent, and vicariously against the Company. The California Insurance Department had intervened in this case asserting that the Company has violated California insurance laws. The parties to this case had been involved in court-ordered mediation and ongoing negotiations. On February 22, 2010, the Company reported in a Form 8-K filing a settlement agreement with the plaintiffs and plaintiff in intervention providing a settlement benefit of approximately $17 million. The settlement agreement is subject to final court approval.

The Company is a defendant in a second class action lawsuit pending as of June 12, 2006, in the U.S. District Court for the Southern District of California. The case is titled In Re National Western Life Insurance Deferred Annuities Litigation and is in the discovery phase. The complaint asserts claims for RICO violations, Financial Elder Abuse, Violation of Cal. Bus. & Prof. Code 17200, et seq, Violation of Cal. Bus. & Prof. Code 17500, et seq, Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, Fraudulent Concealment, Cal. Civ. Code 1710, et seq, Breach of the Duty of Good Faith and Fair Dealing, and Unjust Enrichment and Imposition of Constructive Trust. The Company believes that it has meritorious defenses in this case and intends to vigorously defend itself against the a sserted claims.

The Company is the named Defendant in the case of Sheila Newman vs. National Western Life Insurance Company which alleged mishandling of policyholder funds by an agent. On February 3, 2010, the 415th Judicial District Court of Parker County in Weatherford, Texas, entered a Final Judgment against the Company of approximately $208,000 for actual damages, attorney’s fees for preparation of trial, and prejudgment interest on the actual damages. In addition, the Final Judgment included $150 million for exemplary damages. The Company will continue to vigorously defend this case by filing an appeal of the Final Judgment with the proper Court of Appeals in Texas. The Comp any believes the Final Judgment is inconsistent with current state and federal laws and intends to establish on appeal that it is not liable for the Plaintiff’s actual or exemplary damages.

104

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company is involved or may become involved in various other legal actions, in the normal course of its 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 such other potential, pending, or threatened legal actions will have a material adverse effect on the financial condition or operating results of the Company.

The amounts provided in the financial statements at December 31, 2009 of $23.0 million for the foregoing represent estimates made by the Company based upon current information and are subject to change as facts and circumstances change and develop.

In January 2009, the SEC published its newly adopted rule 151A, Indexed Annuities and Certain Other Insurance Contracts. This rule defines “indexed annuities to be securities and thus subject to regulation by the SEC under federal securities laws”. Currently indexed annuities sold by life insurance companies are regulated by the States as insurance products and Section 3(a)(8) of the Securities Act of 1933 provides an exemption for certain “annuity contracts,” “optional annuity contracts,” and other insurance contracts. The Company and others subsequently filed suit in the U.S. Court of Appeals for the District of Columbia to overturn this rule. The new rule was scheduled to be effective January 12, 2 011, but is currently subject to legal challenges by National Western and other companies regarding its validity. The SEC, in briefing regarding appropriate remedies, has “determined to consent to” a two year stay of Rule 151A’s effective date to run from the date of publication of a reissued or retained Rule 151A in the Federal Register. In the event rule 151A is not overturned, it could have a material effect on our business, results of operations and financial condition.

(B) Financial Instruments

In order to meet the financing needs of its customers in the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments are commitments to extend credit which involve elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amounts, assuming that the amounts are fully advanced and that collateral or other security is of no value. Commitments to extend credit are legally binding agreements to lend to a customer that generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments do not necessarily represent future liquidity requirements, as some could expire without being drawn upon. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company controls the credit risk of these transactions through credit approvals, limits, and monitoring proc edures.

The Company had $13.3 million of commitments to extend credit relating to mortgage loans at December 31, 2009. The Company evaluates each customer's creditworthiness on a case-by-case basis.

The Company is subject to state guaranty association assessments in all states in which it is licensed to do business. These associations generally guarantee certain levels of benefits payable to resident policyholders of insolvent insurance companies. Many states allow premium tax credits for all or a portion of such assessments, thereby allowing potential recovery of these payments over a period of years. However, several states do not allow such credits.

The Company estimates its liabilities for guaranty association assessments by using the latest information available from the National Organization of Life and Health Insurance Guaranty Associations. The Company monitors and revises its estimates for assessments as additional information becomes available which could result in changes to the estimated liabilities. As of December 31, 2009 and 2008, liabilities for guaranty association assessments totaled $2.1 million and $1.4 million, respectively. Other operating expenses related to state guaranty association assessments were minimal for the years ended December 31, 2009, 2008 and 2007.

105

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(D) Leases

The Company leases its executive office building and various computers and other office related equipment under operating leases. Rental expenses for these leases were $0.9 million for the years ended December 31, 2009, 2008 and 2007. Total future annual lease obligations as of December 31, 2009, are as follows:

2010	$	212,640
2011		177,200
2012		-
2013 and thereafter		-

Total	$	389,840

(E) Compensation Plan

Effective January 1, 2006, the Company implemented a Non-Qualified Deferred Compensation Plan to provide incentive bonuses to eligible agents. Agents qualify for participation by meeting certain sales goals each year. Company contributions are subject to a vesting schedule based on the agents’ years of qualification in the plan. The Company expects to contribute $0.9 million to the plan in 2010.

(10) STOCKHOLDERS' EQUITY

(A) Changes in Common Stock Shares Outstanding

Details of changes in shares of common stock outstanding are provided below.

	Years Ended December 31,
	2009		2008		2007
	(In thousands)

Common stock shares outstanding:
Shares outstanding at beginning of year		3,626		3,622		3,621
Shares exercised under stock option plan		-		4		1

Shares outstanding at end of year		3,626		3,626		3,622

(B) Dividend Restrictions

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 restrictions are based on statutory earnings and surplus levels of the Company. The maximum dividend payment which may be made without prior approval in 2010 is $81.3 million.

On August 28, 2009, the Board of Directors of the Company declared a cash dividend to stockholders on record as of October 30, 2009 and payable November 30, 2009. The dividends approved were $0.36 per common share to Class A stockholders and $0.18 per common share to Class B stockholders. A dividend in the same amounts per share on Class A and Class B shares was declared in August and paid in November 2008.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Colorado Division of Insurance imposes minimum risk-based capital requirements on insurance companies that were developed by the National Association of Insurance Commissioners ("NAIC"). The formulas for determining the amount of risk-based capital ("RBC") specify various weighting factors that are applied to statutory financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the Company's regulatory total adjusted capital to its authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The Company's current statutory capital and surplus is significantly in excess of all RBC r equirements.

(D) Share-Based Payments

The Company has a stock and incentive plan ("1995 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; and (4) performance awards. The Company has issued only nonqualified stock options and stock appreciation rights. The 1995 Plan began on April 21, 1995, and 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 1995 Plan, or as to which stock appreciation rights or other awards may be granted, may not exceed 300,000. Effective June 20, 2008, the Company’s shareholders approved a 2 008 Incentive Plan (“2008 Plan”). The 2008 Plan is substantially similar to the 1995 Plan and authorized an additional number of Class A, $1.00 par value, common stock shares eligible for issue not to exceed 300,000. These shares may be current authorized and unissued shares.

All of the employees of the Company and its subsidiaries are eligible to participate in the two Plans. In addition, directors of the Company are eligible to receive the same types of awards as employees except that they are not eligible to receive incentive stock options. Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options. The directors’ grants vest 20% annually following one full year of service to the Company from the date of grant. The employees’ grants vest 20% annually following three full years of service to the Company from the date of grant. All grants issued expire after ten years.

Effective during March 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.

In August 2008, the Company implemented another limited stock buy-back program, substantially similar to the 2006 program, for shares issued under the 2008 Plan.

107

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company uses the current fair value method to measure compensation cost. As of December 31, 2009, the liability balance was $5.4 million versus $3.8 million as of December 31, 2008. 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

Stock Options:
Balance at January 1, 2009		291,400		105,812		$	174.33
Exercised		-		(235	)	$	92.13
Forfeited		800		(800	)	$	215.71
Expired		200		(200	)	$	150.00
Stock options granted		-		-			-

Balance at December 31, 2009		292,400		104,577		$	174.24

	Stock Appreciation Rights Outstanding
			Weighted-
			Average
			Exercise
	Awards		Price

Stock Appreciation Rights:
Balance at January 1, 2009		2,750	$	245.70
SARs granted February 19, 2009		38,393	$	114.64

Balance at December 31, 2009		41,143	$	123.40

The total intrinsic value of options exercised was zero and $2.8 million for the twelve months ended December 31, 2009 and 2008, respectively. The total share-based liabilities paid were $19,000 and $2.5 million for the twelve months ended December 31, 2009 and 2008, respectively. For the twelve months ended December 31, 2009 and 2008, the total cash received from the exercise of options under the Plan was zero and $0.4 million. The total fair value of shares vested during the twelve months ended December 31, 2009 and 2008 was $0.2 million and $2.0 million, respectively.

108

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about stock options and SARs outstanding at December 31, 2009.

		SARs Outstanding
				Weighted-
				Average
		Number		Remaining		Options
		Outstanding		Contractual Life		Exercisable
Exercise prices:
$	92.13		9,959		1.3 years		9,959
	95.00		6,000		1.5 years		6,000
	150.00		51,850	4.3 years			32,650
	255.13		27,768	8.3 years			-
	208.05		9,000	8.5 years			1,800
	236.00		1,250	8.6 years			-
	251.49		1,000	8.7 years			-
	256.00		500	8.7 years			-
	114.64		38,393	9.1 years			-

Totals			145,720				50,409

Aggregate intrinsic value
(in thousands)		$	4,772			$	2,054

The aggregate intrinsic value in the table above is based on the closing stock price of $173.62 per share on December 31, 2009.

In estimating the fair value of the options outstanding at December 31, the Company employed the Black-Scholes option pricing model with assumptions as detailed below.

	December 31,			December 31,
	2009			2008

Expected term of options	2 to 10 years			2 to 10 years
Expected volatility:
Range	28.48% to 80.02%			24.70% to 77.55%
Weighted-average		46.09	%		37.10	%
Expected dividend yield		0.21	%		0.22	%
Risk-free rate:
Range	0.99% to 3.84%			1.44% to 2.40%
Weighted-average		2.49	%		1.94	%

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

The pre-tax compensation cost/(benefit) recognized in the financial statements related to the Plan was $1.6 million, $(1.4) million, and $(1.1) million for the years ended December 31, 2009, 2008 and 2007, respectively. The related tax (expense)/benefit recognized was $0.6 million, $(0.5) million and $(0.4) million for the years ended December 31, 2009, 2008 and 2007, respectively.

For the years ended December 31, 2009, 2008 and 2007, the total compensation cost related to nonvested options not yet recognized was $3.3 million, $1.3 million and $1.1 million, respectively. This amount is expected to be recognized over a weighted-average period of 2.4 years. The Company recognizes compensation cost over the graded vesting periods.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) EARNINGS PER SHARE

Earnings per share amounts for the Company are presented using two different computations. Basic earnings per share excludes dilutive effects of certain securities or contracts, such as stock options, and is computed by dividing income available to each class of common stockholders on an as if distributed basis by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, that then shared in the distributed earnings of each class of common stock. Stock options not included in the weighted-average number of diluted shares, because such shares would have been anti-dilutive, were immat erial. U.S. GAAP requires a two-class presentation for the Company’s two classes of common stock (Note 6, Transactions with Controlling Stockholder). Accordingly, the earnings per share for both Class A and Class B are presented. The following table sets forth the computations of basic and diluted earnings per share.

	Years Ended December 31,
	2009					2008					2007
	Class A			Class B		Class A			Class B		Class A			Class B
	(In thousands except per share amounts)

Numerator for Basic and
Diluted Earnings Per Share:
Net income	$	45,484					33,642					85,371
Dividends – Class A
shares		(1,233	)				(1,233	)				(1,232	)
Dividends – Class B
shares		(36	)				(36	)				(36	)

Undistributed income	$	44,215					32,373					84,103

Allocation of net income:
Dividends	$	1,233			36		1,233			36		1,232			36
Allocation of
undistributed
income		42,961			1,254		31,455			918		81,715			2,388

Net income	$	44,194			1,290		32,688			954		82,947			2,424

Denominator:
Basic earnings per
share - weighted-
average shares		3,426			200		3,425			200		3,422			200
Effect of dilutive
stock options		7			-		23			-		42			-

Diluted earnings per
share - adjusted
weighted-average
shares for assumed
conversions		3,433			200		3,448			200		3,464			200

Basic Earnings Per Share	$	12.90			6.45		9.54			4.77		24.24			12.12

Diluted Earnings Per Share	$	12.87			6.45		9.48			4.77		23.95			12.12

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) COMPREHENSIVE INCOME

GAAP guidance requires that all items recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This guidance requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position.

This guidance affects the Company's reporting presentation of certain items such as foreign currency translation adjustments, unrealized gains and losses on investment securities, and minimum pension liabilities. These items are reflected as components of other comprehensive income (loss), as reported in the accompanying consolidated financial statements. Components of other comprehensive income (loss) for 2009, 2008 and 2007 and the related tax effect are detailed below.

	Amounts			Tax			Amounts
	Before			(Expense)			Net of
	Taxes			Benefit			Taxes
	(In thousands)

2009:
Unrealized gains (losses) on securities, net of effects
of deferred costs of $(108,615):
Net unrealized holding gains (losses)
arising during period	$	127,210			(44,524	)		82,686
Unrealized liquidity losses		(5,097	)		1,785			(3,312	)
Reclassification adjustment for net
losses (gains) included in net earnings		4,240			(1,484	)		2,756
Amortization of net unrealized (losses) gains
related to transferred securities		(52	)		18			(34	)

Net unrealized gains (losses) on securities		126,301			(44,205	)		82,096

Foreign currency translation adjustments		(113	)		40			(73	)
Pension liability adjustment		1,685			(590	)		1,095

Other comprehensive income	$	127,873			(44,755	)		83,118

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Amounts			Tax			Amounts
	Before			(Expense)			Net of
	Taxes			Benefit			Taxes
	(In thousands)

2008:
Unrealized (losses) gains on securities, net of effects
of deferred costs of $70,524:
Net unrealized holding (losses) gains
arising during period	$	(102,752	)		35,963			(66,789	)
Reclassification adjustment for net
losses (gains) included in net earnings		18,256			(6,390	)		11,866
Amortization of net unrealized (losses) gains
related to transferred securities		(47	)		16			(31	)

Net unrealized (losses) gains on securities		(84,543	)		29,589			(54,954	)

Foreign currency translation adjustments		(172	)		60			(112	)
Pension liability adjustment		(4,965	)		1,738			(3,227	)

Other comprehensive (loss) income	$	(89,680	)		31,387			(58,293	)

	Amounts			Tax			Amounts
	Before			(Expense)			Net of
	Taxes			Benefit			Taxes
	(In thousands)

2007:
Unrealized gains (losses) on securities, net of effects
of deferred costs of $(4,415):
Net unrealized holding gains (losses)
arising during period	$	1,593			(558	)		1,035
Reclassification adjustment for net
(gains) losses included in net earnings		(4,773	)		1,670			(3,103	)
Amortization of net unrealized gains (losses)
related to transferred securities		160			(56	)		104

Net unrealized (losses) gains on securities		(3,020	)		1,056			(1,964	)

Foreign currency translation adjustments		(68	)		24			(44	)
Pension liability adjustment		(2,040	)		714			(1,326	)

Other comprehensive (loss) income	$	(5,128	)		1,794			(3,334	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) SEGMENT AND OTHER OPERATING INFORMATION

(A) Operating Segment Information

The Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. The Company's segments are organized based on product types and geographic marketing areas. In addition, the Company regularly evaluates operating performance using non-GAAP financial measures which exclude or segregate realized investment gains and losses from operating revenues and earnings. 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 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.

A summary of segment information, prepared in accordance with GAAP guidance, is provided below.

	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others			Totals
	(In thousands)
2009:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	50,093		207,337		491,242		-			748,672
Total segment assets		383,844		1,056,087		5,955,734		107,581			7,503,246
Future policy benefits		315,430		654,506		5,151,898		-			6,121,834
Other policyholder liabilities		12,021		19,757		97,153		-			128,931

Condensed Income Statements:
Premiums and contract
revenues	$	34,414		104,016		24,264		-			162,694
Net investment income		19,498		44,540		317,703		11,790			393,531
Other revenues		25		68		1,535		15,720			17,348
Total revenues		53,937		148,624		343,502		27,510			573,573
Life and other policy benefits		13,884		19,522		15,666		(75	)		48,997
Amortization of deferred
policy acquisition costs and deferred sale inducement		16,423		41,849		56,891		-			115,163
Universal life and annuity
contract interest		9,014		45,868		187,934		-			242,816
Other operating expenses		13,968		19,048		44,227		14,949			92,192
Federal income taxes		222		7,674		13,324		4,342			25,562
Total expenses		53,511		133,961		318,042		19,216			524,730
Segment earnings	$	426		14,663		25,460		8,294			48,843

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others			Totals
	(In thousands)
2008:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	64,748		222,263		535,928		-			822,939
Total segment assets		397,413		842,119		5,369,920		127,189			6,736,641
Future policy benefits		319,485		598,843		4,644,170		-			5,562,498
Other policyholder liabilities		10,456		16,397		105,110		-			131,963

Condensed Income Statements:
Premiums and contract
revenues	$	27,919		97,661		25,596		-			151,176
Net investment income		20,254		17,350		226,683		9,075			273,362
Other revenues		20		62		232		12,455			12,769
Total revenues		48,193		115,073		252,511		21,530			437,307
Life and other policy benefits		14,478		21,292		3,990		(1	)		39,759
Amortization of deferred
policy acquisition costs and deferred sale inducement		12,416		37,525		77,219		1			127,161
Universal life and annuity
contract interest		9,171		16,803		112,986		-			138,960
Other operating expenses		11,057		16,502		16,685		11,386			55,630
Federal income taxes		354		7,601		13,789		3,363			25,107
Total expenses		47,476		99,723		224,669		14,749			386,617
Segment earnings	$	717		15,350		27,842		6,781			50,690

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Domestic		International
	Life		Life				All
	Insurance		Insurance		Annuities		Others		Totals
	(In thousands)
2007:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	58,883		204,322		505,629		-		768,834
Total segment assets		399,097		796,012		5,500,226		106,039		6,801,374
Future policy benefits		320,287		556,893		4,703,363		-		5,580,543
Other policyholder liabilities		9,641		16,729		94,030		-		120,400

Condensed Income Statements:
Premiums and contract
revenues	$	25,879		88,782		24,529		-		139,190
Net investment income		18,863		24,690		266,953		7,631		318,137
Other revenues		41		126		920		12,596		13,683
Total revenues		44,783		113,598		292,402		20,227		471,010
Life and other policy benefits		14,922		22,810		3,594		-		41,326
Amortization of deferred
policy acquisition costs and deferred sale inducement		7,998		24,959		55,456		-		88,413
Universal life and annuity
contract interest		9,463		20,993		133,935		-		164,391
Other operating expenses		11,898		15,271		16,931		11,030		55,130
Federal income taxes		160		9,386		26,187		2,919		38,652
Total expenses		44,441		93,419		236,103		13,949		387,912
Segment earnings	$	342		20,179		56,299		6,278		83,098

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Premiums and Other Revenue:
Premiums and contract revenues	$	162,694			151,176			139,190
Net investment income		393,531			273,362			318,137
Other income		17,348			12,769			13,683
Realized (losses) gains on investments		(5,167	)		(26,228	)		3,497

Total consolidated premiums and other revenue	$	568,406			411,079			474,507

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Federal Income Taxes:
Total segment Federal income taxes	$	25,562			25,107			38,652
Taxes on realized (losses) gains on investments		(1,808	)		(9,180	)		1,224

Total taxes on consolidated net earnings	$	23,754			15,927			39,876

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Net Earnings:
Total segment earnings	$	48,843			50,690			83,098
Realized (losses) gains on investments, net of taxes		(3,359	)		(17,048	)		2,273

Total consolidated net earnings	$	45,484			33,642			85,371

	December 31,
	2009		2008		2007
	(In thousands)
Assets:
Total segment assets	$	7,503,246		6,736,641		6,801,374
Other unallocated assets		15,489		49,839		33,952

Total consolidated assets	$	7,518,735		6,786,480		6,835,326

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(B) Geographic Information

A significant portion of the Company's premiums and contract revenues are from countries other than the United States. Premiums and contract revenues detailed by country are provided below.

	Years Ended December 31,
	2009			2008			2007
	(In thousands)

United States	$	69,323			66,091			61,637
Brazil		31,370			25,786			20,161
Taiwan		13,297			12,246			10,098
Argentina		9,711			9,352			8,987
Chile		9,482			9,245			8,465
Venezuela		8,740			8,739			7,925
Other foreign countries		41,426			40,150			38,238

Revenues, excluding reinsurance premiums		183,349			171,609			155,511
Reinsurance premiums		(20,655	)		(20,433	)		(16,321	)

Total premiums and contract revenues	$	162,694			151,176			139,190

Premiums and contract revenues are attributed to countries based on the location of the policyholder. The Company has no significant assets, other than financial instruments, located in countries other than the United States.

A significant portion of the Company's premiums and deposits were sold through two independent marketing agencies in recent years. Combined business from these agencies accounted for approximately 24%, 22% and 22% of total direct premium revenues and universal life and annuity contract deposits in 2009, 2008 and 2007, respectively.

(14) FAIR VALUES OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company adopted FASB guidance which defines fair value, establishes a framework for measuring fair value under GAAP, and requires additional disclosures about fair value measurements. In compliance with this GAAP guidance, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the Consolidated Balance Sheets are categorized as follows:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Level 3: Fair value is based on significant unobservable inputs which reflect the entity’s or third party pricing service’s assumptions about the assumptions market participants would use in pricing an asset or liability. The Company’s Level 3 assets include certain equity securities and certain less liquid or private fixed maturity debt securities where significant valuation inputs cannot be corroborated with market observable data. The Company’s Level 3 liabilities consist of share-based compensation obligations. Valuations are estimated based on non-binding broker prices or internally developed valuation models or methodologies, discounted cash flow models and other similar techniques.

The following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of the date indicated.

	December 31, 2009
	Total		Level 1		Level 2		Level 3
	(In thousands)

Debt securities, available for sale	$	2,036,065		-		2,019,415		16,650
Equity securities, available for sale		14,014		5,536		1,321		7,157
Derivatives		89,915		-		89,915		-

Total assets	$	2,139,994		5,536		2,110,651		23,807

Policyholder account balances (a)	$	88,492		-		88,492		-
Other liabilities (b)		5,373		-		-		5,373

Total liabilities	$	93,865		-		88,492		5,373

(a) Represents the fair value of certain product-related embedded derivatives that were recorded at fair value.

(b) Represents the liability for share-based compensation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides additional information about fair value measurements for which significant unobservable (Level 3) inputs were utilized to determine fair value.

	For the Twelve Months Ended December 31, 2009
	Debt			Equity
	Securities,			Securities,
	Available			Available			Total			Other
	For Sale			For Sale			Assets			Liabilities
	(In thousands)

Beginning balance, January 1, 2009	$	10,242			7,190			17,432			3,787
Total realized and unrealized gains (losses):
Included in net income		-			-			-			1,605
Included in other comprehensive loss		(16	)		(33	)		(49	)		-
Purchases, sales, issuances and settlements, net		(926	)		-			(926	)		(19	)
Transfers into (out of) Level 3		7,350			-			7,350			-

Ending balance, December 31, 2009	$	16,650			7,157			23,807			5,373

Amount of total gains (losses) for the period
included in net income attributable to the change
in unrealized gains (losses) relating to assets still
held as of December 31, 2009	$	-			-			-			1,534

Realized gains (losses) on Level 3 assets and liabilities are reported in the consolidated statements of earnings as net investment gains (losses). Unrealized gains (losses) on debt and equity securities are reported as other comprehensive income (loss) within stockholders’ equity.

The fair value hierarchy classifications are reviewed each reporting period. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. Reclassifications are reported as transfers into and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.

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

The following methods and assumptions were used in estimating the fair value of financial instruments and liabilities during the periods presented in the consolidated financial statements.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and short-term investments. The carrying amounts reported in the balance sheet for these instruments approximate their fair values due to the relatively short time between the purchase of the instrument and its expected repayment or maturity.

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

Policy Loans. The carrying value of policy loans approximates fair values.

Derivatives. Fair values for index (call) options are based on counterparty market prices. The counterparties use market standard valuation methodologies incorporating market inputs for volatility and risk free interest rates in arriving at a fair value for each option contract. Prices are verified by the Company using analytical tools. There are no performance obligations related to the call options purchased to hedge the Company’s fixed indexed life and annuity policy liabilities.

Life interest in Libbie Shearn Moody Trust. The fair value of the life interest is estimated based on assumptions as to future distributions from the Trust over the life expectancy of Mr. Robert L. Moody, Chairman of the Board and Chief Executive Officer. These estimated cash flows were discounted at a rate consistent with uncertainties relating to the amount and timing of future cash distributions. However, the Company has limited the fair value to the maximum amount to be received from insurance proceeds in the event of Mr. Moody's premature death.

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

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

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

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

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table present, by pricing source and fair value hierarchy level, the Company’s assets that are measured at fair value on a recurring basis:

	December 31, 2009
	Total			Level 1			Level 2			Level 3
	(In thousands)

Debt securities, available for sale:
Priced by third-party vendors	$	2,019,415			-			2,019,415			-
Priced internally		16,650			-			-			16,650
Subtotal		2,036,065			-			2,019,415			16,650

Equity securities, available for sale:
Priced by third-party vendors		6,857			5,536			1,321			-
Priced internally		7,157			-			-			7,157
Subtotal		14,014			5,536			1,321			7,157

Derivatives, index options:
Priced by third-party vendors		89,915			-			89,915			-
Priced internally		-			-			-			-
Subtotal		89,915			-			89,915			-

Total	$	2,139,994			5,536			2,110,651			23,807

Percent of total		100	%		0	%		99	%		1	%

The carrying amounts and fair values of the Company's financial instruments are as follows:

	December 31, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Values		Values		Values		Values
	(In thousands)

ASSETS
Investments in debt and equity securities:
Securities held to maturity	$	4,176,661		4,331,077		3,831,417		3,727,353
Securities available for sale		2,050,079		2,050,079		1,745,266		1,745,266

Cash and short-term investments		108,866		108,866		67,796		67,796
Mortgage loans		98,200		97,763		90,733		90,884
Policy loans		78,336		78,336		79,277		79,277
Other loans		11,611		13,304		1,541		1,572
Derivatives		89,915		89,915		11,920		11,920
Life interest in Libbie Shearn
Moody Trust		981		12,775		1,302		12,775


LIABILITIES
Deferred annuity contracts	$	4,756,142		4,438,834		4,324,702		3,997,005
Immediate annuity and
supplemental contracts		465,471		450,154		388,486		409,553

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(15) DERIVATIVE INVESTMENTS

Fixed-indexed products provide traditional fixed annuities and universal life contracts with the option to have credited interest rates linked in part to an underlying equity index or a combination of equity indices. The equity return component of such policy contracts is identified separately and accounted for in future policy benefits as embedded derivatives on the consolidated balance sheet. The remaining portions of these policy contracts are considered the host contracts and are recorded separately as fixed annuity or universal life contracts. The host contracts are accounted for under debt instrument type accounting in which future policy benefits are recorded as discounted debt instruments that are accreted, using the effective yield method, to their minimum account values at their projected maturities or termination dates.

The Company purchases over-the-counter index options, which are derivative financial instruments, to hedge the equity return component of its fixed-indexed annuity and life products. The index options act as hedges to match closely the returns on the underlying index or indices. The amounts which may be credited to policyholders are linked, in part, to the returns of the underlying index or indices. As a result, changes to policyholders' liabilities are substantially offset by changes in the value of the options. Cash is exchanged upon purchase of the index options and no principal or interest payments are made by either party during the option periods. Upon maturity or expiration of the options, cash may be paid to the Company depending on the performance of the underlying index or indices and terms of the contract.

The Company does not elect hedge accounting relative to these derivative instruments. The index options are reported at fair value in the accompanying consolidated financial statements. The changes in the values of the index options and the changes in the policyholder liabilities are both reflected in the consolidated statement of earnings. Any changes relative to the embedded derivatives associated with policy contracts are reflected in contract interest in the consolidated statement of earnings. Any gains or losses from the sale or expiration of the options, as well as period-to-period changes in values, are reflected as net investment income in the consolidated statement of earnings.

Although there is credit risk in the event of nonperformance by counterparties to the index options, the Company does not expect any counterparties to fail to meet their obligations, given their high credit ratings. In addition, credit support agreements are in place with all counterparties for option holdings in excess of specific limits, which may further reduce the Company's credit exposure.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tables below present the fair value of derivative instruments.

	December 31, 2009
	Asset Derivatives			Liability Derivatives
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
		(In thousands)			(In thousands)
Derivatives not designated as
hedging instruments

Equity index options	Derivatives,
	Index Options	$	89,915

				Univerdal Life
				and Annuity
Fixed-indexed products				Contracts	$	88,492

Total		$	89,915		$	88,492

	December 31, 2008
	Asset Derivatives			Liability Derivatives
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
		(In thousands)			(In thousands)
Derivatives not designated as
hedging instruments

Equity index options	Derivatives,
	Index Options	$	11,920

				Univerdal Life
				and Annuity
Fixed-indexed products				Contracts	$	19,377

Total		$	11,920		$	19,377

The table below presents the effect of derivative instruments in the consolidated statement of earnings for the twelve months ended December 31, 2009.

		Amount of Gain
		or (Loss)
		Recognized In
Derivatives Not Designated	Location of Gain or (Loss) Recognized	Income on
as Hedging Instruments	In Income on Derivatives	Derivatives
		(In thousands)

Equity index options	Net investment income	$	45,345

Fixed-indexed products	Universal life and annuity contract interest		(69,115	)

		$	(23,770	)

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) RELATED PARTY TRANSACTIONS

Robert L. Moody, Jr. ("Mr. Moody, Jr.") is the son of Robert L. Moody, the Company's Chairman and Chief Executive Officer, and is the brother of Ross R. Moody, the Company's President and Chief Operating Officer, and of Russell S. Moody and Frances A. Moody-Dahlberg who serve as directors of National Western.

Mr. Moody, Jr. wholly owns an insurance marketing organization that maintains agency contracts with National Western pursuant to which agency commissions are paid in accordance with the Company's standard commission schedules. Mr. Moody, Jr. also maintains an independent agent contract with National Western for policies personally sold under which commissions are paid in accordance with standard commission schedules. In 2009, commissions paid under these agency contracts aggregated approximately $249,000. In his capacity as an insurance marketing organization with the Company, Mr. Moody, Jr. also received marketing consulting fees of $48,000 and use of a Company vehicle valued at $4,000.

Mr. Moody, Jr. further serves as the agent of record for several of the Company's benefit plans including the self-insured health plan for which Mr. Moody, Jr. provides utilization review services through a wholly-owned utilization review company. In 2009, amounts paid to Mr. Moody, Jr. as commissions and service fees pertaining to the Company's benefit plans approximated $58,000.

Mr. Moody, Jr. is an Advisory Director of a wholly owned subsidiary of the Company. As an Advisory Director, Mr. Moody, Jr. received director fees of $500 during 2009, and $13,351 of Company paid guest travel to attend Company sales conferences and functions.

During 2009, management fees totaling $628,848 were paid to Regent Management Services, Limited Partnership ("RMS") for services provided to downstream nursing home subsidiaries of National Western. RMS is 1% owned by general partner RCC Management Services, Inc. ("RCC"), and 99% owned by limited partner, Three R Trusts. RCC is 100% owned by the Three R Trusts. The Three R Trusts are four Texas trusts for the benefit of the children of Robert L. Moody (Robert L. Moody, Jr., Ross R. Moody, Russell S. Moody, and Frances A. Moody-Dahlberg). Charles D. Milos, Senior Vice President-Mortgage Loans and Real Estate, and a director of the Company, is a director and President of RCC. Ellen C. Otte, Assistant Secretary of the Company, is a director and Secretary of RCC.

The Company holds a common stock investment totaling approximately 9.4% of the issued and outstanding shares of Moody Bancshares, Inc. at December 31, 2009. Moody Bancshares, Inc. owns 100% of the outstanding shares of Moody Bank Holding Company, Inc., which owns approximately 98% of the outstanding shares of The Moody National Bank of Galveston ("MNB"). The Company utilizes MNB for certain bank custodian services as well as for certain administrative services with respect to the Company's defined benefit and contribution plans. Effective November 1, 2008, the Company entered into a 36 month sublease on one of the Company’s leased office locations for $6,000 per month with Moody National Bank. Robert L. Moody, the Company’s Chairman and Chief Executive Officer, serves as Chairman of the Boar d and Chief Executive Officer of MNB. The ultimate controlling person of MNB is the Three R Trusts. During 2009, fees totaling $181,708 were paid to MNB with respect to these services.

During 2009, the Company paid American National Insurance Company (“ANICO”) $237,828 in premiums for certain company sponsored benefit plans and $1,248,009 in reimbursements for claim costs for which ANICO provides third party administrative services. ANICO paid the Company $1,300,010 in premiums for its company sponsored benefit plans. Robert L. Moody, the Company’s Chairman and Chief Executive Officer is also ANICO’s Chairman and Chief Executive Officer.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(17) UNAUDITED QUARTERLY FINANCIAL DATA

Quarterly results of operations for 2009 are summarized as follows:

	First		Second		Third			Fourth
	Quarter		Quarter		Quarter			Quarter
	(In thousands except per share data)

2009:
Revenues	$	111,557		140,667		162,809			153,373

Earnings (loss)	$	15,028		18,842		(1,114	)		12,728

Basic earnings (loss) per share:
Class A	$	4.26		5.34		(0.32	)		3.61
Class B	$	2.13		2.67		(0.16	)		1.81

Diluted earnings (loss) per share:
Class A	$	4.26		5.34		(0.32	)		3.59
Class B	$	2.13		2.67		(0.16	)		1.81

Quarterly results of operations for 2008 are summarized as follows:

	First		Second		Third			Fourth
	Quarter		Quarter		Quarter			Quarter
	(In thousands except per share data)

2008:
Revenues	$	98,637		113,381		87,960			111,100

Earnings (loss)	$	14,446		18,142		(9,800	)		10,853

Basic earnings (loss) per share:
Class A	$	4.10		5.15		(2.78	)		3.08
Class B	$	2.05		2.57		(1.39	)		1.54

Diluted earnings (loss) per share:
Class A	$	4.07		5.10		(2.78	)		3.06
Class B	$	2.05		2.57		(1.39	)		1.54

During the fourth quarter of 2008, the Company determined that $3.2 million of additional amortization of deferred sales inducements should have been recorded in the third quarter of 2008 related to the unlocking of assumptions in that quarter. This immaterial error was corrected in the fourth quarter of 2008 and was not material to the third or fourth quarter consolidated financial statements.

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NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(18) SUBSEQUENT EVENTS

The amounts provided in the financial statements at December 31, 2009 for the foregoing represent estimates made by the Company based upon current information and are subject to change as facts and circumstances change and develop.

On January 12, 2010, an earthquake occurred in the country of Haiti. The Company has a contract with a general agency in Port-au-Prince to sell its life and annuity products to the citizens of Haiti. As of the date of this report on Form 10-K, the Company has received claims for death benefit proceeds of less than $2.5 million after reinsurance. While further claims for benefits may be reported, it is not anticipated that such amounts will be significant.

On February 27, 2010, an earthquake occurred in the country of Chile along with multiple after shock tremblers. The Company accepts applications from and issues policies to residents of Chile and has approximately $1.0 billion of life insurance in force with residents of the country. While the series of earthquakes may result in an incidence of reported death claims and other policy related expense, the Company’s initial analysis of its exposure indicates that such amounts are not expected to be significant.

126

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES SCHEDULE I SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 2009 (In thousands)

		(1)	Fair		Balance Sheet
Type of Investment	Cost		Value		Amount
Fixed maturity bonds:
Securities held to maturity:
United States government and government
agencies and authorities	$	105,092		107,133		105,092
States, municipalities, and political subdivisions		140,393		141,718		140,393
Foreign governments		9,963		10,755		9,963
Public utilities		625,661		658,109		625,661
Corporate		1,511,565		1,555,016		1,511,565
Mortgage-backed		1,730,319		1,810,715		1,730,319
Asset-backed		53,668		47,631		53,668
Total securities held to maturity		4,176,661		4,331,077		4,176,661

Securities available for sale:
United States government and government
agencies and authorities		-		-		-
States, municipalities, and political subdivisions		20,490		18,971		18,971
Foreign Government		10,358		11,317		11,317
Public utilities		322,653		338,729		338,729
Corporate		1,349,878		1,409,860		1,409,860
Mortgage-backed		233,841		236,984		236,984
Asset-backed		24,192		20,204		20,204
Total securities available for sale		1,961,412		2,036,065		2,036,065
Total fixed maturity bonds		6,138,073		6,367,142		6,212,726

Equity securities:
Securities available for sale:
Common stocks:
Public utilities		980		1,218		1,218
Banks, trust and insurance companies (2)		40		55		55
Corporate		3,017		3,765		3,765
Preferred stocks		1,721		1,819		1,819
Total equity securities		5,758		6,857		6,857

Derivatives		89,915				89,915
Mortgage loans		98,200				98,200
Policy loans		78,336				78,336
Other long-term investments (3)		32,829				32,829
Total investments other than
investments in related parties	$	6,443,111				6,518,863

Notes:

(1) Bonds are shown at amortized cost, mortgage loans are shown at unpaid principal balances before allowances for possible losses, and real estate is stated at cost before allowances for possible losses.

(2) Equity securities with related parties having a cost of $0.2 million and balance sheet amount of $7.2 million have been excluded.

(3) Real estate acquired by foreclosure included in other long-term investments is as follows: cost $2.8 million; balance sheet amount $2.4 million.

See accompanying report of Independent Registered Public Accounting Firm.

127

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)

				(1)
	Balance at		Charged to						Balance at
	Beginning		Costs and						End of
Description	of Period		Expenses		Reductions		Transfers		Period

Valuation accounts deducted
from applicable assets:

Allowance for possible
losses on mortgage loans:

December 31, 2009	$	4,587		446		-		-		5,033

December 31, 2008	$	3,567		1,020		-		-		4,587

December 31, 2007	$	2,100		1,467		-		-		3,567


Allowance for possible
losses on real estate:

December 31, 2009	$	-		-		-		-		-

December 31, 2008	$	-		-		-		-		-

December 31, 2007	$	-		-		-		-		-

Notes:

(1) These amounts were recorded to realized (gains) losses on investments.

See accompanying report of Independent Registered Public Accounting Firm.

128

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: October 22, 2010		/S/Robert L. Moody
		By: Robert L. Moody, Chairman of the Board and
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title (Capacity)	Date


/S/Robert L. Moody	Chairman of the Board and	October 22, 2010
Robert L. Moody	Chief Executive Officer, and Director
	(Principal Executive Officer)

/S/ Ross R. Moody	President and Chief Operating Officer, and Director	October 22, 2010
Ross R. Moody

/S/ Brian M. Pribyl	Senior Vice President - Chief Financial	October 22, 2010
Brian M. Pribyl	Officer, and Treasurer
	(Principal Financial Officer)

/S/Thomas F. Kopetic	Vice President, Controller & Assistant Treasurer	October 22, 2010
Thomas F. Kopetic	(Principal Accounting Officer)

/S/Stephen E. Glasgow	Director	October 22, 2010
Stephen E. Glasgow

/S/E. Douglas McLeod	Director	October 22, 2010
E. Douglas McLeod

/S/Charles D. Milos	Director	October 22, 2010
Charles D. Milos

/S/Frances A. Moody-Dahlberg	Director	October 22, 2010
Frances A. Moody-Dahlberg

/S/Russell S. Moody	Director	October 22, 2010
Russell S. Moody

/S/Louis E. Pauls, Jr.	Director	October 22, 2010
Louis E. Pauls, Jr.

/S/E.J. Pederson	Director	October 22, 2010
E.J. Pederson

129

EX-10.CP 2 exhibit10cp.htm NATIONAL WESTERN LIFE INS. CO. EXHIBIT 10(CP) exhibit10cp.htm

EXHIBIT 10(cp)

MANAGEMENT/CONSULTANT AGREEMENT

This Management/Consultant Agreement (“Agreement”) is made by and between Regent Management Services, Limited Partnership (“Manager”), a Nevada Limited Partnership, and Regent Care Operations, Limited Partnership, a Nevada Limited Partnership (“Facility”). This Agreement is entered into as of March 29, 2000.

W I T N E S S E T H

WHEREAS, Facility will be a duly licensed and operating skilled nursing facility under Nevada law; and

WHEREAS, Manager has demonstrated capability in providing management and consulting services, and specifically, services related to operations, financial, accounts receivable, accounts payable, payroll, bookkeeping, billing and cost report preparation and filing, and related areas, and analysis of operations, development of business plans, providing plans of correction to regulatory compliance issues, implementation of continuous quality improvement programs, management training, and automation reporting relating to skilled nursing facilities; and

WHEREAS, Facility desires to retain Manager by this Agreement to assist in managing Facility;

NOW, THEREFORE; in consideration of the premises and the mutual covenants contained herein, the parties do hereby agree as follows:

Page 1 of 28

ARTICLE I.

COVENANTS OF MANAGER

1.1 General Purpose.

During the term of this Agreement, Manager shall have authority and responsibility to manage and operate the Facility and Manager hereby accepts such responsibility on the terms and conditions, hereinafter set forth.

1.2 Financial Functions.

Day-to-day management of the Facility by Manager shall include, without limitation, the financial functions set forth below:

1.2-1 Prepare an annual budget in accordance with Facility’s established budgeting policy and submit same to Facility for review and approval prior to the commencement of each fiscal year. The Budget will present income and expense projections on a monthly and an annual basis. There will be separate line items to cover anticipated capital expenditures. Manager will be charged with the operation of the Facility in accordance with this Budget. Manager will meet with Facility as necessary and appropriate or as requested by Facility to update Facility on the economic and operational status of the Facility,

1.2-2 Establish financial controls and monitor Facility expenses in comparison to budget;

1.2-3 Assist Facility personnel as necessary with the establishment and maintenance of accounting, billing and collection procedures and records;

Page 2 of 28

1.2-4 Assist Facility to prepare on a timely basis all cost and other reports required by Medicare, Medicaid and other third party payors in connection with the operation of the Facility and review such reports and make recommendations to Facility personnel, where appropriate;

1.2-5 Assist Facility in billing and collecting, in the name of and for the account of Facility, all charges generated by Facility patients.

1.3 Necessary Acts.

Manager shall perform all such acts and things to be done in and about Facility, which shall be necessary to comply with all applicable statutes, ordinances, laws, rules, regulations, orders, and requirements of any federal, state or municipal government and appropriate departments, commissions, boards and officers having jurisdiction respecting the use or manner of use of the Facility or the maintenance or operation thereof.

Notwithstanding the foregoing, such actions shall not be taken without the written approval of Facility unless it is provided for in the current Budget or it either involves an emergency, or the failure to promptly comply with any order or violation and shall result in the suspension of operations of the Facility or shall expose any party hereto to the imminent danger of criminal or civil liability; then, in such event, Manager shall cause the same to be done and/or complied with provided further, however, that notice to the Facility of such act shall be given within 24 hours of such event.

Page 3 of 28

1.4 Operational Duties of Manager.

Manager shall, in the name of Facility, hire, promote, discharge and supervise the work of the staff performing services at the Facility, including but not limited to, resident care, housekeeping, maintenance, reception, clerical, purchasing, food service, admitting, discharge, hiring and promotion. All such employees shall be on the payroll of Facility and Manager shall not be liable to such employees for their wages, compensation or fringe benefits, nor to Facility for any act or omission on the part of such employees unless Manager was negligent in the hiring, discharge or supervision thereof. In the hiring of the operating and service employees of the Facility, Manager will use reasonable care to select qualified, competent, and trustworthy employees. Manager shall comply with all laws pertaining to the hiring and retention of employees, including, but not limited to, laws relating to equal opportunity employment and employee disabilities. Facility is relying upon Manager’s expertise in connection with hiring decisions. Facility shall have the right to approve all supervisory staff personnel whom Manager proposes to hire. Manager shall offer only those employee benefits that are approved by Facility.

1.5 Licenses and Permits.

Manager shall obtain and maintain all licenses and permits required of Facility or Manager in connection with the management and operation of the Facility. Facility agrees to execute and deliver any and all applications and other documents and to cooperate otherwise to the fullest extent with Manager in applying for and obtaining and maintaining such licenses and permits.

Page 4 of 28

1.6 Facility’s Insurance.

Manager shall cause to be placed and kept in force at all times during the term of this Agreement all insurance of the types and in the amounts required by Facility and any creditor of Facility and such other insurance as is normally carried by properties similar in size, type and location as the Facility, including fire and property damage insurance in an amount equal to the replacement cost of the improvements and personal property, wrongful discharge liability coverage, general public liability insurance with limits of liability of not less than One Million Dollars ($1,000,000.00) and professional liability insurance with limits of not less than One Million Dollars ($1,000,000.00 ) per occurrence and a Two Million Dollar ($2,000,000.00) annual aggregate and an umbrella policy in an amount not less th an Two Million Dollars ($2,000,000.00). All such insurance shall be effected by policies issued by companies approved in writing by Facility and Manager shall be added as an additional named insured.

1.7 Manager's Insurance.

Manager shall provide insurance or bonding insuring Facility against loss from defalcations and theft by Manager’s employees in an amount not less than One Hundred Thousand Dollars ($100,000.00). All insurance policies shall require thirty (30) days’ advance cancellation notice to Facility.

Page 5 of 28

1.8 Books, Records and Reports.

During the term of the Agreement, Manager shall cause to be prepared and submitted to

Facility and such other parties as designated by Facility, those books and reports as set forth on Exhibit A attached hereto (the foregoing books, records and reports, as well as those requested by Facility, as hereinafter provided, are collectively referred to as the “Reporting Documents”). In addition thereto, Manager shall furnish, at Facility’s expense, such additional Reporting Documents as required from time to time by Facility pursuant to a written request to Manager. All such Reporting Documents shall be furnished within the time limits set forth on Exhibit A, or as set forth in writing by Facility, and shall be complied and prepared in accordance with the directions of Facility. The parties acknowledge that all costs included in preparation of the Reporti ng Documents, including but not limited to expenses for personnel, computers, equipment and supplies, shall be an expense of Manager. All books and records pertaining to the operation of the Facility shall be the property of Facility. Facility at its option and expense, may require periodic audits or reviews by certified public accountants of its choosing.

1.9 Collection of Rents.

Manager shall comply with all applicable federal and state laws and regulations governing billing and collection of rents, charges, fees and assessments and security deposits, and shall maintain its expertise in all matters relating thereto. All such sums so collected shall be deposited in accounts in banking or financial institutions as forth below.

Page 6 of 28

1.10 Banking and Disbursements.

Manager shall deposit in a banking institution or institutions approved by Facility and in accounts in the name of Facility, all monies furnished by Facility as working funds and all monies received by Manager in connection with the operation of the Facility. Manager shall prepare checks to pay obligations in such amounts and at such time as the same are required to be made in connection with the operation of the Facility and shall provide Facility with supporting documentation as requested for such payments. A designated employee of the Manager shall be responsible for signing and mailing checks in accordance with ordinary policies and procedures as set forth by the Board of Facility. The funds in the foregoing accounts shall be the property of Facility and shall not be commingled with funds of any other person or entity.

1.11 Operating Supplies.

Manager shall purchase all necessary food, beverages, operating supplies, non-prescription drugs, health care products, hygienic products, and other materials and supplies in the name of, for the account of, and at the expense of Facility. Manager shall use reasonable care to purchase all such items in reasonable quantities and at reasonable prices. Manager shall cause all pharmaceutical products of residents or patients to be safely stored and shall comply with all laws concerning controlled substances.

Page 7 of 28

1.12 Equipment.

Manager shall ensure that the Facility has appropriate equipment to properly house, care for and maintain residents, including wheelchairs, beds, non-prescription medical devices and equipment, furniture and other personal property customarily or necessarily used or required in facilities similar to the Facility. Manager shall consult with Facility to ensure that the Facility satisfies all requirements of law and good operating practices.

1.13 Utilities and Services.

Manager shall enter into contracts in the names of and at the expense of Facility for the furnishing to the Facility of electricity, gas, water, steam, telephone, cleaning (including window cleaning), exterminators, elevator and boiler maintenance, air-conditioning maintenance, master television antenna installation and service, television cable service, laundry service, dry cleaning service, and any other utilities, services and concessions as are reasonably necessary in connection with the maintenance and operation of property similar to the Facility.

Page 8 of 28

1.14 Maintenance and Repair.

Manager shall cause the buildings, furniture, fixtures, equipment, appurtenances and grounds of the Facility to be maintained according to standards deemed mutually acceptable to Facility and Manager, including, but not limited to, interior and exterior cleaning, painting, and decorating of the areas, and repair and maintenance of plumbing, steam fitting, HVAC, electrical and other systems within the areas, subject to any limitations imposed by Facility in addition to those contained herein. For any one item of repair or replacement, the expense incurred shall not exceed the sum of one thousand dollars ($1,000.00) unless specifically authorized by Facility, provided, however, that emergency repairs, involving manifest danger to life, health or property, or immediately necessary for the preservation and safety of the Facility, or for the safety of the tenants or occupants, or required to avoid the suspension of any necessary service to the Facility, may be made by Manager irrespective of the cost limitation imposed by this paragraph. Notwithstanding this authority as to emergency repairs, it is understood and agreed that Manager will, if at all possible, confer immediately with Facility regarding such expenditures.

1.15 Emergency Repairs.

Manager shall make any emergency repairs required to preserve the immediate safety of persons or property or that may be necessary to prevent the imminent cessation of the Facility’s operation, provided that notice of the nature and extent of the repairs shall be given to Facility as soon as practical given the circumstances of the emergency, but not later than 24 hours after such emergency.

Page 9 of 28

1.16 Proper Operation of the Facility; Operating Plan.

Manager shall take all other necessary action to operate the Facility at all times in a first class manner given the nature of the Facility and the Budget. Manager shall provide Facility with a written operating plan not less than annually which outlines the Manager’s proposals for operating the Facility, including marketing plans, capital improvement plans, resolution of problems, future services, regulatory matters and other similar matters.

1.17 Qualifications on the Manager’s Duties.

Manager shall supervise the day-to-day operations of the Facility. Manager will be available to consult with Facility on matters of general policy. If any duties and responsibilities to be carried out by Manager involve the expenditure of money or the incurring of obligations or settlement of a claim not in litigation, Manager shall not incur the same unless the expense, obligation or cost is provided for in the then current Budget or with the prior written approval of Facility as provided in paragraph 1.3. Manager shall have no responsibility under this Agreement to take action involving the expenditure of money or the incurring of obligations unless adequate funds therefore are available out of the Facility operations or otherwise are provided by Facility.

1.18 Risk Management.

Manager shall utilize sound risk management policies and practices in connection with the operation of the Facility and shall regularly consult with Facility concerning such matters.

Page 10 of 28

ARTICLE II.

COVENANTS OF FACILITY

2.1 Regulatory Compliance.

Facility represents and warrants that the Facility will be in compliance with all applicable federal, state and local laws, regulations, codes, ordinances and orders, and will maintain its license as a skilled nursing facility under state law and will be certified to participate as a nursing facility under the Medicare and Medicaid programs; and the Facility contains no asbestos or asbestos-containing materials, nor any lead-based paint, PCB’s or any other matter or substance identified or regulated by any state or federal authority as a “Hazardous Substance”.

Page 11 of 28

2.2 Relation Between Facility and Manager.

Consistent with applicable law, the Facility shall retain ultimate legal responsibility for the proper operation of the Facility and shall retain the authority to discharge such responsibility. It is expressly agreed and understood that all reports to third parties and all budgets and recommendations submitted by Manager to Facility shall require annual approval by Facility prior to Manager’s implementation thereof, which shall be on behalf of and for the benefit of and in the name of Facility. The Manager shall render services hereunder as an independent contractor and as the delegatee of the Facility’s management prerogative in accordance with policies and directives from time to time adopted by the Facility. Facility shall make a designated representative of Facility available to manager at all times for purposes of receiving and responding to all requests, reports and recommendations submitted by Manager related to the Facility. All budgets, requests, reports and recommendations not expressly disapproved by Facility within 20 days of Manager’s submittal shall be deemed approved. All third party contracts shall be in Facility’s, not Manager’s, name.

2.3 Facility Funds.

Facility shall provide and make available in a mutually agreeable manner through a checking account of Facility upon which Manager has counter-signatory rights with Facility, sufficient good funds to permit the operation of the Facility in accordance with all budgets and recommendations submitted by Manager and approved by Facility. Facility and Manager agree that they shall not withdraw or authorize withdrawal of any funds from any Facility operating account for any purpose other than payment of operating costs and expenses of the Facility in accordance with a current budget proposed by Manager and approved by Facility.

Page 12 of 28

2.4 Taxes, Insurance and Assessments.

Facility shall be responsible for the payment of all expenses related to the operation of the Facility. Manager, on behalf of Facility, shall be responsible for such payment of expenses on behalf of Facility with Facility funds so as to ensure timely payment. Facility shall pay when due all real and personal property taxes and assessments due and/or accrued against the Facility or any real or personal property related thereto, if applicable, and shall be responsible for protesting all such taxes and related valuations as and when Facility deems necessary. Facility shall also keep and maintain during the term of this Agreement replacement value insurance on all fixtures, improvements and personal property involved in the Facility against loss and damage by reason of flood, windstorm , fire, hail and other physical damage of destruction, including fire and extended coverage and boiler and machinery endorsements, all with waivers of subrogation. Facility shall provide Manager with proof of payment of such taxes and proof of such insurance from time to time upon Manager’s written requests therefor.

2.5 Benefits.

Facility shall, with Manager’s assistance, fully comply with all applicable laws and regulations having to do with social security, unemployment insurance, hours of labor, wages, working conditions, and other employer-employee related subjects in connection with the Facility. Facility represents that it is and will continue to be an equal opportunity employer and will advertise (to the extent Facility elects to advertise) as such. Facility shall be responsible for all liabilities, costs and all employee benefits connected with or related to such employees.

Page 13 of 28

2.6 Relationship with Patients and Payers.

During the term of this Agreement, all patients of the Facility shall remain patients of the Facility with all related obligations, liabilities, and other responsibilities being those of the Facility. All agreements involving patients and / or residents of the Facility shall be between such patient or resident and Facility. Manager shall provide recommended forms for such agreements for approval by the Facility. Facility agrees that Manager may use all such forms to enter into such agreements in the name of and on behalf of Facility, and that Facility shall not modify any such forms after approval of same unless all such modifications are approved in writing by Manager.

2.7 Remodeling, Refurbishing, or Improvement by Facility.

Facility shall provide funds as needed for expenditures to refurbish, alter, rehabilitate, remodel, or otherwise change or improve the Facility, and supervision and expenditures for such work shall be handled in accordance with such arrangements between Manager and Facility as are agreed to between such parties in connection with the specific work of expenditures for refurbishing, remodeling, alteration, or rehabilitation.

2.8 State, Federal, or Local Laws.

Facility shall not take any action, nor fail to take any action, that would prevent or interfere with (A) Manager’s performance of Manager’s obligations under this Agreement, or (B) the operation of the Facility in accordance with Federal, State, or local laws, regulations, or ordinances.

Page 14 of 28

ARTICLE III.

MANAGEMENT FEE

3.1 Management Fee.

As the Management Service Fee, Facility shall pay to Manager during the Term hereof four percent (4%) of the gross adjusted revenue per month generated from operation of the Facility.

3.2 Renewal.

Upon renewal of this Agreement, the Management Service Fee shall be renegotiated accordingly.

Page 15 of 28

3.3 Timing of Payment.

Management Services Fees shall be paid by the fifth (5th) day of each subsequent month, and shall continue to be paid during time permitted to cure any default under this Agreement.

ARTICLE IV.

TERM

4.1 Initial Term.

The Initial Term of this Agreement shall be for a period of one (1) year, commencing March ________, 2000 (“Commencement Date”) and ending subject to other provisions of this Agreement related to earlier termination.

Page 16 of 28

4.2 Renewal Term.

This Agreement shall automatically renew (“Renewal Term”), for consecutive one-year renewal terms on each anniversary of the end of the Initial Term, unless, at least 90 days prior to the end of the Initial Term, in case of non-renewal for cause, or at least 120 days prior to the end of the Initial Term or any Renewal Term if non-renewal is not for cause, is given by either party hereto to the other party hereto of the intent top terminate this Agreement. If the non-renewal is for cause, the notice shall list the reasons for non-renewal and shall allow time to cure any default, perceived or otherwise, as provided in this Article IV, and this Agreement shall renew notwithstanding such notice of non-renewal for cause if the defaults described in such notice have been cured within the time prov ided in said section(s) to the satisfaction of the non-defaulting party.

4.3 Termination.

This Agreement shall terminate in the event the following occurs:

4.3-1 Change in Management Personnel.

If, in the opinion of the Facility’s board of directors, management has substantially changed, Facility reserves the right to terminate this Agreement, provided Facility gives Manager sixty (60) days’ prior written notice. The term “substantially changed” means an event of change in Manager’s chief executive officer, to another individual not previously approved by Facility.

4.3-2 Optional Termination.

In the event either party shall, with or without cause, at any time give to the other at least one hundred twenty (120) days prior written notice, this Agreement shall terminate on the future date specified in such notice.

Page 17 of 28

4.3-3 Termination with Cause.

In the event of any breach or default by either party hereto (“Defaulting Party”) of any such party’s obligations or representations or warranties hereunder, the other party hereto (“Non-Defaulting Party”) shall give the Defaulting Party one hundred twenty (120) days written notice of intent to terminate the Agreement for reason of such default, and the Defaulting Party shall have not less than thirty (30) days, but not to exceed sixty (60) days from the date of receipt of such notice, to cure such breach or default (provided, however, that as to any breach of Facility’s obligations to provide sufficient available funds for Facility operation as provided in this Agreement, a reasonable time shall be deemed to be five (5) business days).

If any such breach or default continues past the sixty (60) day applicable cure period, the Non-Defaulting Party shall have the right to terminate this Agreement upon ten (10) days’ written notice to the Defaulting Party. It is further provided that, if any license materially necessary for the operation of the Facility is revoked or suspended, or if there is any dissolution or termination of the legal existence of Facility, or any bankruptcy, insolvency or assignment for the benefit of creditors of Facility, then Manager shall have the right to terminate this Agreement upon ten (10) days’ written notice to Facility. If this Agreement terminates or is terminated other than for cause, Facility shall pay Manager all compensation earned or accrued and as yet unpaid prior to such termi nation.

Page 18 of 28

ARTICLE V.

ASSIGNABILITY

This Agreement and the rights, interest and benefits hereunder shall not be assigned, transferred, pledged, sold, conveyed or encumbered in any way by either party without the written consent of the other party.

Page 19 of 28

ARTICLE VI.

RIGHT OF FIRST REFUSAL

In the event during the term of this Agreement, Facility receives an offer from a third party to purchase or lease the Facility or any part thereof which the Facility finds acceptable (“Offer”), Facility shall give Manager written notice of such offer, including all terms thereof, and Manager shall have the right to purchase or lease the Facility or portion thereof affected by the offer on the same terms and conditions as in the offer, which right must be exercised, if at all, by Manager’s written notice of such exercise delivered to and received by Facility within thirty (30) days from the date of Facility’s notice to Manager. Such notice shall not be effective to exercise the right if it contains any material term additional to or materially different from those contained in th e offer. If Facility has not received Manager’s written notice of exercise of the right as aforesaid by the close of business on the 30th day after the date of notice of Facility’s notice of offer to Manager, Manager’s rights under this Article VI shall terminate and Facility shall be free to enter into a contract with and sell or lease the Facility or portion thereof to the third party pursuant to the offer. If such sale or lease closes, Facility shall so notify Manager, and Manager shall have the right to terminate this Agreement upon sixty (60) days’ written notice to Facility, but Manager shall otherwise continue under the provisions of this Agreement. If Manager does timely and properly give notice of its exercise of its rights of first refusal, Manager shall continue to be obligated under the provisions of this Agreement until the closing of Manager’s purchase or lease under the terms of this Article VI. Manager shall have the right to record a memorandum of the agreements contained in this Article VI. in the Official Public Records of Real Property of the county in which the Facility is located.

Page 20 of 28

ARTICLE VII.

MISCELLANEOUS

7.1 No Waiver of Rights or Remedies.

No failure or delay by any party hereunder in exercising any right, power or privilege hereunder shall operate as a waiver thereof, and no singular or partial exercise thereof shall preclude any other right, power or privilege.

7.2 Severability.

Should any one or more of the provisions hereof be determined to be illegal or unenforceable, all other provisions hereof shall be given effect separately therefrom and shall not be affected thereby.

7.3 Notices.

All notices, demands, consents, and reports provided for in this Agreement which are required to be in writing shall be given to the parties at the addresses set forth below or at such other address as they individually may specify thereafter in writing:

FOR FACILITY: Regent Care Operations, Limited Partnership

555 Hammill Lane

Reno, NV 89511

with copy to:

Charles D. Milos

2302 Post Office St., Ste. 702

Galveston, TX 77550

Page 21 of 28

FOR MANAGER: Regent Management Services, L.P.

Attn: Jay Ballentine

2302 Post Office Street

Suite 402

Galveston, Texas 77550

With a copy to:

Greer Herz & Adams, L.L.P.

One Moody Plaza, 18th Floor

Galveston, Texas 77550

Attn: Steve Schulz

Such notice or other communication may be mailed by United States registered or certified mail, return receipt requested, postage prepaid and may be deposited in a United States Post Office or a depository for the receipt of mail regularly maintained by the post office. Such notices, demands, consents and reports may also be delivered by hand, or by any other method or means permitted by law.

7.4 Attorney’s Fees.

Each party agrees to pay any other party who shall prevail in final adjudication of any matter hereunder, without demand, all reasonable attorney’s fees, costs and expenses incurred by such party in enforcing any provisions of this Agreement.

Page 22 of 28

7.5 Choice of Law.

It is the intention of the parties that the laws of Nevada should govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of its parties.

7.6 Counterparts.

This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement and shall become effective when one or more counterparts have been signed by each of the parties.

7.7 Entire Agreement.

The foregoing constitutes the entire Agreement. No other agreements, written or verbal exist other than this Agreement which both parties have set their hand to herein.

7.8 Modification.

There shall be no modification of this Agreement unless said modification is done in writing and delivered by notice as described in Section 7.3 above.

Page 23 of 28

7.9 Indemnification.

EACH PARTY HERETO HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE OTHER PARTY HERETO AND THE INDEMNIFIED PARTY’S RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES AND AFFILIATES FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LIABILITIES, INJURIES, LOSSES, SUITS, ACTIONS, CAUSES OF ACTION, JUDGMENTS, PENALTIES, FINES, LEVIES, FEES, COSTS, AND EXPENSES INCLUDING, BUT NOT LIMITED TO, COURT COSTS AND ATTORNEYS FEES (WHETHER OR NOT LITIGATION IS COMMENCED) (COLLECTIVELY “CLAIMS”) OF WHATEVER NATURE OR TYPE THAT SUCH INDEMNIFIED PARTY OR PARTIES MAY HEREAFTER SUFFER, INCUR OR REASONABLY PAY OUT BY REASON OF ANY INJURY (INCLUDING DEATH OR DAMAGE TO PERSONS O R PROPERTY SUSTAINED) OR PURPORTED TO HAVE BEEN SUSTAINED BY ANY PERSON OR THING AS A RESULT OF ANY NEGLIGENT OR INTENTIONAL ACT OR OMISSION OF THE INDEMNIFYING PARTY, ITS EMPLOYEES, AGENTS, REPRESENTATIVES, INDEPENDENT CONTRACTORS, LABORERS, MATERIALMEN AND SUPPLIERS IN CONNECTION WITH SUCH PARTY’S OBLIGATIONS UNDER THIS AGREEMENT; OR BY REASON OF ANY BREACH OR DEFAULT OF THE INDEMNIFYING PARTY IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT.

The provisions of this Section 7.9 shall survive the termination or expiration of the Agreement.

Page 24 of 28

7.10 Non-discrimination.

Neither party to this Agreement will discriminate on the basis of race, color, sex, religion, national origin, or handicap in the performance of this Agreement.

7.11 Status as Independent Contractor.

Facility acknowledges and agrees that they each shall perform their respective obligations under this Agreement as Independent Contractors.

7.12 Confidentiality.

Facility acknowledges and agrees that the systems, methods, procedures, written materials and controls employed by Manager in the performance of this Agreement (i) are confidential and proprietary in nature, (ii) shall always remain the property of Manager, and (iii) shall not at any time in the future be disclosed to any third parties or utilized, distributed, copied or otherwise used by Facility or its employees or its agents in any manner whatsoever without the express written consent of Manager specifically, President of Manager. Neither party shall at any time or in any manner, without the express written consent of the other party or as required by applicable laws or regulations, directly or indirectly, disclose, divulge or communicate to any person not in its employ or any entity not controlled b y or in control of it, any information concerning any matter which is set forth in this Agreement.

Page 25 of 28

7.13 Employment of Related Personnel.

During the term of this Agreement and for one year commencing with the date of expiration or termination of this Agreement, neither party shall directly or indirectly solicit, recruit, or otherwise employ any employee, of the other party hereto. Remedies for breach of this covenant shall include damages, specific performance and injunctive relief.

7.14 No Violation.

Neither party shall be deemed to be in violation of this Agreement if such party was prevented from performing its duties or obligations under this Agreement by reason(s) beyond such party’s control, including but not limited to: flood, storm, terrorism, strikes, acts of God, or the public enemy, or statute, ordinance, regulation, rule or action of any applicable governmental entity.

7.15 Non-Competition.

Facility understands and agrees that Manager is in the business of offering and performing, and in fact does now and intends to continue to offer to and perform for third parties in business similar to that of Facility, services such as those provided to Facility pursuant to this Agreement, and that Manager shall have full rights to continue to so do, except solely to the extent expressly provided in this Section 7.15. During the term of this Agreement, Manager shall not manage any existing nursing home facility for any third party nor operate any new nursing home if any such nursing home facility is of such a nature operationally as to constitute direct competition with the Facility, and is located within five (5) miles of the Facility.

Page 26 of 28

7.16 Continuous Use of Facility.

Facility shall perform or cause the performance of all obligations under all leases, mortgages and other instruments affecting Facility’s rights to use and occupy the property comprising the Facility. Any breach under any such instrument, or any restriction, denial or challenge by any third party of Facility’s use or occupancy of the facility as a nursing home shall be an event of default hereunder; whereupon Manager shall have the right to terminate this Agreement upon written notice to Facility.

In Witness whereof, the Parties have caused this Agreement to be executed on their respective Corporate Names and by their respective representatives thereon to be duly authorized, as of March 29, 2000.

FACILITY

Regent Care Operations, Limited Partnership

By the undersigned, its sole General Partner:

Regent Care Operations General Partner, Inc.,

a Nevada Corporation.

By:/S/Robert L. Busby III

Name: Robert L. Busby III

Title: President

MANAGER

Regent Management Services, Limited Partnership

By the undersigned, its sole General Partner:

RCC Management Services, Inc.,

a Nevada Corporation.

By: /S/ Jay W. Balentine

Name: Jay W. Balentine

Title: President

Page 27 of 28

EXHIBIT A

REPORT COMPONENTS

Set forth below is a list of the Reports to be provided to Facility.

1. Monthly statement of income and expenses, with a comparison to budget, for both the month and the year-to-date on accrual basis only;

2. Monthly detailed listing of all cash disbursements in check number order and bank reconciliations;

3. Monthly general ledger listing cash receipts and disbursements in account number order;

4. Monthly statement of changes in financial condition;

5. Monthly trial balance;

6. Monthly analysis of significant variances from budget;

7. Monthly balance sheet;

8. Annual inventory of supplies;

9. Annual inventory of furniture, fixtures, equipment and other tangible personal property;

10. Monthly report on number of patients and bed occupancies and vacancies;

11. Monthly report on number of employees, new hires and terminations;

12. Monthly report on any unusual or out-of-the-ordinary events or circumstances occurring at Facility; and

13. Certain other management reports reasonably requested by Facility from time to time.

Monthly reports shall be delivered to Facility by the twentieth (20th) day of next succeeding month. Quarterly reports shall be delivered to Facility by the twentieth (20th) day after each calendar quarter. Annual reports shall be delivered to Facility by the thirtieth (30th) day after the end of each calendar year.

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EX-10.CQ 3 exhibit10cq.htm NATIONAL WESTREN LIFE INS. CO. EXHIBIT 10(CQ) exhibit10cq.htm

EXHIBIT 10(cq)

MANAGEMENT AGREEMENT

This Management Agreement (“Agreement”) is made by and between Regent Management Services, Limited Partnership (“Manager”), a Nevada Limited Partnership, and Regent Care San Marcos B-3, Limited Partnership, a Nevada Limited Partnership (“Facility”). This Agreement is entered into effective as of the 1st day of October, 2008.

W I T N E S S E T H

WHEREAS, Facility is the operator of a duly licensed and operating skilled nursing facility under Texas law; and

WHEREAS, Manager has demonstrated capability in providing management services, and specifically, services related to administrative, financial, accounts receivable, accounts payable, payroll, bookkeeping, billing and cost report preparation and filing, and related areas, and analysis of operations, development of business plans, providing plans of correction to regulatory compliance issues, implementation of continuous quality improvement programs, management training, and automation reporting; and

WHEREAS, Facility desires to retain Manager by this Agreement to assist in managing Facility;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties do hereby agree as follows:

Page 1 of 24

ARTICLE I.

COVENANTS OF MANAGER

1.1 General Purpose.

1.2 Financial Functions.

Day-to-day management of the Facility by Manager shall include, without limitation, the financial functions set forth below:

1.2-2 Establish financial controls and monitor Facility expenses in comparison to budget;

1.2-3 Assist Facility personnel as necessary with the establishment and maintenance of accounting, billing and collection procedures, and records;

Page 2 of 24

1.2-4 Assist Facility to prepare on a timely basis all cost and other reports required by Medicare, Medicaid, and other third party payors in connection with the operation of the Facility and review such reports and make recommendations to Facility personnel, where appropriate;

1.2-5 Assist Facility in billing and collecting, in the name of and for the account of Facility, all charges generated by Facility patients.

1.3 Necessary Acts.

Manager shall perform all such acts and things to be done in and about Facility, which shall be necessary to comply with all applicable statutes, ordinances, laws, rules, regulations, orders, and requirements of any federal, state, or municipal government and appropriate departments, commissions, boards, and officers having jurisdiction respecting the use or manner of use of the Facility or the maintenance or operation thereof.

Notwithstanding the foregoing, such actions shall not be taken without the written approval of Facility unless it is provided for in the current Budget or it either involves an emergency, or the failure to promptly comply with any order or violation and shall result in the suspension of operations of the Facility or shall expose any party hereto to the imminent danger of criminal or civil liability; then, in such event, Manager shall cause the same to be done and / or complied with provided further, however, that notice to the Facility of such act shall be given as soon as possible.

Page 3 of 24

1.4 Administrative Duties of Manager.

Manager shall, in the name of Facility, hire, promote, discharge, and supervise the work of the staff performing services at the Facility, including but not limited to, resident care, housekeeping, maintenance, reception, clerical, purchasing, food service, admitting, discharge, hiring, and promotion. All such employees shall be on the payroll of Facility and Manager shall not be liable to such employees for their wages, compensation, health insurance, or fringe benefits, nor to Facility for any act or omission on the part of such employees unless Manager was negligent in their hiring, discharge, or supervision thereof. In the hiring of the operating and service employees of the Facility, Manager will use reasonable care to select qualified, competent, and trustworthy employees. Manager shall comply with all laws pertaining to the hiring and retention of employees, including, but not limited to, laws relating to equal opportunity employment and employee disabilities. Facility is relying upon Manager’s expertise in connection with hiring decisions. Facility shall have the right to approve all supervisory staff personnel whom Manager proposes to hire. Manager shall offer only those employee benefits that are approved by Facility.

1.5 Licenses and Permits.

Page 4 of 24

1.6 Facility’s Insurance.

Manager shall cause to be placed and kept in force at all times during the term of this Agreement all insurance of the types and in the amounts required by Facility and any creditor of Facility and such other insurance as is normally carried by properties similar in size, type and location as the Facility, including fire and property damage insurance in an amount equal to the replacement cost of the improvements and personal property, wrongful discharge liability coverage, general public liability insurance with limits of liability of not less than One Hundred Thousand Dollars ($100,000.00) and professional liability insurance with limits of not less than One Hundred Thousand Dollars ($100,000.00). All such insurance shall be effected by policies issued by companies approved in writing by Facility and M anager shall be added as an additional named insured.

1.7 Manager's Insurance.

Page 5 of 24

1.8 Books, Records and Reports.

During the term of the Agreement, Manager shall cause to be prepared and submitted to Facility and such other parties as designated by Facility, those books and reports as set forth on Exhibit A attached hereto (the foregoing books, records, and reports, as well as those requested by Facility, as hereinafter provided, are collectively referred to as the “Reporting Documents”). In addition thereto, Manager shall furnish, at Facility’s expense, such additional Reporting Documents as required from time to time by Facility pursuant to a written request to Manager. All such Reporting Documents shall be furnished within the time frames set forth on Exhibit A, or as set forth in writing by Facility, and shall be complied and prepared in accordance with the directions of Facility.&# 160; The parties acknowledge that all costs included in preparation of the Reporting Documents, including but not limited to expenses for personnel, computers, equipment, and supplies, shall be an expense of Manager. All books and records pertaining to the operation of the Facility shall be the property of Facility. Facility at its option and expense, may require periodic audits or reviews by certified public accountants of its choosing.

1.9 Collection of Rents.

Manager shall comply with all applicable federal and state laws and regulations governing billing and collection of rents, charges, fees and assessments, and security deposits, and shall maintain its expertise in all matters relating thereto. All such sums so collected shall be deposited in accounts in banking or financial institutions as forth below.

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1.10 Banking and Disbursements.

Manager shall deposit in a banking institution or institutions approved by Facility and in accounts in the name of Facility, all monies furnished by Facility as working funds and all monies received by Manager in connection with the operation of the Facility. Manager shall prepare checks to pay obligations in such amounts and at such time as the same are required to be made in connection with the operation of the Facility and shall provide Facility with supporting documentation as requested for such payments. A designated employee of the Manager shall be responsible for signing and mailing checks in accordance with ordinary policies and procedures as set forth by the Board of Facility. The funds in the foregoing accounts shall be the property of the Facility and shall not be commin gled with funds of any other person or entity.

1.11 Operating Supplies.

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1.12 Equipment.

Manager shall ensure that the Facility has appropriate equipment to properly house, care for, and maintain residents, including wheelchairs, beds, non-prescription medical devices, and equipment, furniture, and other personal property customarily or necessarily used or required in facilities similar to the Facility. Manager shall consult with Facility to ensure that the Facility satisfies all requirements of law and good operating practices.

1.13 Utilities and Services.

Manager shall enter into contracts in the names of and at the expense of Facility for the furnishing to the Facility of electricity, gas, water, steam, telephone, cleaning (including window cleaning), exterminators, elevator and boiler maintenance, air-conditioning maintenance, master television antennae installation and service, television cable service, laundry service, dry cleaning service, and any other utilities, services, and concessions as are reasonably necessary in connection with the maintenance and operation of property similar to the Facility.

Page 8 of 24

1.14 Maintenance and Repair.

Manager shall cause the buildings, furniture, fixtures, equipment, appurtenances, and grounds of the Facility to be maintained according to the standards deemed mutually acceptable to Facility and Manager, including, but not limited to, interior and exterior cleaning, painting, and decorating of the areas, and repair and maintenance of plumbing, steam fitting, HVAC, electrical, and other systems within the areas, subject to any limitations imposed by Facility in addition to those contained herein. For any one item of repair or replacement, the expense incurred shall not exceed the sum of five thousand dollars ($5,000.00) unless specifically authorized by Facility, provided, however, that emergency repairs, involving manifest danger to life, health, or property, or immediately necessary for the preservation and saf ety of the Facility, or for the safety of the tenants or occupants, or required to avoid the suspension of any necessary service to the Facility, may be made by Manager irrespective of the cost limitation imposed by this paragraph. Notwithstanding this authority as to emergency repairs, it is understood and agreed that Manager will, if at all possible, confer immediately with Facility regarding such expenditures.

1.15 Emergency Repairs.

Manager shall make any emergency repairs required to preserve the immediate safety of persons or property or that may be necessary to prevent the imminent cessation of the Facility’s operation provided that notice of the nature and extent of the repairs shall be given to Facility as soon as practical given the circumstances of the emergency.

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1.16 Proper Operation of the Facility; Operating Plan.

1.17 Qualifications on the Manager’s Duties.

Manager shall supervise the day-to-day operations of the Facility. Manager will be available to consult with Facility on matters of general policy. If any duties and responsibilities to be carried out by Manager involve the expenditure of money or the incurring of obligations or settlement of a claim not in litigation, Manager shall not incur the same unless the expense, obligation, or cost is provided for in the then current Budget or with the prior written approval as provided in paragraph 1.3. Manager shall have no responsibility under this Agreement to take action involving the expenditure of money or the incurring of obligations unless adequate funds therefore are available out of the Facility operations or otherwise are provided by Facility.

1.18 Risk Management.

Manager shall utilize sound risk management policies and practices in connection with the operation of the Facility and shall regularly consult with Facility concerning such matters.

Page 10 of 24

ARTICLE II.

COVENANTS OF FACILITY

2.1 Regulatory Compliance.

Facility represents and warrants that, as of the commencement of the Term of this Agreement, the Facility is in compliance with all applicable federal, state, and local laws, regulations, codes, ordinances, and orders, and has maintained its license as a skilled nursing facility under state law and is certified to participate as a nursing facility under the Medicare and Medicaid programs; and the Facility contains no asbestos or asbestos containing materials, nor any lead based paint, PCB’s or any other matter or substance identified or regulated by any state or federal authority as a “Hazardous Substance”.

Page 11 of 24

2.2 Relation Between Facility and Manager.

Consistent with applicable law, the Facility shall retain ultimate legal responsibility for the proper operation of the Facility and shall retain the authority to discharge such responsibility. It is expressly agreed and understood that all reports to third parties and all budgets and recommendations submitted by Manager to Facility shall require annual approval prior to Manager’s implementation thereof, which shall be on behalf of and for the benefit of and in the name of Facility. The Manager shall render services hereunder as an independent contractor and as the delegate of the Facility’s management prerogative in accordance with policies and directives from time to time adopted by the Facility. Facility shall make a designated representative of Facility available to manager at all times for purposes of receiving and responding to all requests, reports, and recommendations submitted by Manager related to the Facility. All budgets, requests, reports, and recommendations not expressly disapproved by Facility within 20 days of Manager’s submittal shall be deemed approved. All third party contracts shall be in Facility’s, not Manager’s, name.

2.3 Facility Funds.

Facility shall provide and make available in a mutually agreeable manner through a checking account of Facility upon which Manager has signatory rights, sufficient good funds to permit the operation of the Facility in accordance with all budgets and recommendations submitted by Manager and approved by Facility. Facility agrees that it shall not withdraw or authorize withdrawal of any funds from any Facility operating account for any purpose other than payment of operating costs and expenses of the Facility in accordance with a current budget proposed by Manager and approved by Facility.

Page 12 of 24

2.4 Taxes and Assessments.

2.5 Benefits.

Facility shall, with Manager’s assistance, fully comply with all applicable laws and regulations having to do with social security, unemployment insurance, hours of labor, wages, working conditions, and other employer-employee related subjects in connection with the Facility. Facility represents that it is and will continue to be an equal opportunity employer and will advertise (to the extent Facility elects to advertise) as such. Facility shall be responsible for all liabilities, costs, and all employee benefits connected with or related to such employees.

Page 13 of 24

2.6 Relationship with Patients and Payers.

2.7 Remodeling, Refurbishing, or Improvement by Facility.

2.8 State, Federal, or Local Laws.

Page 14 of 24

ARTICLE III.

MANAGEMENT FEE

3.1 Management Fee.

As the Management Service Fee, Facility shall pay to Manager during the Term hereof four percent (4%) of the gross adjusted revenue per month generated from operation of the Facility.

3.2 Renewal.

Upon renewal of this Agreement, the Management Service Fee shall be renegotiated accordingly.

3.3 Timing of Payment.

Management Services Fees shall be paid one month in advance on the first day of each month, and shall continue to be paid during time permitted to cure any default under this Agreement.

ARTICLE IV.

TERM

4.1 Term.

The Term of this Agreement shall be for a period of twelve (12) months, commencing on October 1, 2008 (“Commencement Date”) and ending September 30, 2009.

4.2 Termination.

This Agreement shall terminate in the event the following occurs:

4.2-1 Optional Termination.

Page 15 of 24

4.2-2 Termination with Cause.

In the event of any breach or default by either party hereto (“Defaulting Party”) of any such party’s obligations or representations or warranties hereunder, the other party hereto (“Non-Defaulting Party”) shall give the Defaulting Party thirty (30) days written notice of intent to terminate the Agreement for reason of such default, and the Defaulting Party shall have such thirty (30) day period to cure such breach or default (provided, however, that as to any breach of Facility’s obligations to provide sufficient available funds for Facility operation as provided in this Agreement, a reasonable time shall be deemed to be three (3) business days).

If any such breach or default continues past such thirty (30) day cure period, the Agreement shall terminate. It is further provided that, if any license materially necessary for the operation of the Facility is revoked or suspended, or if there is any dissolution or termination of the legal existence of Facility, or any bankruptcy, insolvency, or assignment for the benefit of creditors of Facility, then Manager shall have the right to terminate this Agreement upon ten (10) days written notice to Facility. If this Agreement terminates or is terminated, Facility shall pay Manager all compensation earned or accrued and as yet unpaid prior to such termination.

ARTICLE V.

ASSIGNABILITY

This Agreement and the rights, interest, and benefits hereunder shall not be assigned, transferred, pledged, sold, conveyed, or encumbered in any way by either party without the written consent of the other party.

Page 16 of 24

ARTICLE VI.

RIGHT OF FIRST REFUSAL

In the event during the term of this Agreement, Facility receives an offer from a third party to purchase or lease the Facility or any part thereof which the Facility finds acceptable (“Offer”), Facility shall give Manager written notice of such offer, including all terms thereof, and Manager, or any entity affiliated with Manager, shall have the right to purchase or lease the Facility or portion thereof affected by the Offer on the same terms and conditions as in the offer, which right must be exercised, if at all, by Manager’s written notice of such exercise delivered to and received by Facility within forty-five (45) days from the date of Facility’s notice to Manager. Such notice shall not be effective to exercise the right if it contains any material term additional to or mat erially different from those contained in the Offer. If Facility has not received Manager’s written notice of exercise of the right as aforesaid by the close of business on the 45th day after the date of notice of the Offer to Manager, Manager’s rights under this Article VI shall terminate and Facility shall be free to enter into a contract with and sell or lease the Facility or portion thereof to the third party pursuant to the Offer, and if such sale or lease closes, Facility shall so notify Manager, and Manager shall have the right to terminate this Agreement upon sixty (60) days written notice to Facility, but Manager shall otherwise continue under the provisions of this Agreement. If Manager does timely and properly give notice of its exercise of its rights of first refusal, Manager shall continue to be obligated under the provisions of this Agreement until the closing of Manager’s purc hase or lease under the terms of this Article VI. Manager shall have the right to record a memorandum of the agreements contained in this Article VI. in the Official Public Records of Real Property of the county in which the Facility is located.

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ARTICLE VII.

MISCELLANEOUS

7.1 No Waiver of Rights or Remedies.

7.2 Severability.

Should any one or more of the provisions hereof be determined to be illegal or unenforceable, all other provisions hereof shall be given effect separately there from and shall not be affected thereby.

7.3 Notices.

FOR FACILITY: Regent Care San Marcos B-3, Limited Partnership

C/o Brian M. Pribyl

850 East Anderson Lane

Austin, Texas 78752

FOR MANAGER: Regent Management Services, Limited Partnership

Mr. Charles D. Milos

2302 Postoffice Street, Suite 402

Galveston, Texas 77550

Page 18 of 24

Such notice or other communication may be mailed by United States registered or certified mail, return receipt requested, postage prepaid and may be deposited in a United States Post Office or a depository for the receipt of mail regularly maintained by the post office. Such notices, demands, consents, and reports may also be delivered by hand, or by any other method or means permitted by law.

7.4 Attorney’s Fees.

Each party agrees to pay any other party who shall prevail in final adjudication of any matter hereunder, without demand, all reasonable attorney’s fees, costs, and expenses incurred by such party in enforcing any provisions of this Agreement.

7.5 Choice of Law.

It is the intention of the parties that the laws of Texas should govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of its parties.

7.6 Counterparts.

7.7 Entire Agreement.

The foregoing constitutes the entire Agreement. No other agreements, written or verbal exist other than this Agreement which both parties have set their hand to herein.

7.8 Modification.

There shall be no modification of this Agreement unless said modification is evidenced in writing and signed by both parties.

Page 19 of 24

7.9 Indemnification.

EACH PARTY HERETO HEREBY AGREES TO INDEMNIFY, DEFEND, AND HOLD HARMLESS THE OTHER PARTY HERETO AND THE INDEMNIFIED PARTY’S RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, AND AFFILIATES FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LIABILITIES, INJURIES, LOSSES, SUITS, ACTIONS, CAUSES OF ACTION, JUDGMENTS, PENALTIES, FINES, LEVIES, FEES, COSTS, AND EXPENSES INCLUDING, BUT NOT LIMITED TO, COURT COSTS, COSTS OF ALTERNATIVE DISPUTE RESOLUTION, ATTORNEYS FEES (WHETHER OR NOT LITIGATION IS COMMENCED) (COLLECTIVELY “CLAIMS”) OF WHATEVER NATURE OR TYPE THAT SUCH INDEMNIFIED PARTY OR PARTIES MAY HEREAFTER SUFFER, INCUR, OR REASONABLY PAY OUT BY REASON OF ANY INJURY (INCLUDING DEATH OR DAMAGE TO PERSONS OR PROPERTY SUSTAINED) OR PURPORTED TO HAVE BEEN SUSTAINED BY ANY PERSON OR THING A S A RESULT OF ANY NEGLIGENT OR INTENTIONAL ACT OR OMISSION OF THE INDEMNIFYING PARTY, ITS EMPLOYEES, AGENTS, REPRESENTATIVES, INDEPENDENT CONTRACTORS, LABORERS, MATERIALMEN, AND SUPPLIERS IN CONNECTION WITH SUCH PARTY’S OBLIGATIONS UNDER THIS AGREEMENT; OR BY REASON OF ANY BREACH OR DEFAULT OF THE INDEMNIFYING PARTY IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT.

The provisions of this Section 7.9 shall survive the termination or expiration of the Agreement.

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7.10 Non-discrimination.

Neither party to this Agreement will discriminate on the basis of race, color, sex, religion, national origin, or handicap in the performance of this Agreement.

7.11 Confidentiality.

Facility acknowledges and agrees that the systems, methods, procedures, written materials, and controls employed by Manager in the performance of this Agreement (i) are confidential and proprietary in nature, (ii) shall always remain the property of Manager, and (iii) shall not at any time in the future be disclosed to any third parties or utilized, distributed, copied, or otherwise used by Facility or its employees or its agents in any manner whatsoever without the express written consent of Manager, specifically, President of Manager. Neither party shall at any time or in any manner, without the express written consent of the other party or as required by applicable laws or regulations, directly or indirectly, disclose, divulge, or communicate to any person not in its employ or any entity not controll ed by or in control of it, any information concerning any matter which is set forth in this Agreement.

7.12 Employment of Related Personnel.

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7.13 No Violation.

7.14 Non-Competition.

7.15 Continuous Use of Facility.

Facility shall perform or cause the performance of all obligations under all leases, mortgages, and other instruments affecting Facility’s rights to use and occupy the property comprising the Facility. Any breach under any such instrument, or any restriction, denial, or challenge by any third party of Manager’s use or occupancy of the Facility as a nursing home shall be an event of default hereunder; whereupon Manager shall have the right to terminate this Agreement upon written notice to Facility.

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	“FACILITY”

	Regent Care San Marcos B-3, Limited Partnership

	By: Regent Care San Marcos B-1, LLC., General Partner

	By:/S/Brian M. Pribyl
	Brian M. Pribyl, Manager

	“MANAGER”

	Regent Management Services, Limited Partnership

	By: RCC Management Services, Inc., General Partner

	By:/S/ Charles D. Milos
	Charles D. Milos, President

Page 23 of 24

EXHIBIT A

REPORT COMPONENTS

Set forth below is a list of the Reports to be provided to Facility.

1. Monthly statement of income and expenses, with a comparison to budget, for both the month and the year-to-date on accrual basis only;

2. Monthly trial balance;

3. Monthly analysis of significant variances from budget;

4. Monthly balance sheet;

5. Certain other management reports reasonably requested by Facility from time to time.

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EX-10.CR 4 exhibit10cr.htm NATIONAL WESTREN LIFE INS. CO. EXHIBIT 10(CR) exhibit10cr.htm

EXHIBIT 10(cr)

AMERICAN NATIONAL INSURANCE COMPANY

ADMINISTRATIVE SERVICES ONLY AGREEMENT (ASO)

THIS AGREEMENT IS SUBJECT TO ARBITRATION

CONTRACT NUMBER:	INSURER:

ASOGH0001	National Western Life Ins. Company


EFFECTIVE DATE:	ADDRESS OF INSURER:
January 1, 2001	850 East Anderson Lane
	Austin, TX 78752-1602


EXPIRATION DATE:	ADDRESS OF AMERICAN NATIONAL:

N/A	ONE MOODY PLAZA
	GALVESTON, TX 77550

THIS AGREEMENT, effective January 1, 2001, is made and entered into by and between AMERICAN NATIONAL INSURANCE COMPANY (ASO Provider) and NATIONAL WESTERN LIFE INSURANCE CO. (“Insurer”) having its offices at 850 East Anderson Lane, Austin, TX 78752-1602.

PREMISES

WHEREAS, the Insurer has an Insurance Plan that is does not wish to service on its own; and

WHEREAS, the ASO Provider is in the business of providing administrative services in conjunction with such Plans, and the Insurer desires to engage the ASO Provider to perform the services enumerated herein below:

NOW THEREFORE, in consideration of the premises and of the mutual promises and convenants contained herein, the parties agree as follows:

Page 1

TABLE OF CONTENTS

PLAN

1.1 Plan Document

1.2 Interpretation of Plan

II.	SCOPE OF RELATIONSHIP

2.1 Agency

2.2 Fiduciary

2.3 Communications

2.4 Parties

III.

DUTIES OF ASO PROVIDER

3.1 Documentation

3.2 Claims Services

3.2.1 Practices and Procedures

3.2.2 Services

3.2.3 Recovery of Payments

3.3 Records and Files

3.4 Reports

3.5 Duty of Care

IV.	DUTIES OF INSURER

4.1 Account

4.1.1 Draft Authority on the Account

4.2 Service Fee

4.2.1 Change of Administrative Service Fee

4.3 Taxes and Other Assessments

4.4 Census

4.5 Liability for Benefits

4.6 Indemnification

V.	GENERAL PROVISIONS

5.1 Entire Contract

5.2 Applicable Law

5.3 Assignment

5.4 Arbitration

VI.	TERM OF AGREEMENT

6.1 Term

6.2 Termination

6.2.1 By Notice

6.2.2 By Default

6.2.3 By Law

6.3 Effect of Termination

Page 2

I. PLAN

1.1	PLAN DOCUMENT NO. GH0001. All services to be provided by the ASO Provider hereunder shall be performed pursuant to the provisions of the Plan Document, as amended. A copy of the Plan Document and any amendments thereto shall be deemed to form part of this agreement for such purpose.

1.2	INTERPRETATION OF THE PLAN. The Insurer shall be the final arbiter as to the interpretation of the Plan and as to the payment of benefits thereunder. The ASO Provider shall consult with the Insurer in the event extraordinary benefit matters arise.

II. SCOPE OF RELATIONSHIP

2.1

AGENCY. In performing the services hereunder, the ASO Provider is acting solely as the agent of the Insurer; and the respective rights of the parties shall be determined in accordance with the laws of agency. In the event that the Insurer fails to comply with any federal or state law, the ASO Provider shall not be liable in any action brought with regard to such failure.

2.2

FIDUCIARY. The ASO Provider is not and shall not be deemed to be a fiduciary of the Plan. Rather, the duties of the ASO Provider hereunder are ministerial in nature; and this Agreement shall not be deemed to confer or delegate any discretionary authority or control of the management of the Plan or of the management or discretion of the assets of the Plan or to confer or delegate any discretionary authority or discretionary responsibility in the administration of the Plan.

2.3

COMMUNICATIONS. The ASO Provider shall be entitled to rely, without question, upon any written or oral communication of the Insurer, and the agents and employees thereof, which are believed by the ASO Provider to be genuine and to have been presented by a person having the apparent authority to do so.

2.4	PARTIES. This agreement is between the ASO Provider and the Insurer, and does not create any rights or legal relationships between the ASO Provider and any of the Participants or Beneficiaries under the Plan.

III. DUTIES OF ASO PROVIDER

3.1

DOCUMENTATION. Under this agreement, the Insurer understands that the ASO Provider requires that the Insurance Plan be established and maintained pursuant to a written instrument (plan instrument or trust instrument); and the Insurer agrees that the ASO Provider shall have no responsibility with respect to such instrument or with respect to the preparation or validity of such instrument.

3.2

CLAIM SERVICES. The ASO Provider agrees to perform the below enumerated services with respect to the processing and payment of claims under the Plan:

Page 3

3.2.1

PRACTICE AND PROCEDURES. In performing such services, the ASO Provider shall employ its standard practices and procedures, whether written or otherwise; provided, however, such performance shall be subjected to the provisions of this Agreement, including, but not limited to Section 1.2.

3.2.2

SERVICES. The ASO Provider agrees to:

(a)

provide claim forms to the Insurer for submitting claims to the ASO Provider;

(b)

receive claims and claims documentation;

(c)

correspond with the Participants and providers of services if additional information is deemed by the ASO Provider to be necessary to complete the processing of claims;

(d)

coordinate benefits payable under the Plan with other benefit plans, if any;

(e)

determine the amount of benefits payable under the Plan;

(f)

pay from the Account (as described in Section 4.1 below) the amount of benefits determined to be payable under the Plan;

(g)

provide notice to Participants as to the reason(s) for denial of benefits and provide for the review of denied claims; provided, however, that such review shall be advisory to the Insurer in accordance with Section 1.2 above and shall not be deemed to be an exercise of discretion by the ASO Provider in accordance with Section 2.2 above.

3.2.3

RECOVERY OF PAYMENTS. In the event payment is made to or on behalf of an ineligible employee Participant or any ineligible dependent of an employee Participant or that a payment is made in excess of the amount properly payable, the ASO Provider shall:

(a)

promptly advise the Insurer of such event, and

(b)

make a single demand with respect to the Participants in writing for the return of such payment or overpayment and report the results of such effort to the Insurer.

3.3

RECORDS AND FILES. The ASO Provider shall establish and maintain a record-keeping system concerning the services to be performed hereunder. All such records, including an accumulator report, member eligibility listing and computer tapes of such, and all hard copy files shall be the property of the Insurer and shall be delivered to the Insurer upon termination of this Agreement, subject to the right of the ASO Provider to copy and retain all or any of such records as it deems in its interest to do so. All such records shall be available for inspection by the Insurer or any time during normal business hours at the offices of the ASO Provider in Galveston, Texas, upon reasonable prior notice.

Page 4

3.4 REPORTS. The ASO Provider shall provide the following to the Insurer:

(a)

Explanation of Benefit forms (as issued);

(b)

check register (monthly);

(c)

report of claims paid identified as to Participants (monthly);

(d)

Statement of Account (monthly);

(e)

report of Plan’s operation during the preceding year cost estimates and guidelines for the ensuing year (annually);

(f)

input for forms required to be filed by the Insurer under the Plan (annually); and

(g)

such other reports as agreed to by the ASO Provider in writing to the Insurer.

3.5	DUTY OF CARE. The ASO Provider shall not be liable for any loss resulting from the performance of its duties hereunder, except for losses resulting directly from:

(a)

the negligence of the ASO Provider, or

(b)

failure of the ASO Provider to follow the written directions of the Insurer in the processing of a particular claim, or

(c)

the fraudulent or criminal acts of the agents or employees of the ASO Provider, whether acting alone or in concert with others; except that if such acts shall have been performed in concert with an agent or employee of the Insurer, the Insurer shall bear liability for the resulting loss.

Subject to the above, the defense of any legal action brought by or on behalf of any person, including without limitation, any Participant, Beneficiary, or fiduciary of the Plan, shall be the obligation of the Insurer and shall not be the obligation of the ASO Provider.

IV. DUTIES OF INSURER

4.1

ACCOUNT. The ASO Provider shall establish, maintain and fund a checking account (“Account”) for the payment by the ASO Provider of benefits under the plan. The Insurer shall be liable to reimburse the ASO Provider for all claim checks issued by the ASO Provider against the Account. The ASO Provider agrees to provide, at its own expense, all claim checks for the purpose of issuing benefits for claims on the Account.

4.1.1

DRAFT AUTHORITY OF THE ACCOUNT. The Insurer hereby grants to the ASO Provider authority to draft against the Account.

4.2	SERVICE FEE. The Insurer agrees to pay to the ASO Provider an Administrative Service fee equal to 8% of Paid Claims.

The Insurer agrees to pay the Administrative Service fee as determined in Section 4.2 above upon receipt of the report of paid claims for each reporting period.

Page 5

4.2.1

CHANGE OF ADMINISTRATIVE SERVICE FEE. The ASO Provider reserves the right to change the Administrative Service Fee applicable to this Agreement at any time, provided that the then-current Administrative Service Fee has been applicable for a period of twelve consecutive months and provided that written notice of such change is furnished to the Insurer at least thirty-one (31) days prior to the effective date of such change.

4.3.

TAXES AND OTHER ASSESSMENTS. The Insurer will pay the ASO Provider within a reasonable time after assessment, any tax or charge assessed against the ASO Provider which may be incurred by reason of ruling, or other determination by any Insurance Department or other governmental authority, to the effect that any Fees or Charges payable under Section 4.2 or the amount of claim payments made in accordance with the Plan and Section III of this Agreement is an insurance premium and subject to the premium tax provisions of the applicable statutes, including any retroactive assessment.

4.4.	CENSUS. The Insurer agrees to verify the eligibility of Participants and to furnish the ASO Provider such information as may be necessary or required by the ASO Provider from time to time to discharge its obligations under Section 3.4 (f) above.

4.5.	LIABILITY FOR BENEFITS. It is understood and agreed that liability for payment of benefits under the Plan is the liability of the Insurer and the ASO Provider shall not have any duty to use any of its funds for the payment of such benefits.

4.6.

INDEMNIFICATION. Subject to Section 3.5, the Insurer agrees to indemnify and hold harmless the ASO Provider, its agents and employees against any and all liability, damages, expenses and costs including, without limitation, extra contractual damages, court costs, attorney’s fees, and punitive and exemplary damages resulting from or arising out of any claim, demand or legal or administrative proceeding made or brought against the ASO Provider by or on behalf of any person including, without limitation, any Participants, Beneficiary or fiduciary under the Plan.

Page 6

V. GENERAL PROVISIONS

5.1

ENTIRE CONTRACT. This agreement, together with any exhibits, attachment, and amendments appended hereto, constitutes the entire Agreement between the parties. No representations, understandings or agreements which are not expressly contained herein shall be binding or enforceable. No modification of the terms or provisions of this Agreement shall be effective unless evidenced by a written amendment hereto, signed by an authorized officer of both the Insurer and of the ASO Provider.

5.2	APPLICABLE LAW. This agreement shall be deemed to have been made and entered into in the State of Texas, and shall be construed and enforced according to the laws of the State of Texas.

5.3	ASSIGNMENT. This Agreement shall not be assigned by the ASO Provider nor shall the ASO Provider’s duties, obligations or responsibilities hereunder be delegated to any person or entity without prior written consent of the Insurer.

5.4

ARBITRATION. If any dispute shall arise between the Insurer and the ASO Provider, either before or after termination of this Agreement, with reference to the interpretation of this Agreement or the rights of either party with respect to any transaction under this Agreement, the dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within thirty days after the receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators who shall choose the third. In the event the two arbitrators do not agree on the selection of the third arbitrator within thirty days after both arbitrators have been named, then the third arbitrator shall be selected pursuant to the commercial arbitration rules of the American Arbitration Association. The arbitration shall take place in the State of Texas, and the arbitration proceedings are to governed by the rules of the American Arbitration Association and the Texas General Arbitration Act. The arbitrators shall consider this Agreement an honorable engagement rather than merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of a majority of the arbitrators shall be final and binding on both the Insurer and the ASO Provider, and judgement upon the award rendered by the arbitrators shall be entered into any court having jurisdiction thereof. The expense of the arbitrators and of the arbitration shall be equally divided between the Insurer and the ASO Provider.

Page 7

VI. TERM OF AGREEMENT

6.1	TERM. This Agreement shall commence January 1, 2001, and shall continue in effect unless terminated as provided herein below.

6.2	TERMINATION.

6.2.1

BY NOTICE. Either party may terminate this Agreement for any reason at any time by providing written notice to the other party. The notice shall specify an effective date of termination, which shall be not less than 60 days nor more than 90 days after the date of receipt of the notice by the other party. If the notice does not specify a date of termination the effective date of termination shall be 60 days after receipt of the notice by the other party.

6.2.2

BY DEFAULT. Should either party default in the performance of any of the terms or conditions of this Agreement, the other party shall deliver (personally or by certified mail) to the defaulting party written notice thereof specifying the matters in default. The defaulting party shall have ten (10) calendar days after its receipt of the written notice to cure such default. If the defaulting party fails to cure the default within such ten day period, this Agreement shall be terminated at 11:59 p.m. on the tenth day after receipt of the notice by the defaulting party.

6.2.3

BY LAW. If the state or federal law or regulation is enacted or promulgated which prohibits the performance of any of the duties hereunder, or if any law is interpreted to prohibit such performance, this Agreement shall automatically terminate as of the effective date of such prohibition.

6.3

EFFECT OF TERMINATION. As of the effective date of termination of this Agreement, the ASO Provider shall have no further duties of performance hereunder. This period between notice of termination and the effective date of termination shall be used to effect an orderly transfer of records and funds, if any, from the ASO Provider to the Insurer or to such person as the Insurer may designate in writing.

Page 8

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers.

		BY: National Western Life Insurance Company
ATTEST:

/S/ James P. Payne		/S/ Brian M. Pribyl
		Official Signature

		Senior VP
		Official Title

		10/2/01
		Date



		BY: American National Insurance Company
ATTEST:

/S/ Ron J. Ostermayer		/S/ Steven H. Schouweilder
		Official Signature

		Sr. Vice President, Health Ins.
		Official Title

		10/12/01
		Date

Page 9

EX-10.CS 5 exhibit10cs.htm NATIONAL WESTREN LIFE INS. CO. EXHIBIT 10(CS) exhibit10cs.htm

EXHIBIT 10(cs)

PREMIUM PAYMENT AGREEMENT

THIS AGREEMENT, made this 1st day of January, 2001, by and

between NATIONAL WESTERN LIFE INSURANCE COMPNAY (Insurer) and

American National Insurance Company (ANCIO) provides as follows:

PURPOSE. This agreement sets forth the terms and conditions for payment of

premiums by ANICO to the Insurer with respect to coverage for

employees of ANICO and their dependents under the Excess Benefit Plan

number GH0001.

TERMS. The initital Term of this Agreement shall be for one year from the 1st

day of January, 2001 (Effective Date). This Agreement may be

renewed annually for subsequent terms of one-year each, subject to the

provisions of the Excess Benefit Plan and this Agreement. Each such one-year term,

including the first, is referred to in this Agreement as a Benefit Year.

DETERMINATION AND PAYMENT OF PREMIUMS

Payment. All premiums under this Agreement shall be paid at the Home Office

of the Insurer: 850 East Anderson Lane, Austin, TX 78752-1602.

Reimbursement Premium. ANICO agrees to pay to the Insurer

Reimbursement Premiums equal to the sum of:

1.	The amount of benefits paid under the Excess Benefit Plan; and

2.	An amount (Retention Fee) determined by the product of the then applicable

Retention Factor, as defined below, and the amount of such paid benefits.

It is understood and agreed that the obligation of ANICO shall be

without regard to when such benefits are paid by the Insurer and shall

continue so long as the Insurer has any obligation to pay such benefits. It

is further understood and agreed that termination of the Agreement or of the

Excess Benefit Plan shall not act to end ANICO’s liability hereunder.

All such Reimbursement Premiums shall be due as of the date of the monthly

statement of account provided by the Insurer which will include:

1.	The amount due, if any; and

2.	A listing of each claim paid during the period for which such premiums are billed.

Maximum Annual Aggregate Liability. Subject to the provisions of the Excess Benefit

Plan, ANICO’s obligation to pay Reimbursement Premiums is limited to 85%

of the Maximum Annual Aggregate Liability amount in such Plan.

Additional Reserve Premium. The Insurer reserves the right to assess, and

ANICO agrees to pay, additional premiums which are deemed, in the sole

opinion of the Insurer, to be necessary to maintain an adequate Reserve. The

Insurer may make such assessments at any time while this Excess Benefit Plan

is in force, by providing Notice to ANICO. All such assessments shall be due as

of the date of such Notice.

NW-1 Agreement

Renewal Premium. ANICO agrees to pay to the Insurer Renewal

Premiums in such amounts as may be determined by the Insurer. It is under-

stood and agreed that the timely payment of such Renewal Premiums shall be a

condition precedent to the renewal of the Excess Benefit Plan for each subsequent

Benefit Year. The Insurer will provide Notice to ANICO of the amount of

such Renewal Premiums, and all such Renewal Premiums shall be due as of the

date of the Notice.

Grace Period. The Grace Period of 31 days, as described in the Excess Benefit Plan,

shall apply to all premiums, provided however, that the

Insurer agrees to accept Reimbursement Premiums if paid at the Home Office of

the Insurer on or before 45 days after the date of the monthly statement of

account. If any such Reimbursement Premium is not paid within this 45 day

period, the Excess Benefit Plan will automatically terminate as of the end of the Grace

Period.

Retention Factor. The Retention Factor applicable to the initial Benefit Year

of this Agreeement is 12.5%, comprising a service fee of 10.0% and

premium tax of 2.5%. The Insurer reserves the right to change the

Retention Factor applicable to each subsequent Benefit Year by providing

Notice to ANICO. All such changes shall take effect on the first

day of each such Benefit Year. If benefits are paid after the effective date

of termination of the Excess Benefit Plan, with respect to claims incurred prior to such

date, the applicable Retention Factor shall be that percentage in effect

immediately prior to such date.

Indemnification. In addition to any other reimbursement hereunder, ANICO

hereby agrees to reimburse the Insurer for the amount of any

benefits paid under the Excess Benefit Plan as the result of any settlement or judgement

arising from an action at law or in equity against ANICO or the

Insurer. ANICO further agrees to pay to the Insurer the Retention

Fee applicable at the time such payment is made. ANICO further

agrees to pay the amount of any penalties and extra-contract, punitive,

exemplary and consequential damages awarded or agreed upon pursuant to any

such settlement or judgement, and all expenses and costs of suit, including

reasonable attorney’s fees.

Any requirements of ANICO that employees insured under the Excess Benefit Plan

shall contribute to the cost of the insurance shall in no way limit the

responsibility of ANICO for the payment of premiums hereunder.

NW-1 Agreement

Refund of Reserves. ANICO may elect to receive a full refund of

the amount of the Reserve held for its account at any time after three months

following the date the Excess Benefit Plan terminates, less the amount of any premium

which is due and owing at such time. Such election shall be in writing on a form

provided by the Insurer for this purpose. In the event that such election is

made, ANICO expressly agrees that, not withstanding any provision

contained in the Excess Benefit Plan to the contrary, the obligation of the Insurer

to pay benefits under the Excess Benefit Plan shall terminate as of the date such refund is

tendered by the Insurer. If no such election is made, the Insurer shall be

entitled to retain the entire amount of such Reserve for a period not to

exceed 15 months following the date the Excess Benefit Plan terminates.

GENERAL PROVISIONS

Entire Contract. This Agreement, together with the Excess Benefit Plan and the

Application of ANICO, forms the Entire Contract between the parties. No

modification or amendment of any of the above-stated documents shall be

effective or enforceable against the Insurer unless evidenced in writing and

signed by an officer of the Insurer.

Waiver. The Insurer’s failure to strictly enforce any of the provisions of

this Agreement or the Excess Benefit Plan shall not be construed to be a waiver, and shall

not bar the subsequent enforcement of any such provision regardless of the

number or similarity of prior events not so enforced.

Notice. Any form of written communication sent by regular mail, postage

prepaid, to the last address of ANICO, according to the records of the Insurer.

Law. This Agreement shall be construed in accordance with the laws of the

state of delivery.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the

date first written above. A true and correct copy of this Agreement shall be

as valid as the original.

INSURER:	NATIONAL WESTERN LIFE INSURANCE COMPANY

By:	/S/ Brian M. Pribyl

Title:	Senior VP

ANICO:	AMERICAN NATIONAL INSURANCE COMPANY

By:	/S/ Glenn C. Langley

Title:	Senior VP

NW-1 Agreement

EX-10.CT 6 exhibit10ct.htm NATIONAL WESTREN LIFE INS. CO. EXHIBIT 10(CT) exhibit10ct.htm

EXHIBIT 10(ct)

AMERICAN NATIONAL INSURANCE COMPANY

ADMINISTRATIVE SERVICES ONLY AGREEMENT (ASO)

THIS AGREEMENT IS SUBJECT TO ARBITRATION

CONTRACT NUMBER:	INSURER:

ASOGH0002	National Western Life Ins. Company


EFFECTIVE DATE:	ADDRESS OF INSURER:
January 1, 2001	850 East Anderson Lane
	Austin, TX 78752-1602


EXPIRATION DATE:	ADDRESS OF AMERICAN NATIONAL:

N/A	ONE MOODY PLAZA
	GALVESTON, TX 77550

PREMISES

WHEREAS, the Insurer has an Insurance Plan that it does not wish to service on its own; and

NOW THEREFORE, in consideration of the premises and of the mutual promises and convenants contained herein, the parties agree as follows:

Page 1

TABLE OF CONTENTS

PLAN

1.1 Plan Document
1.2 Interpretation of Plan

II.	SCOPE OF RELATIONSHIP

2.1 Agency

2.2 Fiduciary

2.3 Communications

2.4 Parties

III.	DUTIES OF ASO PROVIDER

3.1 Documentation

3.2 Claims Services

3.2.1 Practices and Procedures

3.2.2 Services

3.2.3 Recovery of Payments

3.3 Records and Files

3.4 Reports

3.5 Duty of Care

IV.	DUTIES OF INSURER

4.1 Account

4.1.1 Draft Authority on the Account

4.2 Service Fee

4.2.1 Change of Administrative Service Fee

4.3 Taxes and Other Assessments

4.4 Census

4.5 Liability for Benefits

4.6 Indemnification

V.	GENERAL PROVISIONS

5.1 Entire Contract

5.2 Applicable Law

5.3 Assignment

5.4 Arbitration

VI.	TERM OF AGREEMENT

6.1 Term

6.2 Termination

6.2.1 By Notice

6.2.2 By Default

6.2.3 By Law

6.3 Effect of Termination

Page 2

I. PLAN

1.1	PLAN DOCUMENT NO. GH0002. All services to be provided by the ASO Provider hereunder shall be performed pursuant to the provisions of the Plan Document, as amended. A copy of the Plan Document and any amendments thereto shall be deemed to form part of this agreement for such purpose.

1.2	INTERPRETATION OF THE PLAN. The Insurer shall be the final arbiter as to the interpretation of the Plan and as to the payment of benefits thereunder. The ASO Provider shall consult with the Insurer in the event extraordinary benefit matters arise.

II. SCOPE OF RELATIONSHIP

2.1

2.2

2.3

2.4	PARTIES. This agreement is between the ASO Provider and the Insurer, and does not create any rights or legal relationships between the ASO Provider and any of the Participants or Beneficiaries under the Plan.

III DUTIES OF ASO PROVIDER

3.1

3.2	CLAIM SERVICES. The ASO Provider agrees to perform the below enumerated services with respect to the processing and payment of claims under the Plan:

Page 3

3.2.1

3.2.2

SERVICES. The ASO Provider agrees to:

(a)	provide claim forms to the Insurer for submitting claims to the ASO Provider;

(b)	receive claims and claims documentation;

(c)	correspond with the Participants and providers of services if additional information is deemed by the ASO Provider to be necessary to complete the processing of claims;

(d)	coordinate benefits payable under the Plan with other benefit plans, if any;

(e)	determine the amount of benefits payable under the Plan;

(f)	pay from the Account (as described in Section 4.1 below) the amount of benefits determined to be payable under the Plan;

(g)

3.2.3

(a)	promptly advise the Insurer of such event, and

(b)	make a single demand with respect to the Participants in writing for the return of such payment or overpayment and report the results of such effort to the Insurer.

3.3

Page 4

3.4 REPORTS. The ASO Provider shall provide the following to the Insurer:

(a)	Explanation of Benefit forms (as issued);

(b)	check register (monthly);

(c)	report of claims paid identified as to Participants (monthly);

(d)	Statement of Account (monthly);

(e)	report of Plan’s operation during the preceding year cost estimates and guidelines for the ensuing year (annually);

(f)	input for forms required to be filed by the Insurer under the Plan (annually); and

(g)	such other reports as agreed to by the ASO Provider in writing to the Insurer.

3.5	DUTY OF CARE. The ASO Provider shall not be liable for any loss resulting from the performance of its duties hereunder, except for losses resulting directly from:

(a)	the negligence of the ASO Provider, or

(b)	failure of the ASO Provider to follow the written directions of the Insurer in the processing of a particular claim, or

(c)	the fraudulent or criminal acts of the agents or employees of the ASO Provider, whether acting alone or in concert with others; except that if such acts shall have been performed in concert with an agent or employee of the Insurer, the Insurer shall bear liability for the resulting loss.

IV. DUTIES OF INSURER

4.1

4.1.1

DRAFT AUTHORITY OF THE ACCOUNT. The Insurer hereby grants to the ASO Provider authority to draft against the Account.

4.2	SERVICE FEE. The Insurer agrees to pay to the ASO Provider an Administrative Service fee equal to 8% of Paid Claims.

The Insurer agrees to pay the Administrative Service fee as determined in Section 4.2 above upon receipt of the report of paid claims for each reporting period.

Page 5

4.2.1

4.3.

4.4.	CENSUS. The Insurer agrees to verify the eligibility of Participants and to furnish the ASO Provider such information as may be necessary or required by the ASO Provider from time to time to discharge its obligations under Section 3.4 (f) above.

4.5.	LIABILITY FOR BENEFITS. It is understood and agreed that liability for payment of benefits under the Plan is the liability of the Insurer and the ASO Provider shall not have any duty to use any of its funds for the payment of such benefits.

4.6.

Page 6

V. GENERAL PROVISIONS

5.1

5.2	APPLICABLE LAW. This agreement shall be deemed to have been made and entered into in the State of Texas, and shall be construed and enforced according to the laws of the State of Texas.

5.3	ASSIGNMENT. This Agreement shall not be assigned by the ASO Provider nor shall the ASO Provider’s duties, obligations or responsibilities hereunder be delegated to any person or entity without prior written consent of the Insurer.

5.4

ARBITRATION. If any dispute shall arise between the Insurer and the ASO Provider, either before or after termination of this Agreement, with reference to the interpretation of this Agreement or the rights of either party with respect to any transaction under this Agreement, the dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within thirty days after the receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators who shall choose the third. In the event the two arbitrators do not agree on the selection of the third arbitrator within thirty days after both arbitrators have been n amed, then the third arbitrator shall be selected pursuant to the commercial arbitration rules of the American Arbitration Association. The arbitration shall take place in the State of Texas, and the arbitration proceedings are to governed by the rules of the American Arbitration Association and the Texas General Arbitration Act. The arbitrators shall consider this Agreement an honorable engagement rather than merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of a majority of the arbitrators shall be final and binding on both the Insurer and the ASO Provider, and judgement upon the award rendered by the arbitrators shall be entered into any court having jurisdiction thereof. The expense of the arbitrators and of the arbitration shall be equally divided between the Insurer and the ASO Provider.

Page 7

IV TERM OF AGREEMENT

6.1	TERM. This Agreement shall commence January 1, 2001, and shall continue in effect unless terminated as provided herein below.

6.2	TERMINATION.

6.2.1

6.2.2

6.2.3

6.3

Page 8

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers.

		BY: National Western Life Insurance Company
ATTEST:

/S/ James P. Payne		/S/ Brian M. Pribyl
		Official Signature

		Senior VP
		Official Title

		10/2/01
		Date



		BY: American National Insurance Company
ATTEST:

/S/ Ron J. Ostermayer		/S/ Steven H. Schouweilder
		Official Signature

		Sr. Vice President, Health Ins.
		Official Title

		10/12/01
		Date

Page 9

EX-10.CU 7 exhibit10cu.htm NATIONAL WESTREN LIFE INS. CO. EXHIBIT 10(CU) exhibit10cu.htm

EXHIBIT 10(cu)

PREMIUM PAYMENT AGREEMENT

THIS AGREEMENT, made this 1st day of January, 2001, by and

between NATIONAL WESTERN LIFE INSURANCE COMPANY (Insurer) and

American National Insurance Company (ANICO) provides as follows;

PURPOSE. This agreement sets forth the terms and conditions for payment of

premiums by ANICO to the Insurer with respect to coverage for

employees of ANICO and their dependents under the Excess Benefit Plan

number GH0002.

TERM. The initial Term of this Agreement shall be one year from the 1st

day of January, 2001 (Effective Date). This Agreement may be

renewed annually for subsequent terms of one-year each, subject to the

provisions of the Excess Benefit Plan and this Agreement. Each such one-year term,

including the first, is referred to in this Agreement as a Benefit Year.

DETERMINATION AND PAYMENT OF PREMIUMS

Payment. All premiums under this Agreement shall be paid at the Home Office

of the Insurer: 850 East Anderson Lane, Austin, TX 78752-1602.

Reimbursement Premium. ANICO agrees to pay to the Insurer

Reimbursement Premiums equal to the sum of:

1.	The amount of benefits paid under the Excess Benefit Plan; and

2.	An amount (Retention Fee) determined by the product of the then applicable