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Investments
9 Months Ended
Sep. 30, 2011
Investments, Debt and Equity Securities [Abstract] 
Investments
INVESTMENTS

(A)
Investment Gains and Losses

The table below presents realized investment gains and losses, excluding impairment losses, for the periods indicated.

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
 
 
 
 
 
 
 
 
Available for sale debt securities:
 
 
 
 
 
 
 
Realized gains on disposal
$
3,211

 
180

 
6,348

 
550

Realized losses on disposal
—

 
(153
)
 
—

 
(153
)
Held to maturity debt securities:
 
 
 

 
 
 
 

Realized gains on disposal
269

 
1,935

 
747

 
2,076

Realized losses on disposal
(520
)
 
—

 
(520
)
 
—

Equity securities realized gains (losses)
—

 
120

 
56

 
104

Real estate write-down
—

 
—

 
(50
)
 
(174
)
Mortgage loans write-downs
—

 
(2
)
 
(39
)
 
(387
)
Other
—

 
7

 
—

 
1

 
 
 
 
 
 
 
 
Totals
$
2,960

 
2,087

 
6,542

 
2,017


The Company uses the specific identification method in computing realized gains and losses.

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

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
 
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on debt securities
$
(1,727
)
 
(485
)
 
(1,727
)
 
(793
)
Portion of loss recognized in comprehensive income
1,719

 
123

 
1,719

 
123

 
 
 
 
 
 
 
 
Net impairment losses on debt securities recognized in earnings
(8
)
 
(362
)
 
(8
)
 
(670
)
Equity securities impairments
(14
)
 
(53
)
 
(14
)
 
(53
)
 
 
 
 
 
 
 
 
Totals
$
(22
)
 
(415
)
 
(22
)
 
(723
)


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

 
Three Months
 Ended
September 30,
2011
 
Nine Months
 Ended
September 30,
2011
 
Twelve Months
Ended
December 31,
2010
 
 
 
(In thousands)

 
 
 
 
 
 
 
 
Beginning balance, cumulative credit losses related to other-than-temporary impairments
$
997

 
997

 
327

Additions for credit losses not previously recognized in other-than-temporary impairments
8

 
8

 
670

 
 
 
 
 
 
Ending balance, cumulative credit losses related to other-than-temporary impairment
$
1,005

 
1,005

 
997


(B)
Debt and Equity Securities

The table below presents amortized costs and fair values of securities held to maturity at September 30, 2011.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
208,300

 
3,663

 
(656
)
 
211,307

U.S. Treasury
1,937

 
647

 
—

 
2,584

States and political subdivisions
343,011

 
25,820

 
(447
)
 
368,384

Foreign governments
9,977

 
1,036

 
—

 
11,013

Public utilities
687,938

 
75,817

 
(4,369
)
 
759,386

Corporate
2,135,940

 
191,303

 
(9,880
)
 
2,317,363

Mortgage-backed
2,057,390

 
175,864

 
—

 
2,233,254

Home equity
24,201

 
457

 
(1,911
)
 
22,747

Manufactured housing
16,211

 
1,005

 
(64
)
 
17,152

 
 
 
 
 
 
 
 
Totals
$
5,484,905

 
475,612

 
(17,327
)
 
5,943,190


The table below presents amortized costs and fair values of securities available for sale at September 30, 2011.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
4,003

 
1

 
(226
)
 
3,778

Foreign governments
20,159

 
317

 
(163
)
 
20,313

Public utilities
327,793

 
32,118

 
(426
)
 
359,485

Corporate
1,836,158

 
151,824

 
(4,211
)
 
1,983,771

Mortgage-backed
173,338

 
14,415

 
(165
)
 
187,588

Home equity
10,885

 
—

 
(2,000
)
 
8,885

Manufactured housing
8,087

 
1,225

 
—

 
9,312

 
2,380,423

 
199,900

 
(7,191
)
 
2,573,132

 
 
 
 
 
 
 
 
Equity private
195

 
7,924

 
—

 
8,119

Equity public
6,216

 
1,997

 
(236
)
 
7,977

 
 
 
 
 
 
 
 
Totals
$
2,386,834

 
209,821

 
(7,427
)
 
2,589,228


The table below presents amortized costs and fair values of securities held to maturity at December 31, 2010.

 
Securities Held to Maturity
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
U.S. agencies
$
154,265

 
2,955

 
(3,406
)
 
153,814

U.S. Treasury
1,909

 
436

 
—

 
2,345

States and political subdivisions
328,263

 
3,050

 
(10,538
)
 
320,775

Foreign governments
9,970

 
1,097

 
—

 
11,067

Public utilities
714,760

 
52,867

 
(6,311
)
 
761,316

Corporate
1,799,621

 
131,867

 
(12,300
)
 
1,919,188

Mortgage-backed
1,923,402

 
130,463

 
(8,250
)
 
2,045,615

Home equity
25,569

 
327

 
(1,265
)
 
24,631

Manufactured housing
19,757

 
911

 
(87
)
 
20,581

 
 
 
 
 
 
 
 
Totals
$
4,977,516

 
323,973

 
(42,157
)
 
5,259,332


The table below presents amortized costs and fair values of securities available for sale at December 31, 2010.

 
Securities Available for Sale
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
States and political subdivisions
$
3,942

 
—

 
(474
)
 
3,468

Foreign governments
10,296

 
655

 
—

 
10,951

Public utilities
334,018

 
28,662

 
(126
)
 
362,554

Corporate
1,638,828

 
124,330

 
(3,271
)
 
1,759,887

Mortgage-backed
206,380

 
13,165

 
(1,080
)
 
218,465

Home equity
12,754

 
—

 
(3,545
)
 
9,209

Manufactured housing
9,306

 
1,037

 
—

 
10,343

 
2,215,524

 
167,849

 
(8,496
)
 
2,374,877

 
 
 
 
 
 
 
 
Equity private
195

 
7,370

 
—

 
7,565

Equity public
5,860

 
1,930

 
(125
)
 
7,665

 
 
 
 
 
 
 
 
Totals
$
2,221,579

 
177,149

 
(8,621
)
 
2,390,107


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 September 30, 2011.

 
Securities Held to Maturity
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
$
84,501

 
(656
)
 
—

 
—

 
84,501


(656
)
U.S. Treasury
—

 
—

 
—

 
—

 
—

 
—

States and political subdivisions
11,708

 
(211
)
 
12,861

 
(236
)
 
24,569

 
(447
)
Foreign governments
—

 
—

 
—

 
—

 
—

 
—

Public utilities
27,450

 
(3,809
)
 
1,446

 
(560
)
 
28,896

 
(4,369
)
Corporate bonds
250,111

 
(4,276
)
 
46,900

 
(5,604
)
 
297,011

 
(9,880
)
Mortgage-backed
—

 
—

 
—

 
—

 
—

 
—

Home equity
—

 
—

 
17,402

 
(1,911
)
 
17,402

 
(1,911
)
Manufactured housing
—

 
—

 
2,576

 
(64
)
 
2,576

 
(64
)
 
 
 
 
 
 
 
 
 
 
 
 
Total temporarily impaired securities
$
373,770

 
(8,952
)
 
81,185

 
(8,375
)
 
454,955

 
(17,327
)

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 as of September 30, 2011.

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

 
—

 
—

 
—

 
—

 
—

U.S. Treasury
—

 
—

 
—

 
—

 
—

 
—

States and political subdivisions
593

 
(11
)
 
2,172

 
(215
)
 
2,765

 
(226
)
Foreign governments
9,750

 
(163
)
 
—

 
—

 
9,750

 
(163
)
Public utilities
21,800

 
(426
)
 
—

 
—

 
21,800

 
(426
)
Corporate bonds
133,262

 
(4,100
)
 
16,883

 
(111
)
 
150,145

 
(4,211
)
Mortgage-backed
4,081

 
(165
)
 
4,263

 
—

 
8,344

 
(165
)
Home equity
—

 
—

 
8,885

 
(2,000
)
 
8,885

 
(2,000
)
Manufactured housing
—

 
—

 
—

 
—

 
—

 
—

 
169,486

 
(4,865
)
 
32,203

 
(2,326
)
 
201,689

 
(7,191
)
 
 
 
 
 
 
 
 
 
 
 
 
Equity public
1,037

 
(141
)
 
368

 
(95
)
 
1,405

 
(236
)
 
 
 
 
 
 
 
 
 
 
 
 
Total temporarily impaired securities
$
170,523

 
(5,006
)
 
32,571

 
(2,421
)
 
203,094

 
(7,427
)

Liquidity in the bond market improved in 2011 and 2010 as economic and market conditions started to stabilize. Although the unrealized losses declined substantially in 2010 and continued to decline in the first three quarters of 2011, 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 as the Company does not intend to sell these securities until recovery in fair value or maturity, 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 a recovery of all amounts due under the contractual terms of the security is anticipated. Based on the review in concert with the Company's ability and intent to hold these securities until maturity, the Company does not consider the other investments to be other-than-temporarily impaired at September 30, 2011. 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.

During the third quarter the Company had other-than-temporary impairments on two asset-backed securities. Both securities had slight credit impairments and combined had $1.7 million in liquidity losses which did not effect current earnings. The Company intends to hold both securities until recovery of fair market value or maturity.

Debt securities. The gross unrealized losses for debt securities are made up of 113 individual issues, or 10.1% of the total debt securities held by the Company. The market value of these bonds as a percent of amortized cost averages 96.4%. Of the 113 securities, 28, or approximately 24.8%, fall in the 12 months or greater aging category; and 99 were rated investment grade at September 30, 2011. Additional information on debt securities by investment category is summarized below.

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

U.S. Government agencies. 7 securities had unrealized losses. All are rated AA+.

State and political subdivisions. The unrealized losses on these investments are the result of holdings in 24 securities. Of these securities, all are rated A or above except 4 securities which are rated BBB, BBB+ or Baa. Based on these facts and the Company's intent to hold to maturity, no other-than-temporary loss was recognized as of September 30, 2011.

Foreign governments. No securities had a gross unrealized loss.

Public utilities. Of the 9 securities, all are rated BB- or above. 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. The review includes 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 62 securities had unrealized losses; with 9 issues rated below investment grade. More extensive analysis was performed on these 9 issues. Based on the work performed, none of these securities are considered other-than-temporarily impaired at September 30, 2011.

Mortgage-backed securities. Both securities 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 one of the investments to be other-than-temporarily impaired at September 30, 2011. The other one is shown at its impaired value at September 30, 2011.

Home equity. Of the 7 securities, 5 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 CC is not considered impaired.

Manufactured housing. 1 security had an unrealized loss. The security is rated Ba. Based on a lack of adverse changes in expected cash flows, this security is not considered other-than-temporarily impaired.

Equity securities. The gross unrealized losses for equity securities are made up of 37 individual issues. These holdings are reviewed for impairment quarterly. As of September 30, 2011, one equity security was other-than-temporarily impaired.

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, 2010.

 
Securities Held to Maturity
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
$
112,150

 
(3,406
)
 
—

 
—

 
112,150

 
(3,406
)
U.S. Treasury
—

 
—

 
—

 
—

 
—

 
—

States and political subdivisions
215,435

 
(10,212
)
 
6,265

 
(326
)
 
221,700

 
(10,538
)
Foreign governments
—

 
—

 
—

 
—

 
—

 
—

Public utilities
124,965

 
(6,311
)
 
—

 
—

 
124,965

 
(6,311
)
Corporate bonds
265,409

 
(6,055
)
 
76,758

 
(6,245
)
 
342,167

 
(12,300
)
Mortgage-backed
175,261

 
(8,250
)
 
—

 
—

 
175,261

 
(8,250
)
Home equity
5,709

 
(66
)
 
13,207

 
(1,199
)
 
18,916

 
(1,265
)
Manufactured housing
1,607

 
—

 
2,927

 
(87
)
 
4,534

 
(87
)
 
 
 
 
 
 
 
 
 
 
 
 
Total temporarily impaired securities
$
900,536

 
(34,300
)
 
99,157

 
(7,857
)
 
999,693

 
(42,157
)


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, 2010.

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

 
—

 
—

 
—

 
—

 
—

U.S. Treasury
—

 
—

 
—

 
—

 
—

 
—

States and political subdivisions
1,527

 
(93
)
 
1,941

 
(381
)
 
3,468

 
(474
)
Foreign governments
—

 
—

 
—

 
—

 
—

 
—

Public utilities
1,872

 
(126
)
 
—

 
—

 
1,872

 
(126
)
Corporate bonds
141,542

 
(2,430
)
 
27,853

 
(841
)
 
169,395

 
(3,271
)
Mortgage-backed
1,005

 
(1
)
 
15,077

 
(1,079
)
 
16,082

 
(1,080
)
Home equity
—

 
—

 
9,209

 
(3,545
)
 
9,209

 
(3,545
)
Manufactured housing
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
145,946

 
(2,650
)
 
54,080

 
(5,846
)
 
200,026

 
(8,496
)
Equity public
325

 
(32
)
 
372

 
(93
)
 
697

 
(125
)
 
 
 
 
 
 
 
 
 
 
 
 
Total temporarily impaired securities
$
146,271

 
(2,682
)
 
54,452

 
(5,939
)
 
200,723

 
(8,621
)

(C)
 Transfer of Securities

During the nine months ended September 30, 2010, the Company made transfers totaling $13.0 million, respectively, to the held to maturity category from securities available for sale. No bonds were transferred between available for sale and held to maturity in 2011. 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 during 2010 were recorded at fair value in accordance with GAAP, which requires that the $0.6 million unrealized holding loss 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.

(D) Mortgage Loans and Real Estate

A financing receivable is a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in a company's statement of financial position. Mortgage loans on real estate are the only financing receivables reported by National Western Life.

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 lease payments and also by the borrower. This approach has proven to result in quality mortgage loans with few defaults. Mortgage loan interest income is recognized on an accrual basis with any premium or discount amortized over the life of the loan. Prepayment and late fees are recorded on the date of collection.

Loans in foreclosure, loans considered impaired or loans past due 90 days or more are placed on a non-accrual status. If a mortgage loan is determined to be on non-accrual status, the mortgage loan does not accrue any revenue into the Condensed Consolidated Statements of Earnings. The loan is independently monitored and evaluated as to potential impairment or foreclosure. If delinquent payments are made and the loan is brought current, then the Company returns the loan to active status and accrues income accordingly. The Company has no loans past due 90 days which are accruing interest.

The following table represents the loan-to-value ratio using the most recent appraised value.

 
September 30, 2011
 
December 31, 2010
 
Amount
 
%
 
Amount
 
%
 
(In thousands)
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
Mortgage Loans by Loan-to-Value Ratio:
 
 
 
 
 
 
 
Less than 50%
67,123

 
41.5

 
48,966

 
34.7

50% to 60%
32,112

 
19.8

 
29,746

 
21.0

60% to 70%
23,656

 
14.6

 
22,769

 
16.1

70% to 80%
12,143

 
7.5

 
1,923

 
1.4

80% to 90%
—

 
—

 
—

 
—

Greater than 90%
26,808

 
16.6

 
37,843

 
26.8

 
 
 
 
 
 
 
 
Totals
161,842

 
100.0

 
141,247

 
100.0


The mortgage loans in the greater than 90% category relate to new loans made with a long standing borrower. The loans are backed by the investment property, contracted leases as well as a separate and additional guarantee of the long standing borrower.

The Company does not consider its mortgage loans to be a separate portfolio segment. The Company considers its primary class to be property type and primarily uses loan-to-value as its credit risk quality indicator. All loans within the portfolio are analyzed quarterly in order to monitor the financial quality of these assets. Based on ongoing monitoring, mortgage loans with a likelihood of becoming delinquent are identified and placed on an internal “watch list”. Among the criteria that would indicate a potential problem are: major tenant vacancies or bankruptcies, late payments, and loan relief/restructuring requests. The mortgage loan portfolio is analyzed for the need for a valuation allowance on any loan that is on the internal watch list, in the process of foreclosure or that currently has a valuation allowance.

Mortgage loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When it is determined that a loan is impaired, a loss is recognized for the difference between the carrying amount of the mortgage loan and the estimated value reduced by the cost to sell. Estimated value is typically based on the loan's observable market price or the fair value of the collateral less cost to sell. Impairments and changes in the valuation allowance are reported in net realized capital gains (losses) in the Condensed Consolidated Statements of Earnings.

The following table represents the mortgage loan allowance for the nine months ended September 30, 2011 and the year ended December 31, 2010:
 
September 30
2011
 
December 31
2010
 
(In thousands)
 
 
 
 
Balance, beginning of period
$
3,962

 
5,033

Provision
39

 
385

Releases
—

 
(1,456
)
 
 
 
 
Balance, end of period
$
4,001

 
3,962