STATUTORY ACCOUNTING PRACTICES

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) which vary in certain respects from reporting practices prescribed or permitted by insurance regulatory authorities. The significant differences for statutory reporting include: (a) acquisition costs of acquiring new business are charged to operations as incurred, (b) life policy liabilities are established utilizing interest and mortality factors specified by regulatory authorities, (c) the Asset Valuation Reserve (AVR) and the Interest Maintenance Reserve (IMR) are recorded as liabilities in the life subsidiary, and (d) non-admitted assets (primarily furniture and equipment, agents' debit balances and prepaid expenses) are charged directly to surplus.

Statutory net gains (losses) from operations and capital and surplus, excluding intercompany transactions, are summarized as follows:



	2012		2011
NSIC - including realized capital gains of $1,722 and $441, respectively	$	1,425	$	747
NSFC - including realized capital gains of $842 and $474, respectively; excluding intercompany gain on real estate of $2,417 ($1,595, net of tax)	$	874	$	(2,036	)
Omega - including realized capital gains of $241 and $192, respectively	$	1,157	$	(2,071	)
Statutory risk-based adjusted capital:
NSIC - including AVR of $748 and $1,075, respectively	$	11,092	$	11,467
NSFC - including investment in Omega of $4,459 and $3,937, respectively	$	24,089	$	25,459
Omega	$	7,961	$	7,437

The above amounts exclude allocation of direct expenses of the Company. NSIC, NSFC and Omega are in compliance with statutory restrictions with regard to minimum amounts of surplus and capital.