Guaranteed Term Options
1933 Act File No. 333-271187
United States Securities and Exchange Commission
The Securities Act of 1933
Post-Effective Amendment No. 1
Nationwide Life Insurance Company
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or
organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer Identification
Number) |
One
Nationwide Plaza, Columbus, Ohio 43215
(Address, including zip code, and telephone number, including
area code,
of registrant's principal executive offices)
Denise L. Skingle
Senior Vice President and Secretary
One Nationwide Plaza
Columbus, Ohio 43215
Telephone: (614) 249-7111
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: May 1, 2024
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.☒
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange
Act.☐
Large accelerated filer
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Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
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Emerging growth company
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Persons who are to respond to the
collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Guaranteed Term
Options
(In a limited number of states, Guaranteed Term Options
are referred to as Target Term Options)
NATIONWIDE LIFE INSURANCE COMPANY
The date of this prospectus is May 1, 2024.
Certain state insurance laws applicable to these investment options may preclude, or be interpreted to preclude,
Nationwide Life Insurance Company ("Nationwide") from providing a contractual guarantee
in conjunction with the Specified Interest Rate. In such jurisdictions,
the investment options are referred to as "Target Term Options" as opposed
to "Guaranteed Term Options." Despite this distinction in terminology, Nationwide will administer all obligations
described in this prospectus, regardless of the
jurisdiction, in precisely the same manner. Thus, there will be no
difference between the calculation, crediting, and administration of Specified Interest
Rates in "Guaranteed Term Options" issued in states permitting a
contractual guarantee, and the calculation, crediting, and administration of Specified Interest Rates in "Target Term Options" issued in states not permitting a contractual guarantee. |
This Prospectus must be read along with the appropriate variable contract
prospectus and the prospectuses describing the underlying mutual fund investment options. All of these prospectuses should be read carefully and maintained for future reference.
This Prospectus describes investment options referred to as Guaranteed Term Options
("GTOs"), offered by Nationwide. The GTOs are available under certain variable annuity contracts or variable life insurance policies (collectively, "variable contracts") issued by Nationwide. Generally, the variable contracts offered by Nationwide provide an array of underlying
mutual fund investment options to which the contract owner allocates his or her purchase payments. The GTOs are
separate, guaranteed interest investment options available under variable contracts.
GTOs will produce a guaranteed annual effective yield at the Specified
Interest Rate so long as amounts invested are not withdrawn prior to the end of the guaranteed term. In the event of a withdraw from the GTO for any reason prior to the expiration of the Guaranteed Term, the amount withdrawn may be subject to a market value adjustment. Please refer to the
variable contract prospectus for specific information regarding variable contract transactions that may be subject to a Market Value Adjustment.
Variable contract prospectuses contain important disclosures about the variable contract and the GTO, including information
regarding variable contract charges and deductions that apply to the GTO, availability of GTO terms, and the applicability of the Market Value Adjustment. The prospectus for the
variable contract must be read along with this prospectus.
The minimum amount that may be allocated to a GTO is $1,000 per allocation.
Nationwide established the Nationwide Multiple Maturity Separate Account, pursuant to Ohio law, to aid in reserving and
accounting for GTO obligations. However, all of the general assets of Nationwide are available for the purpose of meeting the guarantees of the GTOs. Amounts allocated to the GTOs are generally invested in fixed income investments purchased by
Nationwide. Variable contract owners allocating amounts to a GTO have no claim against any assets of Nationwide, including assets held in the Nationwide Multiple Maturity Separate
Account.
GTOs are subject to certain risks (see Risk Factors on page 6).
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
The GTOs described in this Prospectus may not be available in all state jurisdictions and,
accordingly, representations made in this Prospectus do not constitute an offering in such jurisdictions.
For information on how to contact Nationwide, see Nationwide Life Insurance Company. |
The SEC maintains a website (www.sec.gov) that contains the prospectus and
other information.
Glossary
Guaranteed Term – The period corresponding to a 1, 3, 5, 7 or 10 year GTO. Amounts allocated to a GTO will be
credited with a Specified Interest Rate over the corresponding Guaranteed Term, so long
as such amounts are not withdrawn from the GTO prior to the Maturity
Date. Because every Guaranteed Term will end on the final day of a
calendar quarter, the Guaranteed Term may last for up to three months beyond the 1, 3,
5, 7 or 10 year anniversary of the allocation to the GTO.
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Guaranteed Term Option or GTO – An investment option offered under variable contracts that provides a Specified
Interest Rate over Guaranteed Terms, so long as certain conditions are met. In some
jurisdictions the GTO is referred to as a Target Term Option or
TTO. |
Market Value Adjustment – The upward or downward adjustment in value of amounts allocated to a GTO that are
withdrawn from the GTO for any reason prior to the Maturity Date.
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Maturity Date – The date on which a GTO matures. The date will be the last day of the calendar quarter during or
within 30 days after the first, third, fifth, seventh or tenth anniversary on which
amounts are allocated to a 1, 3, 5, 7 or 10 year GTO,
respectively. |
Maturity Period – The period during which the value of amounts allocated under a GTO may be withdrawn without
any Market Value Adjustment. The Maturity Period will begin on the day following the
Maturity Date and will end on the 30th day after the Maturity
Date. |
MVA Interest Rate – The rate of interest used in the Market Value Adjustment formula. Depending on the variable
contracts under which the GTO is offered, the interest rate will be the Constant
Maturity Treasury ("CMT") rates, or interest rate swaps, for maturity
durations of 1, 3, 5, 7 and 10 years, as published, on a regular basis, by a commercially reasonable and publicly available source based on treasury bond yields. |
Specified Interest Rate – The interest rate guaranteed to be credited to amounts allocated to a GTO as long as the
allocations are not withdrawn prior to the Maturity Date. The Specified Interest Rate
will not be less than the minimum required by applicable state
law. |
Specified Value – The amount of a GTO allocation, plus interest
accrued at the Specified Interest Rate, minus any other amounts
withdrawn. The Specified Value is subject to a Market Value Adjustment at all times other than during the Maturity Period. |
Information
about the GTOs
GTOs are guaranteed interest rate investment options available under certain variable
contracts issued by Nationwide. There are five different Guaranteed Terms: 1 year; 3 years; 5 years; 7 years; and 10 years. Not all Guaranteed Terms may be available in all states.
A GTO may be purchased using purchase payments made to the variable contracts or by using
funds transferred from other investment options available in the variable contracts. The minimum allocation to a GTO is $1,000 per allocation. Not all of the variable contracts issued by Nationwide offer GTOs. If GTOs are available under a variable annuity contract or
variable life insurance policy, the prospectus for the variable contract and this prospectus must be read together.
The guarantees associated with the GTOs are the exclusive obligation of Nationwide. The Nationwide Multiple Maturity Separate Account, authorized and created in accordance with Ohio law, was established for the sole purpose of reserving and
accounting for assets associated with the GTOs. Its assets are owned by Nationwide. Contract owners with GTOs have no claim against, and maintain no interest in, the assets. Also,
contract owners do not participate in the investment experience.
Amounts allocated to a GTO will be credited interest at the Specified Interest Rate for the
duration of the Guaranteed Term at a rate no less than the minimum required by applicable state law. Specified Interest Rates are declared periodically at Nationwide's sole discretion and available for new allocations typically for one month. They may be
available for longer or shorter periods depending on interest rate fluctuations in financial markets. During this time, any transfer allocation or new purchase payment allocation to a GTO will earn the Specified Interest Rate effective for that
Investment Period for the duration of the Guaranteed Term. Guaranteed Terms may extend up to three months beyond the 1-, 3-, 5-, 7- or 10-year term since GTO terms will always end on the final day of a calendar quarter (see
The Specified Interest Rate, The Investment Period, and Guaranteed Terms).
The Specified Interest Rate will be credited daily to amounts allocated
to a GTO to provide an annual effective yield. The Specified Interest Rate will continue to be credited as long as allocations remain in the GTO until the Maturity Date. Any
withdrawal prior to the Maturity Date will be subject to a Market Value Adjustment.
Nationwide applies the Market Value Adjustment by using the Market Value
Adjustment factor, which is derived from the Market Value Adjustment formula. The Market Value Adjustment factor is multiplied by the part of the Specified Value being withdrawn, resulting in either an increase or decrease in the amount of the withdrawal. The Market Value Adjustment
formula reflects the relationship between three components:
(1)
the MVA Interest Rate for the period coinciding with the Guaranteed Term of the GTO at
investment;
(2)
the MVA Interest Rate for the number of years remaining in a Guaranteed Term when the
withdrawal from the GTO occurs; and
(3)
the number of days
remaining in the Guaranteed Term of the GTO.
Generally, the Market Value Adjustment formula approximates the relationship between
prevailing interest rates at the time of the GTO allocation, prevailing interest rates at the time of the withdrawal, and the amount of time remaining in a Guaranteed Term (see The Market Value Adjustment).
Contract owners having GTOs with Maturity Dates coinciding with the end of the calendar quarter will be notified of the impending expiration of the Guaranteed Term at least 15 days and at most 30 days prior to the end of each calendar quarter.
Contract owners will then have the option of directing the withdrawal of any amount in the GTO during the Maturity Period without any Market Value Adjustment. However, any amount
withdrawn from the GTO during this period may be subject to a surrender charge assessed by the variable contract. Please refer to the prospectus for the variable contract for more information about surrender charges.
If no direction is received by the 30th day following the Maturity Date, amounts in the GTO
will be automatically transferred (with no Market Value Adjustment) to the money market sub-account available in the variable contract. For the period commencing with the first day after the Maturity Date and ending on the 30th day following the Maturity Date, the GTO will
be credited with the same Specified Interest Rate in effect before the Maturity Date (see
GTOs at Maturity).
The minimum amount of any allocation to a GTO is $1,000.
Under certain rare circumstances, when volatility
in financial markets compromises the ability of Nationwide to process allocations to or from the GTOs in an orderly manner, Nationwide may temporarily suspend the right to make
additional allocations to the GTOs and/or to effect transfers or withdrawals from the GTOs. Nationwide anticipates invoking this suspension only when these transactions cannot be executed by Nationwide in a manner consistent with its obligations to
contract owners with existing or prospective interests in one or more GTOs. Under no circumstances, however, will
Nationwide limit a contract owner's right to make at least one allocation to a GTO and one withdrawal from a GTO in any calendar year. All contract owners will be promptly notified of Nationwide's determination to invoke any suspension in the
right to make allocations to or to effect withdrawals from the GTOs.
In addition, the variable contracts that offer GTOs may impose certain restrictions on the
transferability of invested assets within the variable contract. The variable product prospectus should be reviewed with regard to specific transfer limitation provisions.
The Specified Interest Rate
The Specified Interest Rate is the rate of interest guaranteed by
Nationwide to be credited to amounts allocated to the GTOs for the Guaranteed Term. Different Specified Interest Rates may be established for the five available GTO terms. Amounts withdrawn from a GTO prior to the maturity date will be subject to a Market Value Adjustment.
Generally, Nationwide will declare new Specified Interest Rates monthly.
However, depending on interest rate fluctuations, Nationwide may declare new Specified Interest Rates more or less frequently.
Nationwide observes no specific method in establishing the Specified Interest Rates. However, Nationwide will attempt to declare Specified Interest Rates that are related to interest rates associated with fixed-income investments available at the
time and having durations and cash flow attributes compatible with the Guaranteed Terms of the GTOs. In addition, the establishment of Specified Interest Rates may be influenced by other factors, including competitive considerations,
administrative costs and general economic trends. Nationwide has no way of precisely predicting what Specified Interest Rates may be declared in the future, however, the Specified Interest Rate will not be less than the minimum rate required by
applicable state law.
The Investment Period is the period of time during which a particular Specified Interest Rate
is in effect for new allocations to the available GTOs. All allocations made to a GTO during an Investment Period are credited with the Specified Interest Rate in effect at the time of allocation. An Investment Period ends when a new Specified Interest Rate relative to the
applicable GTO is declared. Subsequent declarations of new Specified Interest Rates have no effect on allocations made to GTOs during prior Investment Periods. Prior allocations to the GTO will be credited with the Specified Interest Rate in
effect when the allocation was made.
Interest at the Specified Interest Rate is credited to allocations made to GTOs on a daily
basis, resulting in an annual effective yield guaranteed by Nationwide, unless amounts are withdrawn from the GTO for any reason prior to the Maturity Date. Interest at the Specified Interest Rate will be credited for the entire Guaranteed Term. If amounts are withdrawn from
the GTO for any reason prior to the Maturity Date, a Market Value Adjustment will be applied to that amount.
Information concerning the Specified Interest Rates in effect for the
various GTOs can be obtained by contacting Nationwide.
The Guaranteed Term is the period of time corresponding to the selected GTO for which the Specified Interest Rate is
guaranteed to be in effect. A Guaranteed Term always expires on a Maturity Date which will be the last day of a calendar quarter. Consequently, a Guaranteed Term may last up to three months longer than the anniversary date of the allocation to
the GTO.
For example, if an allocation is made to a 10-year GTO on August 1, 2015, the Specified Interest Rate for that GTO will be credited until September 30, 2025; the Guaranteed Term will begin on August 1, 2015, and end on September 30, 2025.
Guaranteed Terms will be exactly 1, 3, 5, 7 or 10 years only when an allocation to a GTO occurs on the last day of a calendar quarter.
GTOs at Maturity
Nationwide will send notice to contract owners of impending Maturity Dates (always the last day of a calendar quarter) at
least 15 days and at most 30 days prior to the end of a Guaranteed Term. The notice will include the projected value of the GTO on the Maturity Date, and will also specify options that contract owners have with respect to the maturing GTO.
Once the GTO matures, contract owners may:
(1)
surrender the GTO, in part or in whole, without a Market Value Adjustment during the Maturity
Period; however, any surrender charges that may be applicable under the variable contract will be assessed;
(2)
transfer (all or part) of the GTO, without a Market Value Adjustment, to any other permitted
investment option under the variable contract, including any permitted underlying mutual fund sub-accounts, or another GTO of the same or different duration during the Maturity Period. A confirmation of any such transfer will be sent immediately after
the transfer is processed; or
(3)
elect not to transfer or surrender all or a portion of the GTO, in which case the GTO will be
automatically transferred to the available money market sub-account of the contract at the end of the Maturity Period. A confirmation will be sent immediately after the automatic transfer is executed.
If no direction is received by
Nationwide prior to the Maturity Date, all amounts in that GTO will be transferred to the available money market sub-account of the variable contract.
The GTO will continue to be credited with the Specified Interest Rate in effect before the Maturity Date during the Maturity Period, and prior to any of the transactions set forth in (1), (2), or (3) above.
Withdrawals Prior to the Maturity Date
Anytime value is removed from the GTO it will be referred to in this prospectus as a withdrawal. However, under the variable
contract, withdrawals of value from the GTO may be considered a transfer among investment options of the variable contract or a surrender. Depending upon the transaction and the
terms of the variable contract, additional conditions or charges may apply to withdrawals from the GTO. Please refer to the variable contract prospectus for information regarding transferring assets among investment options or taking surrenders from the variable contract.
Withdrawals from the GTOs prior to the Maturity Date will be subject to a Market Value Adjustment.
The Market Value Adjustment
The Market Value Adjustment is determined by multiplying a Market Value
Adjustment factor (arrived at by using the Market Value Adjustment formula) by the Specified Value, or the portion of the Specified Value being withdrawn. The Specified Value is the amount allocated to the GTO, plus interest accrued at the Specified Interest Rate, minus prior
withdrawals. The Market Value Adjustment may either increase or decrease the amount of the withdrawal.
The Market Value Adjustment is intended to approximate, without duplicating, Nationwide's experience when it liquidates assets in order to satisfy contractual obligations. Such obligations arise when contract owners make withdrawals, or when
the operation of the variable contract requires a distribution. Nationwide does not make the adjustment on distributions to pay death benefits in certain jurisdictions. When liquidating assets, Nationwide may realize either a gain or a loss.
The Market Value Adjustment formula used to determine the Market Value Adjustment
factor is based on either the Constant Maturity Treasury (CMT) rates or interest rate swaps, depending on the variable contracts under which the GTO is offered. CMT rates and interest rate swaps are published on a regular basis. Nationwide either uses CMT rates or interest
rate swaps in its Market Value Adjustment formula because they represent a readily available and consistently reliable interest rate benchmark in financial markets, which can be
relied upon to reflect the relationship between Specified Interest Rates declared by Nationwide and the prospective interest rate fluctuations.
CMT rates and interest rate swaps for 1, 3, 5, 7 and 10 years are published on a regular basis. To the extent that the Market Value Adjustment formula shown below requires a rate associated with a maturity not published (such as a 4, 6, 8 or 9
year maturity), Nationwide will calculate such rates based on the relationship of the published rates. For example, if the published 3-year rate is 6% and the published 5-year rate
is 6.50%, the 4-year rate will be calculated as 6.25%.
The Market
Value Adjustment Formula
The Market Value Adjustment formula is used when a withdrawal is made from a GTO during the Guaranteed Term. The Market Value Adjustment is a calculation expressing the relationship between three factors:
(1)
the MVA Interest Rate for the period of time coinciding with the Guaranteed Term of the
GTO;
(2)
the MVA Interest Rate for a period coinciding with the time remaining in the Guaranteed Term of
a GTO when a withdrawal giving rise to a Market Value Adjustment occurs; and
(3)
the number of days
remaining in the Guaranteed Term of the GTO.
The formula for determining the Market Value Adjustment factor is:
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the MVA Interest Rate for a period equal to the Guaranteed Term at the time of deposit in the GTO; |
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the MVA Interest Rate at the time of withdrawal for a period of time equal to the time remaining in the Guaranteed
Term. In determining the number of years to maturity, any partial year will be counted as a full year,
unless it would cause the number of years to exceed the Guaranteed Term;
and |
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the number of days until the Maturity Date, divided by 365.25. |
In certain jurisdictions the denominator is 1+b without the addition of .0025.
In the case of "a" above, the MVA Interest Rate used will either be the CMT rate or interest rate swap, depending on the variable contract. For variable contracts using CMT rates, "a" will be the CMT rate published on Fridays and placed in effect by Nationwide for allocations made to the GTO on the following Wednesday through Tuesday. For variable contracts using interest rate swaps, "a" is the interest rate swap published two days before the date the allocation to the GTO was made.
In the case of "b" above, the MVA Interest Rate used will either be the CMT
rate or interest rate swap, depending on the variable contract. For variable contracts using CMT rates, "b" will be the CMT rate published on Fridays and placed
in effect by Nationwide for withdrawals giving rise to a Market Value Adjustment on the following Wednesday through Tuesday. For variable contracts using interest rate swaps, "b" is the interest rate swap published two days before the date of withdrawal giving rise to a Market Value Adjustment.
The Market Value Adjustment factor will be equal to one during the Investment Period.
The Market Value Adjustment formula shown above also accounts for some of the administrative and processing expenses incurred when fixed-interest investments are liquidated. This is represented by the addition of .0025 in the Market
Value Adjustment formula.
The result of the Market Value Adjustment formula shown above is the Market Value Adjustment factor. The Market Value
Adjustment factor is multiplied by the Specified Value, or that portion of the Specified Value being distributed from a GTO, in order to effect a Market Value Adjustment. The Market Value Adjustment factor will either be greater than, less than, or
equal to one and will be multiplied by the Specified Value (or a portion of the Specified Value) being withdrawn from the GTO for any reason. If the Market Value Adjustment factor is greater than one, a gain will be realized by the contract
owner. If the Market Value Adjustment factor is less than one, a loss will be realized. If the Market Value Adjustment factor is exactly one, no gain or loss will be realized.
If CMT rates or interest rate swaps are no longer published by a commercially reasonable and
publicly available source, or if, for any other reason, they are not available, Nationwide will use appropriate rates based on U.S. Treasury Bond yields.
Examples of how to calculate Market Value Adjustments based on CMT rates are provided in Appendix A.
Variable Contract Charges
The variable contracts under which GTOs are made available have various fees and charges, some of which may be assessed
against allocations made to GTOs. Contract charges assessed against allocations made to the GTOs will reduce the credited guaranteed interest rate by the amount of the applicable
charge. The variable contract prospectuses fully describe these fees and charges and any impact such charges may have on the credited guaranteed interest rate of the GTOs.
The variable contracts that offer the GTOs may also have surrender charges. If a variable contract owner takes a withdrawal from the GTO (prior to the Maturity Date) that is also considered a surrender from the variable contract, the
amount will be subject to a Market Value Adjustment in addition to any surrender charge assessed pursuant to the terms of the variable contract. Please refer to the variable contract prospectus for more information about variable contract
transactions that may incur surrender charges and/or a Market Value Adjustment.
GTOs are not available as investment options for variable annuity contracts that are annuitized. If a variable annuity
contract is annuitized prior to the Maturity Date of the GTO, a Market Value Adjustment will apply to amounts transferred from the GTO to other investment options under the variable annuity contract (unless such an adjustment is not permitted in
your jurisdiction).
Withdrawals prior to the Maturity Date will be subject to a Market Value Adjustment.
Withdrawals for any reason prior to the Maturity Date, including for the purpose of annuitizing the variable annuity contract
that the GTO is offered through, will be subject to a Market Value Adjustment. The Market Value Adjustment may decrease the value of the withdrawal.
Suspension of allocations to or from the GTOs.
If volatility in financial markets compromises the ability of Nationwide to process allocations to or from the GTOs in an
orderly manner, Nationwide may temporarily suspend the right to make additional allocations to the GTOs and/or to effect transfers or withdrawals from the GTOs.
Guarantees subject to the claims paying ability of Nationwide.
The guarantees associated with the GTOs are the sole responsibility of Nationwide. The guarantees associated with the GTOs
are paid from Nationwide's general account and, therefore, are subject to the rights of Nationwide's creditors and ultimately, its overall claims paying ability.
Variable Annuity contract charges will reduce the credited guaranteed interest rate.
GTOs are available as investment options under variable annuity contracts. The variable annuity contracts have fees and
charges, some of which may be assessed against allocations made to the GTO. The variable annuity contract's fees and charges assessed against allocations made to the GTO will reduce the credited guaranteed interest rate by the amount of the
applicable fee or charge.
Business Continuity Risk.
Nationwide is exposed to risks related to natural and man-made disasters, such as storms,
fires, earthquakes, public health crises, geopolitical disputes, military actions, and terrorist acts, which could adversely affect Nationwide’s ability to administer the contracts. Nationwide has adopted business continuity policies and procedures that may be implemented in the
event of a natural or man-made disaster, but such business continuity plans may not operate as intended or fully mitigate the operational risks associated with such
disasters.
Nationwide outsources certain critical business functions to third parties and, in the event of a natural or man-made
disaster, relies upon the successful implementation and execution of the business continuity planning of such entities. While Nationwide closely monitors the business continuity activities of these third parties, successful implementation and
execution of their business continuity strategies
are largely beyond Nationwide’s control. If one or more of the third parties to whom Nationwide outsources such critical business functions experience operational failures,
Nationwide’s ability to administer the contract could be impaired.
Nationwide’s businesses are highly dependent upon its computer systems and those of its business partners and service
providers. This makes Nationwide susceptible to operational and information security risks resulting from a cybersecurity incident. These risks include direct risks, such as theft, misuse, corruption and destruction of data maintained by
Nationwide, and indirect risks, such as denial of service, attacks on systems or websites and other operational disruptions that could severely impede Nationwide’s ability to conduct its businesses and administer the contract (e.g., calculate
Contract Values or process transactions).
Financial services companies and their third-party service providers are increasingly the
targets of cyber-attacks involving the encryption and/or threat to disclose personal or confidential information (e.g., ransomware) or disruptions of communications (e.g., denial of service) to extort money or for other malicious purposes. The techniques used to attack
systems and networks change frequently, are becoming more sophisticated, and can originate from a wide variety of
sources. The use of remote or flexible work arrangements, remote access tools, and mobile technology have expanded potential targets for cyber-attack.
Cyber-attacks affecting Nationwide, Index providers, intermediaries, and service providers
may adversely affect Nationwide and Contract Values. As a result of a cybersecurity incident, Nationwide may be subject to regulatory
fines, private
claims, and financial losses and/or reputational damage. There may be an increased risk of cyber-attacks during
periods of geopolitical or military conflict. Although Nationwide undertakes substantial efforts to protect its computer systems from cyber-attacks, including internal processes and technological defenses that are preventative or detective, and
other controls designed to provide multiple layers of security assurance, there can be no guarantee that Nationwide or its service providers will avoid cybersecurity incidents affecting Contract Owners in the future. It is possible that a cybersecurity
incident could persist for an extended period of time without detection.
In the event that Contract
administration or Contract Values are adversely affected as a result of a failure of Nationwide’s cybersecurity controls, Nationwide will take reasonable steps to take corrective action and restore Contract Values to the levels that they would have been had the cybersecurity incident not occurred. Nationwide will
not, however, be responsible for any adverse impact to Contracts or Contract Values that result from the Contract Owner or
its designee’s negligent acts or failure to use reasonably appropriate safeguards to protect against cyber-attacks or to protect personal information.
Nationwide Life Insurance Company
Nationwide is a stock life insurance company organized under Ohio law in March, 1929, with its home office at One Nationwide
Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and retirement products. It is admitted to do business in all states, the District of Columbia,
Guam, the U.S. Virgin Islands, and Puerto Rico.
Nationwide is a member of the Nationwide group of companies. Nationwide Mutual Insurance Company and Nationwide Mutual Fire
Insurance Company (the "Companies") are the ultimate controlling persons of the Nationwide group of companies. The Companies were organized under Ohio law in December of 1925 and
1933 respectively. The Companies engage in a general insurance and reinsurance business, except life insurance.
Nationwide is relying on the exemption provided by Rule 12h-7 under the Securities Exchange Act of 1934 ("1934 Act"). In reliance on that exemption, Nationwide does not file periodic reports that would be otherwise required under the 1934 Act.
You can request additional information about Nationwide by contacting
us:
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In writing: P.O. Box 182021, Columbus, Ohio 43218-2021
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By telephone: 1-800-848-6331, TDD 1-800-238-3035
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By the internet: http://www.nationwide.com/nw/investor-relations/index.htm
Nationwide intends to invest amounts allocated to GTOs in high quality, fixed interest
investments (investment grade bonds, mortgages, and collateralized mortgage obligations) in the same manner as Nationwide invests its general account assets. Nationwide takes into account the various maturity durations of the GTOs (1, 3, 5, 7 and 10 years) and anticipated
cash-flow requirements when making investments.
Nationwide is not obligated to invest GTO allocations in accordance with any particular investment objective, but will generally adhere to Nationwide's overall investment
philosophy. The Specified Interest Rates declared by Nationwide for the various GTOs will not necessarily correspond to the performance of the non-unitized separate account.
Contracts and the Distribution (Marketing) of the GTOs
The GTOs are available only as investment options under certain variable
contracts issued by Nationwide. The appropriate variable contract prospectus and, if applicable, the Statement of Additional Information should be consulted for information regarding the distribution of the variable contracts.
Legal matters in connection with federal laws and regulations affecting the issue and sale of
the GTOs described in this Prospectus and the organization of Nationwide, its authority to issue GTOs under Ohio law, and the validity of the endorsement to the variable annuity contracts under Ohio law have been passed on by Nationwide's Office of General
Counsel.
The statutory financial statements and financial statement schedules of Nationwide Life
Insurance Company as of December 31, 2023 and 2022, and for each of the years in the three-year period ended December 31, 2023, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
The KPMG LLP report dated March 20, 2024 of Nationwide Life Insurance Company includes
explanatory language that states that the financial statements are prepared by Nationwide Life Insurance Company using statutory accounting practices prescribed or permitted by the Ohio Department of Insurance, which is a basis of accounting other than U.S.
generally accepted accounting principles. Accordingly, the KPMG LLP audit report states that the financial statements are not presented fairly in accordance with U.S. generally accepted accounting principles and further states that those
financial statements are presented fairly, in all material respects, in accordance with statutory accounting
practices prescribed or permitted by the Ohio Department of Insurance.
The KPMG LLP report dated March 20, 2024 of Nationwide Life Insurance Company also contains
an emphasis of matter paragraph that states that Nationwide Life Insurance Company’s subsidiary received permission from the Ohio Department of Insurance in 2023 to account for an excess of loss reinsurance recoverable as an admitted asset. Under
prescribed statutory accounting practices, the excess of loss reinsurance recoverable would not be an admitted asset. As of December 31, 2023, that permitted accounting practice increased statutory surplus over what it would have been had that
prescribed accounting practice been followed. KPMG LLP’s opinions are not modified with respect to this matter.
Disclosure of Commission Position on Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "1933 Act") may be permitted to directors, officers and controlling persons of Nationwide, Nationwide has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Nationwide will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
Nationwide Life Insurance Company
Nationwide Financial Services, Inc. (NFS, or collectively with its subsidiaries, the "Company") was formed in November 1996.
NFS is the holding company for Nationwide Life Insurance Company (NLIC), Nationwide Life and Annuity Insurance Company (NLAIC) and other companies that comprise the life insurance
and retirement savings operations of the
Nationwide group of companies (Nationwide). This
group includes Nationwide Financial Network (NFN), an affiliated distribution network that markets directly to its customer base. NFS is incorporated in Delaware and maintains its
principal executive offices in Columbus, Ohio.
The Company is subject to legal and regulatory proceedings in the ordinary course of its
business. These include proceedings specific to the Company and proceedings generally applicable to business practices in the industries in which the Company operates. The outcomes of these proceedings cannot be predicted due to their complexity, scope, and many
uncertainties. The Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory proceedings is not likely to have a material adverse effect on the Company’s financial
condition.
The various businesses conducted by the Company are subject to oversight by numerous federal
and state regulatory entities, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the Internal Revenue Service, the Office of the Comptroller of the Currency, and state insurance
authorities. Such regulatory entities may, in the normal course of business, be engaged in general or targeted inquiries, examinations and investigations of the Company and/or its affiliates. With respect to all such scrutiny directed at the
Company or its affiliates, the Company is cooperating with regulators.
Appendix
A
Assume that a variable annuity contract owner made a $10,000 allocation on the last day of a
calendar quarter into a 5-year Guaranteed Term Option. The Specified Interest Rate at the time is 8.5% and the 5-year CMT rate in effect is 8%. The variable annuity contract owner decides to surrender the GTO 985 days from maturity. The Specified Value of the GTO is
$12,067.96. At this time, the 3-year CMT rate is 7%. (985/365.25 is 2.69, which rounds up to 3, so the 3-year CMT Rate is used.)
*
Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not
permitted in the denominator, the Surrender Value is $12,374.52.
Specified Value (for purposes of
this Example) = the amount of the GTO allocation ($10,000), plus interest accrued at the Specified Interest Rate (8.5%).
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The CMT rate published on Friday, and placed in effect by Nationwide for allocations made to the GTO on the
following Wednesday through Tuesday. |
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The CMT rate published on Friday, and placed in effect by Nationwide for withdrawals, transfers or other
distributions giving rise to a Market Value Adjustment on the following Wednesday through
Tuesday. |
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The number of days remaining in the Guaranteed Term. |
Example B
Assume that a variable annuity contract owner made a $10,000 allocation on the last day of a calendar quarter into a 5-year
Guaranteed Term Option. The Specified Interest Rate at the time is 8.5% and the 5-year CMT rate in effect is 8%. The variable annuity contract owner decides to surrender his money
985 days from maturity. The Specified Value of the GTO is $12,067.96. At this time, the 3-year CMT rate is 9%. (985/365.25 is 2.69, which rounds up to 3, so the 3-year CMT Rate is used.)
*
Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not
permitted in the denominator, the Surrender Value is $11,771.69.
Specified Value (for purposes of
this Example) = the amount of the GTO allocation ($10,000), plus interest accrued at the Specified Interest Rate (8.5%).
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The CMT rate published on Friday, and placed in effect by Nationwide for allocations made to the GTO on the
following Wednesday through Tuesday. |
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The CMT rate published on Friday, and placed in effect by Nationwide for withdrawals, transfers or other
distributions giving rise to a Market Value Adjustment on the following Wednesday through
Tuesday. |
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The number of days remaining in the Guaranteed Term. |
Example C
Assume that a variable annuity contract owner made a $10,000 allocation on the last day of a calendar quarter into a 5-year
Guaranteed Term Option. The Specified Interest Rate at the time is 8.5% and the 5-year interest rate swap in effect is 8%. The variable annuity contract owner decides to surrender
the GTO 985 days from maturity. The Specified Value of the GTO is $12,067.96. At this time, the 3-year interest rate swap is 7%. (985/365.25 is 2.69, which rounds up to 3, so the
3-year interest rate swap is used.)
*
Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not
permitted in the denominator, the Surrender Value is $12,374.52.
Specified Value (for purposes of
this Example) = the amount of the GTO allocation ($10,000), plus interest accrued at the Specified Interest Rate (8.5%).
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The interest rate swap published two days before the date the allocation to the GTO was made. If no interest rate
swap is available for this date, then the most recent available rate prior to that date will be
used. |
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The interest rate swap published two days before the date of withdrawal, transfer or other distribution giving rise to
a Market Value Adjustment. If no interest rate swap is available for this date, then the most recent
available rate prior to that date will be used. |
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The number of days remaining in the Guaranteed Term. |
Example D
Assume that a variable annuity contract owner made a $10,000 allocation on the last day of a calendar quarter into a 5-year
Guaranteed Term Option. The Specified Interest Rate at the time is 8.5% and the 5-year interest rate swap in effect is 8%. The variable annuity contract owner decides to surrender
the GTO 985 days from maturity. The Specified Value of the GTO is $12,067.96. At this time, the 3-year interest rate swap is 9%. (985/365.25 is 2.69, which rounds up to 3, so the
3-year interest rate swap is used.)
*
Assumes no variable annuity contract contingent deferred sales charges are applicable. In jurisdictions where the .0025 is not
permitted in the denominator, the Surrender Value is $11,771.69.
Specified Value (for purposes of
this Example) = the amount of the GTO allocation ($10,000), plus interest accrued at the Specified Interest Rate (8.5%).
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The interest rate swap published two days before the date the allocation to the GTO was made. If no interest rate
swap is available for this date, then the most recent available rate prior to that date will be
used. |
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The interest rate swap published two days before the date of the withdrawal, transfer or other distribution giving
rise to a Market Value Adjustment. If no interest rate swap is available for this date, then the most
recent available rate prior to that date will be used. |
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The number of days remaining in the Guaranteed Term. |
The table set forth below illustrates the impact
of a Market Value Adjustment applied upon a full surrender of a 10-year GTO allocation, at various stages of the corresponding Guaranteed Term. These figures assume a $10,000
allocation to the 10-year GTO on the last day of a calendar quarter. These figures assume a Specified Interest Rate of 8.5% on the date the allocation to the GTO was made. These figures are based on a 10-year CMT rate of 8% in effect on the date the
allocation to the GTO was made (a in the Market Value Adjustment Formula) and varying current yield CMT rates shown in the first column (b in the Market Value Adjustment Formula).
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Time Remaining to the End of the
Guaranteed Term |
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APPENDIX
B
NATIONWIDE LIFE INSURANCE COMPANY
(A Wholly Owned Subsidiary of Nationwide Financial Services, Inc.)
2023 Form S-1 MD&A, Statutory Financial Statements and Supplemental Schedules
BUSINESS
Nationwide Life Insurance Company ("NLIC" or "the Company") is an Ohio domiciled stock life
insurance company. The Company is a member of the Nationwide group of companies ("Nationwide"), which is comprised of Nationwide Mutual Insurance Company ("NMIC") and all of its affiliates and subsidiaries.
All of the outstanding shares of NLIC’s common stock are owned by Nationwide Financial
Services, Inc. ("NFS"), a holding company formed by Nationwide Corporation ("Nationwide Corp."), a majority-owned subsidiary of NMIC.
The Company is a leading provider of long-term savings and retirement products in the United States of America ("U.S."). The
Company develops and sells a wide range of products and services, which include life insurance, fixed and
variable individual annuities, private and public sector group retirement plans, investment advisory services,
pension risk transfer ("PRT") contracts and other investment products. The Company is licensed to conduct business in all fifty states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
Wholly-owned subsidiaries of NLIC as of December 31, 2023 include Nationwide Life and Annuity Insurance Company ("NLAIC") and its wholly-owned subsidiaries, Olentangy Reinsurance, LLC ("Olentangy") and Nationwide SBL, LLC ("NWSBL"),
Jefferson National Life Insurance Company ("JNL") and its wholly-owned subsidiary, Jefferson National Life
Insurance Company of New York ("JNLNY"), Eagle Captive Reinsurance, LLC ("Eagle"), Nationwide Investment Services
Corporation ("NISC") and Nationwide Investment Advisors, LLC ("NIA"). NLAIC primarily offers individual annuity contracts including fixed annuity contracts, group annuity contracts including PRT contracts, universal life insurance, variable
universal life insurance, term life insurance and corporate-owned life insurance on a non-participating basis. Olentangy is a dormant Vermont domiciled special purpose financial
insurance company and nonadmitted subsidiary. NWSBL is an Ohio limited liability company and offers a
securities-based lending product and is a nonadmitted subsidiary. JNL and JNLNY primarily offer individual
deferred fixed and variable annuity products. Eagle is an Ohio domiciled special purpose financial captive
insurance company. NISC is a registered broker-dealer. NIA is a registered investment advisor and nonadmitted
subsidiary.
Management views the Company’s business primarily based on its underlying products and uses this basis to define its
four reportable segments: Life Insurance, Annuities, Retirement Solutions and Corporate Solutions and Other.
"Pre-tax operating earnings (losses)" used below is defined as income before federal income tax expense and net realized capital gains and losses on investments.
The Life Insurance segment consists of life insurance products, including individual variable universal life insurance
products, traditional life insurance products, fixed universal life insurance products and indexed universal life insurance products. Life insurance products provide a death benefit and, for certain products, allow the customer to build cash value
on a tax-advantaged basis.
The following table summarizes selected financial data for the Company’s Life Insurance
segment for the years ended:
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Pre-tax operating earnings (losses) |
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The Annuities segment consists of individual deferred annuity products and immediate annuities. Individual deferred annuity
contracts consist of deferred variable annuity contracts, deferred fixed annuity contracts, deferred registered index-linked annuity contracts and deferred fixed indexed annuity contracts. Deferred annuity contracts provide the customer with tax-deferred
accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, deferred variable annuity contracts
provide the customer with access to a wide range of investment options and asset protection features. Deferred fixed annuity contracts offered by the Company generate a return for the customer at a specified interest rate fixed for prescribed periods. Deferred registered index-linked
annuity contracts and deferred fixed indexed annuity contracts are linked to the performance of an external index and subject to other factors that determine the performance of the contract. Immediate annuities differ from deferred annuities
in that the initial premium is exchanged
for a stream of income for a certain period and/or for the owner’s lifetime without future access to the original investment. The selected financial data for the Company’s Annuities segment for the years ended December 31, 2022 and 2021,
reflect transfers for retirement plan guarantee products to the Retirement Solutions segment beginning in 2023.
The following table summarizes selected financial data for the Company’s Annuities segment for the years ended:
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The Retirement Solutions segment is composed of the private and public sector retirement plans businesses. The private sector business primarily includes Internal
Revenue Code ("IRC") Section 401-qualified plans funded through fixed and variable group annuity contracts. The public sector business primarily includes IRC Section 457(b) and
Section 401(a) governmental plans, both in the form of full-service arrangements that provide plan administration along with fixed and variable group annuities, as well as in the form of administration-only business. The Retirement Solutions segment also
includes stable value wrap products and solutions. The selected financial data for the Company’s
Retirement Solutions segment for the years ended December 31, 2022 and 2021, reflect transfers for retirement plan guarantee products from the Annuities segment beginning in 2023.
The following table summarizes selected financial data for the Company’s Retirement
Solutions segment for the years ended:
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Corporate Solutions
and Other
The Corporate Solutions and Other segment consists of corporate-owned life insurance
("COLI") and bank-owned life insurance ("BOLI") products, PRT, small business group life insurance, spread income on Federal Home Loan Bank of Cincinnati ("FHLB") funding agreements and net investment income on invested assets not assigned to other reportable
segments. Certain COLI and BOLI products include stable value wrap products and solutions.
The following table summarizes selected financial data for the
Company’s Corporate Solutions and Other segment for the years ended:
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Marketing and Distribution
The Company sells its products through a diverse distribution network. Unaffiliated entities that sell, recommend or direct the purchase of
the Company’s products to their own customer bases include independent broker-dealers, financial
institutions, wirehouses and regional firms, pension plan administrators, life insurance agencies, life insurance specialists and registered investment advisors. Affiliates that
market products directly to a customer base include Nationwide Retirement Solutions, Inc. ("NRS"), Nationwide Securities, LLC ("NSLLC") and Nationwide Financial General Agency,
Inc. ("NFGA"). The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively under various economic conditions.
Unaffiliated Distribution
Independent Broker-Dealers, Registered Investment Advisors, Regional Firms and Life Insurance Agencies.
The Company sells individual annuities, mutual funds, group retirement plans, PRT and life insurance products through, or at the recommendation or direction of, independent broker-dealers, registered investment advisors and agencies (including brokerage general agencies in the Life Insurance and Annuities segments) and regional firms in each state and the District
of Columbia. The Company also provides information and education to registered investment advisors who may recommend these products to their
customers. The Company believes that it has developed strong relationships based on its diverse product mix,
large selection of fund options and administrative technology. In addition to such relationships, the Company believes its financial strength and the Nationwide brand name are
competitive advantages in these distribution channels. The Company regularly seeks to expand this distribution network.
Financial Institutions and Wirehouses. The Company markets individual annuities, mutual funds, private
sector retirement plans and life insurance products through financial institutions and wirehouses, consisting primarily of banks and their subsidiaries. The Company markets individual annuities and life insurance products under its brand name and on a
private-label basis. The Company believes that it has competitive advantages in this distribution channel, including its expertise in training financial institution personnel to sell annuities, life insurance and pension products, its breadth of
product offerings, its financial strength, the Nationwide brand name and the ability to offer private-label products.
Pension Plan Administrators. The Company markets group retirement plans organized pursuant to IRC Section
401 and sponsored by employers as part of employee retirement programs through regional pension plan administrators. The Company also has linked pension plan administrators to the financial planning community to sell group pension products. The
Company targets employers with 25 to 2,000 employees because it believes that these plan sponsors tend to require extensive record-keeping services from pension plan
administrators, and therefore are more likely to become long-term customers.
Life Insurance Specialists. The Company markets COLI and BOLI through life insurance specialists, which are firms that specialize in the design,
implementation and administration of executive benefit plans.
NRS. NRS markets various products and services to the public sector, primarily on a retail basis, through
several sales organizations. NRS markets group variable annuities and fixed annuities, as well as administration and record-keeping services to state and local governments for use in their IRC Section 457 and Section 401(a) retirement programs. NRS
maintains endorsement arrangements with state and local government entities, including the National Association of Counties and the International Association of Fire Fighters.
Affiliated Producers. The Company has affiliated producers that are authorized to distribute life insurance, annuity and mutual fund products, as well as individual
securities and investment advisory services. Producers licensed and appointed through NFGA sell fixed life insurance and fixed annuities to individual consumers. Producers licensed and registered with NSLLC, a registered broker-dealer and federally registered investment advisor, offer variable life insurance and variable
annuities, as well as various other securities and investment advisory services.
The Company follows the industry practice of reinsuring with other companies a portion of its
life insurance, annuity and accident and health risks in order to reduce the net liability on individual risks, to provide protection against large losses, achieve greater diversification of risks and obtain statutory capital relief. The maximum net amount at risk of individual
ordinary life insurance retained by the Company on any one life is $10 million. The Company cedes insurance on both an automatic basis, whereby risks are ceded to a reinsurer on specific blocks of business where the underlying risks meet
certain predetermined criteria, and on a facultative basis, whereby the reinsurer’s prior approval is required for each risk reinsured.
The Company has entered into reinsurance contracts with certain unaffiliated reinsurers to cede a portion of its general account life, annuity and accident and health business. Total amounts recoverable under these unaffiliated reinsurance
contracts totaled $58 million and $9 million as of December 31, 2023 and 2022, respectively.
Under the terms of certain contracts, specified assets are generally placed in trusts as
collateral for the recoveries. The trust assets are invested in investment-grade securities, the fair value of which must at all times be greater than or equal to 100% or 102% of the reinsured reserves, as outlined in each of the underlying contracts. Certain portions of the
Company’s variable annuity guaranteed benefit risks are also reinsured. These treaties reduce the Company’s exposure to death benefit and income benefit guarantee risk in the Life Insurance and Annuities segments. The Company has no other
material reinsurance arrangements with unaffiliated reinsurers.
The Company’s material reinsurance agreements with affiliates are the modified
coinsurance agreement, pursuant to which NLIC cedes to NMIC nearly all of its accident and health insurance business not ceded to unaffiliated reinsurers, the 100% coinsurance agreement with funds withheld with Eagle to cede specified guaranteed minimum death benefits ("GMDB")
and guaranteed lifetime withdrawal benefits ("GLWB") obligations provided under substantially all of the variable
annuity contracts and certain fixed indexed
annuity contracts issued and to be issued by NLIC, the modified coinsurance agreement with NLAIC, pursuant to which NLIC assumes certain inforce and subsequently issued fixed
individual deferred annuity contracts, the modified coinsurance agreement with NLAIC, pursuant to which NLIC assumes certain variable universal life insurance, whole life insurance and universal life insurance policies, and the 100% coinsurance agreement
with NLAIC, pursuant to which NLIC assumes a certain life insurance contract, as described in Note 11 to the audited statutory financial statements included in the F pages of this report.
Ratings with respect to claims-paying ability and financial strength are one factor in establishing the competitive position of insurance companies. These ratings represent each agency’s opinion of an insurance company’s financial strength,
operating performance, strategic position and ability to meet its obligations to policyholders. Such factors are important to policyholders, agents and intermediaries. They are not evaluations directed toward the protection of investors and are not
recommendations to buy, sell or hold securities. Rating agencies utilize quantitative and qualitative analysis, including the use of key performance indicators, financial and operating ratios and proprietary capital models to establish ratings for the
Company and certain subsidiaries. Ratings are continually evaluated relative to performance, as measured using these metrics and the impact that changes in the underlying business in which it is engaged can have on such measures. In an
effort to minimize the adverse impact of this risk, the Company maintains regular communications with the rating
agencies, performs evaluations utilizing its own calculations of these key metrics and considers such evaluation in the way it conducts its business.
Ratings are important to maintaining public confidence in the Company and its ability to
market annuity and life insurance products. Rating agencies continually review the financial performance and condition of insurers, including the Company. Any lowering of the Company’s ratings could have an adverse effect on the Company’s ability to market its products and could increase the rate of surrender of the Company’s products. Both of these consequences could have an adverse
effect on the Company’s liquidity and, under certain circumstances, net income. As of December 31,
2023, NLIC has a financial strength rating
of "A+" (Superior) from A.M. Best Company, Inc. ("A.M. Best") and its claims-paying ability/financial strength is rated "A1" (Good) by Moody’s Investors Service, Inc.
("Moody’s") and "A+" (Strong) by Standard & Poor’s Rating Services
("S&P").
The Company competes with many other insurers, as well as non-insurance financial services
companies, some of which offer alternative products and, with respect to other insurers, have higher ratings than the Company. While no single company dominates the marketplace, many of the Company’s competitors have greater financial resources and larger
market share than the Company. Competition in the Company’s lines of business is primarily based on price, product features, commission structure, perceived financial strength, claims-paying ability, customer and producer service and name
recognition.
See also "Risk Factors – The Company operates in a highly competitive industry, which can
significantly impact operating results."
Regulation at State Level
NLIC and NLAIC are each domiciled and licensed in the State of Ohio as life insurers. The Ohio Department of Insurance
("the Department") serves as their
domiciliary regulator. NLIC is licensed and regulated as a life insurer in all 50 states, the District of Columbia, Guam, Virgin Islands and Puerto Rico. NLAIC is licensed and
regulated as a life insurer in 49 states (excluding New York) and the District of Columbia. JNL is domiciled in the State of Texas, with the Texas Department of Insurance serving as its domiciliary regulator. JNL is licensed as a life insurer in 49 states (excluding New York) and the
District of Columbia. JNLNY is domiciled and licensed as a life insurer in the state of New York with the New York State Department of Financial Services ("NY DFS") serving as its domiciliary regulator. Eagle is domiciled in Ohio and is licensed
in Ohio as a special purpose financial captive insurance company regulated by the Department. Olentangy is
domiciled in Vermont and is licensed in Vermont as a dormant special purpose financial insurance company regulated by the Vermont Department of Financial Regulation.
State insurance authorities have broad administrative powers with respect to various aspects of the insurance business.
Among other areas, these authorities regulate advertising and marketing; privacy; acquisitions; payment of dividends; the form and content of insurance policies (including pricing); operating and agent licenses; regulation of premium rates;
premium tax increases; rating and underwriting restrictions and limitations; asset and reserve valuation requirements;
enterprise risk management; surplus
requirements; accounting standards; Risk Based Capital ("RBC") requirements; statutory reserve and capital requirements; assessments by guaranty associations; affiliate
transactions; unfair trade and claims practices; admittance of assets to statutory surplus; maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; the type, amounts and valuations of investments permitted; reinsurance
transactions, including the role of captive reinsurers; environmental, social and governance ("ESG") rules and standards including
management and disclosure of climate risks; and other matters.
The National Association of Insurance Commissioners ("NAIC") is the U.S. standard setting and
regulatory support organization created and governed by the chief insurance regulatory authorities of the 50 states, the District of Columbia and the five U.S. territories. A primary mandate of the NAIC is to benefit state insurance regulatory authorities and
consumers by promulgating model insurance laws and regulations for adoption by the states. The NAIC also provides
standardized insurance industry accounting and reporting guidance through the NAIC Accounting Practices and
Procedures Manual ("the Accounting Manual"). However, model insurance laws and regulations are only effective when adopted by the states, and statutory accounting and reporting principles continue to be established by individual state
laws, regulations and permitted practices. Changes to the Accounting Manual or modifications by the various state
insurance departments may affect the statutory capital and surplus of NLIC, NLAIC, JNL, JNLNY, Olentangy and Eagle.
Insurance Holding Company Regulation
NLIC is a wholly-owned subsidiary of NFS, which in turn is a
wholly-owned subsidiary of Nationwide Corp., a wholly-owned subsidiary of NMIC. NMIC is the ultimate controlling entity of the Nationwide group of companies. As such, Nationwide is
subject to certain insurance laws of each of the states of domicile of its insurance subsidiaries and affiliates. All states have enacted legislation that requires each insurance
holding company and each insurance company in an insurance holding company system to register with the insurance regulatory authority of the insurance company’s state of domicile and to furnish annually financial and other information concerning the operations of companies within the
holding company system that materially affect the operations, management or financial condition of the insurers within such system (generally referred to as "insurance holding company acts"). Generally, under such laws, among other
requirements, transactions within the insurance holding company system to which the Company’s operating insurance companies are a party must be fair and reasonable, and, if material or of a specified category, they require prior notice
and approval or non-disapproval by the state of domicile and, in some cases, the state of commercial domicile of each insurance company that is party to the transaction. In addition, under such laws, a state insurance authority usually must
approve in advance the direct or indirect acquisition of 10% or more of the voting securities of an insurance company domiciled in its state.
The NAIC has promulgated model laws for adoption in the U.S. that would provide for "group-wide" supervision of certain
insurance holding companies in addition to the current regulation of insurance subsidiaries. While the timing of their adoption and content will vary by jurisdiction, the following generally represent the areas of focus in these model laws: (1)
uniform standards for insurer corporate governance; (2) group-wide supervision of insurance holding companies; (3) adjustments to risk-based capital calculations to account for group-wide risks; and (4) additional regulatory and disclosure
requirements for insurance holding companies.
Some laws which facilitate group-wide supervision have already been enacted in the
jurisdictions in which the Company operates, such as Own Risk and Solvency Assessment ("ORSA") reporting, which requires larger insurers to assess the adequacy of its and its group’s risk management and current and future solvency position, and Corporate Governance
Annual Disclosure reporting, which requires insurance groups to report on their governance structure, policies and practices. The NAIC utilizes a U.S. group capital calculation ("GCC") using an RBC aggregation methodology. The GCC is intended to be a financial tool to assist regulators in identifying risks that may emanate from a holding company system and
to holistically understand the financial condition of non-insurance entities and how capital is distributed across an entire group. It is a quantitative measure used to complement
the view of group-specific risks provided in the ORSA. In addition, the GCC is intended to comply with the requirements under the Covered Agreements with the European Union ("EU") and the United Kingdom ("UK"). The GCC met the requirement that the States have a "worldwide group capital
calculation" in place by November 7, 2022 in order to avoid the EU or UK from imposing a group capital assessment or requirement at the level of the worldwide parent. The NAIC encouraged states with groups impacted by the Covered Agreements
to adopt the revisions to the NAIC Insurance Holding Company System Model Act (#440) and Insurance Holding Company System Model Regulation (#450) which implements the GCC effective
November 7, 2022. In April 2022, Ohio adopted the revisions to the NAIC Insurance Holding Company System Model
Act (#440) and Insurance Holding Company System Model Regulation (#450) to implement the GCC. As such, Nationwide
filed its first GCC with the Department, the Company’s lead state regulator in
May 2023.
Principle-Based Reserving
In June 2016, the NAIC adopted a recommendation that activated a principle-based reserving approach for life insurance
products. Principle-based reserving
replaced the previous formulaic basis for reserves which did not fully reflect the risks or costs of the
liability or obligations of the insurer. The principle-based reserving approach had a three-year phase in
period. At the Company’s discretion, it could be applied to new individual life business beginning as early as January 1, 2017 and was required to be applied for all new individual life business issued January 1, 2020 and later. The Company
started the application of the
principle-based reserving approach on all new individual life business on January 1, 2020. The principle-based reserving approach did not affect
reserves for policies in force prior to January 1, 2020 and had no material impact on the Company’s statutory financial statements.
In 2019, the NAIC adopted revisions to the Valuation Manual Requirements for Principle-Based Reserves for Variable Annuities ("VM-21"), which provided comprehensive updates to the Commissioners Annuity Reserve Valuation Method of reserving
for variable annuities. VM-21 provided the choice of (1) full adoption beginning January 1, 2020, (2) an election to grade in over 3 years, or (3) an election to grade in over 7
years, subject to commissioner discretion. The Company elected to fully adopt the change in reserving valuation basis as of January 1, 2020.
Captive Reinsurance Regulation
The NAIC Model Regulation entitled "Valuation of Life
Insurance Policies," commonly known as "Regulation XXX," establishes statutory reserve requirements for term life insurance policies and universal life insurance policies with
secondary guarantees, such as those issued by NLAIC and reinsured by Eagle. Actuarial Guideline 38 ("AG 38") clarifies the application of Regulation XXX with respect to certain universal life
insurance products with secondary guarantees. As the result of an NAIC study on the use of captives and special purpose vehicles to transfer insurance risk-related products subject to Regulation XXX and AG 38, Actuarial Guideline 48 ("AG 48") was created. The purpose and intent of AG 48 is to establish uniform, national standards governing Regulation XXX and AG 38 reserve financing arrangements. The provisions of AG 48 apply to new policies that were issued on or after January 1, 2015. The NAIC adopted a revised Credit
for Reinsurance Model Law in January 2016 and the Term and Universal Life Insurance Reserve Financing Model
Regulation (the "Reserve Financing Model Regulation") in December 2016 to replace AG 48. The Reserve Financing
Model Regulation is consistent with AG 48 and will replace AG 48 in a state upon the state’s adoption of
the model law and regulation. The Reserve Financing Model Regulation became an NAIC accreditation standard on
September 1, 2022, although states can use AG 48 to satisfy the accreditation requirement.
In 2018, the NAIC adopted a framework for proposed revisions to the
current Actuarial Guideline No. 43 ("AG 43") and RBC "C-3 Phase II" system applicable to variable annuity
reserves and capital requirements. Changes included: (i) aligning economically-focused hedge assets with
liability valuations; (ii) reforming standard scenarios for AG 43 and C-3 Phase II; (iii) revising asset admissibility for derivatives and deferred tax assets; and (iv)
standardizing capital market assumptions and aligning total asset requirements and reserves. The revised framework was effective January 1, 2020 and includes an optional three-year phase in. The impact to the Company was minimal due to its continued utilization of a
captive which was not impacted by AG 43 and resulted in a reduction of AG 43-related reserves that were not ceded to the captive. See also "Risk Factors - The Company may be unable to mitigate the impact of Regulation XXX and Actuarial Guideline 38, potentially resulting in a negative impact to NLAIC’s capital position and/or a reduction in sales of NLAIC’s term and universal life insurance products".
Macro-Prudential Supervision
The NAIC has been focused on a Macro-Prudential Initiative ("MPI") to improve state macro-prudential supervisory tools. The
MPI focuses on four areas for potential enhancement: (1) liquidity, (2) recovery and resolution, (3) capital stress testing and (4) identifying exposure concentrations. The NAIC
explained that the key objectives of the MPI are to better monitor and respond to the impact of external financial and economic risk to supervised firms; better monitor and respond
to risks emanating from or amplified by the supervised firms that might be transmitted externally and which may result in significant market impacts or financial, reputational, litigation or regulatory risks for the firm; and increase public
awareness of NAIC/state monitoring capabilities regarding macro-prudential trends within the U.S. insurance sector and their implications. The NAIC adopted amendments to the
Model Holding Company Act and Regulation that also implemented a filing requirement for a liquidity stress-testing ("LST") framework. The LST requires the ultimate
controlling person of certain large U.S. life insurers and insurance groups
meeting certain scope criteria based on the amounts of business written or material exposure to certain
investment transactions, to file the results of the LST annually with a group’s lead state regulator. Nationwide filed
its first LST with the Department on June 30, 2023.
Regulation of
Dividends and Other Distributions
See Note 14 to the audited statutory financial statements in the F
pages of this report for a discussion of dividend restrictions.
Annual and Quarterly Reports and
Statutory Examinations
Insurance companies are required to file detailed annual and quarterly statutory financial statements with state insurance regulators in each of the states in which they do business, in accordance with accounting practices and procedures
prescribed or permitted by state insurance regulatory authorities, and their business and accounts are subject to
examination by such regulators at any time.
In addition, insurance regulators periodically examine an insurer’s financial
condition, adherence to statutory accounting practices, and compliance with insurance department rules and regulations. NLIC, NLAIC, JNL and Eagle each file reports with state insurance departments regarding management’s assessment of internal controls over financial reporting in
compliance with the Annual Financial Reporting Model Regulation, as adopted in the states in which they do business.
As part of their routine regulatory oversight process, state insurance regulatory authorities periodically conduct detailed
examinations, generally once every three to five years, of the books, records and accounts of insurance companies
domiciled in their states. Such examinations generally are conducted in coordination with the insurance departments of other domestic states under guidelines promulgated by the NAIC. The Department’s most recently completed financial examination of NLIC, NLAIC and Eagle concluded in 2023 and was for the five-year period ended December 31,
2021.
The most recently completed financial examination of JNL and JNLNY by the Texas
Department of Insurance and NY DFS, respectively, was as of December 31, 2021 and concluded in 2023. Vermont, in coordination with the timing of the Department exams above, completed an examination of Olentangy in 2023 for
the five-year period ended December 31, 2021.
The examinations for NLIC, NLAIC, JNL, JNLNY, Eagle and Olentangy completed in 2023 did not result in any significant
issues or adjustments. The examination reports are available to the public.
State insurance regulatory authorities regularly make inquiries, hold investigations and administer market conduct
examinations with respect to insurers’ compliance with applicable insurance laws and regulations, including among other things, the form and content of disclosure to consumers, advertising, sales practices and complaint handling. State
regulators have imposed significant fines on various insurers for improper market conduct. NLIC, NLAIC, JNL and JNLNY continually monitor sales, marketing and advertising practices and related activities of agents and personnel and provide
continuing education and training in an effort to ensure compliance with applicable insurance laws and regulations. There can be no guarantee that any non-compliance with such applicable laws and regulations would not have a material adverse
effect on the Company.
Guaranty Associations and Similar Arrangements
Each of the 50 states of the U.S. and the District of Columbia have laws requiring insurance companies doing business within
its jurisdiction to participate in various types of guaranty associations or other similar arrangements. These arrangements provide certain levels of protection to policy owners
from losses arising from insurance policies or annuity contracts issued by insurance companies that become impaired or insolvent. Typically, assessments are levied (up to prescribed limits) on member insurers on a basis which is related to the member insurer’s proportionate share of the
business written by all member insurers, in the lines of business in which the impaired or insolvent member insurer was writing. Some jurisdictions permit member insurers to recover assessments paid through full or partial premium tax offsets,
usually over a period of years.
Assessments levied against the Company and subsidiaries during the past three years have not
been material. The amount and timing of any future assessment on or refund to NLIC, NLAIC, JNL, or JNLNY under these laws are beyond the control of NLIC, NLAIC, JNL, and JNLNY. A portion of the assessments paid by NLIC, NLAIC, JNL, or JNLNY pursuant to
these laws may be used as credits for a portion of NLIC, NLAIC, JNL, or JNLNY’s premium taxes. For the years ended December 31, 2023, 2022 and 2021, credits received by the Company have not been material.
As licensed insurers, NLIC, NLAIC, JNL and JNLNY are subject to the supervision of the regulators of each state, and each
state has the discretionary authority, in connection with the ongoing licensing of such entity, to limit or prohibit writing new business within its jurisdiction when, in the
state’s judgment, such entity is not maintaining adequate statutory surplus
or capital or is operating in a hazardous
financial condition. The Company does not currently anticipate that any regulator would limit the amount of new business that NLIC, NLAIC, JNL and JNLNY may write due to an
inability to meet the levels of statutory surplus required by the regulators. Olentangy is subject to the specific requirements and restrictions of its Licensing Order, as issued by the State of Vermont, and Eagle is subject to the specific requirements and restrictions of
its Licensing Order, as issued by the State of Ohio.
As of December 31, 2023, NLIC, NLAIC, JNL, JNLNY and Eagle are subject to RBC
requirements for life insurance companies. All states have adopted the NAIC RBC model law or a substantially similar law. The RBC calculation, which regulators use to assess the sufficiency of an insurer’s statutory surplus, measures the risk characteristics of a company’s assets, liabilities and certain off-balance sheet items. In general, RBC is calculated by applying factors to various asset,
premium, claim, expense and reserve items. The requirements result in insurers maintaining, for the protection of
policyholders, capital in excess of statutory surplus requirements. Insurers having less statutory surplus than required by the RBC model formula will be subject to varying degrees of regulatory action depending on the level of capital inadequacy.
See Note 14 to the audited statutory financial statements included in the F pages of this report for additional discussion of RBC requirements. Eagle is subject to the separate requirements and restrictions of its Licensing Order, as issued by the State of
Ohio.
The NAIC often considers reforms to the RBC framework which can increase the Company’s capital requirements. For
instance, in 2021, the NAIC adopted a new longevity risk charge and changes to risk charges for bonds and real estate. The NAIC also approved an RBC update for mortality risk that took effect at year-end 2022. The NAIC has undertaken a
principle-based bond project, effective January 1, 2025, which includes consideration of factors to determine whether an investment in an asset-backed security qualifies for reporting on an insurer’s statutory financial statement as a bond on Schedule D, Part 1 (long-term bonds) as opposed to Schedule BA, Part 1 (other long-term invested assets), the latter of
which has a higher risk charge. The NAIC is also reviewing the RBC treatment of collateralized loan obligations ("CLOs") on an interim and long-term basis, and on August 16, 2023, the NAIC increased the RBC factor for structured security
residual tranches from 30% to 45%, which will be effective for year-end 2024 RBC filings.
On August 13, 2023, the NAIC adopted a short-term solution related to
the accounting treatment of an insurer’s negative Interest Maintenance Reserve ("IMR") balance, which may occur when a rising interest rate environment causes an insurer’s IMR balance to become negative as a result of bond sales executed at a capital loss. If this occurs, previous
statutory accounting guidance required the non-admittance of negative IMR, which can impact how accurately an insurer’s surplus and financial strength are reflected in its financial statements and result in lower reported surplus and RBC ratios.
The NAIC’s new interim statutory accounting guidance, which is effective through December 31, 2025, allows an insurer with an authorized control level RBC greater than 300% to admit negative IMR up to 10% of its general account capital and
surplus, subject to certain restrictions and reporting obligations. The NAIC intends to develop a long-term solution for the accounting treatment of negative IMR.
The Company’s annuity sales practices are subject to strict regulation.
State insurance and certain federal regulators are becoming more active in adopting and enforcing suitability standards and other enhanced conduct standards that create
additional responsibilities with respect to sales of annuities, both fixed and variable. Such regulations and responsibilities could increase the Company’s operational costs or compliance costs or burdens or expose the Company to increased
liability for any violation of such regulations and responsibilities.
The NAIC adopted
revisions to the Suitability in Annuity Transactions Model Regulation to incorporate a best interest standard of care for sales of annuity products. Several states have
adopted the amendments, including Ohio.
Additionally, some state insurance and securities regulators are actively engaged in the development and adoption of rulemaking in this space independent from the NAIC.
Regulation of Investments
The Company is subject to state laws and regulations that require diversification of its investment portfolios and limit the
amount of investments in certain investment categories such as below-investment grade fixed income securities, real estate-related equity, foreign investments and common stocks. Failure to comply with these laws and regulations may cause investments exceeding
regulatory limitations to be treated as non-admitted assets for purposes of measuring statutory surplus, and, in some instances, could require divestiture of such non-qualifying
investments. The Company believes that its investments comply, in all material respects, with such laws and regulations as of December 31, 2023.
In recent years, the NAIC has been
evaluating the risks associated with insurers’ investments in leveraged loans and CLOs. In March 2023, the NAIC adopted an amendment to the Purposes and Procedures Manual to
assign risk weights to CLOs based on its own modeling as opposed to credit ratings. Under the amendment, the NAIC Structured Securities Group will model CLO investments and evaluate tranche level losses across all debt and equity tranches under a series of
calibrated and weighted collateral stress scenarios to assign NAIC designations that reduce RBC arbitrage. The NAIC’s goal is to ensure that the aggregate RBC factor for owning all tranches of a CLO is the same as that required for owning all
of the underlying loan collateral, in order to avoid RBC arbitrage. The amendment became effective on January 1, 2024, with insurers first reporting the financially modeled NAIC
designations for CLOs with their year-end 2024 financial statement filings.
Although the U.S. federal government generally does not
directly regulate the insurance business, federal legislation and administrative policies, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("the Dodd-Frank
Act") expand the federal presence in insurance oversight.
The Dodd-Frank Act established the Financial Stability Oversight Counsel ("FSOC"), which has authority to designate non-bank financial companies as systemically important financial institutions ("non-bank SIFIs"), thereby subjecting them to
enhanced prudential standards and supervision by the Federal Reserve. The prudential standards for non-bank SIFIs
include enhanced RBC requirements, leverage limits, liquidity requirements, single counterparty exposure limits,
governance requirements for risk management, stress test requirements, special debt-to-equity limits for certain
companies, early remediation procedures and recovery and resolution planning. It is possible, although not likely, that the Company could be designated as a non-bank SIFI by the FSOC. Being so designated would subject the Company to enhanced
oversight and prudential standards by the Federal Reserve, beyond those applicable to our competitors not so designated.
On December 4, 2019, the FSOC approved a proposal that significantly altered its process for making such non-bank SIFI
designations. Among other things, the guidance: (i) required the FSOC to focus on regulating activities that pose systemic risk, allowing for the involvement of primary regulators, rather than designations of individual firms (also known as an
"activities-based approach"); (ii) shortened the designation
process; (iii) invited participation from firms under consideration
for designation earlier in the designation process to provide greater transparency; (iv)
required a cost-benefit analysis prior to
making a designation, which must include a determination of the likelihood of the potential systemic impact actually occurring; and (v) clarified the "off ramp" process for firms that have been designated as SIFIs.
In April 2023, the FSOC issued a proposal on further revised guidance and analytical
framework on the designation of non-bank SIFI’s that would replace the 2019 guidance and alter the designation process by: (i) eliminating the requirement that FSOC use an activities-based approach before considering the designation of a non-bank financial company in order to
clarify that FSOC may use any of its statutory tools to address risks and threats to U.S. financial stability; and (ii) no longer requiring FSOC to conduct a cost-benefit analysis
or assessment of the likelihood of a non-bank financial company’s material financial distress prior to making a determination. The U.S. Secretary of the Treasury has stated
that the proposed guidance would remove certain elements of the 2019 guidance that have made it difficult for FSOC to use its designation authority. The final interpretive guidance was issued on November 17, 2023, and revised guidance became
effective January 16, 2024.
In addition, the Dodd-Frank Act established the Federal Insurance Office ("FIO") within the
U.S. Department of the Treasury ("Treasury"), which has the authority to participate on behalf of the U.S. in the negotiations of international insurance agreements with foreign regulators, as well as to collect information about the insurance industry and recommend
prudential standards, and, along with the U.S. Trade Representative, to enter into covered agreements with one
or more foreign governments which have the ability to preempt inconsistent state insurance measures. While not having general supervisory or regulatory authority over the business
of insurance, the director of the FIO will perform various functions with respect to insurance (other than health insurance), including serving as a non-voting member of FSOC and making recommendations to FSOC regarding insurers to be designated for more stringent regulation.
Further, Dodd-Frank Act established the Consumer Financial
Protection Bureau ("CFPB") as an independent agency within the Federal Reserve to supervise and regulate institutions that provide certain financial products and services to
consumers. Although consumer financial products and services generally exclude the business of insurance, the CFPB does have authority to regulate non-insurance consumer financial products and services.
Securities
Laws
Certain of NLIC and its subsidiaries’ products, policies and contracts are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission ("SEC") and under certain state securities laws. Certain
separate accounts of NLIC, NLAIC, JNL and JNLNY are registered as investment companies under the Investment
Company Act of 1940, as amended. Separate account interests under certain variable annuity contracts and variable
insurance policies issued by NLIC, NLAIC, JNL and JNLNY are also registered under the Securities Act of
1933, as amended (the "Securities Act"). NISC, a subsidiary of the Company, is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, and is a
member of, and subject to regulation by, the Financial Industry Regulatory Authority and is also subject to the SEC’s net capital rules.
NIA, a subsidiary of the Company, is an investment advisor registered under the Investment Advisors Act of 1940, as amended,
and under the Securities Act.
All aspects of investment advisory activities are subject to applicable federal and state laws and regulations in the
jurisdictions in which they conduct business. These laws and regulations are primarily intended to benefit investment advisory clients and investment company shareholders and generally grant supervisory agencies broad administrative powers,
including the power to limit or restrict the transaction of business for failure to comply with such laws and regulations. In such events, the possible sanctions which may be
imposed include the suspension of individual employees, limitations on the activities in which the investment advisor may engage, suspension or revocation of the investment advisor’s registration as an advisor, censure and fines.
The SEC adopted a package of rulemaking and interpretive guidance regarding the standards of
conducts for broker-dealers and investment advisors. Of particular note was the adoption of a new "best interest" standard for broker-dealers when making recommendations to retail customers of any securities transaction or investment strategy involving securities.
Also adopted as part of the package was a new "relationship summary" disclosure requirement for broker-dealers and investment advisors that must be provided to "retail
investors."
The Company’s derivatives use is subject to statutory and regulatory
requirements in the states of Ohio, the Company’s domiciliary state, and New York, where the Company is licensed to sell certain products. Each state requires the Company to
follow a board-approved derivatives’ use plan. The Company’s derivatives’ use plan meets the requirements of both states. While the statutory constructs and
regulatory oversight of Ohio and New York are historically consistent, there is a possibility the two states could diverge in their respective regulation of the Company’s
derivatives use creating an additional expense or lost opportunity to the Company.
Title VII of the Dodd-Frank Act is a framework to regulate the over-the-counter ("OTC") derivatives markets through the required clearing of certain types of OTC transactions and the posting of collateral, each of which results in additional risk
mitigation costs to the Company. NLIC and NLAIC, currently required to clear specified OTC derivatives products, are subject to the posting and collection of initial margin on its non-cleared OTC derivatives portfolios with certain of their
counterparties. These initial margin requirements, in conjunction with variation margin requirements, may
require the Company to hold more cash and highly liquid securities with lower yields than it might otherwise hold in the absence of the margin requirements; potentially resulting in a reduction of investment income. Furthermore, U.S. and global regulation of
the derivatives markets continues to evolve, potentially creating unexpected costs as well as opportunities.
Environmental, Social and Governance Regulation
The Company is exposed to risks relating to ESG
factors. Customers, regulators and other market participants may evaluate the Company’s business or other practices according to a variety of ESG standards, expectations, or
metrics, all of which may evolve, may be subjective or underdeveloped in nature, and may reflect contrasting or conflicting values. Standard-setting organizations and regulators including, but not limited to, the NAIC, SEC, legislators and state insurance
regulators, have proposed or adopted, or may propose or adopt, ESG legislation, rules or standards applicable to the Company. For example, the NAIC (led by the California Department of Insurance) has
modified the Insurer Climate Risk Disclosure Survey to align with the standards established by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures ("TCFD"), a recognized framework of recommendations that were developed to enhance
climate-related disclosures. On March 6,
2024, the SEC adopted final climate disclosure
regulations that impose new reporting requirements for certain climate-related information including disclosure
of the board’s existing oversight practices for climate-related risks and management’s role in assessing and managing material climate-related risks as well as describing internal
processes for identifying, assessing, mitigating and disclosing material climate risks. The final regulation includes a phased-in compliance period, with the compliance date dependent on a filer’s status and content
of
disclosure. The impacts of the final
regulation are being evaluated by the Company. Some regulators are taking opposing positions on financial
services companies’ consideration of ESG factors in carrying out their businesses. For instance, some states are prohibiting entities with state contracts from considering
certain ESG factors, while others are encouraging consideration of such factors and promoting divestment from certain industries, especially carbon-based industries. Such opposing regulatory positions present potential difficulties for Nationwide’s Investment and Retirement
Security businesses, which have extensive state contracts. Due to the sometimes conflicting, uncertain, and subjective ESG regulatory and market environment, the Company may be seen as acting inconsistently with ESG standards or values from
the perspective of certain customers, regulators or other constituents. As a result, the Company could face adverse regulatory, customer, media or public scrutiny related to ESG
that potentially could have a negative impact on our business or reputation or lead to legal challenges. More specifically, climate risk has the potential for negative impacts
resulting from damage to physical property insured or held as investments due to increase extreme weather events,
financial losses or decreased revenues resulting from the transition to a low carbon economy and legal and regulatory losses attributable to climate change or failing to manage climate risk factors.
Management of Climate Risk
The NAIC, state legislators and state insurance regulators are evaluating issues related to the management of climate risk.
The NAIC’s goal is to address climate-related risks through three areas of insurance regulation: financial risk analysis; insurance market availability and affordability; and
consumer education and outreach. The NAIC’s executive-level Climate and Resiliency Task Force has four workstreams dedicated to this initiative.
In October 2023, California adopted legislation that requires businesses with total revenues over $1 billion and operating in California to disclose to an emissions reporting organization their Scope 1 and 2 greenhouse gas emissions starting in
2026 and Scope 3 starting in 2027.
In addition, in furtherance of the Executive Order on Climate-Related Financial Risk, dated
May 20, 2021, the FIO sought public comment on climate-related financial risks in the insurance industry. In June 2023, the FIO released a report entitled, Insurance Supervision and Regulation of Climate-Related Risks, which assesses climate-related issues and gaps in the supervision and regulation of insurers. The report acknowledges that
there are important existing efforts to incorporate climate-related risk into state insurance regulation and supervision, although they largely remain in the preliminary stage. The report encourages state insurance regulators and the NAIC to build on their progress and makes 20
policy recommendations to improve the supervision of climate-related risks, including that NAIC and state insurance regulators should prioritize the creation and use of new and
effective climate-related risk tools and processes, such as the development of scenario
analysis.
Diversity and Corporate Governance
The NAIC and state insurance regulators are also evaluating issues
related to diversity within the insurance industry. In New York, the NY DFS issued a circular letter in 2021 stating that it expects the insurers it regulates to make diversity of
their leadership a business priority and a key element of their corporate governance. The NY DFS published aggregate data from 2020 regarding the diversity of corporate boards and management from insures that met certain New York premium
thresholds, although no further guidance was provided. The NAIC is also evaluating issues related to race, diversity and inclusion, and is examining practices in the insurance
industry in order to determine how barriers are created that disadvantage people of color or historically underrepresented groups.
Privacy and Cybersecurity Regulation
The Company is regulated by the federal Gramm-Leach-Bliley Act
("GLBA") and subject to federal and state regulations promulgated thereunder that require financial institutions and other businesses to ensure the privacy, security and confidentiality of nonpublic personal information, including laws that regulate the use and disclosure of, among others,
Social Security numbers and health information. Federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including Social
Security numbers and health information. Federal regulations require financial institutions and creditors to implement effective programs to detect, prevent, and mitigate identity theft. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited commercial e-mail, text or fax messages to
consumers and customers. Federal laws and regulations regulate the permissible uses of certain personal information, including consumer report information. Federal and state legislatures and regulatory bodies continue to focus on regulation regarding these
subjects, including the
privacy of personal information, and the security of financial institutions’
information technology ("IT") systems and the information processed thereon. Despite functionally similar laws and regulations, there is ongoing risk of non-uniform regulatory interpretation and
application due to the multiplicity of state and federal regulators examining the Company.
The California Consumer Privacy Act of 2018
("CCPA") grants all California residents the right to know the information a business has collected from them and the sourcing and sharing of that information, as well as a right
to have a business delete their personal information (with some exceptions). The CCPA’s definition of "personal information" is more expansive than those found in other privacy laws applicable to the Company in the U.S. Failure to comply with CCPA could
result in regulatory fines, further, the law grants a right of action for any unauthorized disclosure of personal information as a result of failure to maintain reasonable security procedures. The CCPA became effective on January 1, 2020 and enforcement
by California’s Attorney General began July 1, 2020. Final regulations were promulgated shortly thereafter. In November 2020, the CCPA was amended by the California Privacy
Rights Act ("CPRA"), which became effective in most material respects on January 1, 2023. The CPRA provides
expanded rights for California consumers (e.g., the right to correct inaccurate personal information) and created a new regulatory agency, the California Privacy Protection Agency,
dedicated to enforcing Californians’ consumer privacy rights. Other U.S. states have enacted, or are
considering, similar privacy laws; however, some of these laws include entity-wide exemptions for financial institutions that collect and use nonpublic personal information subject to the GLBA.
New York’s cybersecurity regulation for financial services institutions requires entities, including insurance entities
subject to the jurisdiction of the NY DFS, to establish and
maintain a cybersecurity program designed to protect consumers’ private data. The regulation specifically provides for: (i) senior leader and Board oversight of the
covered entity’s cybersecurity program; (ii) controls relating to the governance framework for a cybersecurity program; (iii) risk-based minimum standards for technology systems for data protection; (iv) requirements for cyber breach responses, including notice
to the NY DFS of material events; and (v) identification and documentation of material deficiencies, remediation plans and annual certification of regulatory compliance with the NY
DFS. In November 2022, the NY DFS proposed amendments to expand the regulation, including heightened governance
and technical requirements. As a result of comments received on the draft amendments, the NY DFS proposed revisions to the draft amendments, which were subject to another comment period that ended on August 14, 2023. On November 1, 2023, NY DFS adopted amendments to its
cybersecurity regulation. The amended regulation will require the Company’s Chief Executive Officer ("CEO") to sign an annual certification that Nationwide is complying with
the cybersecurity regulation. Previously, this certification was signed by the Chief Information Security Officers ("CISO") only, but it must now be signed by both the CEO and
CISO.
The NAIC adopted the Insurance Data Security Model Law
(the "Cybersecurity Model Law"), which
established standards for data security and notification of cybersecurity events in states where adopted. The Cybersecurity Model Law has been adopted in Ohio and several other states. Additional states may follow. The Cybersecurity Model Law, which is functionally similar to the
NY DFS’ regulation, imposes significant regulatory burdens intended to protect the confidentiality,
integrity and availability of the regulated entity’s information systems. The NAIC is also developing a new model law to replace the existing privacy models, Insurance Information and Privacy Protections Model Act, and Privacy of Consumer Financial and Health Information Regulation, rather than updating them. In Spring 2023, the NAIC’s Privacy Protections (H) Working Group’s ("PPWG") held meetings during which interested parties and consumer advocates provided feedback on the initial exposure draft of the
new Consumer Privacy Protections Model Law ("Model 674"). At the conclusion of the meetings, PPWG rewrote the
model law and, on July 11, 2023, exposed the new draft of Model 674 for further public
comment. Due to the large number of comments received, PPWG requested
an extension of time to develop Model 674 at the NAIC’s Fall National Meeting in December 2023, wherein the NAIC announced that a one-year extension would be given, with final adoption expected at the NAIC 2024 fall
meeting.
The NAIC has also established a Big Data and Artificial Intelligence (H) Working Group ("BDAIWG") devoted to ensuring that regulations and regulatory activities appropriately protect consumers from harm which could result from technological
developments in the insurance sector. The BDAIWG is considering such issues as the lack of transparency and potential for bias in algorithms used to synthesize big data. It has issued an artificial intelligence survey for life insurance and is
exploring the creation of a regulatory evaluation of third-party data and model vendors. On July 17, 2023, the NAIC’s Innovation, Cybersecurity, and Technology (H) Committee exposed for public comment a draft model bulletin which outlines how
insurance departments should govern the development, acquisition and use of artificial intelligence technologies, as well as the types of information that regulators may request
during an investigation or examination of an insurer in relation to artificial intelligence systems. The public comment period closed on September 5, 2023. The NAIC released a revised version of the bulletin on October 17, 2023, and it adopted a final version of the Model Bulletin on the
Use of Artificial Intelligence Systems by Insurers during its Fall National Meeting in December 2023. The Company cannot predict what, if any, changes to laws or regulations may be enacted with regard to big data and artificial intelligence.
In February 2022, the SEC proposed new rules for investment advisors, registered investment companies, and
business development companies to enhance
cybersecurity preparedness and improve the resilience against cybersecurity threats and attacks. Specifically,
the proposal would: require advisers and funds to adopt and implement written policies and procedures that are reasonably designed to address cybersecurity risks; require advisers
to report significant
cybersecurity incidents to the SEC on
proposed Form ADV-C; enhance adviser and fund disclosures related to cybersecurity risks and incidents; and require advisers and funds to maintain, make, and retain certain
cybersecurity-related books and records. In March 2023, the SEC approved additional proposals for public
comment to amend Privacy of Consumer Financial Information (Regulation S-P) and Regulation Systems Compliance and Integrity, which would require covered entities, including broker-dealers, to, among other requirements, notify the SEC of significant
cybersecurity events and make disclosures regarding cybersecurity risks and incidents via Form Summary of
Cybersecurity Incidents and Risks, Part II.
Compliance with existing and emerging privacy and cybersecurity regulations could result in
increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation and have a material effect on our business, financial condition and results of
operations. The Company cannot predict whether such rules would be adopted, or what effect such rules would
have on its business or compliance costs.
Employee Retirement Income Security Act ("ERISA")
The ERISA contains fiduciary obligations that have been changing dramatically back and forth over the past few years. In 2016, the Department of Labor ("DOL") enacted a 2016 Fiduciary Rule that expanded the
traditional Five Part Test as to who was a fiduciary under ERISA. However, on June 21, 2018, the United States Court of Appeals for the Fifth Circuit vacated the 2016 Fiduciary Rule. As a result, the fiduciary standards under ERISA revert to those in place before the issuance of the 2016 Rule. On June 29, 2020, the DOL further released technical amendments that reinstated the Five Part Test. On December 18, 2020, the DOL also adopted a new Prohibited Transaction Class Exemption ("PTE"), "Improving Investment Advice for Workers & Retirees" effective February 16, 2021. Although this is the current status of the law, on October 31, 2023, the DOL once again proposed another Fiduciary Rule
referred to as "the Retirement Security Rule." Like the 2016 Fiduciary Rule, the Retirement Security Rule would again significantly alter the Five Part Test, expand the definition of a fiduciary, and modify known exemptions.
See also "Risk Factors—Changes to regulations under ERISA could
adversely affect the Company’s distribution model by restricting the Company’s ability to provide customers with advice."
Life insurance products may be used to provide income tax deferral and income tax free death
benefits. Annuity contracts may be used to provide income tax deferral. The value of these benefits is related to the level of income tax rates and capital gains tax rates. Changes to the income tax rates and the capital gains tax rates can affect the value of these
benefits, and therefore the desirability of those products.
In August 2022, the Inflation Reduction Act (the "Act") was signed into law. The Act includes a new Federal corporate alternative minimum tax, effective in 2023, that is based on the adjusted financial statement income set forth on the
applicable financial statement of an applicable corporation. See Note 8 to the audited statutory financial statements included in the F pages of this report for additional discussion of the Act.
Additional changes to the IRC to address the fiscal challenges currently faced by the federal
government may also be made. These changes could include changes to the taxation of life insurance, annuities, mutual funds, retirement savings plans, and other investment alternatives offered by the Company. Such changes to the IRC could have an adverse impact on the
desirability of the products offered by the Company.
The Company does not have any employees of its own, but rather is provided personnel by NMIC
or NLAIC pursuant to the enterprise cost sharing agreements between the companies.
Risks Related to Economic and Financial Market Conditions
Adverse capital and credit market conditions may significantly affect the Company’s ability to meet liquidity needs and access the capital required to operate its business, most significantly its insurance operations.
The Company’s insurance, annuity and investment products, as well as its investment
returns and access to and cost of financing, are sensitive to disruptions, uncertainty or volatility in the capital and credit markets, thereby ultimately impacting the Company’s profitability and ability to support or grow its businesses. In the insurance industry, liquidity refers
to the ability of an enterprise to generate
adequate amounts of cash from its normal operations in order to meet its financial commitments. The principal sources of the Company’s liquidity are insurance premiums,
annuity considerations, deposit funds and cash, including from its investment portfolio and assets. Sources of liquidity also include surplus notes and a variety of short-term debt instruments, including intercompany borrowings and FHLB programs.
In the event current resources do not satisfy the Company’s needs, the
Company may have to seek additional financing. The availability of additional financing will depend on a variety of factors, including market conditions, the availability of
credit generally and specifically to the financial services industry, market liquidity, the Company’s credit ratings, as well as the possibility that customers or lenders could develop a negative perception of the Company’s long- or short-term
financial prospects if it incurs large investment losses or if its level of business activity decreases. Similarly, the Company’s access to funds may be impaired if regulatory authorities or rating agencies take negative actions against it.
The Company’s internal sources of liquidity may prove to be insufficient, and in such a case, it may not be able to successfully obtain additional financing on favorable terms, or at all.
As such, the Company may be forced to issue debt with terms and conditions that may be
unfavorable to it, bear an unattractive cost of capital or sell certain assets, any of which could decrease the Company’s profitability and significantly reduce its financial flexibility. The Company’s results of operations, financial condition and cash flows could be materially adversely affected by disruptions in the capital and credit market.
Difficult conditions in the global economy and capital
markets could adversely affect the Company’s business and operating results and these conditions may not improve in the near future.
At times throughout the past few years, volatile conditions have characterized financial markets. Stressed conditions,
volatility and disruptions in global capital markets, particular markets or financial asset classes could adversely affect the Company’s investment portfolio. Disruptions in one market or asset class can also spread to other markets or asset
classes.
General economic conditions could also adversely affect the Company by impacting consumer behavior and pressuring investment results. Consumer behavior changes could include decreased demand for the Company’s products. For example,
holders of interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Investment results could be
adversely affected as deteriorating financial and business conditions affect the issuers of the securities in the investment portfolio.
The impact on distributors, vendors and customers of sustained or significant deterioration in economic conditions could adversely affect the Company’s business.
The Company is exposed to risks associated with the potential financial instability of its customers and distributors, many
of whom may be adversely affected by volatile conditions in the financial markets or an economic slowdown. As a result of uncertainties with respect to financial institutions and the global credit markets, changes in energy costs, and other
macroeconomic challenges currently or potentially affecting the economy of the U.S. and other parts of the world,
customers and distributors may experience serious cash flow problems and other financial difficulties. In addition, events in the U.S. or foreign markets and political and social unrest in various countries around the world can impact the global
economy and capital markets. The impact of such events is difficult to predict. Protectionist trade policy actions, such as tariffs and quotas could adversely affect the Company’s investment results, as an increase in the scope and size of tariffs could disrupt global supply chains and increase inflationary pressures which may have an adverse effect on economic
activity. As a result, they may modify, delay, or cancel plans to buy or sell the Company’s products, or make changes in the mix of products bought or sold, that are unfavorable to the Company.
In addition, the Company is susceptible to risks associated with the potential financial
instability of the vendors on which the Company relies to provide services or to whom the Company delegates certain functions. The same conditions that may affect the Company’s distributors could also adversely affect the Company’s vendors, causing them to significantly and quickly increase their prices or reduce their output. The Company’s business depends on its ability to perform, in an efficient and uninterrupted fashion, its necessary business functions, and any interruption in the services provided by third
parties could also adversely affect the Company’s business, results of operations and financial condition.
Risks Related to
Investments
The Company is exposed to significant financial market risk, which may adversely affect its results of operations and financial condition, and may cause the Company’s net investment income to vary from period to period.
The Company is exposed to significant financial market risk, including changes in
interest rates, credit spreads, equity prices, real estate values, foreign currency exchange rates, domestic and foreign market volatility, the performance of the economy in general, the performance of specific obligors included in its portfolio and other factors outside the Company’s control. Adverse changes in these rates, spreads and prices may occur due to changes in monetary policy and the economic
climate, the liquidity of a market or market segment, investor return expectations and/or risk tolerance, insolvency or financial distress of key market makers or participants, or
changes in market perceptions of credit worthiness.
The Company’s exposure to interest rate risk relates primarily to the market price and
cash flow variability associated with changes in interest rates. The Company’s investment portfolio contains interest rate sensitive instruments, such as bonds and derivatives, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic
and international economic and political conditions and other factors beyond its control. During periods of low or declining interest rates, as cash becomes available from premiums on insurance and annuity policies and from the maturity,
redemption or sale of existing securities or from other sources or as securities are realized prior to maturity, the yield on new investments will be lower than that on existing
investments, thus lowering the average yield that the Company earns on its investment portfolio. Conversely,
inflation may increase and interest rates may suddenly spike, which could have a material effect on the Company’s results of operations, insofar as inflation may affect
interest rates. Although the Company seeks to carefully measure and manage its interest rate risk positions,
the Company’s estimate of the liability cash flow profile may be inaccurate, and it might need to sell assets in order to cover the liability, which could adversely affect the Company’s financial position and results of operations.
The Company’s insurance and investment products are also sensitive to interest rate
fluctuations and expose the Company to the risk that falling interest rates or credit spreads will reduce the Company’s margin, or the difference between the returns earned on the investments that support the obligations under these products and the amounts that must be
paid to policyholders and contractholders. Because the Company may reduce the interest rates credited on most of these products only at limited, pre-established intervals, and
because some contracts have guaranteed minimum interest crediting rates, or may be subject to regulatory minimum rates, declines in interest rates may adversely affect the profitability of these products.
There may be economic scenarios, including periods of rising interest rates, that increase
the attractiveness of other investments to the Company’s customers, which could increase life insurance policy loan, surrender, and withdrawal activity in a given period. Such situations could result in cash outflows requiring that the Company sell investments at a
time when the prices of those investments are adversely affected, which may result in realized investment losses.
Unanticipated withdrawals and terminations may also cause the Company to accelerate other expenses, which reduces
net income in the period of the acceleration.
The Company’s exposure to credit spreads primarily relates to market price and cash
flow variability associated with changes in credit spreads. A widening of credit spreads would increase unrealized losses or decrease unrealized gains in the investment portfolio and, if issuer credit spreads increase as a result of fundamental credit deterioration, would likely
result in higher other-than-temporary impairments. Credit spread tightening will reduce net investment income associated with new purchases of fixed securities. In addition, market volatility can make it difficult to value certain of the
Company’s securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period-to-period changes due to market volatility, which could have a material adverse effect on the Company’s results of operations or financial condition.
The Company invests a portion of its portfolio in alternative investments, such as private
equity funds, private debt, real estate
funds, hedge funds and tax credit funds. The capital and surplus of the Company can be affected by changes in the underlying value of the investments. In addition, the timing and
amount of distributions from such funds, which depend on particular events relating to the underlying investments, as well as the funds’ schedules for making distributions,
can be inherently difficult to predict and can impact the Company’s net realized capital gains and losses.
The Company’s exposure to equity risk relates primarily to the potential for lower earnings associated with certain of the Company’s insurance businesses, such as variable annuities and investment advisory business, in each case where fee
income is generally earned based upon the fair value of the assets under management. In addition, certain of the
Company’s annuity products offer guaranteed
benefits, which increase its potential benefit exposure. Statutory reserve and capital requirements for these products are sensitive to market movements, which could deplete
capital. Increased reserve and capital requirements could lead to rating agency downgrades.
The Company is exposed to many different industries, issuers, and
counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks,
hedge funds and other investment funds and institutions. Many of these transactions expose the Company to credit risk in the event of default of the counterparty. While counterparty risk is generally secured, the Company’s credit risk may be
exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to it. The Company may have further exposure to these issuers
in the form of holdings in unsecured debt instruments, derivative transactions and stock investments of these issuers. Realized losses or impairments to the carrying value of these
assets may materially and adversely affect the Company’s business, results of operations and financial condition.
For additional information on market risk, see Quantitative and Qualitative Disclosures about Market Risk.
The Company uses derivative instruments to manage exposures and mitigate risks. See Note 2 and Note 6 to the audited
statutory financial statements in the F pages of this report for additional information regarding the Company’s use of derivatives instruments. These derivative instruments primarily include interest rate swaps, currency swaps, futures contracts and options. There can be no assurances these programs will successfully mitigate the associated risks.
The Company maintains an Asset Valuation Reserve ("AVR") as established in accordance with the NAIC Annual Statement Instructions for Life and Accident and Health Insurance Companies for the purpose of offsetting potential credit
related investment losses on each invested asset category, excluding cash, policy loans and income receivable. The Company records an IMR established in accordance with
the NAIC Annual Statement Instructions for Life and Accident and Health Insurance Companies, which represents the net deferral for interest-related gains or losses arising from the
sale of certain investments, such as bonds, mortgage loans and loan-backed and structured securities sold. See Note 2 to the audited statutory financial statements included in the F pages of this report for additional information regarding the
Company’s use of an AVR and IMR.
Some of the Company’s investments are relatively
illiquid.
The Company holds certain investments that may lack liquidity, such as privately placed bonds and structured securities
based upon residential or commercial mortgage loans or trust preferred securities, commercial mortgage loans, policy loans, consumer loans secured by securities portfolios, equity real estate, including real estate joint ventures and other
limited partnership interests.
If the Company requires significant amounts of cash on short notice in excess of normal cash
requirements or is required to post or return collateral in connection with the investment portfolio, derivatives transactions or securities lending activities, the Company may have difficulty selling these investments in a timely manner, be forced to sell them for less
than the Company otherwise would have been able to realize, or both.
The Company does not have the intent to sell, nor is it more likely than not that it will be
required to sell, bonds and stocks in an unrealized loss position. Investment losses, however, may be realized to the extent liquidity needs require the disposition of bonds and stocks in unfavorable interest rate, liquidity or credit spread environments.
Securities Lending can affect
liquidity and exposes Nationwide to investment risk.
Nationwide currently engages in securities lending. Its securities lending program is managed
through Bank of New York Mellon ("BNYM"). As its agent, BNYM lends out securities to approved borrowers and receives cash or U.S. government/agency collateral (non-cash loans). The cash collateral is invested in accordance with the approved investment policy. The
investment policy currently is constrained to U.S. Government and Agency collateralized overnight reverse repurchase agreements. While securities are on loan, Nationwide is not able to sell those securities. This can affect near-term liquidity
until the securities can be returned. In the event the borrower defaults and does not return the securities, Nationwide would retain the cash collateral that has been invested in U.S. government or agency collateralized overnight reverse
repurchase agreements. BNYM indemnifies Nationwide against borrower default and losses on non-cash loans.
Nationwide bears the risks associated with cash investments. There is risk in the reverse repurchase agreements which the cash collateral is invested in. If the counterparty in the repurchase agreement defaults, Nationwide would retain the
U.S. Government Bonds and/or U.S. agency bonds/mortgages. There is risk that the U.S. government bonds and/or U.S. agency bonds/mortgages have declined in value below the level of the cash invested.
The Company has
exposure to mortgage-backed securities, which could cause declines in the value of its investment portfolio.
Securities and other capital markets products connected to residential mortgage lending, particularly those backed by
non-agency loans, may become less liquid. The value of the Company’s investments in mortgage-backed securities may be negatively impacted by an unfavorable change in or increased uncertainty regarding delinquency rates, foreclosures, home
prices, and refinancing opportunities. In addition, securities backed by commercial mortgages are sensitive to the strength of the related underlying mortgage loans, the U.S.
economy, and the supply and demand for commercial real estate. Deterioration in the performance of the residential and commercial mortgage sector could cause declines in the
value of that portion of the Company’s investment portfolios.
Defaults on commercial mortgage loans and volatility in
performance may adversely affect the Company’s results of operations and financial condition.
A decline in the commercial real estate market within the U.S. resulting from changes in interest rates, real estate market
conditions or an economic downturn may have a negative impact on the value of the Company’s commercial mortgage loan portfolio. The Company has a broadly diversified commercial mortgage loan portfolio (i.e., property type or geographic
location), but negative developments across a certain property type or the occurrence of a negative event within a geographic region may have a significant negative impact, if the
Company has some concentration risk within that property type or geographic region. The Company’s operations and financial conditions may be adversely affected from an
increase in borrower defaults within the Company’s commercial mortgage loan portfolio.
The determination of the amount of
allowances and impairments taken on the Company’s investments is judgmental and could materially impact its results of operations or
financial position.
The Company’s determination of the amount of allowances and impairments varies by investment type and is based on its periodic evaluation and assessment of known and inherent risks associated with the relevant asset class. Such evaluations
and assessments are revised as conditions change and new information becomes available. The Company updates its evaluations regularly and reflects changes in allowances and
impairments in operations as such evaluations are revised. Market volatility can make it more difficult to value the Company’s securities if trading in such securities
becomes less frequent. In addition, a forced sale by holders of large amounts of a security, whether due to insolvency, liquidity, or other issues with respect to such holders, could result in declines in the price of a security. Furthermore,
additional impairments may need to be taken or allowances provided for in the future. Historical trends may not be indicative of future impairments or allowances.
For additional information on the Company’s allowance and impairment review process,
see Note 2 to the audited statutory financial statements included in the F pages of this
report.
The Company’s valuation of investments is based on amortized cost, fair value, and the equity method of accounting in the Company’s statutory financial statements, which may be significantly different than the values at which the investments may ultimately be realized.
The Company’s investments primarily consist of bonds, stocks, investments in subsidiaries, mortgage loans, policy loans,
cash equivalents, short-term investments and alternative investments. On the basis of accounting practices prescribed or permitted by the Department, as applicable, the carrying value of such investments is as follows:
•
Bonds are generally stated at amortized cost, except those with an NAIC designation of "6",
which are stated at the lower of amortized cost or fair value. Changes in fair value of bonds stated at fair value are charged to capital and surplus.
•
Loan-backed and structured securities, which are included in bonds in the statutory financial
statements, are stated in a manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S.
government agencies, commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined
for each security. The initial NAIC designation, which takes into consideration the security’s amortized cost relative to an NAIC-prescribed valuation methodology, is used to determine
the reporting basis (i.e., amortized cost or lower of amortized cost or fair value).
•
Preferred stocks are generally stated at amortized cost, except those with an NAIC designation
of "4" through "6", which are stated at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in fair value of stocks stated at fair value are charged to capital and surplus.
•
The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC, JNL and Eagle, and wholly-owned noninsurance subsidiaries, NISC and NIA, are carried using the equity method of accounting. Investments in NLAIC, JNL and NISC are included in stocks, and the
investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus.
•
Commercial mortgage loans are recorded at unpaid principal balance, adjusted for premiums and
discounts, less a valuation allowance.
•
Policy loans, which are collateralized by the related insurance policy, are carried at the outstanding principal balance and
do not exceed the cash surrender value of the policy. As such, no valuation allowance for policy loans is required.
•
Cash equivalents include highly liquid investments with original maturities of less than three
months and amounts on deposit in internal qualified cash pools.
•
Short-term investments consist of government agency discount notes with maturities of twelve months or less at acquisition and are carried at amortized cost, which approximates fair value. Short-term investments also include outstanding promissory notes with initial maturity dates of one-year or less with certain affiliates.
•
Alternative investments are generally reported based on the equity method of
accounting.
Investments not carried at fair value in the Company’s statutory financial statements (certain bonds and stocks and commercial mortgage loans) may have fair values which are substantially higher or lower than the carrying value reflected in
the Company’s statutory financial statements. Each such asset class is regularly evaluated for impairment under the accounting guidance appropriate to the respective asset
class.
The Company’s valuation of certain bonds and stocks held at fair value may include methodologies, estimates and assumptions which are subject to differing interpretations and could result in changes to investment valuations that may materially and adversely affect the Company’s results of operations or financial condition.
See Note 2 to the audited statutory financial statements included in the F pages of this report, for a discussion of the Company’s fair value categories and valuation methodologies.
The determination of fair values in the absence of quoted market prices is based on valuation
methodologies, values of securities the Company deems to be comparable, and assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. Further,
rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Company’s statutory financial statements, and the period-to-period changes in value could vary
significantly. Decreases in value may have a material adverse effect on the Company’s results of operations or financial condition.
Risks Related to the Legal and Regulatory Environment of the Insurance Industry
Certain changes in accounting and/or financial reporting standards issued by the National Association of Insurance Commissioners, state insurance departments, the Securities and Exchange Commission or other standard-setting bodies could have a material adverse impact on the Company’s financial condition or results of operations.
The Company’s insurance entities are required to comply with the Statutory
Accounting Principles ("SAP") established by the NAIC and adopted and administered by state departments of insurance. The various components of SAP (such as actuarial reserve methodologies) are currently subject to review by the NAIC and its task forces and committees, as well as
by state insurance departments, in an effort to address emerging issues and otherwise improve or alter financial reporting. Calculations made in accordance with SAP also govern the
ability of the Company’s insurance entities to pay dividends to their respective parent companies. The NAIC is working to reform state regulation in various areas, including
comprehensive reforms relating to life insurance reserves and the accounting for such reserves. The Company cannot predict whether or in what form reforms will be enacted and, if so, whether the enacted reforms will positively or negatively
affect the Company’s insurance entities.
The Accounting Manual provides that state insurance departments may permit insurance
companies domiciled therein to depart from SAP through prescribed practices or by granting them permitted practices.
NLIC and NLAIC have elected to apply a prescribed practice promulgated
under Ohio Administrative
Code Section 3901-1-67 ("OAC 3901-1-67") to its derivative instruments hedging indexed products and indexed annuity reserve liabilities in order to better align the measurement of indexed product reserves and
the derivatives that hedge them. Under OAC 3901-1-67, derivative instruments are carried at amortized cost with
the initial hedge cost amortized over the term and asset payoffs realized at the end of the term being reported through net investment income, rather than the derivative instruments being carried at fair value with asset payoffs realized over the term through net realized capital gains and
losses. Additionally, the cash surrender value reserves for indexed annuity products only reflect index interest credits at the end of the crediting term as compared to partial index interest credits accumulating throughout the crediting term in
increase in reserves for future policy benefits and claims. The application of this prescribed practice on NLIC’s eligible derivative instruments and indexed products resulted in a decrease of NLIC’s statutory surplus by an immaterial amount as of December 31, 2023 and an increase of NLIC’s statutory surplus by an immaterial amount as of December 31, 2022. The application of this prescribed practice on
NLAIC’s eligible derivative instruments and indexed products resulted in a decrease of NLIC’s subsidiary valuation of NLAIC by $89
million as of December 31, 2023 and an increase of NLIC’s subsidiary valuation of NLAIC by $232 million as of
December 31, 2022.
Eagle applies one prescribed practice with multiple applications as provided
under the State of Ohio’s captive law, which values assumed GMDB and GLWB risks on variable annuity contracts from NLIC and GLWB risks on fixed indexed annuity contracts from NLIC and NLAIC using an alternative reserving basis from the Statutory Accounting Principles detailed
within the NAIC Accounting Practices and Procedures manual pursuant to Ohio Revised Code
Chapter 3964 and approved by the Department. The prescribed practice resulted in an increase of the Company’s subsidiary valuation of Eagle by $228 million as of December 31, 2023 and a decrease of the Company’s subsidiary valuation of Eagle by $118
million as of December 31, 2022.
Effective October 1, 2023, Eagle was granted a permitted practice from the Department,
allowing Eagle to carry a reinsurance recoverable asset under an excess of loss reinsurance agreement with a third-party reinsurer as an admitted asset that increased NLIC's valuation of Eagle by $853 million as of December 31, 2023.
Prior to October 1, 2023, Olentangy was granted a permitted practice from the State of
Vermont allowing Olentangy to carry the assets placed into a trust account by Union Hamilton Reinsurance Ltd. on its statutory statements of admitted assets, liabilities and surplus at net admitted asset value for certain universal life and term life insurance policies. This
permitted practice increased NLIC and NLAIC’s valuation of Olentangy by $67 million as of December 31, 2022 and December 31, 2021. Effective October 1, 2023, Olentangy terminated this permitted practice due to NLAIC's recapture of the
reinsurance agreements.
However, the Company cannot predict what permitted and prescribed practices any applicable state insurance department may
allow or mandate in the future, nor can the Company predict whether or when the insurance departments of states of domicile of the Company’s competitors may permit them to
utilize advantageous accounting practices that depart from SAP. Moreover, although states generally defer to the interpretations of the insurance department of the state of
domicile with respect to the application of regulations and guidelines, neither the action of the domiciliary state nor the action of the NAIC is binding on a non-domiciliary state. Accordingly, a state could choose to follow a different interpretation. The
Company can give no guarantees that future changes to SAP or components of SAP, or the ability to apply a prescribed practice or the granting of permitted practices to the Company’s competitors, will not have a material impact on the
Company’s financial condition or results of operations.
The Company’s insurance entities are subject to
extensive regulation.
The Company’s insurance entities are subject to extensive state regulatory oversight in the jurisdictions in which each does business, as well as to federal oversight with respect to certain portions of their business. Insurance companies are
regulated by the insurance departments of the states in which they are domiciled or licensed. The primary purpose of such regulatory supervision is to protect policyholders, rather than the Company. State insurance authorities have broad
administrative powers with respect to various aspects of the insurance business. Accordingly, the Company could be adversely affected by, among other things, changes in state law relating to advertising and marketing; privacy;
acquisitions; payment of dividends; the form and content of insurance policies (including pricing); operating and agent licenses; regulation of premium rates; premium tax increases; rating and underwriting restrictions and limitations; asset
and reserve valuation requirements; enterprise risk management; surplus requirements; accounting standards; RBC
requirements, statutory reserve and capital requirements; assessments by guaranty associations; affiliate transactions; unfair trade and claims practices; admittance of assets to statutory surplus; maximum interest rates on life insurance
policy loans and minimum accumulation or surrender values; the type, amounts and valuations of investments permitted; reinsurance transactions, including the role of captive reinsurance; ESG rules and standards including management and
disclosure of climate risks and other matters. Changes in state regulations, or in the interpretation or application of existing state laws or regulations
may adversely impact the Company’s pricing, capital requirements, reserve adequacy or exposure to litigation and could increase the costs of regulatory compliance.
Changes are often implemented by state regulators in order to benefit policyholders to the detriment of insurers. State insurance regulators and the NAIC continually re-examine existing laws and regulations and may impose changes in the future
that put further regulatory burdens on the Company, and thus, could have an adverse effect on its results of operations and financial condition.
In addition, state insurance laws, rather than federal bankruptcy laws, govern the liquidation or restructuring of insurance companies. Virtually all states in which the Company operates require the Company bear a portion of the loss suffered by
some insureds as a result of impaired or insolvent insurance companies via participation in state guaranty associations.
From time to time, increased scrutiny has been placed upon the U.S. insurance regulatory framework, and a number of state legislatures have considered or enacted legislative measures that alter, and in many cases increase, state authority
to regulate insurance and reinsurance companies. In addition to legislative initiatives of this type, the NAIC and insurance regulators are regularly involved in a process of re-examining existing laws and regulations and their application to
insurance and reinsurance companies.
At the federal level, the Company could be affected by laws and regulations that may affect
certain aspects of the insurance industry. While the federal government in most contexts does not directly
regulate the insurance business, federal legislation and administrative policies in a number of areas, including limitations on antitrust immunity, minimum solvency requirements, systemic risk regulation, grant of resolution authority to a federal agency, uniform market conduct
standards, credit for reinsurance initiatives, other proposals at the federal level to replace or streamline state regulatory processes, employment and employee benefits regulation, financial services regulation, and federal taxation, can
significantly affect the insurance business.
This state regulatory oversight and various proposals at the federal level could in the
future adversely affect the Company’s ability to sustain adequate returns in certain lines of business. The Company cannot predict the effect any proposed or future legislation or change in the interpretation or application of existing laws or regulations may have on its
financial condition or results of operations.
A failure to comply with rules and regulations in a jurisdiction could lead to disciplinary
action, the imposition of fines or the revocation of the license, permission or authorization necessary to conduct the Company’s business in that jurisdiction, all of which could have a material adverse effect on the continued conduct of business in a particular jurisdiction.
The Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective.
The Company’s business is highly dependent on the ability to engage on a daily basis in a large number of insurance
underwriting, claims processing and investment activities, many of which are highly complex. These activities often are subject to internal guidelines and policies, as well as to legal and regulatory standards. A control system, no matter how
well-designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Ineffective controls could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment
risk) or damage to the Company’s reputation.
Litigation or regulatory actions could have a material
adverse impact on the Company.
Current and future litigation or regulatory investigations and actions in the ordinary course of operating the Company’s business, including class action lawsuits, may negatively affect the Company by resulting in the payment of substantial
awards or settlements, increasing legal and compliance costs, requiring the Company to change certain aspects of its business operations, diverting management attention from other business issues, harming the Company’s reputation with
customers or making it more difficult to retain current customers and to recruit and retain agents or Nationwide
employees. See Note 13 to the audited statutory financial statements included in the F pages of this report for a
description of litigation and regulatory actions.
The amount of
statutory capital and surplus that the Company and its insurance subsidiaries have and the amount of statutory capital and surplus they must hold
can vary significantly from time to time and is sensitive to a number of factors outside of the Company’s control, including equity market
and credit market conditions and the regulatory environment and rules.
The Company conducts the vast majority of its business through its licensed insurance entities. Insurance regulators and the
NAIC prescribe accounting standards and statutory capital and reserve requirements for the Company and its U.S. insurance entities. The NAIC has established regulations that
provide minimum capitalization requirements based on RBC formulas for life insurance companies. The RBC formula for life companies establishes capital requirements relating to
insurance, business, asset and interest rate risk, including equity, interest rate, operational and management and expense recovery risks associated with life and annuity products that contain death benefits and/or certain living benefits.
In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including the amount of statutory income or losses generated by the Company’s insurance entities (which itself is sensitive to equity market and credit market conditions), the amount of additional capital they must hold to support their
business growth, changes in equity market levels, changes in reserve requirements, credit market volatility, changes in consumer behavior, the value of certain bonds in their investment portfolios, the value of certain derivative instruments
that do not get hedge accounting treatment, changes in interest rates and foreign currency exchange rates, and changes to the NAIC RBC formulas. Nationally Recognized Statistical Rating Organizations ("NRSROs") may also implement changes to
their internal models, which differ from the NAIC RBC model, that have the effect of increasing or decreasing the amount of statutory capital that the Company’s insurance
entities must hold in order to maintain their current ratings. Increases in the amount of required statutory reserves reduce the statutory surplus used in calculating the
Company’s insurance entities’ RBC ratios.
In addition, the NAIC often considers reforms to the RBC framework which can increase the Company’s capital requirements. See
"Business—Regulation—Risk-Based Capital" for further discussion of potential changes to the RBC framework.
The Company’s insurance entities’ statutory surplus and RBC ratios have a significant influence on their financial strength ratings, which, in turn, are important to their ability to compete effectively. To the extent that any of the Company’s
insurance entities’ statutory capital resources are deemed to be insufficient to maintain a particular rating by one or more rating agencies, capital may need to be raised. If the Company is unable to raise additional capital in such a scenario, any
ratings downgrade that followed could have a material adverse effect on its business, financial condition, results of operations and liquidity. See Note 14 to the audited statutory financial statements included in the F pages of this report for
a further discussion of RBC.
Changes in tax laws could adversely affect the
Company.
Congress has periodically considered legislation that, if enacted, could materially reduce or eliminate many of the tax
advantages of purchasing and owning annuity and life insurance products, such as disallowing a portion of the income tax interest deduction for many businesses that own life insurance. In addition, Congress has considered proposals to further
limit contributions to retirement plans and accelerate the distributions from such plans after the death of the participant. If these proposals or other changes affecting the taxation of life insurance and/or annuity contracts, or the qualification
requirements for retirement plans, were to be enacted, the Company’s sale of COLI, BOLI, variable annuities, variable life products and other retirement plan products could be adversely affected.
Congress and various state legislatures also have considered proposals to reduce the taxation
of certain products or investments that may compete with life insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of the Company’s
products, making them less competitive. Such proposals, if adopted, could have a material effect on the Company’s profitability and financial condition or ability to sell such products, and could result in the surrender of some existing
contracts and policies.
The products that the Company sells have different tax characteristics, in some cases
generating tax deductions for the Company. The level of profitability of certain products is significantly dependent on these characteristics and the Company’s ability to continue to generate taxable income, which is taken into consideration when pricing products and is a component of the Company’s capital management strategies. Accordingly, changes in tax law, the Company’s ability to generate taxable income, or other factors impacting the availability or value of the tax characteristics generated by the
Company’s products, could impact product pricing and returns or require the Company to reduce its sales of these
products or implement other actions that
could be disruptive to the Company’s businesses. In addition, the adoption of "principle-based" approaches for statutory reserves may lead to significant changes to the way tax reserves are determined and thus
reduce future tax deductions.
See "Business—Tax Matters" for further discussion of other changes in federal tax laws and regulations that may
adversely affect the Company’s business, results of operations and financial condition.
Changes to regulations under ERISA
could adversely affect the Company’s distribution model, by restricting the Company’s ability to provide customers with
advice.
The prohibited transaction rules of ERISA and the IRC generally restrict the provision of investment advice to ERISA plans and participants and Individual Retirement Account ("IRAs") owners, if the investment recommendation results in fees paid to
the individual advisor, his or her firm, or their affiliates, that vary according to the investment recommendation chosen. Although the DOL issued final regulations which provide
limited relief from these investment advice restrictions, the investment advice restrictions could restrict the ability of the Company’s affiliated broker-dealers and their
registered representatives to provide investment advice to ERISA plans and participants and with respect to IRAs. Also, the investment advice restrictions may require the fee and revenue arrangements of certain advisory programs to be revenue
neutral, resulting in potential lost revenues for these broker-dealers and their affiliates. The 2020
PTE, which took effect on February 16, 2021, was expected to ease some of the investment advice restrictions under ERISA. However, this expectation may change if the Retirement Security
Act, a new rule similar to the 2016 Fiduciary Rule, becomes law.
Overall, the DOL has issued or proposed several regulations over the past eight years that increase the level of disclosure that must be provided to plan sponsors and participants. These ERISA disclosure requirements will increase the
Company’s regulatory and compliance burden, resulting in increased costs. See "Business – The Company’s insurance entities are subject to extensive regulation" for further information on the impact of regulations issued by the DOL.
Changes in state insurance laws regarding the suitability of product sales and fiduciary/best interest standards may affect the Company’s operations and profitability.
The Company’s annuity sales practices are currently subject to strict regulation. State insurance regulators are becoming more active in adopting and enforcing suitability standards with respect to sales of annuities, both fixed and variable.
The NAIC amended its annuity suitability model regulation to incorporate a best interest standard. Many states have adopted the amendments, including Ohio. Some states have enacted or proposed legislation to impose new or expanded fiduciary/best interest standards on broker-dealers, investment advisors and/or insurance agents providing services to retail investors.
Additionally, some state regulators have adopted or signaled they will be pursuing rule-making in this space. For example, the NY DFS amended the annuity suitability regulation to
incorporate the best interest standard for annuity sales and they expanded its scope to include "in-force"
recommendations and life insurance policies. Any material changes to the standards governing the Company’s sales practices, including applicable state laws and regulations,
could affect the Company’s business, results of operations and financial condition. See "Business—Regulation—Annuity Sales Practices."
The Company may be unable to mitigate the impact of Regulation XXX and Actuarial Guideline 38, potentially resulting in a negative impact to NLAIC’s capital position and/or a reduction in sales of NLAIC’S term and universal life insurance products.
NLAIC has implemented reinsurance and capital management transactions to mitigate the capital impact of Regulation XXX and
AG 38 for certain term life insurance and universal life insurance policies with secondary guarantees. These arrangements are subject to review by state insurance regulators and
rating agencies and, for any new transactions entered into in the future, are subject to AG 48 as well. For those insurance policies where NLAIC has not implemented reinsurance and capital management transactions to mitigate the capital impact of Regulation XXX and AG 38, NLAIC has
experienced a negative impact on its financial condition and results of operations. If NLAIC is unable to implement solutions to mitigate the impact of in force Regulation XXX and AG 38 business, this may continue to have a negative impact
on its financial condition and results of operations.
See "Business – Regulation - Captive Reinsurance Regulation" for
further discussion of Regulation XXX and Actuarial Guideline 38.
Risks Related to the Business and
Operations of the Company
The Company is rated by S&P, Moody’s, and A.M. Best, and a decline in ratings could adversely affect the Company’s operations.
Financial strength and claims-paying ability ratings, which various
NRSROs publish as indicators of an insurance company’s ability to meet contractholder and policyholder obligations, are important to maintaining public confidence, competitive position, and ability to market products. Such factors are important to policyholders, agents and
intermediaries; however, they are not evaluations directed towards the protection of investors and are not
recommendations to buy, sell or hold securities. Downgrades in NLIC and its subsidiaries’ financial strength ratings could have an adverse effect on their financial condition and certain of their results of operations in many ways, including
reducing new sales and renewals of insurance products, annuities, and other investment products, adversely affecting their relationships with their sales force and independent sales intermediaries, materially increasing the number or amount
of policy surrenders and withdrawals by contractholders and policyholders, requiring a reduction in prices to remain competitive, and adversely affecting their ability to obtain reinsurance at reasonable prices or at all.
Additionally, various NRSROs also publish credit ratings for NFS and
several of its subsidiaries. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner and are important factors in
the Company’s overall funding profile and ability to access certain types of liquidity. Downgrades in the credit ratings for NFS and its subsidiaries could have an adverse effect on the Company’s financial condition and results of operations in
many ways, including adversely limiting access to capital markets, potentially increasing the cost of debt and requiring the posting of collateral.
Ratings are subject to ongoing review by A.M. Best, Moody’s, and S&P, and the
maintenance of such ratings cannot be assured. If any rating is reduced from its current level, the Company’s financial position and results of operations could be adversely affected. The Company cannot predict what actions rating agencies may take, or what actions it may take in
response to the actions of rating agencies, which could adversely affect its business. As with other companies in the financial services industry, the Company’s ratings could be downgraded at any time and without any notice by any
NRSRO.
See "Business—Ratings" for further information on current
financial strength, claims-paying ability and credit ratings.
Guarantees within certain of the Company’s and its insurance entities’ products may adversely affect the
Company’s financial condition or results of operations.
The Company offers guarantees which can include a return of no less than the total deposits made on the contract less any
customer withdrawals, total deposits made on the contract less any customer withdrawals plus a minimum return, or the highest contract value on a specified anniversary date minus
any customer withdrawals following the contract anniversary. These guarantees can also include benefits payable in the event of death, upon annuitization, upon periodic withdrawal or at specified dates during the accumulation period.
NLIC remains ultimately liable for the specific guaranteed benefits and is subject to the
risk that reinsurers are unable or unwilling to pay. In addition, NLIC is subject to the risk that hedging and other risk management procedures prove ineffective, or the estimates and assumptions made in connection with their use fail to reflect or correspond to the actual
liability exposure, or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses beyond the scope of the risk management techniques employed. These risks, individually or collectively, may
have a material adverse effect on the Company’s financial condition or results of operations.
An inability to access the Company’s credit
facilities could have a material adverse effect on its financial condition and results of operations.
The Company maintains committed unsecured revolving credit facilities. The Company relies on these facilities as a potential
source of liquidity, which could be critical in enabling it to meet its obligations as they come due, particularly during periods when alternative sources of liquidity are limited.
The Company’s ability to borrow under these facilities is conditioned on the Company’s satisfaction of covenants and other requirements contained in the facilities. The
Company’s failure to satisfy the requirements contained in the facilities would, among other things, restrict the Company’s access to the facilities when needed and, consequently, could have an adverse effect on the Company’s financial condition and
results of operations.
Deviations from
assumptions regarding future persistency, mortality, morbidity, and interest rates used in calculating reserve amounts could have a material
adverse impact on the Company’s results of operations or financial condition.
The Company’s earnings significantly depend upon the extent to which the actual experience is consistent with the
assumptions the Company uses in setting prices for its products and establishing liabilities for some future policy benefits and claims. Such amounts are established based on estimates by actuaries of how much the Company will need to pay for future
benefits and claims. The process of calculating reserve amounts for some products within a life insurance organization involves the use of a number of assumptions, including those
related to persistency (how long a contract stays with a company), mortality (the likelihood of death or the likelihood of survival), morbidity (likelihood of sickness or disability) and interest rates (the rates expected to be paid or received on financial instruments, including insurance or
investment contracts). In addition, significant changes in mortality or morbidity could emerge gradually over time, due to changes in the natural environment, including climate change, the health habits of the insured population, treatment
patterns and technologies for disease or disability, the economic environment, or other factors. Actual results could differ significantly from those assumed. Although the Company may be permitted to increase premiums or adjust other charges and
credits during the life of certain policies or contracts, the adjustments permitted under the terms of the policies or contracts may not be sufficient to maintain profitability or
may cause the policies or contracts to lapse. As such, significant deviations from one or more of these assumptions could result in a material adverse impact on the Company’s
life insurance entities’ results of operations or financial condition.
Pricing of the Company’s insurance and deferred annuity products are also based
in part upon expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next. Persistency within the Company’s annuities business may be significantly impacted by the value of guaranteed minimum
benefits contained in many of the Company’s annuity products being higher than current account values, in light of poor equity market performance or extended periods of low interest rates, as well as other factors. Persistency could be
adversely affected generally by developments affecting client perceptions of the Company, including perceptions arising from adverse publicity. Many of the Company’s products also provide the Company’s customers with wide flexibility with respect to the amount and timing of premium deposits and the amount and timing of withdrawals from the policy’s value.
Results may vary based on differences between actual and expected premium deposits and withdrawals for these
products, especially if these product features are relatively new to the marketplace. The pricing of certain of the Company’s annuity products that contain certain living benefit guarantees is also based on assumptions about utilization
rates, or the percentage of contracts that will utilize the benefit during the contract duration, including the timing of the first lifetime income withdrawal. Results may vary based on differences between actual and expected benefit utilization. The
development of a secondary market for life insurance, including life settlements or "viaticals" and investor-owned life insurance, and third-party investor strategies in the annuities business, could adversely affect the profitability of existing
business and the Company’s pricing assumptions for new business.
The Company’s risk management policies, practices
and procedures could leave it exposed to unidentified or unanticipated risks, which could negatively affect its business or result in
losses.
The Company has developed an enterprise-wide risk management framework to mitigate risk and loss to the Company, and
maintains policies, procedures and controls intended to identify, measure, monitor, report and analyze the risks to which the Company is exposed. Many of the Company’s risk
management strategies or techniques are based upon historical customer and market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. The Company cannot provide assurance that its risk management framework, including
the underlying assumptions or strategies, will be accurate and effective.
The risk management policies and procedures, including hedge programs at NLIC and NLAIC, utilize derivative financial instruments, and expect to do so in the future. Nonetheless, the Company’s policies and procedures to identify, monitor,
and manage both internal and external risks may not effectively mitigate these risks or predict future exposures, which could be different or significantly greater than expected. As the Company’s businesses change and the markets in which
the Company operates evolve, the Company’s risk management framework may not evolve at the same pace as those changes. As a result, there is a risk that new products or new business strategies may present risks that are not
appropriately identified, monitored or managed. Additional risks and uncertainties not currently known to the Company, or that it currently deems to be immaterial, may adversely affect its business, results of operations and financial condition.
A large-scale
pandemic or epidemic, natural and man-made catastrophes, climate change, the continued threat or acts of terrorism, or ongoing military and other
actions may result in decreases in the Company’s net income, revenue, and assets under management and may adversely impact its investment
portfolio.
A large-scale pandemic or epidemic, natural and man-made catastrophes, climate change, the continued threat or acts of
terrorism within the U.S. and abroad, ongoing military and other actions, and heightened security measures in response to these types of threats may cause significant volatility and declines in the U.S., European, and other securities markets,
loss of life, property damage, additional disruptions to commerce and reduced economic activity. As a result, the
Company’s net income and/or revenue, and some of the assets in the Company’s investment portfolio, may be adversely affected by declines in the securities markets and economic activity.
The Company cannot predict whether or the extent to which industry sectors in which it
maintains investments may suffer losses as a result of potential decreased commercial and economic activity, how any such decrease might impact the ability of companies within the affected industry sectors to pay the interest or principal on their securities, or how the value of any underlying collateral might be affected.
The Company operates in a highly competitive industry,
which can significantly impact operating results.
The Company’s ability to compete is based on a number of factors including scale,
service, product features, price, investment performance, commission structure, distribution capacity, financial strength ratings and name recognition. The Company competes with a large number of financial services companies such as banks, mutual funds, broker-dealers, insurers
and asset managers, many of which have advantages over the Company in one or more of the above competitive factors. The Company’s revenues and profitability could be impacted
negatively due to such competition. The competitive landscape in which the Company operates may be further affected by government-sponsored programs and longer-term fiscal policies. Competitors that receive governmental financing or other assistance or subsidies, including governmental
guarantees of their obligations, may have or obtain pricing or other competitive advantages. Competitors that are not subject to the same regulatory framework may also have a pricing advantage as a result of lower capital requirements.
See "Business—Competition" for a further description of
competitive factors affecting the Company.
The Company’s products and services are complex and are frequently sold through intermediaries, and a failure of such intermediaries to properly perform services, or their misrepresentation of the Company’s products or services, could have an adverse effect on the Company’s business, results of operations and financial condition.
Many of the Company’s products and services are complex and are frequently sold
through intermediaries. In particular, the Company is reliant on intermediaries in its unaffiliated distribution channels to describe and explain its products to potential customers. The intentional or unintentional misrepresentation of the Company’s products and services in
advertising materials or other external communications, or inappropriate activities by the Company’s personnel or an intermediary, could adversely affect the Company’s reputation and business prospects, as well as lead to potential
regulatory actions or litigation.
The Company’s business success depends, in part, on
effective information technology systems and on continuing to develop and implement improvements in technology.
The Company depends in large part on technology systems for conducting business and processing claims, as well as for
providing the data and analytics it utilizes to manage its business, and thus the Company’s business success is dependent on maintaining the effectiveness of existing technology systems and on continuing to develop and enhance technology systems
that support its business processes and strategic initiatives in a cost- and resource- efficient manner. Some system development projects that are long-term in nature, may
negatively impact the Company’s expense ratios as it invests in the projects, and may cost more to complete than the Company expects. In addition, system development projects may not deliver the benefits the Company expects once they are complete, or may be replaced or become obsolete more
quickly than expected, which could result in accelerated recognition of expenses. If the Company does not effectively and efficiently manage and upgrade its technology portfolio,
including with respect to the technology portfolio of its recently acquired businesses, or if the costs of doing so are higher than it expects, the Company’s ability to
provide competitive services to new and existing customers in a cost-effective manner and its ability to implement its strategic initiatives could be adversely impacted.
The Company
faces a risk of non-availability and increased cost of reinsurance.
Market conditions beyond the Company’s control determine the availability and cost of
the reinsurance protection it purchases. The Company can offer no guarantees that reinsurance will remain continuously available to it to the same extent, and with the same terms and rates, as are currently available. If the Company is unable to maintain its current
level of reinsurance or purchase new reinsurance protection in amounts that it considers sufficient and at prices that it considers acceptable, the Company would either have to be willing to accept an increase in its net exposures or reduce its
insurance writings. A significant reinsurer’s insolvency or inability to make payments under the terms of a reinsurance treaty could subject the Company to credit risk with respect to its ability to recover amounts due from reinsurers. Because
of the risks set forth above, the Company may not be able to collect all amounts due to it from reinsurers, and reinsurance coverage may not be available to it in the future at commercially reasonable rates or at all. These risks could have a
material adverse effect on the results of operations or financial condition of the Company.
A breach of information security or
other unauthorized data access could have an adverse impact on the Company’s business and reputation.
In the ordinary course of business, the Company collects, processes, transmits, and stores large quantities of
personal information,
customer financial and health information, and proprietary business information (collectively referred to herein as "Sensitive Information"). The secure processing, storage,
maintenance, and transmission of this Sensitive Information are vital to the Company’s operations and business strategy. Although the Company undertakes substantial efforts
to reasonably protect Sensitive Information, including internal processes and technological safeguards and
defenses that are preventative or detective, and other commercially reasonable controls designed to provide
multiple layers of security, Sensitive Information maintained by the Company may be vulnerable to attacks by computer hackers, to physical theft by other third-party criminals, or to other compromise due to error or malfeasance by an individual providing services. Attacks
may include both sophisticated cyber-attacks perpetrated by organized crime groups, "hactivists," or state-sponsored groups, as well as non-technical attacks ranging from sophisticated social engineering to simple extortion or threats, which
can lead to access, disclosure, disruption or further attacks. Such events may expose the Company to civil and criminal liability or regulatory action, require consumer and regulatory notification of the unauthorized data access harming its
reputation among customers, deter people from purchasing the Company’s products, cause system interruptions, require significant technical, legal and other remediation expenses, and otherwise have an adverse impact on its business. Third
parties to whom the Company outsources certain functions are also subject to the risks outlined above, and if such a third party suffers a breach of information security involving the Company’s Sensitive Information, such breach may result in
the Company incurring substantial costs and other negative consequences, including a material adverse effect on its business, financial condition, results of operations and liquidity. The Company offers no guarantees that it will be able to
implement information security measures to anticipate or prevent all breaches of information security.
Losses due to system failures or physical locations being
unavailable to conduct business could have an adverse impact on the Company’s business and reputation.
Network, utility, telecommunications, business systems, hardware and/or software failures due to a computer virus or
cyber-attack, such as a distributed denial of service attack, could prevent the Company from conducting its business for a sustained period of time. The Company’s facilities could be inaccessible due to a disaster, natural or man-made
catastrophe, blackout, terrorist attack, pandemic or war. Even if the personnel providing services to the Company are able to report to work, they may be unable to perform their duties for an extended period of time if the Company’s data or
systems are disabled or destroyed. There can be no assurance that the Company’s business continuation plans and insurance coverages would be effective in mitigating any negative effects on the Company’s operations or profitability, and the Company could be adversely impacted by any disruption of its ability to conduct business.
Nationwide employee error, misconduct, or excessive
risks may be difficult to detect and prevent and could adversely affect the Company.
As an insurance enterprise, the Company is in the business of accepting certain risks. The associates who conduct the
Company’s business, including executive officers and other members of management, sales managers, investment professionals, product managers, sales agents, and other personnel, do so in part by making decisions and choices that
involve exposing the Company to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining what assets to purchase for investment and when to sell them, deciding which
business opportunities to pursue, and other decisions. Losses may result from, among other things, excessive risk, fraud, errors, failure to document transactions properly, failure to obtain proper internal authorization or failure to comply with
regulatory requirements. Although the Company employs controls and procedures designed to monitor individual business decisions and prevent the Company from taking excessive risks, it is not always possible to deter or prevent individual
misconduct, and the precautions the Company takes
to prevent and detect this activity may not be effective in all cases. The impact of those losses and excessive risks could harm the Company’s reputation and have a material
adverse effect on the Company’s financial condition and business operations.
The Company’s business may be
adversely affected if Nationwide is unable to hire and retain qualified employees.
There is significant competition from within the financial services and life insurance industries, and from businesses
outside those industries, for qualified employees, especially those in key positions and those possessing highly specialized underwriting knowledge. The Company’s performance is largely dependent on the talents, efforts and proper conduct of
highly-skilled individuals, including the Company’s senior executives. For many of the Company’s senior positions, it competes for talent not just with insurance or financial service companies, but with other large companies and other
businesses. The Company’s continued ability to compete effectively in its business and to expand into new business areas depends on its ability to attract new personnel and to retain and motivate its existing personnel. If the Company is not able
to successfully attract, retain, and motivate the personnel that provide services to it, its business, financial results and reputation could be materially and adversely affected.
The Company may be subject to intellectual property
risk.
The Company relies on copyright, trademark, patent and trade secret laws, as well as various contractual rights and
obligations, to protect its intellectual property. Although the Company uses a broad range of measures to protect its intellectual property rights, third parties may infringe or misappropriate its intellectual property. The Company may resort
to litigation in order to enforce its intellectual property rights. Such litigation would represent a diversion of resources that may be significant in amount, and the final outcome of any litigation cannot be predicted with certainty. The Company’s
inability to successfully secure or enforce the protection of the Company’s intellectual property assets, despite the Company’s best efforts, could have a material adverse effect on its business and ability to compete.
The Company also may be subject to costly litigation in the event that
another party alleges that its operations or activities infringe upon that party’s intellectual property rights. The Company may be subject to claims by third parties for
alleged infringement of third-party patents, copyrights, trademarks, trade secrets or breach of any license. If the Company were found to have infringed any third-party intellectual property rights, it could incur substantial liability, and in limited
circumstances could be enjoined from providing certain products or services to its customers. Alternatively, the Company could be required to enter into costly licensing arrangements with third parties to resolve any alleged intellectual property
infringement claims brought by third parties.
Acquisitions and integration of acquired businesses and
dispositions or other structural changes may result in operating difficulties, unforeseen liabilities or asset impairments, and other unintended
consequences.
From time to time, the Company may investigate and pursue acquisition or
disposition opportunities if it believes that such opportunities are consistent with its long-term objectives and that the potential rewards of an acquisition or disposition
justify the risks.
The Company’s ability to achieve certain financial benefits it anticipates from its
acquisitions will depend in part upon its ability to successfully grow the businesses consistent with its anticipated acquisition economics. The Company’s financial results could be adversely affected by unanticipated performance issues, unforeseen liabilities, transaction-related
charges, diversion of management time and resources to acquisition integration challenges or growth strategies, loss of key Nationwide employees, amortization of expenses related to intangibles, charges for impairment of long-term assets or
goodwill and indemnifications.
The process of integrating an acquired company or business can be complex and costly and may
create unforeseen operating difficulties and expenditures. Acquired businesses may not perform as projected, any cost savings and other synergies anticipated from the acquisition may not materialize and costs associated with the integration may be greater than
anticipated. Acquired businesses may not be successfully integrated, resulting in substantial costs or delays and adversely affecting the Company’s ability to compete.
Accordingly, the Company’s results of operations might be materially and adversely affected.
The
Company faces compliance obligations and corresponding risk of noncompliance with, and enforcement action under, the Bank Secrecy Act and other anti-money
laundering, and sanctions statutes and regulations.
A major focus of U.S. governmental policy on financial
institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance
and due diligence obligations on regulated companies, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the U.S., in certain circumstances, and by expanding the categories of financial institutions subject to such laws and regulations to include some categories of insurance companies. Certain financial institutions are also prohibited from entering into
specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk clients and implement a written customer identification program. Financial institutions must take certain steps to assist government agencies in detecting and
preventing money laundering and report certain types of suspicious transactions without notifying the affected clients. Similarly, the U.S. government has been escalating the
obligations and requirements associated with sanctions laws including those enforced by the Treasury
Department’s Office of Foreign Assets Control ("OFAC"). Regulatory authorities routinely examine financial institutions to ensure that they have policies and procedures reasonably designed to comply with applicable requirements and for compliance with the
policies and procedures and these substantive obligations. Failure of a financial institution to maintain and implement adequate programs, including policies and procedures, to
combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the
institution, including causing applicable regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed
cease and desist orders and civil money penalties against institutions found to be violating these obligations. The Company and its subsidiaries are subject to OFAC’s regulations, and anti-money laundering statutes and certain regulations, and its compliance obligations under these rules result in
increased costs and allocation of internal resources.
Consolidation of distributors of insurance products may
adversely affect the insurance industry and the profitability of the Company’s business.
The Company distributes many of its individual products through other financial institutions such as banks and
broker−dealers. An increase in bank and broker−dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair the Company’s ability to expand its customer base.
Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to the Company.
See Note 13 to the audited statutory financial statements included in the F pages of this report for a
discussion of legal proceedings.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
There is no established public trading market for NLIC’s shares of common
stock. All 3,814,779 issued and outstanding shares of NLIC’s common stock are owned by NFS. NLIC did not repurchase any shares of its common stock or sell any unregistered shares of its common stock during
2023.
There were no dividends paid in 2023 or 2022. During March 2021, the Company paid an ordinary dividend of $550 million to NFS.
NLIC currently does not have a formal dividend policy.
See Business – Regulation – Regulation of Dividends and
Other Distributions and Risk-Based Capital for information regarding dividend restrictions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND FINANCIAL DISCLOSURE
Forward-Looking Information
The information included herein contains certain forward-looking statements with respect to
the results of operations, businesses and financial condition of the Company made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Whenever used in this report, words such as "anticipate," "estimate," "expect," "intend,"
"plan," "believe," "project," "target," "will,"
"shall," "could," "may" and other words of similar meaning are intended to identify such forward-looking statements. These forward-looking statements are based on current
expectations and involve a number of risks and uncertainties that are difficult to predict. These forward-looking statements are not a guarantee of future performance, and certain important factors that may cause actual results to differ materially from those expressed or
implied in such forward-looking statements include, among others, the following possibilities:
(a)
fluctuations in the results of operations or financial condition;
(b)
actual claims losses exceeding reserves for claims;
(c)
difficult economic and business conditions, including financial, capital and credit market
conditions as a result of changes in interest rates or prolonged periods of low interest rates, equity prices, volatility, yields and liquidity in the equity and credit markets, as well as geopolitical conditions and the impact of political, regulatory, judicial, economic or
financial events, including terrorism, epidemics or pandemics, impacting financial markets generally and companies in the Company’s investment portfolio specifically;
(d)
the degree to which the Company chooses not to hedge risks, or the potential ineffectiveness or
insufficiency of hedging or risk management strategies the Company does implement;
(e)
changes in certain
accounting and/or financial reporting standards issued by the Financial Accounting Standards Board ("FASB"), SEC, NAIC or other standard-setting bodies;
(f)
the inability to maintain the availability of systems and facilities in the event of a
disaster, natural or man-made catastrophe, blackout, terrorist attack or war;
(g)
heightened competition
that affects the cost of, and demand for, the Company’s products, specifically including the intensification of price competition, the entry of new competitors,
consolidation, technological innovation and the development of new products by new and existing competitors;
(h)
adverse state and federal legislation and regulation, with respect to, among other things, tax
law changes impacting the federal estate tax and tax treatment of life insurance and investment products; limitations on premium levels; restrictions on product approval and policy issuance; increases in minimum capital and reserves and other financial
viability requirements; restrictions on mutual fund service fee payments; changes affecting sales practices, including investigations and/or claims handling and escheat investigations; and regulatory actions of the DOL under ERISA, in
particular proposed rule-making with respect to fiduciary obligations, rule-making adopted by regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act,
including SEC comprehensive rulemaking and guidance regarding standards of conduct for broker dealers and investment advisers;
(i)
the inability to mitigate the capital impact associated with statutory reserving and capital
requirements;
(j)
failure to maintain or expand distribution channels;
(k)
possible difficulties in executing, integrating and realizing projected results of
acquisitions, divestitures and restructurings;
(l)
loss of key vendor
relationships or failure of a vendor to protect confidential and proprietary information or otherwise perform;
(m)
changes in interest rates and the equity markets causing a reduction in the market value of the
Company’s investment portfolio, investment income and/or asset fees; an acceleration of other expenses; a reduction in separate account assets or a reduction in the demand for the Company’s products; increased liabilities related to
living benefits and death benefit guarantees; or an impact on ultimate realizability of deferred tax assets;
(n)
outlook changes and downgrades in the financial strength and claims-paying ability ratings of
the Company assigned by NRSROs;
(o)
competitive,
regulatory or tax changes that affect the cost of, or demand for, products;
(p)
fluctuations in RBC levels;
(q)
settlement of tax liabilities for amounts that differ significantly from those recorded on the
balance sheets;
(r)
deviations from assumptions regarding future persistency, mortality and morbidity rates
(including as a result of natural and man-made catastrophes, pandemics, epidemics, malicious acts, terrorist acts and climate change), and interest rates used in calculating reserve amounts and in pricing products;
(s)
adverse results and/or
resolution of litigation, arbitration, regulatory investigation and/or inquiry;
(t)
the availability, pricing and effectiveness of reinsurance;
(u)
the effectiveness of policies and procedures for managing risk;
(v)
interruption in telecommunication, information technology or other operational systems or
failure to maintain the security, confidentiality or privacy of sensitive data on such
systems;
(w)
adverse consequences, including financial and reputational costs, regulatory problems and
potential loss of customers resulting from a breach of information security, a failure to meet privacy regulations, or inability to secure and maintain the confidentiality of proprietary or customers’ personal information;
(x)
the inability to
protect intellectual property and defend against claims of infringement;
(y)
realized losses with respect to impairments of assets in the investment portfolio of the
Company;
(z)
exposure to losses related to variable annuity guarantee benefits, including from downturns and
volatility in equity markets;
(aa)
statutory reserve requirements associated with term and universal life insurance policies under
Regulation XXX, Guideline AXXX and
principle-based reserving requirements;
(ab)
lack of liquidity in certain investments, access to credit facilities, or other inability to
access capital; and
(ac)
defaults on commercial mortgages and volatility in their performance.
The Company undertakes no commitment to revise or update any forward-looking statements as a result of new information,
future events or development, except as required by law. For a more complete description of the various risks, uncertainties, and other factors that could affect future results,
see Risk Factors.
The following discussion provides an assessment of the financial position and results of
operations of the Company for the three years ended December 31, 2023. This discussion and analysis is based on and should be read in conjunction with the audited statutory financial statements
and related notes beginning on page F-1 of this report.
See Business – Overview for a description of the Company and its ownership structure.
See
Business – Business Segments for a description of the components of each segment and a
description of management’s primary profitability measure.
The Company earns revenues and generates cash primarily from life insurance premiums, annuity considerations, policy
charges, accident and health insurance premiums and net investment income. Life insurance premiums are recognized as revenue over the premium paying period of the related policies. Annuity considerations are recognized as revenue when
received. Policy charges are comprised of several components including asset fees, which are earned primarily from separate account values generated from the sale of individual and group variable annuities and life insurance products and
cost of insurance charges earned on all life insurance products except traditional, which are assessed on the amount of insurance in force in excess of the related policyholder
account value. Policy charges also include administrative fees, which include fees charged per contract on a variety of the Company's products and premium loads on universal life
insurance products and surrender fees which are charged as a percentage of premiums/deposits withdrawn during a
specified period for annuity and certain life insurance contracts. Accident and health insurance premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Net investment income includes
earnings on investments supporting fixed annuities, FHLB funding agreements, certain life insurance products and
earnings on invested assets not allocated to product segments, all net of related investment expenses.
Management makes decisions concerning the sale of invested assets based on a variety of market, business, tax and other factors. All realized gains and losses generated by these sales are reported in net realized capital gains and losses.
Also included in net realized investment gains and losses are the impact of exercised, matured or terminated derivatives, with the exception of derivatives applying the prescribed practice under OAC 3901-1-67 which are recognized in net
investment income. All charges related to other-than-temporary impairments of bonds, specific commercial mortgage
loans, other investments, and changes in the valuation allowance not related to specific commercial mortgage loans are reported in net realized capital gains and losses.
The Company’s primary expenses include
benefits to policyholders and beneficiaries, commissions and other business expenses. Policy benefits and claims that are expensed include interest credited to policy account
balances, benefits and claims incurred in the period in excess of related policy reserves and other changes in future policy benefits. Commissions include commissions paid by the Company to affiliates and non-affiliates on sales of products. See
Business – Marketing and Distribution for a description of the Company’s unaffiliated and affiliated distribution channels.
The Company’s profitability largely depends on its ability to effectively price and manage risk on its various products,
administer customer funds and control operating expenses. Lapse rates on existing contracts also impact profitability. The lapse rate and distribution of lapses affect surrender charges.
In particular, the Company’s profitability is driven by premiums and annuity
considerations for life and accident and health contracts, fee income on separate account products, general and separate account asset levels and management’s ability to manage interest spread income. Premiums and annuity considerations for life and accident and health contracts can vary
based on a variety of market, business and other factors. While asset fees are largely at guaranteed annual rates, amounts earned vary directly with the underlying performance of
the separate accounts. Interest spread income is comprised of net investment income, excluding any applicable allocated charges for invested capital, less interest credited to policyholder accounts. Interest spread income can vary depending on crediting rates offered by the Company, performance
of the investment portfolio, including the rate of prepayments, changes in market interest rates and the level of invested assets, the competitive environment and other
factors.
In addition, life insurance profits are significantly impacted by mortality, morbidity and persistency experience. Asset
impairments and the tax position of the Company also impact profitability.
See Note 2 and Note 7 to the audited statutory financial statements included in the F pages of this report for details regarding the Company’s policies for fair value measurements of certain assets and liabilities.
Credit Risk Associated with
Derivatives
See Note 6 to the audited statutory financial statements included in the F pages of this report for details regarding the
Company’s evaluation of credit risk associated with derivatives.
Significant Accounting Estimates and Significant
Accounting Policies
The preparation of the statutory financial statements requires the Company to make estimates and assumptions that affect the amounts reported in the statutory financial statements and accompanying notes. Significant estimates include
certain investment and derivative valuations and future policy benefits and claims. Actual results could differ significantly from those estimates.
Note 2 to the audited statutory financial statements included in the F pages of this report
provides a summary of significant
accounting policies.
The following table summarizes the Company’s results of operations for the years
ended:
| |
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Income before federal income tax expense and net realized capital (losses) gains on
investments |
|
|
|
Federal income tax expense |
|
|
|
Income before net realized capital (losses) gains on investments |
|
|
|
Net
realized capital (losses) gains on investments, net of tax and transfers to the interest
maintenance reserve |
|
|
|
| |
|
|
|
The Company recorded lower net income for the year ended December 31, 2023 compared to 2022, primarily due to higher
benefits to policyholders and beneficiaries, increases in reserves for future policy benefits and claims and net realized capital (losses) gains on investments, net of tax and
transfers. These were partially offset by larger net transfers from separate accounts and increases in net investment income and premiums and annuity considerations.
Higher benefits to policyholders and beneficiaries were principally related to surrender benefits in individual deferred
variable annuity products and private sector retirement plans.
The increase in reserves for future policy benefits and claims was primarily related to
larger reserve increases in individual deferred fixed annuity and immediate annuity products that was partially offset by larger reserve decreases in private and public sector retirement plans and individual deferred variable annuity products.
Net realized capital losses on investments, net of tax and transfers during 2023 compared
to gains in 2022 were primarily associated with derivative instruments in each period.
The increase in net transfers from separate accounts was primarily
associated with individual deferred variable annuity, variable COLI and BOLI, separate account PRT and retirement plan guarantee products.
The increase in net investment income was principally related to the Corporate Solutions and Other segment.
The increase in premiums and annuity considerations was primarily
attributable to individual deferred fixed annuity and immediate annuity product considerations, partially offset by decreases in deferred registered index-linked annuity, individual deferred variable annuity and retirement plan guarantee product considerations and COLI and BOLI product
premiums.
The following table summarizes the Company’s results of operations for the years
ended:
| |
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Income before federal income tax expense (benefit) and net realized capital gains (losses)
on investments |
|
|
|
| |
|
|
| |
|
|
|
Federal income tax expense (benefit) |
|
|
|
Income before net realized capital gains (losses) on investments |
|
|
|
Net
realized capital gains (losses) on investments, net of tax and transfers to the interest
maintenance reserve |
|
|
|
| |
|
|
|
The Company recorded higher net income for the year ended December 31, 2022 compared to 2021,
primarily due to increases in premiums and annuity considerations and net realized capital gains (losses) on investments, net of tax and transfers and decreases in benefits to policyholders and beneficiaries. These were partially offset by increases in reserves
for future policy benefits and claims and lower net transfers from separate accounts.
The increase in premiums and annuity considerations was
primarily attributable to COLI and BOLI products, individual deferred fixed annuity products, retirement plan guarantee products
and PRT products, partially offset by a decrease in individual deferred variable annuity products.
Net realized capital gains on investments, net of tax and
transfers during 2022 compared to losses in 2021 were primarily driven by gains on derivative instruments period over period.
Lower benefits to policyholders and beneficiaries were principally related to surrender benefits in individual deferred
variable annuity products and private and public sector retirement plans.
The increase in reserves for future policy benefits and claims were
principally related to larger reserve increases in the Annuities segment and Corporate Solutions and Other segment products, partially offset by a larger reserve decrease in
public sector retirement plans.
The lower net transfers from separate accounts were primarily driven by larger net
transfers to separate accounts for variable COLI and BOLI products and retirement plan guarantee products plus
lower net transfers from separate accounts for private and public sector retirement plans, partially offset by an increase in net transfers from separate accounts for
individual deferred variable annuity
products.
The following table summarizes selected financial data for the Company’s Life
Insurance segment for the years ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended
December 31, 2023 compared to the year ended December 31, 2022, primarily due to lower net transfers from
separate accounts, higher benefits to policyholders and beneficiaries and larger increases in reserves for future policy benefits and claims, partially offset by higher net investment income.
The lower net transfers from separate accounts reflects a decrease in benefits to policyholders and beneficiaries and transfers
into fixed option funds for variable universal life insurance products.
The increase in
benefits to policyholders and beneficiaries were primarily related to fixed universal life insurance product
death benefits, partially offset by a decrease in variable universal life insurance product death and surrender benefits.
The increase in change
in reserves for future policy benefits and claims was driven by a larger year over year increase in fixed and indexed universal life insurance products reserves that was partially offset by a larger year over year decrease in
reserves for variable universal life insurance and traditional life insurance products.
Higher net investment income was primarily associated with growth in fixed universal life insurance products.
The following table summarizes selected financial data for the Company’s Life Insurance segment for the years ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings (losses) |
|
|
|
Pre-tax operating earnings (losses) increased for the year ended December 31, 2022 compared
to the year ended December 31, 2021, primarily due to lower benefits to policyholders and beneficiaries and smaller increases in reserves for future policy benefits and claims.
The decrease in benefits to policyholders and beneficiaries were primarily related to
individual variable universal life,
traditional life and universal life insurance product death benefits.
The decrease in change in reserves for future policy benefits and claims was driven by a
smaller increase year over year for individual fixed universal life insurance products that was partially offset by a larger increase year over year for individual variable
universal life insurance products.
The following table summarizes selected financial data for the Company’s Annuities segment for the years ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
| |
|
|
| |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended
December 31, 2023 compared to the year ended December 31, 2022, primarily driven by a larger increase in reserves for future policy benefits and claims and higher benefits to policyholders and beneficiaries, partially offset by
higher annuity considerations, net transfers from separate accounts and net investment income.
The larger increase in reserves for future policy benefits and claims was driven by higher sales in individual deferred fixed annuity and immediate annuity products that was partially offset by larger outflows in individual
deferred variable annuity products and lower sales in deferred registered index-linked annuity products.
The increase in benefits to policyholders and beneficiaries reflects higher surrender benefits in individual deferred variable annuity products driven by positive year-over-year market performance increasing account values of surrendered contracts as
the increasing interest rate environment influenced participant lapse behavior.
The annuity considerations increase was due to higher sales of individual deferred fixed
annuity and immediate annuity products that were driven by the increasing interest rate environment and partially offset by lower sales in deferred registered index-linked annuity and individual deferred variable annuity products due to recent market volatility.
The increase in net transfers from separate accounts primarily reflects a decrease in annuity considerations and
higher benefits to policyholders and beneficiaries in individual deferred variable annuity products.
The increase in net investment income was principally due to growth in individual deferred fixed annuity, deferred
registered index-linked annuity and individual immediate annuity products.
The following table summarizes selected financial data for the Company’s Annuities segment for the years ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021,
primarily driven by increases in reserves for future policy benefits and claims and decreases in annuity considerations, partially offset by higher net transfers from separate
accounts and lower benefits to policyholders and beneficiaries.
The increase in reserves for future policy
benefits and claims was driven by a larger increase in individual deferred fixed annuity products, individual immediate annuity products and individual deferred registered indexed linked annuity products.
Annuity considerations decreased due to lower sales of individual deferred variable annuity products, partially offset by an increase in sales of individual deferred fixed annuity and immediate annuity products.
The increase in net transfers from separate accounts primarily reflects a decrease in annuity considerations, partially offset by lower benefits to policyholders and beneficiaries, for individual deferred variable annuity products.
The decrease in benefits to policyholders and beneficiaries was principally driven by reduced
individual deferred variable annuity
product surrender benefits.
The following table summarizes selected financial data for the Company’s Retirement Solutions segment for the years
ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Decrease in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended
December 31, 2023 compared to the year ended December 31, 2022, primarily driven by lower annuity considerations and larger benefits to
policyholders and beneficiaries, partially offset by higher decrease in reserves for future policy benefits and claims and net transfers from separate accounts.
The decrease in annuity considerations was primarily related to the non-recurrence of a 2022 large case acquisition in retirement plan
guarantee products and a reduced level of exchanges from noninsurance trust products in public sector retirement plans.
Benefits to policyholders and beneficiaries increased primarily due to surrender benefits in private sector retirement plan
products, partially
offset by decreases in surrender benefits in public sector retirement plan and retirement plan guarantee products.
The larger decrease in reserves for future policy
benefits and claims in private and public sector retirement plan reserves primarily reflects lower participant account values due to higher volumes of withdrawals.
The larger net transfers from separate accounts was principally related to retirement plan guarantee products and driven by lower annuity considerations, partially offset by decreased surrender benefits to policyholders and beneficiaries.
2022 Compared to 2021
The following table summarizes selected financial data for the Company’s Retirement Solutions segment for the years
ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
(Decrease) increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
| |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings was consistent for the year ended December 31, 2022 compared to
the year ended December 31, 2021. Lower net transfers from separate accounts were offset by a decrease in reserves for future policy benefits and claims, an increase in annuity considerations and smaller benefits to policyholders and beneficiaries.
The decrease in net transfers from separate accounts was principally related to transfers to fixed option funds in private
and public sector retirement plan separate accounts and higher annuity considerations, partially offset by
higher surrender benefits, in retirement plan guarantee products.
The larger decrease in reserves for future policy benefits and claims primarily reflects a decrease in public sector
retirement plan reserves due to large case withdrawals.
The increase in annuity considerations was primarily attributable to a large case
acquisition in retirement plan guarantee products.
Benefits to policyholders and beneficiaries decreased primarily due to surrender benefits
in private and public sector retirement plans, partially offset by an increase in retirement plan guarantee
product surrender benefits.
Corporate Solutions and Other
The following table summarizes selected financial data for the Company’s Corporate Solutions and Other segment for the years
ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers to separate accounts |
|
|
|
| |
|
|
|
| |
|
|
| |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings increased for the year ended December 31, 2023 compared to the year ended December 31,
2022, primarily due to an increase in net
investment income and lower net transfers to separate accounts, partially offset by decrease in premiums and annuity considerations, higher benefits to policyholders and beneficiaries and a larger increase in reserves for future policy benefits and claims.
The increase in net investment income was principally due to dividends received from Eagle included in invested assets not assigned to other reportable segments, interest income in the FHLB funding agreement program and growth in COLI, BOLI
and PRT products.
The decline in net transfers to separate accounts was primarily attributable to lower premiums and annuity considerations
due to the non-recurrence of 2022 large case acquisitions in variable COLI and BOLI products and lower separate
account PRT annuity sales.
The non-recurrence of 2022 large case acquisitions in variable COLI and BOLI products was
also the primary factor for the decrease in premiums and annuity considerations.
Increases in benefits to policyholders and beneficiaries was driven by interest
expense in the FHLB funding agreement program, surrender benefits in COLI and BOLI products and annuity benefit payments in PRT products.
The increase in reserves for future policy benefits and claims was primarily associated with higher general account PRT annuity sales and increased renewal premiums in COLI and BOLI
products.
The following table summarizes selected financial data for the Company’s Corporate
Solutions and Other segment for the years ended:
| |
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Premiums and annuity considerations |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers to separate accounts |
|
|
|
| |
|
|
|
| |
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021,
primarily due to an increase in net transfers to separate accounts, a decrease in net investment income and an increase in reserves for future policy benefits and claims, partially
offset by an increase in premiums and annuity considerations.
The net transfers to separate accounts increase was primarily attributable to large case
acquisitions in variable COLI and BOLI products.
The decrease in net investment income was principally due to a decrease in invested assets
not assigned to other reportable segments.
The increase in reserves for future policy
benefits and claims was primarily associated with new case acquisitions in PRT products and COLI and BOLI products.
Large
case acquisitions drove the increase in COLI and BOLI product premiums and PRT product annuity considerations increased due to new case acquisitions.
Liquidity and Capital Resources
Liquidity and capital resources demonstrate the overall financial strength of the Company and its ability to generate cash
flows from its operations and borrow funds at competitive rates to meet operating and growth needs. The Company’s operations have historically provided substantial cash flow. The Company has sufficient cash resources to meet all current
obligations for policyholder benefits, withdrawals, surrenders, dividends and policy loans. The Company also participates in inter-company repurchase agreements or other borrowing arrangements with affiliates to satisfy short-term cash needs.
The most significant long-term contractual obligations of the Company relate to the future policy benefits and claims for its
annuity and life insurance products. The Company purchases investments with durations aligned with the expected durations of the liabilities they support.
To mitigate the risks that actual withdrawals may exceed anticipated amounts or that rising interest rates may cause a decline in the value of the Company’s bond investments, the Company imposes market value adjustments or surrender
charges on many of its products and offers
products where the investment risk is transferred to the contractholder. Liabilities related to separate accounts, where the investment risk is typically borne by the
contractholder, comprised 68.3% of total liabilities as of December 31, 2023 and 68.0% as of December 31, 2022.
A primary liquidity concern with respect to annuity and life insurance products is the risk of early policyholder withdrawal. The Company attempts to mitigate this risk by offering variable products where the investment risk is transferred to the
policyholder, charging surrender fees at the time of withdrawal for certain products, applying a market value adjustment to withdrawals for certain products in the Company’s general account and monitoring and matching anticipated cash inflows
and outflows.
For individual annuity products, surrender charges generally are calculated as a percentage
of deposits and are assessed at declining rates during the first seven years after a deposit is made.
For group annuity products, surrender charge amounts and periods can vary significantly depending on the terms of each
contract and the compensation structure for the producer. Generally, surrender charge percentages for group products are less than individual products because the Company incurs lower expenses at contract origination for group products. In
addition, much of the general account
group annuity reserves are subject to a market value adjustment at withdrawal.
Life insurance policies are less susceptible to withdrawal than annuity products because policyholders generally must undergo a new underwriting process and may incur a surrender fee in order to obtain a
new insurance policy.
The short-term and long-term liquidity requirements of the Company are monitored regularly to match cash inflows with cash
requirements. The Company reviews its short-term and long-term projected sources and uses of funds, investment and cash flow assumptions underlying these projections. The Company
periodically adjusts to its investment policies to reflect changes in short-term and long-term cash needs and changing business and economic conditions.
Given the Company’s historical cash flows from operating and investing activities and current financial results, the Company believes that cash flows from activities over the next year will provide sufficient liquidity for the operations of the Company and sufficient funds for interest payments.
The Company is a party to a $750 million revolving
variable rate credit facility agreement. The Company had no amounts outstanding under the facility as of December 31, 2023 and 2022.
The Company has entered into an agreement with its custodial bank to borrow against the cash
collateral that is posted in connection with its securities lending program. The maximum amount available under the agreement is $350 million. The borrowing rate on this program is equal to Effective Federal Funds Rate plus 0.18%. The Company had no amounts outstanding
under this agreement as of December 31, 2023 and 2022.
The Company has agreements with the FHLB to provide financing for operations. These agreements, which were renewed in February 2024 and expire January 31, 2025, allow the Company access to borrow up to $1.1 billion. As of December 31, 2023 and 2022, the Company had no amounts outstanding under these agreements.
See Note 9 to the audited statutory financial statements included in the F pages of this report for details regarding the Company’s usage of short-term debt and FHLB funding agreements.
The surplus notes below were issued in accordance with Section 3901.72 of the Ohio Revised Code. The principal and interest
on these surplus notes shall not be a liability or claim against the Company, or any of its assets, except as provided in Section 3901.72 of the Ohio Revised Code. The Department must approve interest and principal payments before they are paid.
On December 19, 2001, the Company issued a $300 million surplus note to NFS, with an interest rate of 7.5%, and a maturity date of December 31, 2031. Interest on the note is subject to prior approval of the Department and is payable semi-annually on June 17 and December 17. The Company received approval from the Department and made all scheduled interest
payments.
On June 27, 2002, the Company issued an additional $300 million surplus note to NFS, with an interest rate of 8.15%, and a
maturity date of June 27, 2032. Interest on the note is subject to prior approval of the Department and is
payable semi-annually on April 15 and October 15. The Company received approval from the Department and made all scheduled interest payments.
On December 23, 2003, the Company issued an additional $100 million surplus note to NFS, with an interest rate of 6.75%, and a maturity date of December 23, 2033. Interest on the note is subject to prior approval of the Department and is payable semi-annually on January 15 and July 15. The Company received approval from the Department and made all scheduled interest
payments.
On December 20, 2019, the Company issued an additional $400 million surplus note to NFS, with an interest rate of 4.21%, and
a maturity date of December 19, 2059. Interest on the note is subject to prior approval of the Department and
is payable semi-annually on June 1 and December 1. The Company received approval from the Department and made all scheduled interest payments.
See Note 10 to the audited statutory financial statements included in the F pages of this report for details regarding the
Company’s usage of surplus notes.
Regulatory Risk-based Capital
Each insurance company’s state of domicile imposes minimum RBC requirements that were developed by the NAIC. RBC is
used to evaluate the adequacy of an insurer’s statutory capital and surplus in relation to the risks inherent in the insurer’s business related to asset quality, asset
and liability matching, mortality and morbidity, and other business factors. Regulatory compliance is determined annually based on a ratio of a company’s regulatory total
adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Companies with a ratio below 200% (or below 250% with negative trends) are required to take corrective action steps. The Company exceeded the minimum RBC
requirements for all periods presented. See Note 14 to the audited statutory financial statements included in the F pages of this report for details regarding the Company’s regulatory RBC.
The Company’s assets are divided into separate account and general account assets. Of
the Company’s total assets, $113.3
billion (64%) and 102.8 billion (64%) were held in separate accounts as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company held assets of $63.9 billion (36%) and
$58.6 billion (36%) in general accounts, respectively, including
$61.9 billion of general account invested assets as of December 31, 2023 compared to $57.0 billion as of December 31, 2022.
Separate account assets primarily consist of investments made with deposits from the Company’s variable annuity and variable life insurance business. Most separate account assets are invested in various mutual funds. After deducting fees or
expense charges, investment performance is generally passed into the Company’s separate account assets through to the Company’s customers.
The following table summarizes the Company’s
general account investments by asset category, as of the dates indicated:
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Mortgage loans, net of allowance |
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Cash,
cash equivalents and short-term investments |
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Securities lending collateral assets |
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See Note 5 to the Company’s audited statutory financial statements included in the F
pages for further information regarding the Company’s investments.
The NAIC assigns securities quality ratings and uniform valuations (called NAIC designations), which are used by insurers
when preparing their annual statements. For most securities, NAIC ratings are derived from ratings received from
nationally recognized rating agencies. The NAIC also assigns ratings to securities that do not receive public ratings. The designations assigned by the NAIC range from class 1 (highest quality) to class 6 (lowest quality). Of the Company’s
bonds, 96% were in the two highest NAIC designations as of December 31, 2023 and 2022.
Bonds are generally stated at amortized cost, except those with an NAIC
designation of "6", which are stated at the lower of amortized cost or fair value. Changes in the fair value of bonds stated at fair value are charged to surplus.
The following table displays the NAIC designation of the Company’s investment in bonds, as of the dates indicated:
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% of total
statement value |
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% of total statement value
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See Note 2 to the Company’s audited statutory financial statements included in the F
pages for the policy for valuation of bonds.
Loan-backed structured securities
Loan-backed and structured securities include residential mortgage-backed securities, commercial mortgage-backed securities
and certain other asset-backed securities.
The following table displays the NAIC designation of the Company’s investment in loan-backed structured securities, as of the dates indicated:
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% of total
statement value |
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% of total statement value
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% of total statement value
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% of total statement
value |
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Stocks are largely comprised of investments in affiliated entities. Refer to Note 2 and Note 5 to the Company’s audited
statutory financial statements included in the F pages for information on the valuation methodology and investment in subsidiaries.
The Company’s other invested assets consist primarily of alternative investments in private equity funds, private debt funds, tax credit funds, real estate
partnership, investment in Eagle accounted for under the equity method, and derivatives collateral and receivables.
The following table summarizes the composition of the Company’s carrying value of other invested assets, as of the dates
indicated:
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Private
equity and debt funds |
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Total alternative investments |
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Derivatives collateral and receivables |
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Total other invested assets |
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Mortgage Loans, Net of Allowance
As of December 31, 2023, commercial mortgage loans were $9.1 billion, compared to $8.4 billion as of December 31, 2022. There were $490 million and $291 million of
outstanding commitments to fund commercial mortgage loans as of December 31, 2023 and 2022, respectively.
As of December 31,
2023 and December 31, 2022, the Company has a diversified mortgage loan portfolio with no more than 23% in a geographic region in the U.S., no more than 44% in a property type and no more than 1% with any one borrower.
See Note 5 to the Company’s audited statutory financial statements included in the F pages for the additional information on the mortgage loan portfolio.
Other Investment Information
See Note 5 to the Company’s audited statutory financial statements included in the F pages for the additional information on the Company’s investment in subsidiaries, real estate, and securities lending agreements. See Note 6 to the
Company’s audited statutory financial statements included in the F pages for the additional information on the Company’s derivative instruments.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market Risk Sensitive Financial Instruments
The Company is subject to potential fluctuations in earnings and the fair value of some of its assets and liabilities, as well
as variations in expected cash flows due to changes in interest rates and equity markets. The following discussion focuses on specific interest rate, foreign currency and equity market risks to which the Company is exposed and describes strategies
used to manage these risks. This discussion is limited to financial instruments subject to market risks and is not intended to be a complete discussion of all of the risks to which
the Company is exposed.
Fluctuations in interest rates can impact the Company’s earnings, cash flows and
the fair value of some of its assets and liabilities. In a declining interest rate environment, the Company may be required to reinvest the proceeds from maturing and prepaying investments at rates lower than the overall portfolio yield, which could reduce future interest spread income.
In addition, minimum guaranteed crediting rates on certain life and annuity contracts could prevent the Company from lowering its interest crediting rates to levels commensurate with prevailing market interest rates, resulting in a reduction to the Company’s interest spread income.
The following table presents account values by range of minimum guaranteed crediting rates
and the current weighted average crediting rates for certain of the Company’s products, as of the dates indicated:
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Corporate Solutions
and Other |
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Weighted
average
crediting rate
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Weighted
average
crediting rate
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Weighted
average
crediting rate
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Weighted average crediting rate |
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Minimum guaranteed crediting rate of
3.51% or greater |
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Minimum guaranteed crediting rate of
3.01% to 3.50% |
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Minimum guaranteed crediting rate of
2.01% to 3.00% |
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Minimum guaranteed crediting rate of
0.01% to 2.00% |
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No
minimum guaranteed crediting rate4 |
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Minimum guaranteed crediting rate of
3.51% or greater |
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Minimum guaranteed crediting rate of
3.01% to 3.50% |
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Minimum guaranteed crediting rate of
2.01% to 3.00% |
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Minimum guaranteed crediting rate of
0.01% to 2.00% |
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No
minimum guaranteed crediting rate4 |
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1
Includes universal life insurance products and the fixed investment options selected within
variable life insurance products.
2
Includes individual fixed annuity products and the fixed investment options selected within
individual variable annuity and indexed products.
3
Includes group fixed annuity products.
4
Includes certain products with a stated minimum guaranteed crediting rate of 0%.
The Company attempts to
mitigate this risk by managing the maturity and interest-rate sensitivities of certain of its assets to be consistent with those of liabilities. In addition, the Company adheres to a strict discipline of setting interest crediting rates on new business at levels believed
to be adequate to provide returns consistent with management expectations.
A rising interest rate environment could
also result in a reduction of interest spread income or an increase in policyholder surrenders. Existing general account investments supporting annuity liabilities had a weighted
average maturity of approximately nine years as of December 31, 2023. Therefore, a change in portfolio yield will lag changes in market interest rates. This lag increases if the rate of
prepayments of securities slows. To the extent the Company sets renewal rates based on current market rates, this will result in reduced interest spreads. Alternatively, if the
Company sets renewal crediting rates while attempting to maintain a desired spread from the portfolio yield, the rates offered by the Company may be less than new money rates offered by competitors. This difference could result in an increase in surrender activity
by policyholders. If unable to fund surrenders with cash flow from its operations, the Company might need to sell assets. The Company mitigates this risk by offering products that assess surrender charges and/or market value adjustments at the
time of surrender, and by managing the maturity and interest-rate sensitivities of assets to approximate those of liabilities.
Asset/Liability Management Strategies to Manage Interest Rate Risk
The Company employs an asset/liability management approach tailored to the specific requirements of each of its products.
Each line of business has an investment policy based on its specific characteristics. The policy establishes asset maturity and duration, quality and other relevant
guidelines.
An underlying pool or pools of investments support each general account line of business. These pools consist of whole
assets purchased specifically for the underlying line of business. In general, assets placed in any given portfolio remain there until they mature (or are called), but active management of specific securities and sectors may result in portfolio
turnover or transfers among the various portfolios.
Investment strategies are executed by dedicated investment professionals based on the
investment policies established for the various pools. To assist them in this regard, they receive periodic projections of investment needs from each line’s management team. Line of business management teams, investment portfolio managers and finance professionals periodically
evaluate how well assets purchased and the underlying portfolio match the underlying liabilities for each line. In addition, sophisticated Asset/Liability Management models are
employed to project the assets and liabilities over a wide range of interest rate scenarios to evaluate the efficacy of the strategy for a line of business.
Using this information, in conjunction with each line’s investment strategy, actual asset purchases or commitments are made. In addition, plans for future asset purchases are formulated when appropriate. This process is repeated frequently so
that invested assets for each line match its investment needs as closely as possible. The primary objectives are to ensure that each line’s liabilities are invested in
accordance with its investment strategy and that over- or under- investment is minimized.
As part of this process, the investment portfolio managers provide each
line’s management team with forecasts of anticipated rates that the line’s future investments are expected to produce. This information, in combination with yields
attributable to the line’s current investments and its investment "rollovers," gives the line management team data to use in computing and declaring interest crediting rates for their lines of business.
The Company’s risk management process includes modeling both the assets and liabilities
over multiple stochastic scenarios, as well as certain deterministic scenarios. The Company considers a range of potential policyholder behavior as well as the specific liability crediting strategy. This analysis, combined with appropriate risk tolerances, drives the
Company’s investment policy.
Use of Derivatives to Manage Interest Rate Risk
See Note 6 to the audited statutory financial statements included in the F pages of this report for a discussion of the
Company’s use of derivatives to manage interest rate risk.
Characteristics of Interest Rate Sensitive Financial
Instruments
In accordance with SAP and as noted above, the majority of the Company’s assets and liabilities are carried at amortized
cost and not at fair value. As a result, the elements of market risk discussed above do not generally have a significant direct impact on the financial position or results of operations of the Company. See Note 7 to the audited statutory
financial statements included in the F pages of this report for a summary of the Company’s assets and liabilities held at fair value.
Foreign
Currency Risk
As part of its regular investing activities, the Company may purchase foreign currency denominated investments. These
investments and the associated income expose the Company to volatility associated with movements in foreign exchange rates. In an effort to mitigate this risk, the Company uses cross-currency swaps. As foreign exchange rates change, the
increase or decrease in the cash flows of the derivative instrument generally offsets the changes in the functional-currency equivalent cash flows of the hedged item.
Credit risk is the risk the Company assumes if its debtors, customers, reinsurers, or other counterparties and
intermediaries may be unable or unwilling to pay their contractual obligations when they come due and may manifest itself through the downgrading of credit ratings of counterparties. It is the Company’s policy to monitor credit exposure within the investment portfolio to enable it to provide for future policy obligations and to minimize undue concentrations of assets
in any single geographic area, industry, or entity.
See Note 6 to the audited statutory financial statements included in the F pages of this
report for details regarding the Company’s evaluation of credit risk associated with derivatives.
Asset fees calculated as a percentage of separate account assets are a
significant source of revenue to the Company. As of December 31, 2023 and 2022, approximately 87% of separate account assets were invested in equity mutual funds. Gains and losses in the equity markets result in corresponding increases and decreases in the Company’s separate
account assets and asset fee revenue.
The Company issues variable annuity contracts through its separate accounts, for which
investment income and gains and losses on investments accrue directly to, and investment risk is borne by, the contractholder. The Company also provides various forms of guarantees to benefit the related contractholders. The Company’s primary guarantees for variable
annuity contracts include GMDB and GLWB.
Many of the Company’s individual variable annuity contracts offer GMDB features. A GMDB
generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract
value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the
contract value. This could result in additional GMDB claims.
The Company offers certain indexed life insurance and annuity products for which the
policyholders’ interest credits are based on market performance with caps and floors, and which may also include GMDB and GLWB. See Note 2 to the audited statutory financial statements included in the F pages of this report for further information regarding these indexed
features and guarantees.
Use of Derivatives to Manage Equity Market Risk
To mitigate these risks, the Company enters into a variety of derivatives including futures, options, index options and total
return swaps. See Note 6 to the audited statutory financial statements included in the F pages of this report for a discussion of the Company’s use of derivatives to manage these risks.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors of the
Registrant
For biographical information on Mmes. Snyder and Messrs. Carter, Frommeyer, Ginnan, Henderson, and Walker, please see the
information provided below in Executive Officers of the Registrant.
Executive Officers of the Registrant
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President and Chief Operating Officer |
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Executive Vice President-Chief Human Resources Officer |
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Executive Vice President-Chief Technology Officer |
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Executive Vice President-Chief Financial Officer |
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Executive Vice President-Chief Legal Officer |
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Executive Vice President-Chief Marketing Officer |
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Executive Vice President-Chief Customer, Strategy and Innovation Officer |
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Executive Vice President-Chief Transformation Officer |
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Senior Vice President-NF Strategic Customer Solutions |
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Senior Vice President-Marketing Management-Financial Services |
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Senior Vice President-Corporate Controller and Chief Accounting Officer |
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Senior Vice President-Chief Investment Officer |
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Senior Vice President-Chief Compliance Officer |
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Senior Vice President-Chief Financial Officer-Nationwide Financial |
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Senior Vice President-Annuity Distribution |
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Senior Vice President-Retirement Solutions Sales |
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Senior Vice President-Nationwide Annuity |
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Senior Vice President-Investment Management Group |
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Senior Vice President and Treasurer |
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Senior Vice President-Corporate Solutions |
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Senior Vice President-Finance & Strategy Legal and Corporate Secretary |
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Senior Vice President-Nationwide Life |
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Senior Vice President-Retirement Solutions |
Business experience for each of the individuals listed in the previous table is set forth below:
Kirt A. Walker has been a Director of NLIC since November 2009 and has been Chief Executive Officer of NMIC
since October 2019. Immediately prior to that, Mr. Walker was President and Chief Operating Officer of NLIC from December 2009 to October 2019 and President and Chief Operating Officer-Nationwide Financial for NMIC from October 2009 to October
2019. Previously, he served as President and Chief Operating Officer-Nationwide Insurance for NMIC from February 2009 through October 2009, Division President-NI Eastern Operations
for NMIC from March 2006 to February 2009, and President-Allied Insurance Operations from August 2003 through March 2006. Mr. Walker has been with Nationwide since 1986.
John L. Carter has been President and Chief Operating Officer of NLIC since October 2019. Previously, Mr. Carter was Senior Vice
President–Nationwide Retirement Plans of NLIC from April 2013 to October 2019, President of Nationwide Retirement Solutions, Inc. from July 2015 to October 2019 and President
and Chief Operating Officer of Nationwide Retirement Solutions, Inc. from July 2013 to July 2015. He has also served as a Director of NLIC since February 2013. Prior to that time, Mr. Carter served as Senior Vice President of other Nationwide companies from November 2005 to April
2013.
Vinita J. Clements has been Executive Vice President-Chief Human
Resources Officer of NLIC since July 2021. Previously, Ms. Clements was Senior Vice President-Human Resources – P&C from November 2018-March 2021. She also served as Senior Vice President-Human Resources – NF from October 2017 to November 2018 and Vice President-Human
Resources from January 2016 to October 2017 and Associate Vice President-Human Resources from January 2008 to January 2016.
James R. Fowler has been Executive Vice President-Chief Technology Officer of NLIC since September 2021.
Previously, Mr. Fowler was Executive Vice President-Chief Information Officer from August 2018 to September 2021. Prior to joining Nationwide, Mr. Fowler was Chief Information Officer for General Electric.
Timothy G. Frommeyer has been Executive Vice President of NLIC and several other Nationwide companies since October 1, 2021 and has served as a
Director of NLIC since January 2009. Mr. Frommeyer is currently the CFO of Nationwide Mutual Insurance Company. Previously, Mr. Frommeyer was Senior Vice President–Chief
Financial Officer since November 2005.
Mark S. Howard has been Executive Vice President-Chief Legal Officer of NLIC and Nationwide Life and Annuity Insurance Company since
December 2022. Mr. Howard is also Executive Vice President-Chief Legal Officer of Nationwide Mutual Insurance Company since April 2016. Prior to joining Nationwide, Mr. Howard
served as Senior Vice President and Deputy General Counsel of USAA.
Ramon Jones has been Executive Vice President-Chief Marketing Officer of NLIC and Nationwide Life and Annuity Insurance Company since
December 2022. Previously, Mr. Jones served as Senior Vice President-Marketing – Financial Services. Mr. Jones has been with Nationwide since 2009.
Michael W. Mahaffey has been Executive Vice President-Chief Customer, Strategy and Innovation Officer of NLIC and
Nationwide Life and Annuity Insurance Company since January 2024. Previously, Mr. Mahaffey served as Executive Vice President-Chief Strategy and Corporate Development Officer of NLIC and Nationwide Life and Annuity Insurance Company from December 2022 to January 2024. Previously, Mr. Mahaffey served as Senior Vice President-Chief Risk Officer, and Associate Vice President-Enterprise Risk Management. Mr. Mahaffey has been with Nationwide since 2005.
Amy T. Shore has been Executive Vice President-Chief Transformation Officer of NLIC and Nationwide Life and Annuity Insurance Company since January 2024. Previously, Ms. Shore
served as Executive Vice President-Chief Customer Officer of NLIC and Nationwide Life and Annuity Insurance
Company from December 2022 to January
2024. Previously, Ms. Shore served as Senior Vice President-Field Operations EC, Vice President-Field
Operations EC, Regional Vice President-Ohio/West Virginia, Vice President-Ohio/West Virginia, and Associate Vice President-Administrative Assistant – Office of the President.
Tina Ambrozy has been Senior Vice President-NF Strategic Customer Solutions since October 2019. Currently, Ms. Ambrozy serves as
President of NFS Distributors, Inc. and Nationwide Financial Assignment Company since December 2016 and President of Nationwide Investment Services Corporation since April 2017.
Previously, Ms. Ambrozy was Senior Vice President-NF Sales and Distribution of NLIC from December 2016 to October 2019. Ms. Ambrozy has been with Nationwide since 1996.
Ann
Bair has been Senior Vice President-Marketing Management - Financial Services since October 2020. Ms. Bair has
been with Nationwide since 2006 in various marketing roles.
James D. Benson has been Senior Vice President-Corporate Controller and Chief Accounting Officer of NLIC and Nationwide Life and Annuity
Insurance Company since December 2022. Previously Mr. Benson was Vice President-Controller from 2005-2011 and Senior Vice President-Controller from 2011-2014 of NLIC. Mr. Benson
has been with Nationwide since 1997.
Joel L. Coleman has been Senior Vice President-Chief Investment Officer of NLIC since August 2020. Currently Mr. Coleman is President of
Nationwide Asset Management, LLC since July 2020. Prior to joining Nationwide, Mr. Coleman was Chief Investment Officer of Transamerica.
Rae Ann Dankovic has been Senior Vice President-Chief Compliance Officer of NLIC since August 2021.
Previously, Ms. Dankovic was Senior Vice President-Nationwide Financial Services Legal of NLIC from February 2013 to August 2021. Ms. Dankovic has been with Nationwide since 1993.
Steven A. Ginnan has been Senior Vice President-Chief Financial Officer-Nationwide Financial of NLIC and several other Nationwide companies
since 2018 and has served as Director of NLIC since June 2018. Mr. Ginnan is also President of 525 Cleveland Avenue, LLC since June 2021. Previously Mr. Ginnan served as VP-NF
Chief Actuary from August 2006 to September 2012; and VP-Nationwide Financial Services Chief Actuary.
Rona Guymon has been Senior Vice President-Annuity Distribution for NLIC and several other companies within
Nationwide since February 2022. Previously, Ms. Guymon was Vice President, Annuity Distribution - Broker Dealer.
Craig Hawley has been Senior Vice President-Retirement Solutions Sales since January 2022. Previously, Mr.
Hawley was Senior Vice President-Annuity Distribution since October 2019. Mr. Hawley has been with Nationwide since March 2017 and was previously with Jefferson National Life Insurance Company in a legal role.
Eric S. Henderson has been Senior Vice President–Nationwide Annuity of NLIC and several other companies within Nationwide since
November 2019. He has also served as a Director of NLIC since March 2012. Mr. Henderson is currently President of Olentangy Reinsurance, LLC since September 2012, Eagle Captive
Reinsurance, LLC since September 2015, President of Jefferson National Life Insurance Company, Jefferson Financial Corp. and Jefferson National Life Insurance Company of New York since January 2022. Previously, Mr. Henderson served as Senior Vice
President–Individual Products &
Solutions from October 2011 to November 2019, Senior Vice President-Individual Investments Business Head from August 2007 to October 2011 and as Vice President-CFO-Individual
Investments from August 2004 to August 2007.
Kevin T. Jestice has been Senior Vice President–Investment Management Group of NLIC since February 2023. Previously, Mr. Jestice was
Vice President-Internal Sales Services – Institutional Investments Distribution. Prior to joining Nationwide, Kevin was Principal, Head of Enterprise Advice with
Vanguard.
David LaPaul has been Senior Vice President and Treasurer of NLIC as well as other Nationwide companies
since November 2010. Mr. LaPaul is also a Director for several Nationwide companies. Mr. LaPaul has been with Nationwide since 2010.
Juan J. Perez has been Senior Vice President-Corporate Solutions of NLIC
since February 2021 and several other companies within Nationwide. Mr. Perez has been with Nationwide since 2009 in various product, financial, business development roles.
Denise Skingle has been Senior Vice President-Finance & Strategy
Legal and Corporate Secretary of NLIC and several other companies within Nationwide since June 2020. Ms. Skingle has been with Nationwide since September 2005.
Holly Snyder has been Senior Vice President-Nationwide Life since October 2019. Ms. Snyder also serves as
Director for NLIC since October 2019. Ms. Snyder has been with Nationwide since 2003 in various product, financial, business development roles.
Eric Stevenson has been Senior Vice President-Retirement Solutions of
NLIC and several other companies within Nationwide since February 2021. Mr. Stevenson also serves as Director for several companies within Nationwide. Previously, he was Senior Vice President-Workplace Solutions from November 2020 to February 2021 and Senior Vice
President-Retirement Plan Sales from January 2019 to November 2020.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides a detailed description of our executive
compensation philosophy and programs, the compensation decisions the NMIC Human Resources Committee has made under those programs, and the factors considered in making those decisions. This Compensation Discussion and Analysis focuses on the compensation
of our Named Executive Officers (NEOs):
2023 Named Executive Officers
John L. Carter – President and Chief Operating Officer ("PEO" of NLIC)
Steven A. Ginnan – Chief Financial Officer – Nationwide Financial ("PFO" of NLIC)
Kirt A. Walker – NMIC Chief Executive Officer
Eric S. Henderson – Senior Vice President – Nationwide Annuity
Timothy G. Frommeyer – Executive Vice President
Our mission is to protect people, businesses, and futures with extraordinary care. We exist
to create value for members and businesses by protecting what is important to them, helping them build a secure financial future, and providing the best personalized customer experience through competitively priced, high-quality products. We motivate our executives to
achieve these goals, in part, by delivering direct rewards including base salary, annual and long-term incentives, and other benefits and perquisites. Consistent with our pay for performance philosophy, we focus our compensation programs on
sustained financial performance. Compensation levels will increase or decrease to the extent we meet our pre-established performance expectations.
The discussion below is intended to show how:
•
our financial planning process leads to financial and individual objectives;
•
we identify our industry peers to determine market-competitive levels of target
rewards;
•
we incorporate financial and individual objectives into our incentive programs;
•
our executive compensation program is designed to closely link pay and performance and align the interests of our executives
with our members;
•
we consider individual performance and use other non-financial factors to create flexibility
in our compensation programs; and
•
we consider both the level and form of these rewards, which we believe help us to attract and retain the executive talent
that is necessary to create and maintain stakeholder value.
Compensation Process and Roles
Organizational Structure with Respect to Compensation Decisions
Our Named Executive Officers provide services to other Nationwide companies in addition to NLIC. Decisions regarding the
total compensation levels of our Named Executive Officers are made by the NMIC Human Resources Committee based on their roles within NFS and NMIC, as applicable. The NMIC Human
Resources Committee does not directly consider the roles of Named Executive Officers with respect to NLIC in determining total compensation. Instead, NLIC pays an allocable portion of total compensation for its Named Executive Officers, which is determined pursuant to a cost-sharing agreement among several Nationwide companies. The remainder of the compensation of NLIC’s executive officers was
allocated to and paid by other Nationwide companies according to the terms of the cost-sharing agreement.
Amounts we disclose in this prospectus reflect only compensation allocated to and paid by
NLIC or its subsidiaries; however, performance is measured at the NFS and/or NMIC level, which includes NLIC performance, when determining compensation for our Named Executive Officers. As a result, metrics and results discussed herein will refer to NFS or NMIC
metrics and results, as applicable. The methods we use for the allocation of compensation paid to our Named Executive Officers varies by officer and the type of compensation and is
discussed in more detail in "2023 Compensation Program Design and Implementation."
NMIC Board of Directors and NMIC Human Resources
Committee
As delegated by our Board of Directors, the NMIC Human Resources Committee's primary purpose is to discharge the
responsibilities of the board as to the compensation of our executive officers. The NMIC Human Resources Committee also carries out the Board of Directors' oversight responsibilities by reviewing our human resources, compensation, and
benefits practices.
The operation of the NMIC Human Resources Committee is outlined in a charter that has been
adopted by the NMIC Board of Directors. The charter provides that the committee's duties include, among other things:
•
establishment of an overall compensation philosophy;
•
oversight and review of human resources programs for directors, executive officers, and
associates;
•
approval of salaries, incentive compensation plans, and awards under such plans for certain
executive officers, including the NEOs; and
•
oversight of people and culture risk practices, including policy, strategy, tolerance, and control. Key areas of risk
oversight include key person risk and succession planning, employment practices, workplace safety,
organizational culture, and compensation design.
The NMIC Human Resources
Committee is actively engaged throughout the year and met six times during 2023, including executive sessions without management present. The graphic below summarizes the activities performed during a typical
compensation cycle.
The NMIC Human Resources Committee has the sole authority to retain and
terminate any consultant assisting in the evaluation of compensation and has the power to retain and terminate independent counsel, auditors or others to assist in the conduct of any investigation into matters within the NMIC Human Resources Committee's scope of responsibilities.
Compensation Advisory Partners LLC (CAP), the NMIC Human Resources Committee’s external consultant, attended NMIC Human Resources Committee meetings to provide information and perspective on competitive compensation practices, the
competitiveness of executive pay levels, and the alignment of executive pay with company performance, and to raise issues to be addressed by management and/or the NMIC Human
Resources Committee. With committee concurrence, management at times directed CAP to collect and analyze data and develop needed background material. CAP has also recommended changes to pay programs and compensation. Management representatives and CAP consultants attend
executive sessions of committee meetings as required.
The NMIC Human Resources Committee annually reviews CAP’s independence, considering, among other factors, that CAP provides no other services for us other than those related to its engagement by the NMIC Human Resources Committee as
described above. Based on this review, the NMIC Human Resources Committee has determined CAP’s work for the committee to be free from conflicts of interest.
Under the guidance of the NMIC Human Resources Committee, Nationwide’s executive
compensation programs align with industry best practices including:
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Pay for Performance. A significant percentage of total compensation is pay-at-risk that is connected to performance. |
No guaranteed annual salary increases. Annual salary increases are based on evaluations of individual performance and market data. |
Independent Compensation Consultant. The NMIC Human Resources Committee retains an independent consultant to avoid conflicts of interest with the business and management. Other consulting services provided to management are subject to approval by the NMIC Human Resources Committee. |
No Incentive for Short-term Results to the Detriment of
Long-term Goals and Results. NEOs’ pay mix is heavily weighted toward long-term incentives. |
Generally, Target Pay at the Median of Market Comparator
Groups. We aim to target compensation at the median of companies comparable to us in size. We review the peer group annually to ensure alignment of the industry, companies with whom we compete for talent, business complexity, and company size based on revenue. |
No Excessive Perquisites. We provide limited perquisites and
personal benefits. |
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Maximum Payout Caps for Broad-based Annual and Long-
term Incentive Plans. The maximum payment prior to the exercise of discretion is two times the target amount. |
No Excessive Severance Benefits. Severance benefits for the CEO are limited to two times base salary and annual incentives; and for Named Executive Officers other than the CEO, severance benefits are limited to one times base salary and annual incentive. |
Clawback of Incentive Compensation. Incentive compensation is subject to clawback if a material financial accounting restatement occurs or if we must materially adjust the results of a metric used for funding incentive compensation plans. Additional events that would trigger the clawback policy include detrimental conduct and solicitation of employees. |
No Above Market Target Pay Philosophy. We generally do not aim to position target compensation for our Named Executive Officers above market median. |
Meaningful Stretch Goals. We establish clear and measurable performance goals at the beginning of performance cycles. |
No Plans That Encourage Excessive Risk Taking. Risk
mitigation is included in sales, broad-based annual, and long-
term plan design, and a risk assessment and mitigation plan is
reviewed annually. |
Role of Executives in Establishing the Compensation of our
Named Executive Officers
Upon request of the NMIC Human Resources Committee, members of management may also attend meetings to provide information and answer questions regarding our strategic objectives, financial performance, and legal and regulatory issues
impacting the committee's functions. Mr. Walker attends a portion of the meetings of the NMIC Human Resources Committee and assists the Committee by providing recommendations
regarding compensation for Mr. Frommeyer and Mr. Carter. Messrs. Walker, Carter, and Frommeyer assist
the NMIC Human Resources Committee by providing recommendations regarding the compensation of Messrs. Ginnan and Henderson. The NMIC Human Resources Committee and the entire NMIC Board of Directors, as applicable, as described in "Benchmarking and Compensation
Target-Setting Process" and "Determination of the Final Annual Incentive Payments", exercise their discretion to modify or accept these recommendations. The NMIC Human Resources Committee also meets in executive session without management when
discussing compensation matters and on other occasions as determined by the NMIC Human Resources Committee.
Compensation Objectives and Philosophy
The objectives of our compensation programs are to:
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align the interests of executives with those of stakeholders;
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maintain a strong link between pay and both individual and company performance; and
•
attract, retain, and motivate top-caliber executive officers with compensation that is
competitive in level and form.
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Cash compensation that is a fixed element of total compensation. |
• attract and retain top-caliber executive
talent • recognize executive officers' skills,
competencies, experience, and job
responsibilities |
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Cash payments awarded after the completion of a one-year performance period. |
• reward executives for achieving annual
performance goals |
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Cash awards based on performance over multiple years and subject to forfeiture. |
• reward executives for sustained
long-term performance • retain and motivate executives to ensure
business stability and success
• recognize
the achievement of performance objectives that drive
long-term success, financial stability, and
create value for our customers
• align
the interests of executives with long-term value of our members |
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Executive Benefits and Perquisites |
Includes pension plans, deferred compensation plans, and limited personal perquisites. |
• attract and retain top-caliber executive
talent • provide income after retirement and
enable saving of income for retirement |
Benchmarking and Compensation Decision Process
The NMIC Human Resources Committee uses competitive market analysis to compare our compensation practices to those of
companies that compete with us for customers, capital and/or executive-level talent and are similar to us in size, scope, and/or business focus. Our market data sources include
publicly disclosed compensation information from companies in two peer groups (described below) that the NMIC Human Resources Committee has identified to provide a holistic view of the competitive market, together with commercially available financial services industry and general
industry compensation surveys. For certain Named Executive Officers, we average peer group and survey market data
specific to the financial services industry because the NMIC Human Resources Committee believes it is appropriate to compare our positions to others in our market for talent that require similar skills, knowledge, and experience. We also
review general industry data to supplement the industry-specific view. We use data sources we believe have the best matches for our positions.
Annually, CAP reviews the Insurance/Financial Services Peer Group and recommends changes,
as needed, based on the following criteria:
•
Peer group median revenue should approximate Nationwide’s revenue, and peer companies
should generally have revenue between one-third and three-times Nationwide’s revenue;
•
Peer group industry representation should be balanced, reflecting an appropriate mix of insurance and other related
industries; and
•
Peer group business mix (i.e., Property & Casualty insurance vs. other insurance and
financial services) and geographic footprint (i.e., U.S. vs. non-U.S. operations) should be, on average, comparable to Nationwide.
The review that CAP performed in 2022 resulted in the following companies in the Insurance/Financial Services Peer Group to be used to inform 2023 target compensation recommendations:
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American Express Company
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American International Group, Inc.
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Capital One Financial Corporation
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Equitable Holdings, Inc.
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Lincoln National Corporation
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Manulife Financial Corporation
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Principal Financial Group, Inc.
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The Progressive Corporation
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Prudential Financial, Inc.
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The Allstate Corporation
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The Hartford Financial Services Group, Inc.
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The PNC Financial Services Group, Inc.
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The Travelers Companies, Inc.
The NMIC Human Resources Committee removed Athene Holding Ltd. From the peer group in 2022.
Public Company Peer
Group Proxy Data |
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Insurance/Financial
Services Peer Group1 |
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Public Company Peer Group Proxy
Data |
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General Industry Peer
(includes the 50 companies closest to Nationwide in the Fortune rankings that publicly disclose executive compensation) |
Supplemental
Reference Point |
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1
2023 insurance/financial
services peer group determination
2
Fortune 500 rank for
2023 general industry peer group determination
We generally target pay at the market median because we believe this is a competitive and responsible pay position, necessary to compete for talent; however, when necessary to attract or retain exceptional talent or a unique skill set, we
may target total compensation or an individual element of compensation above the median. Annually, we engage in a
talent planning process to:
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anticipate talent demands and identify implications;
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identify critical roles;
•
conduct talent assessments; and
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identify successors for critical roles.
The NMIC Human Resources Committee determines the total compensation levels for the Named Executive Officers (which are
benchmarked to the competitive external market) as well as the individual elements distributed among base salary and annual and long-term incentives. Annually, we review and may
adjust targets for company and individual performance to recognize competitive market compensation and performance in determining the final compensation we deliver to executive officers. The following is an overview of these review procedures.
John L. Carter and Timothy G. Frommeyer
In November 2022, CAP also conducted an analysis of competitive market data for Messrs. Carter’s and Frommeyer’s roles to inform 2023 compensation recommendations. CAP summarized the 25th, median (50th), and 75th percentile market data for each position and
explained any adjustments necessary to attain appropriately competitive compensation. The NMIC Human Resources Committee approved the 2023 executive compensation structure and insurance and
financial services peer group used to inform executive compensation decisions. The compensation elements included in the analysis were: base salary, target annual incentive opportunity and target total cash compensation, and target long-term
incentive opportunity and target total direct compensation. The analysis considered the size and complexity of each executive’s roles, as measured by assets or direct written premiums, compared to the market data. CAP also considered
factors such as:
•
the comparability of job responsibilities to benchmark job responsibilities;
•
experience, tenure, and performance of each executive; and
•
the responsibilities, internal equity, and strategic importance of the positions.
CAP provided recommendations for Mr. Walker's 2023 compensation program and met with the NMIC Human Resources Committee, which determined a recommendation for Mr. Walker's compensation targets. CAP conducted an analysis of competitive
market data in November 2022 to inform
2023 compensation decisions for Mr. Walker. The NMIC Human Resources Committee reviewed and approved 2023
compensation targets for Mr. Walker. The NMIC Human Resources Committee's final decision on target compensation was subject to the NMIC Board of Directors’ assessment of Mr.
Walker’s 2022 performance. The NMIC
Human Resources Committee met with the NMIC Board to review and approve the target compensation for Mr. Walker.
Steven A.
Ginnan and Eric S. Henderson
In November 2022,
Nationwide management conducted an analysis of competitive market data for Messrs. Ginnan’s and Henderson’s roles to inform 2023 compensation recommendations. As a delegate of the NMIC Human Resources Committee, Mr. Walker approved the target compensation for Messrs. Ginnan and Henderson of behalf of the Committee.
2023 Target Compensation Levels and Mix
We compensate executive officers through a mix of base salary, annual incentives, long-term incentives, benefit plans,
perquisites, and deferred compensation plans. The plans and the target opportunities for base salary and annual and long-term incentives are reviewed annually by the NMIC Human Resources Committee to ensure total compensation and the mix of
pay elements are competitive and changes reflect both the competitive market data and company needs. This ensures we continue to retain talent in key areas and provides a framework
for recruiting new talent.
We determine an appropriate mix of pay elements by using the market data as a guideline. In practice, we may adjust
individual elements above or below the mix represented in the market data while maintaining the recommended target total compensation range. Some of the reasons we may deviate from the mix of elements represented in market data
include:
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recruiting needs based on compensation received by a candidate in previous positions;
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year-to-year variation in the market data, indicating the market data may be volatile;
•
differences between the specific responsibilities of our executives' positions and the
positions represented in the market data; and
•
a desire to change the alignment of our incentives between annual and long-term goals for certain
positions.
For 2023, the
analysis resulted in the following compensation levels and mix at target for the Named Executive Officers:
2023 Target Total Direct Compensation
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Base Salary (percentage of
target total
compensation) |
Target Annual
Incentive Percent of Base
Salary (percentage of target
total
compensation) |
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Target Long-Term
Incentive for 2023-2025 Performance
Period (percentage of target total
compensation) |
Target Total
Direct
Compensation |
Percentage of
Target Total
Compensation Attributed
to
Target Incentives |
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Base Salary (percentage of target total
compensation) |
Target Annual Incentive Percent of
Base Salary (percentage of target total
compensation) |
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Target Long-Term Incentive for 2023-2025
Performance Period (percentage of target total
compensation) |
Target Total Direct Compensation
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Percentage of Target Total
Compensation Attributed to Target
Incentives |
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The elements summarized in the table and chart above illustrate the following points relative to our executive compensation
philosophy:
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Consistent with market practices, a relatively small percentage of the target total direct
compensation is provided as base salary, as the NMIC Human Resources Committee believes compensation should be delivered to our Named Executive Officers based on performance.
•
A substantial percentage of the target total direct compensation is comprised of variable incentives, delivered through a
mix of annual incentives, which are more focused on short-term financial results, and long-term incentives, which are focused on achievements over multiple years and most closely
align with building sustained value for our stakeholders. The NMIC Chief Executive Officer's target pay mix is more
heavily weighted toward long-term incentives (70% of target direct compensation), consistent with the role.
The charts below illustrate the percentage change in target total direct compensation,
which includes changes to base salary, total target cash (which includes base salary and target annual incentives), and/or long-term incentive targets for the Named Executive Officers in 2023 as compared to
2022.
Target Total Direct Compensation
Change in 2023
2023 Compensation Program Design and Implementation
We discuss the following items in this section:
•
what we intend to accomplish with our compensation programs;
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how we determine the amount for each element of compensation; and
•
the impact of performance on compensation.
The principal elements of 2023 compensation for our Named Executive Officers were
base salary and annual and long-term incentives. Each serves a different purpose, as discussed above in "Compensation Objectives and Philosophy."
Base
Salary
Our overall pay philosophy is to establish base salaries that are generally at the median of the companies represented in
the market data. We typically base a departure from the median on factors such as incumbent experience and industry or functional expertise, scope of job responsibilities as compared to similar positions in the market, special retention needs,
and executive performance. In determining adjustments to the Named Executive Officers' salaries for 2023, the NMIC Human Resources Committee evaluated the
following:
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salaries for comparable positions in the marketplace, taking scope of responsibility into
account;
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our recent financial performance, both overall and with respect to key financial
indicators;
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the annual performance evaluation of each executive officer compared to previously established
objectives; and
Base salary rates for the Named Executive Officers increased by an average of 6.0% in 2023. The overall salary increase percentage reflects the impact of competitive market data, a challenging labor market, and individual and company
performance.
In 2023, we used the Performance Incentive Plan, or
"PIP," to provide a portion of at-risk pay to our Named Executive Officers, which promoted our pay-for-performance philosophy. Below are the highlights of our annual incentive plan
design and the changes we made in
2023.
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The PIP provides participants with direct financial rewards in the form of annual incentives the participants earn subject
to the achievement of key financial and strategic objectives.
•
In 2023, one set of PIP metrics applied to all Named Executive Officers and reflected a blend of enterprise, corporate staff, and
major business line results.
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The design of incentive plans and reward programs has been used to reinforce a "One
Nationwide" strategy, drive an enterprise perspective, and support the alignment of our business operating model.
•
In 2023, enterprise and business unit weights were adjusted to reinforce business unit accountability to drive profitable growth in
lines of business by increasing the business unit weighting from 65% to 70%.
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Business unit weights reflect a blend of profit, growth, expense, and customer metrics.
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Customer metrics are measured at the business unit level, reflecting a blend of internal measures and external JD Power
customer metrics.
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The enterprise metric continues to be Consolidated Net Operating Income (CNOI).
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The maximum payment for
each participant is 200% of the participant’s target amount. Any adjustments to printed performance results for incentive purposes are presented to and approved by the NMIC Human
Resources Committee. Adjustments to printed performance results for incentive purposes may be made for one-time
or unusual financial items that have impacted actual performance, but which management believes should not be included to penalize or receive credit for incentive purposes.
Examples may include, but are not limited to:
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Gains and losses from the acquisition or divestiture of businesses and/or operations;
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Non-recurring, unanticipated tax adjustments; and
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Errors and/or omissions during target calculations.
No discretionary adjustments were made in 2023.
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In 2023, Mr. Henderson’s annual incentive plan included a blend of 60% PIP and 40% Sales Incentive Plan or "SIP," metrics to
provide a portion of at-risk pay for his role. The SIP plan provides direct financial rewards in the form of short-term incentives for the achievement of key enterprise, financial
services business unit, and annuity product line metrics.
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Our plan also allows the Chief Executive Officer to recommend use of discretion, on approval by the NMIC Human Resources
Committee, based on defined guiding principles. Any and all annual incentive performance scores (and corresponding incentive pools), and individual incentive payments may be adjusted up to +/-15%. Proposed
adjustments greater than +/-15% require Board approval. The purpose of CEO discretion is to determine if the accomplishments are not adequately reflected in the calculated
performance score.
❍
The rationale for such discretion may include, but is not limited to:
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changes in industry
and competitive conditions after target setting;
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execution and achievement of key performance indicators that have a longer-term financial
impact; and
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performance on key performance indicators such as customer experience, associate engagement,
Agency ratings, etc. that may not be reflected in the financial results.
Calculating the 2023 Annual Incentive Scores
All Named Executive Officers are compensated using a mix of enterprise, corporate staff, and
major business unit metrics. To calculate the overall performance scores for the financial metrics, the performance score on each applicable metric is weighted, adjusted if applicable, and summed, as shown below:
We define the financial goals used in the tables below as follows:
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Consolidated Net Operating Income
(CNOI) |
Consolidated Net Operating Income "CNOI" measures our profitability from continuing
operations. CNOI excludes the impact of realized gains and losses on
sales of investments and hedging instruments, certain hedged items,
credit losses, discontinued operations, and extraordinary items, net of
tax. |
P&C Business Unit Metrics |
P&C Adjusted General Operating
Expenses |
Excludes Incentives, Defense & Adjusting, Commissions, Premium Tax, Fees and all
other. |
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The increase or decrease in the current performance year-ending business unit premium
over the prior performance year-ending business unit premium, as a
percentage. |
P&C Non-Weather Loss Ratio |
Net incurred losses from non-weather perils, excluding contingent suits, divided by
earned insurance premiums in the current year. Incurred losses only
reflect losses from the current year and prior year development from
the previous year. |
P&C JD Powers/CEM Customer
Metric |
Performance results are calculated by averaging the quartile rankings of each product
line. |
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NF Return on Capital (adjusted for
excess capital) |
NF net operating income for the year, excluding interest income on excess capital and adding
back debt expense, divided by the total NF GAAP equity plus long-term debt at the
beginning of the year, excluding excess capital.
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NF Adjusted General Operating
Expenses |
Excludes sales incentives, management incentives, premium and other taxes, licenses
and fees, and contingent suits. |
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NF sales primarily include individual and group annuity considerations, as well as
life and specialty insurance premiums calculated in accordance with
statutory accounting practices. In addition, NF sales includes deposits
on administration-only and group trust products within our retirement
solutions segment, as well as sales associated with our institutional fund business and securities-backed lending program. |
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Percentage of assets retained in NF’s key businesses year-over-year. This is
calculated in each of the business segments. NF’s retention rate
is then calculated using a segment weighting based on
revenue. |
NF JD Power/Market Metrics |
Performance results are calculated by averaging the quartile rankings of each product
line. |
NW Pet Business Unit Metrics |
Pet Trade Combined Ratio (TCR) |
Sum of the calendar year loss ratio, statutory expense ratio, and dividend ratio
where applicable. |
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New customers / policies that are brought to Nationwide. |
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Portion of the portfolio that has renewed and been retained.
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All variable annuity sales with living benefits. |
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Registered Indexed-Linked Annuity sales (Nationwide Defined Protection Annuity and
Nationwide Defender Annuity). |
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All Fixed Index Annuity sales. |
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All non-living benefit sales sold through Advisory or Fee Based Brokerage and JP
Morgan Multi-Asset Choice product for annuities sales.
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NF Annuity: SPIA/Trad Fix |
All single-premium immediate annuity (SPIA) and traditional fixed annuity
sales. |
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Includes Finance, HR, Legal, Marketing Staff, Customer, CRE, Aviation, and IT Run.
Excludes Brand, IT Build, Foundation/ Charitable Contributions,
Management incentives. |
CEO Non-Financial Metrics |
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Continue to develop a world class organization, talent, and culture.
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Enabling the execution of strategy with accountability. |
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Building an accountable and transparent organization. |
2023 PIP Metrics, Weights, and Performance
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Messrs.
Carter,
Ginnan,
Frommeyer (Weight) |
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2023
Incentive
Performance
Results |
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Enterprise Consolidated Net Operating Income |
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Messrs. Carter, Ginnan,
Frommeyer (Weight) |
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2023 Incentive Performance
Results |
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NF
Expense: Adjusted General Operating
Expenses |
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NF
Customer: Asset Retention |
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NF
Customer: NF JD Power/Market Metrics1 |
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P&C Business Unit Metrics |
Expense: P&C Adjusted
General Operating Expenses |
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P&C Written Premium Growth |
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P&C Non-Weather Loss
Ratio |
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P&C Customer: JD Power/CEM Customer
Metric1 |
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Nationwide Pet Business Unit Metrics |
Pet
Trade Combined Ratio (TCR) |
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NF
Annuity: SPIA/Trad Fix |
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CEO Non-Financial Metrics |
People, Strategy and Governance |
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Qualitative and quantitative non-financial metrics2 |
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1
Performance results are calculated by averaging the quartile rankings of each product line. Actual calibration for 3rd quartile is 0.67, 2nd quartile is 1.33, and 1st quartile is 2.00.
2
Non-financial metrics includes objectives related to people, strategy and governance. Metrics
include qualitative and quantitative metrics approved by the NMIC Board of Directors.
Determination of the Final Annual Incentive Payments
To determine the 2023 annual incentive compensation
payments for our Named Executive Officers, the NMIC Human Resources Committee assessed each executive officer's performance under the PIP, considering the metrics in the tables
above in addition to the executive officer's overall performance, our overall financial performance, and management's assessment of performance on individual objectives.
The actual amounts the Named Executive Officers received under the PIP depended solely on
the achievement of the approved metrics and the discretion of the NMIC Human Resources Committee to reward individual performance, as described above.
The performance assessment for Mr. Walker, the NMIC Chief Executive Officer, also included non-financial components, which were approved by the NMIC Human Resources Committee. These emphasized:
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developing world class organization, talent, and culture;
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enabling execution of strategy with accountability; and,
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building an accountable and transparent organization.
Each independent director completed
a formal evaluation of Mr. Walker’s performance against the non-financial objectives and gave a rating on a five-point scale. After summarizing the results and meeting with
the Chair of the NMIC Human Resources Committee, CAP and the NMIC Human Resources Committee met with the NMIC Board of Directors to approve the overall non-financial performance score for Mr. Walker. The score, expressed as a multiple of the weighted
target amount, was incorporated into the overall PIP score and approved by the NMIC Board of Directors.
The resulting cash payments for our Named Executive Officers are
below:
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Annual Incentive
Payment vs. Target
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Performance compared
to the PIP enterprise scorecard objectives |
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Performance compared
to the PIP enterprise scorecard objectives |
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Performance compared
to the PIP enterprise scorecard objectives
and non-financial objectives |
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Performance compared
to PIP enterprise and NF business unit; and SIP annuity scorecard objectives |
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Performance compared
to the PIP enterprise scorecard objectives |
1
Messrs. Carter, Frommeyer and Ginnan’s 2023 annual incentive payment included an individual
performance discretion adjustment of $192,970, $13,457, and $42,132 respectfully, to recognize them
for achieving above goal performance results.
2
Mr. Walker’s
2023 annual incentive payment did not include individual discretion. Mr. Walker’s award was based on the 85% PIP scorecard results and 15%
non-financial objective results.
3
Mr. Henderson’s
2023 annual incentive payment did not include individual discretion. Mr. Henderson’s award was based on the 60% NF PIP scorecard results and 40%
annuity sales results.
Long-Term Incentives: Long-Term Performance Plan
(LTPP)
Three-year Performance Cycle
Consistent with our philosophy of emphasizing pay that is performance-based, long-term
incentive compensation constitutes a substantial portion of each Named Executive Officer's total compensation package. The LTPP is intended to accomplish the following objectives:
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reward sustained long-term value creation with appropriate consideration of risk capacity,
appetite, and limits;
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deliver market-competitive target compensation consistent with organizational performance;
and
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retain and motivate executives to ensure business stability and success.
In 2023, the NMIC
Human Resources Committee used the LTPP to award long-term incentives to the Named Executive Officers. The goals used are:
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Sales and Direct Written Premium growth; and
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Capital Strength measured by Standard & Poor's capital calculation.
Minimum performance on both metrics is
required for a score above 0.0. A situation where Sales and DWP Growth plan is achieved, and Capital Strength is at least AA+ results in a score of 1.00; higher or lower scores
will be achieved according to the extent each metric is above or below target. Performance is measured at the end of each year over a three-year period and the final score is the average of the three previous years’ annual scores. A time value of money factor of
3.00% is added to the final payment to account for the length of time between the grant of the target award and
the payment.
Three-year Cycle LTPP Performance Matrix and Results for 2023 Year
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2021-2023 LTPP Payment vs. Target |
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1
2021-2023 LTPP payments included a time value of money factor of
3.00%.
The 2023 LTPP grants for the 2023-2025 performance cycle are described in "Grants of Plan-Based Awards."
If we are required to prepare a material financial accounting restatement or to materially adjust the results of a metric
used for funding incentive compensation plans, we may recover from any current or former person we determine to be an elected officer any amount more than what should have been paid, up to and including:
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The amount of any incentive award under the PIP or LTPP to the extent the restatement impacts the amount awarded;
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The total amount of awards granted to the extent the restatement impacts the amounts that
would have been granted, with such awards valued in good faith at the discretion of the NMIC Board of Directors; and
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Any other amount determined by the NMIC Board of
Directors, in its sole discretion, to have been improperly awarded.
Recovery may, at the
NMIC Board of Directors' discretion, be in the form of an adjustment to future incentive awards, as applicable.
For adjustments to incentive plan funding metrics
that are not related to an accounting restatement but are considered material for incentive payment purposes, the impacts will be analyzed to determine the degree of incentive plan
materiality, and if recovery or additional payments are required, the adjustments will be applied during the next incentive plan payout.
In addition, if an elected officer engages in detrimental conduct, we may recover from the officer all or any portion of incentive compensation that was paid or payable to the officer within the three-year period preceding the date on which we
become aware that the officer engaged in detrimental conduct.
For this purpose, "Detrimental Conduct" means any of the following conduct:
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Misconduct, gross negligence, or commission of a material error, including in a supervisory
capacity, that causes, or might reasonably be expected to cause, material reputational, financial or other harm to the Company
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Material violation of any applicable Company policies, including the Company’s written
code of business conduct and ethics
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Material breach of any written non-competition, non-disclosure, or non-solicitation agreement in effect with the
Company.
Personal Benefits and Perquisites
Together with perquisites and other personal benefits, which are the same for all associates (such as health and welfare
benefits and pension and savings plans), we provide to our executive officers non-qualified pension and savings plans, deferred compensation plans and personal perquisites, all of which we believe are consistent with market competitive
practices. For more information about these personal benefits and perquisites, see the "Summary Compensation Table."
Termination Benefits and Payments
It is Nationwide's practice to provide severance agreements to the NMIC Chief Executive Officer and a limited number of
senior executive officers, including our Named Executive Officers. We believe these agreements are a standard industry practice for these positions and are necessary to attract and retain executive officers at this level. Annually, the NMIC
Human Resources Committee reviews a competitive analysis of the provisions to ensure alignment with industry
practices. The agreements provide certain protections to the executive officer regarding compensation and benefits. In exchange for those protections, the executive officer agrees to keep our information confidential, and agrees not to solicit
our employees or customers and not to compete with Nationwide for a specified period following termination. We provide additional information with respect to post-termination benefits provided under these severance agreements in "Potential
Payments Upon Termination or Change of Control."
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Messrs. Carter, Ginnan,
Henderson and Frommeyer |
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Annual bonus for the year of termination |
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Outstanding LTPP performance cycles |
• Actual payout in accordance with plan
vesting provisions |
• Actual payout in accordance with plan
vesting provisions |
Lump sum and gross-up for continuation of health care benefits |
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• Bridge to early retirement if terminated
within 3 years of age 55
• Lump sum for company contribution to 401(k) and Supplemental 401(k) for 24 months |
• Bridge to early retirement if terminated
within 3 years of age 55 • Lump sum for company contribution to
401(k) and Supplemental 401(k) for 12
months |
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• Non-compete for 2 years
• Non-solicitation for 2 years • Confidentiality |
• Non-compete for 1 year
• Non-solicitation
for 1 year • Confidentiality |
Certain termination-of-employment events may trigger post-termination payments and benefits if a severance agreement does
not apply to the payments and benefits. Those events include retirement, severance, termination for cause, death, disability, and voluntary termination. The details of the benefits
and payments made upon termination are also described in "Potential Payments Upon Termination or Change of Control."
Impact of Regulatory Requirements
on Compensation
There were no regulatory requirements that influenced our compensation arrangements.
Risk Mitigation in Plan Design
Nationwide’s Enterprise Risk & Capital Management capabilities are linked with business planning and execution. The
Risk Appetite framework is embedded in strategy development and informs key decisions regarding growth, resource
allocation, product development and pricing, strategic asset allocation, asset-liability management, risk transfer, and target returns. Nationwide has spent considerable time developing an appropriate compensation plan to motivate prudent risk taking
in pursuit of business objectives. Our compensation plan strengthens the culture of risk management across the organization through risk and capital metrics embedded in the design.
The NMIC Human Resources Committee annually reviews our alignment with governance best practices and regulatory requirements regarding the risks inherent in our compensation policies and practices. The risk assessment is comprehensive and:
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includes the appropriate review of potential areas of risk in the incentive plans, and design
features and internal control processes / governance that mitigate risk and support responsible decision making;
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considers overall enterprise risk management at Nationwide and interplay with compensation
programs; and
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incorporates checks and balances as it relates to performance measurement, risk
considerations, and the structure upon which rewards are earned.
We believe that our broad-based
compensation programs do not provide incentives for excessive risk taking and do not lead to risks that are reasonably likely to have a material adverse effect on the
company.
Summary Compensation Table
Name and principal position |
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Non-Equity
Incentive Plan
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Change in
Pension Value and
Non- qualified Deferred
Compensation
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John L. Carter
President and Chief Operating Officer |
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Steven A. Ginnan
Chief Financial Officer -
Nationwide Financial |
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Kirt A. Walker NMIC
Chief Executive Officer |
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Eric S. Henderson
SVP - Nationwide Annuity |
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Timothy G. Frommeyer
Executive Vice President |
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1
Amounts in the summary compensation table above reflect incentive compensation earned under the
PIP for the 2022 performance year and the
allocated amounts earned under the LTPP for the
2020-2022 cycle that were paid in 2023.
2
Amounts in the table below reflect incentive compensation earned under the PIP for the 2023 performance year and the allocated amounts earned under the LTPP for the 2021-2023 cycle that were paid in 2024.
2024 Incentive Payment Summary2
3
In accordance with Instruction 3 to Item 402(c)(2)(viii), negative values are shown as $0.
4
Includes the contribution we made on behalf of Mr. Carter in the amount of $46,474 under the Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less
than $10,000.
5
Includes the contribution we made on behalf of Mr. Ginnan in the amount of $12,731 under the Nationwide Supplemental Defined
Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000.
6
Includes the actual incremental cost of Mr. Walker's personal use of the company plane in the amount of $22,683; the contribution we made on behalf of Mr. Walker in the amount of $52,670 under the Nationwide Supplemental Defined Contribution Plan; a tax gross-up in the amount of $520 for the actual cost of an
executive physical; and $474 the company-paid portion for parking expenses and automotive service in the executive parking garage.
7
Includes the contribution we made on behalf of Mr. Henderson in the amount of $21,238 the Nationwide Supplemental Defined Contribution
Plan. Aggregate value of perquisites and personal benefits is less than $10,000.
8
Includes the contribution we made on behalf of Mr. Frommeyer in the amount of $18,165 under the Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less
than $10,000.
Grants of Plan-Based Awards in
2023
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Estimated Future Payouts Under
Non-equity Incentive Plan Awards |
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1
We calculated thresholds for metrics other than CNOI separately after a $350.0 million performance level was achieved on CNOI.
Actual payment may be less than the amount shown for threshold.
2
Represents PIP award. The maximum reflects a 200% maximum performance-based payout and potential discretionary adjustment of
15% that would require NMIC Human Resources Committee approval and any adjustments beyond 15% require NMIC Board
of Directors approval.
3
Represents an award under the LTPP for the 2023-2025 performance period. A time value of money factor of 3.00% will be added to the final payment.
Annual Incentive Compensation
On February 7, 2023, we granted annual incentive target opportunities to our Named Executive Officers. The amounts earned for 2023 annual award opportunities are
reflected in the "Summary Compensation Table." In 2023, goals under the PIP were met at 101% to 136% of the target amount. Additional detail is provided in "2023 Compensation Program Design and
Implementation."
Long-term
Incentive Compensation
On February 7,
2023, we granted long-term incentive target opportunities to Named Executive Officers. The long-term plan performance is based on based on NF Sales and DWP Growth, and S&P Capital Strength. Performance is measured
annually and averaged at the end of a three-year period to determine a final performance score. A time value of money factor of 3.00% was added to the final payment based on based on the Guaranteed Investment Contract rate as reviewed and
approved by the NMIC Human Resources Committee at the time awards are granted.
Pension Benefits for 2023
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Number of Years Credited Service
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Present Value of Accumulated |
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Nationwide
Retirement Plan |
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Nationwide Supplemental Retirement Plan |
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Nationwide
Retirement Plan |
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Nationwide Supplemental Retirement Plan |
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Nationwide
Retirement Plan |
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Nationwide Supplemental Retirement Plan |
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Nationwide
Retirement Plan |
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Nationwide Supplemental Retirement Plan |
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Nationwide
Retirement Plan |
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Nationwide Supplemental Retirement Plan |
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1
These amounts are unaudited.
2
No Named Executive Officer received pension benefits payments in 2023.
The "Pension Benefits for 2023" table reports the years of credited service and the present value of accrued benefits under the Nationwide Retirement Plan, or "NRP," and the Nationwide Supplemental Retirement Plan, or "SRP," as of December
31, 2023. We discuss these plans in more detail below. The reported values are the present value of accrued
benefits with benefit commencement occurring at normal retirement age, which is age sixty-five, payable as a life annuity. Optional payment forms are available with reduced payments. A full single lump sum payment option is generally not
available. Where applicable, the "Number of years credited service" column for the NRP will reflect years credited for purposes of the final average pay formula and the account balance formula, respectively.
The credited service reported in the "Pension Benefits for 2023" table represents complete years of credited service under the NRP and SRP; however, the NRP and the SRP provide for
crediting of service in different ways. The NRP provides one month of credited service for each month a participant works, beginning with the participant's hire date. The SRP
credits service based on the date an individual first becomes a participant. For details regarding how the SRP credits service, see the "Supplemental Defined Benefit Plan" section below. We do not provide credited service under the NRP or the
SRP on a more favorable basis for the named executives than for other eligible participants.
Present Value of Accumulated Benefits
The reported present values of accumulated benefits, which are payable as a life annuity, are based upon the benefit earned
from service and compensation as of December 31, 2023. The present values assume the participant survives to,
and commences his or her benefit at, the earliest age at which unreduced benefits are payable, which is age sixty-five.
We base the present value determinations on the measurement date, discount rate, and post-retirement mortality in accordance
with FASB ASC 715, Compensation-Retirement Benefits. For the December 31, 2023, and 2022 valuations, the discount rates used under this
guidance were 4.95% and 5.25%, respectively. There is no mortality discount prior to age sixty-five in the values reported above. We also used the
Pension Protection Act Mortality Table.
Pension plan compensation includes base salary and certain management incentives.
Qualified and Supplemental
Pension Plans
Nationwide Retirement Plan
Nationwide maintains a qualified defined benefit plan called the
Nationwide Retirement Plan, or the "NRP." In general, the Named Executive Officers and other participants in the NRP will receive an annual retirement benefit under the NRP equal
to the greater of the benefit calculated under the final average pay formula, if applicable, or the account balance formula. We describe these formulae below. Any participant, including a named executive officer, who we hired on or after January 1,
2002, will receive an annual retirement benefit under the NRP based solely on the account balance formula. Participants become fully vested in the NRP after the completion of three
years of service. The accrued benefit is payable as a life annuity. Optional payment forms are available, however, with reduced payments. A full, single lump sum payment option is generally not available.
The NRP allows a participant the option of receiving his or her benefit at any age, provided
that he or she is vested when he or she leaves Nationwide. If a participant terminates his or her employment with Nationwide before age sixty-five, and decides to receive benefits before age sixty-five, the participant will receive an actuarially reduced monthly benefit amount
to reflect the longer payout period due to early distribution.
The NRP provides a pre-retirement death benefit payable to a participant's spouse. The NRP
also provides for the funding of retiree medical benefits under Section 401(h) of the Internal Revenue Code.
The Final Average Pay Formula
We compute the final average pay, or "FAP", formula benefit as
follows:
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1.25% of the participant's final average compensation, as defined below, multiplied by the
number of years of service, up to a maximum of thirty-five years subject to the limitations set forth in the Internal Revenue Code; plus
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0.50% of the participant's final average compensation in excess of Social Security covered
compensation, as defined below, multiplied by the number of years of service, up to a maximum of thirty-five years and subject to the limitations set forth in the Internal Revenue Code.
For services rendered prior to
January 1, 1996, final average compensation is equal to the average of the highest three consecutive covered compensation amounts of the participant in the participant's last ten
years of service. For services rendered on January 1, 1996, or later, final average compensation is equal to the average of the highest five consecutive covered compensation amounts of the participant in the participant's last ten years of service. The NRP defines covered
compensation to mean all wages reported on a Form W-2 Wage and Tax Statement from Nationwide, plus compensation
deferred under Sections 125, 132(f)(4) and 401(k) of the Internal Revenue Code and excluding:
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severance pay and other amounts following the later of: (i) the pay period that includes the participant's date of
termination, or (ii) the pay period in which the participant's date of termination is posted to Nationwide’s payroll system;
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company car value or subsidy or reimbursement for loss of company car;
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a lump-sum payment for vacation days made upon termination of employment or pursuant to an
election by the participant;
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imputed income, executive officer perquisites and benefits paid under any long-term performance or equity plan;
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income imputed to any participant as a result of the provisions of health or other benefits to
members of the participant's household;
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any payment made to a participant to offset the tax cost of other amounts Nationwide paid that are included in the
participant's income for federal tax purposes;
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any payment of deferred compensation made prior to the participant's severance date;
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expense reimbursement or expense allowances including reimbursement for relocation
expenses;
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retention payments made on or after January 1, 2002;
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all gross-up payments, including the related compensation payment, made on or after January 1,
2002; and
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compensation earned following the date on which a participant's employment status changes from
eligible to ineligible and during the period he or she is ineligible.
Covered compensation is subject to Internal
Revenue Code limits and, for purposes of determining final average compensation, is calculated on a calendar-year basis.
Social Security covered compensation means the average of the Social Security wage bases in effect during the thirty-five-year period ending with the last day of the year that the participant attains Social Security retirement age. The portion of a
participant's benefit attributable to years of service with certain Nationwide companies credited prior to 1996 is also subject to post-retirement increases following the
commencement of benefits or the participant's attainment of age sixty-five, whichever is
later.
For employees hired (or rehired) before January 1, 2002, benefits are the greater of
the FAP formula determination or the account balance formula, described below. We use the account balance formula to determine the retirement benefit under the NRP for all employees hired or rehired on or after January 1, 2002. The notional account under the account balance
formula is comprised of the following components:
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Opening Balance Amount: We determined the accrued benefit under the FAP formula as of December 31, 2001, and converted this accrued benefit into a
lump sum that reflected the current value of that benefit; plus
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Pay Credits: We add amounts to the account every pay period based on the participant's years of service and compensation. The pay
credits range from 3% of pay if the participant has up to thirty-five months of service, plus 3% of pay over the Social Security wage base for the year in question, to 7% of pay
for those with over twenty-two years of service, plus 4% of pay over the Social Security wage base for the year in question; plus
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Interest Credits: We add interest amounts to the account on a biweekly basis based on the thirty-year United States Treasury bill rate in
effect from the second month preceding the current quarter. The minimum interest rate is
3.25%.
Effective January 1, 2010, participants eligible for the FAP formula are not eligible to receive pay credits under the account balance formula after December 31, 2009; however, such participants do continue to receive interest credits on their account
balance benefit.
Transition from FAP Formula to Account Balance Formula for Certain NRP Participants
Notwithstanding the foregoing description of NRP benefit calculation(s), for participants who were actively employed and
accruing benefits under the FAP formula as of December 31, 2016, but had not yet attained age 55 as of such date, their FAP benefit accruals ceased as of such date. These participants accrue NRP benefits under the account balance formula after
December 31, 2016. As a result, such participants’ overall accrued benefit under the NRP will generally be equal to the sum of:
The FAP benefit accumulated through December 31, 2016
The account balance benefit accrued after December 31, 2016.
Nationwide Supplemental Retirement Plan
Nationwide maintains the Nationwide Supplemental Retirement Plan, or "SRP," an unfunded, nonqualified supplemental defined
benefit plan. The SRP provides supplemental retirement benefits to individuals who are in an executive-level position and who are receiving compensation in excess of the limits set
by Section 401(a)(17) of the Internal Revenue Code. An individual's participation in the SRP begins the first day of January of the calendar year following the date they meet the eligibility requirements.
Individuals who became participants prior to January 1, 2013 generally receive the following
benefits under the SRP:
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1.25% of the participant's final average compensation, as defined in the "Qualified Pension
Plans" section above, multiplied by the number of years of service, up to a maximum of forty years; plus
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0.75% of the participant's final average compensation in excess of Social Security-covered
compensation, as defined in "Qualified Pension Plans" above, multiplied by the number of years of service, up to a maximum of forty years; minus
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benefits the executive accrued under the NRP.
Individuals who became participants on or after January 1, 2013 receive the following benefits under the
SRP:
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a pay credit for each year in which the participant is employed on December 31 equal to 7% of the excess of such
participant’s covered compensation for such year over the limit set by Section 401(a)(17) of the Internal Revenue Code; plus
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a biweekly interest credit based on the thirty-year United States Treasury bill rate in effect
from the second month preceding the current quarter. The minimum interest rate is 3.25%.
For purposes
of the SRP, the definition of "covered compensation" is the same as described above in the "Final Average Pay Formula" section, without the Internal Revenue Code limits and
including, at the time of deferral, any compensation that would be deferred pursuant to an individual compensation agreement with Nationwide.
To the extent permitted under the rules governing nondiscrimination for the NRP, all or a portion of the benefit under the SRP for participants who were fully vested on December 31, 2008, was transferred to the NRP.
In addition, the SRP provides all participants with a minimum benefit equal to the
accrued benefit under the SRP as of December 31, 2007. For participants who first became eligible on or after January 1, 1999, and before January 1, 2007, benefits vest over a period of five years. Benefits vest for participants who first become eligible on or after January 1,
2007, over a period of 49 months. The vested percentage is based on the lesser of the participant's vested percentage in the NRP or the vested percentage pursuant to a specified vesting percentage schedule under the SRP.
For all individuals who are new participants on or after January 1,
2009, the SRP credits service by providing twelve months of credited service on the date they become a participant and credits twelve months of service for each subsequent calendar year only if the individual meets the eligibility requirements as of the last day of the calendar year.
For individuals who were participants in the SRP before January 1, 2009, the SRP provides one month of credited service for each month the participant performs service, beginning on the participant's date of hire through December 31, 2007.
After December 31, 2007, these participants received credits for twelve months of service for a calendar year only if the individual meets the SRP eligibility requirements as of the last day of the calendar year.
Effective January 1, 2010, the SRP no longer provides a subsidized early retirement
benefit for participants whose benefit calculation includes months of credited service accrued or credited on or after January 1, 2010. For an affected participant, the SRP determines his or her benefit by providing the greatest of three benefit calculations:
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his or her SRP benefit as of December 31, 2007, with the subsidized early retirement factors;
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his or her total benefit as of December 31, 2009 minus the benefits accrued under the NRP at date of termination, with the
subsidized early retirement factors; or
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his or her SRP benefit without subsidized early retirement factors at the date of
termination.
Effective January 1, 2016, the maximum number of SRP participation service years includable in an individual’s benefit determination under the SRP is reduced from 40 years to 25 years. For SRP participants who had more than 25 years of
participation service as of December 31, 2015, the maximum number of SRP participation years included in the SRP
benefit determination is the total number of participation years as of December 31, 2015 (not to exceed 40 years). In addition, an additional vesting criterion is added to the SRP. In lieu of the previous four-year vesting schedule, participants now become 100% vested in their SRP benefit upon the attainment of 120 months of vesting service. Participants who were 100%
vested as of January 1, 2016 will remain 100% vested. However, any participant who was not 100% vested had his vesting percentage, as of December 31, 2015, frozen until such time
as he attains 120 months of vesting service. These participants become 100% vested at 120 months of vesting service. Lastly, effective as of January 1, 2016, SRP participants must be age 55 or older at the date of termination of employment to be eligible to receive benefits under the
SRP.
The Nationwide Savings Plan, or the "NSP," is a qualified 401(k) plan that includes a qualified cash or deferred arrangement
and covers eligible employees of Nationwide. Under the NSP, our Named Executive Officers and other eligible participants may elect to contribute between 1% and 80% of their
compensation to accounts established on their behalf. Participant contributions are in the form of voluntary, pre-tax salary deductions or after-tax "Roth 401(k)" salary deductions. Participants who reach the age of fifty during the plan year may also make "catch up" contributions for that
year of up to the IRS published limits. Nationwide makes matching employer contributions for the benefit of their
participating employees, at a rate of 50% of the first 8% of compensation deferred or contributed to the NSP by each employee. The NSP holds all amounts that the participants contribute in a separate account for each participant and invests
the amounts in the available investment options chosen by the participant.
For purposes of the NSP, covered compensation
includes all wages reported on a Form W-2 Wage and Tax Statement from Nationwide, plus compensation deferred under Sections 125, 132(f)(4) and 401(k) of the Internal Revenue Code
and excludes:
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severance pay and other amounts following the later of (i) the pay period that includes the
participant's date of termination, and (ii) the pay period in which the participant's date of termination is posted to Nationwide's payroll system;
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company car value or subsidy or reimbursement for loss of a company car;
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a lump-sum payment for vacation days made upon termination of employment or pursuant to an
election by the participant;
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imputed income, executive officer perquisites and benefits paid under any long-term performance or equity plan;
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income imputed to any participant as a result of the provision of health or other benefits to
members of the participant's household;
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any payment made to a participant to offset the tax cost of other amounts Nationwide paid that are included in the
participant's income for federal tax purposes;
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any payment of deferred compensation made prior to the participant's severance date or on
account of a participant's severance date;
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expense reimbursement or expense allowances including reimbursement for relocation expenses;
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retention payments made on or after January 1, 2002;
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all gross-up payments, including the related compensation payment, made on or after January 1, 2002; and
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compensation earned following the date a participant’s employment status changes from eligible to ineligible and
during the period he or she is employed in an ineligible status.
Covered compensation is subject to
Internal Revenue Code limits and is calculated on a calendar-year basis.
A participant is eligible to receive the value of his or her vested account balance upon termination of his or her employment. However, he or she may withdraw all or a part of the amounts credited to his or her account prior to
termination, such as upon attainment of age fifty-nine and one-half years old and 60 months of service with Nationwide. A participant is immediately vested in all amounts credited to his or her account as a result of salary deferrals or after-tax
contributions and earnings or losses on those deferrals or contributions, as applicable. Vesting in employer matching contributions and earnings or losses on those contributions occurs on a pro rata basis over a period of five years.
The NSP offers an automatic enrollment and automatic increase feature, the latter of which applies to participants contributing less than 12% of their compensation.
Nationwide Supplemental Defined Contribution Plan
The Nationwide Supplemental Defined Contribution Plan, or "NSDC Plan," is an unfunded, nonqualified defined contribution
supplemental benefit plan. The NSDC Plan provides benefits equal to employer matching contributions that would have been made for the participants under the NSP but for the
Internal Revenue Code's limitation on compensation that can be considered for deferrals to the NSP. Only executives of Nationwide whose annual compensation is in excess of the limit set forth in the Internal Revenue Code are eligible to participate in the NSDC Plan. The benefits under the plan
vest after five years of participation.
For purposes of the NSDC Plan, "covered compensation" refers to covered compensation as
defined in "Nationwide Savings Plan" above, without the Internal Revenue Code limits and including, at the time of deferral, any compensation that would be deferred pursuant to an individual compensation agreement with Nationwide. We credit individual accounts under
the NSDC Plan with deferral amounts and earnings or losses based on the net investment return on the participant's choice of investment measures offered under the NSDC Plan. No
guaranteed or above-market earnings are available under the NSDC Plan. Participants may change their investment options on a daily basis.
Payouts under the NSDC Plan are made as follows:
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credits made for plan years prior to 1996, and earnings on those amounts, are paid in January
of the year following the year the participant’s employment terminates;
•
unless otherwise elected in accordance with the terms of the NSDC Plan, credits made to the NSDC Plan for years after 1995,
and earnings on those amounts, are paid in 10 installments for participants who qualify for a benefit from the NRP and whose account balance exceeds $25,000, and in a single lump
sum payment for all other participants.
Nonqualified Deferred Compensation for 2023
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Executive Contributions in
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1
Amount represents voluntary deferrals to the Nationwide Individual Deferred Compensation Plan.
2
Amount represents company contributions to the NSDC Plan.
3
Amount represents investment gain from applicable nonqualified deferred compensation plans attributable to all prior year deferrals in the plans. Investment gains or losses are attributable to the investment selections the executive officer makes. Executive officers may choose from approximately fifty investment options for the Nationwide Individual Deferred Compensation Plan and the NSDC
Plan, and from sixteen investment options for the Nationwide Economic Value Incentive Plan.
4
Amount represents distributions from the Nationwide Individual Deferred Compensation Plan.
5
Represents balances in the following plans: the Nationwide Individual Deferred Compensation Plan, the NSDC Plan and the
Nationwide Economic Value Incentive Plan. The Nationwide Economic Value Incentive Plan is a terminated plan that provided for involuntarily deferred compensation we may still pay to an executive officer based on his or her distribution election.
Nonqualified Deferred Compensation
Plans
We provide a voluntary deferred compensation plan to allow executives to prepare for retirement.
Nationwide Individual Deferred
Compensation Plan
Under the "Nationwide Individual Deferred Compensation Plan," or "IDC Plan," eligible executives of Nationwide may elect to defer payment of compensation otherwise payable to them. Eligible executive officers may enter into deferral agreements
in which they may annually elect to defer up to 80% of their salary and short-term incentive compensation they earn during the following year or performance cycle. Participants may
also defer up to 80% of the long-term incentive compensation they earn during the following performance cycle. Deferral elections are effective prospectively. Amounts an executive officer defers under the IDC Plan are generally payable in cash in annual installments beginning in January of the
calendar year immediately following the calendar year in which the executive officer terminates his or her employment, including due to the death of the participant. However, an
executive officer may elect to receive payments after the expiration of the deferral period the executive officer elects, from one to fifteen years from the year in which the
deferral of compensation applies. If the entire (post-2005) account balance is less than $25,000 at the time a payment is due, the entire account balance will be distributed, regardless of the distribution election on file. We credit individual accounts under the IDC Plan with deferral amounts and earnings or losses based on the net investment return on the participant's choice of
investment measures offered under the IDC Plan. No guaranteed or above-market earnings are available under the IDC Plan. The IDC Plan permits participants to make investment
changes on a daily basis. Each participant is always fully vested in his or her accrued
amount.
The IDC Plan permits a participant or beneficiary to take an unscheduled withdrawal from his or her account provided that
such elective withdrawal applies only to amounts earned and vested, including earnings, on or before December 31, 2004, and any such withdrawal is subject to a 10% early withdrawal penalty.
Payments Made Upon Standard Termination
General Termination Payments
Regardless of the manner in which an executive officer’s
employment terminates, he or she is entitled to receive the following amounts, which are earned during employment:
•
vested amounts contributed, plus related earnings under, the NSP, the IDC Plan, and the NSDC
Plan;
•
amounts accrued and vested under the NRP and the SRP; and
•
unused paid time off, up to specified limits and subject to certain limitations as specified within our paid time off
plan.
The effect of a termination of employment on certain executive officers' annual incentives is controlled by the terms of the
PIP. Under these plans, unless otherwise provided by the NMIC Human Resources Committee in connection with specified terminations of employment, we make a payment of an annual incentive only if, and to the extent, the executive officer has
attained the performance goals with respect to the related performance period, and only if we employ the executive officer through the end of the performance period. In addition, an executive officer must be employed through the date the annual
award is paid. However, in the event an executive officer's employment terminates during the performance period, or prior to the date awards are paid, due to death or disability, the executive officer or the executive officer's deemed beneficiary
(determined pursuant to the terms of the PIP) will receive a portion or all of the incentive as the NMIC Human Resources Committee determines. In the event an executive officer's employment terminates prior to the date PIP payments are paid due
to retirement or termination of the executive officer's employment without cause, the executive officer will remain eligible to receive a portion of the incentive, based on the
amount of time the executive officer was employed during the performance period on the date the PIP payment is paid and the executive officer's attainment of the performance goals
for the performance period.
Nationwide Long-Term Performance Plan
The LTPP plan design measures performance over a three-year period. The design requires both sales and direct written
premium growth and capital strength in order for participants to receive payments, which will range from zero to two times the target amount. If a voluntary termination of employment or termination for cause occurs prior to the last day of the
performance period, an executive officer's outstanding target award opportunities will be forfeited. If a termination is due to death, disability or retirement the target award opportunity will be prorated based on the number of days worked in the
performance period. Because the termination payment tables that follow assume that the Named Executive Officers
worked through all three years of the
2021-2023 performance period, through the first and second years of the 2022-2024 performance period, and through the first year of the
2023-2025 performance period, the amounts shown in the tables relating to the awards under the LTPP reflect prorated opportunities
for termination without cause or for termination due to death, disability or retirement, which would be paid after December 31, 2023 or 2024 (as applicable), based on actual
performance. Organizational performance was estimated at target performance for 2024 and 2025 for purposes of these tables.
Executive Severance
Agreements
Nationwide has entered into executive severance agreements with the Named Executive Officers. The severance agreements are
not triggered upon a voluntary termination of employment.
Nationwide entered into a new agreement with Mr. Frommeyer effective as of August 20, 2021, which replaced his original executive severance agreement dated January 1, 2017 and amended as of January 1, 2020. Nationwide entered into an agreement with Mr. Henderson effective as of January 1, 2017. Nationwide entered into an agreement with Mr. Ginnan effective
as of April 3, 2018. Nationwide entered into a new agreement with Mr. Carter on November 1, 2019, effective as of October 8, 2019, which replaced his original executive severance
agreement dated October 1, 2012. Nationwide entered into a new agreement with Mr. Walker as the new Chief Executive Officer on November 4, 2019. The new agreement was effective as of January 1, 2020 and replaced his original executive severance agreement dated January 1, 2016.
For Mr. Frommeyer, the initial term ended on December 31, 2021, with automatic one-year renewals commencing on
January 1, 2022, unless Nationwide or the
executive officer gives notice of nonrenewal. For Mr. Henderson, the initial term ended on December 31, 2017, with automatic one-year renewals commencing on January 1, 2018, unless
Nationwide or the executive officer gives notice of nonrenewal. For Mr. Ginnan, the initial term ended on December 31, 2018, with automatic one-year renewals commencing on January 1, 2019, unless Nationwide or the executive officer gives notice of
nonrenewal. For Messrs. Carter and Walker, the initial term ended on December 31, 2020, with automatic one-year
renewals commencing on January 1, 2021, unless Nationwide or the executive officer gives notice of nonrenewal.
Nationwide entered into amendments to the severance agreements with Messrs. Frommeyer, Henderson and Ginnan on November 1, 2019. The amendments, effective for terminations after December 31, 2019, provide
updated terms with respect to the arbitration dispute resolution process, the jurisdiction and venue of any dispute regarding the restrictive covenants in the executive severance agreements, and the required return of Nationwide property upon termination.
The agreements provide that Nationwide will pay
salary, incentive compensation, and benefits as determined by Nationwide's Board of Directors, or a committee thereof, as well as certain payments and benefits upon specified
termination events.
The following description of the executive officers’ agreements and the amounts
presented in the tables that follow are based on the terms of the agreements as they existed on December 31, 2022 and assume a termination of employment, and such triggering events as are contemplated by the executive severance agreements, occurred on December 31, 2022.
The executive severance agreements in effect as of December 31, 2022, for the executive officers are substantially similar to each other, with certain differences reflected in Mr. Walker’s agreement and highlighted below. Each agreement
contains material non-competition, non-solicitation and confidentiality provisions, which condition Nationwide's promises to pay severance on the executive officer's compliance with such provisions. The agreements also condition receipt of severance
upon the execution of a binding release of Nationwide and other related parties.
Under the executive severance agreements in effect as of December 31, 2022, upon a
termination by Nationwide without cause, the following payments and benefits would be
provided:
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a lump-sum cash payment equal to one times (two times, for Mr. Walker) the annual base salary
in effect immediately before the termination, payable within 30 days following the executive's termination date;
•
a lump-sum cash payment equal to one times (two times, for Mr. Walker) the annual incentive
compensation that would have been earned pursuant to the PIP during the fiscal year in which the executive officer's termination date occurs, based on actual performance over the full year, payable when annual bonuses are paid to our other
executives;
•
a lump-sum cash payment equal to the cost, including a gross-up payment to cover income and
FICA taxes on the payment, to the executive officer of continuing the medical, dental and vision coverage under COBRA, or under the retiree medical provisions of Nationwide's medical plan, if applicable, for the executive officer, his or her
spouse and dependents, for the one-year period (two-year period, for Mr. Walker) following the executive's termination date;
•
supplemental benefits equal to the benefits the executive officer would have been entitled to
receive on the termination date under certain retirement and deferred compensation plans, had the executive officer been fully vested in those plans on the termination date, less any benefits the executive officer actually receives under those plans,
paid at the time the executive's benefits are otherwise paid under the applicable plans;
•
in the event that the executive officer's termination date occurs within three years of the date on which the executive
officer would have been first eligible to retire under the NRP, a supplemental benefit equal to the benefits the executive officer would have received under the NRP and the SRP had
the executive officer earned service and age credit for the period ending on the earlier of three years after the executive officer's termination date or the earliest date the executive officer would have been eligible to retire under the NRP and had the executive
officer been fully vested under those plans, less any benefits the executive officer actually receives under those plans, paid at the time the executive's benefits are otherwise
paid under the applicable plans;
•
a lump-sum cash payment equal to the matching contributions that Nationwide would have made
for the executive officer under the NSP and the NSDC Plan during the one-year period (two-year period, for Mr. Walker) following the termination date, as if the executive officer's contributions had continued in the same amount and at the same
rate in effect immediately prior to the executive officer's termination date, payable within 30 days following the executive's termination date;
•
service and age credits for the purpose of eligibility under Nationwide's retiree medical
plan, as if the executive officer had continued employment through the one-year period (two-year period, for Mr. Walker) following the termination date;
•
the right to retain certain office equipment and furniture used at the executive officer's
home; and
•
amounts earned, accrued or owed but not paid and benefits owed under employee benefit plans
and programs.
Payments Made Upon Retirement
If an executive officer were to retire on December 31, 2023, the executive officer would receive the full three-year 2021-2023 LTPP award, an amount equal to two-thirds of the total target incentive opportunity for the 2022-2024 performance period and one-third of the total target incentive opportunity for the 2023-2025 performance period multiplied by the respective performance scores paid in the year following the end of the performance
periods. For purposes of LTPP awards, retirement means a termination of employment on or after the date on which the executive officer has attained:
•
age fifty-five and completed 120 months of vesting service; or
•
age sixty-two and completed sixty months of vesting service,
as determined under the NRP.
The PIP provides that if an executive officer retires, the executive officer will receive his or her annual incentive compensation earned during the fiscal year in which termination occurs. The annual compensation payment is prorated to
reflect services performed through the date of employment termination and is based on actual performance for the year.
Payments Made Upon Death or
Disability
If an executive officer dies or becomes disabled, in addition to any applicable benefits listed in "Payments Made Upon
Standard Termination," the executive officer will receive benefits under our disability plan or his named beneficiary will receive payments under Nationwide's life insurance plan, as appropriate. In addition, under the PIP, the executive officer
will receive his or her annual incentive compensation earned during the fiscal year in which the termination occurs. The annual compensation payment is prorated to reflect services performed through the date of employment termination and is
based on the actual performance for the year.
Potential Payments Made Upon a Change of Control or Termination Upon or Following a Change of Control
The PIP and the LTPP do not provide for special treatment of awards upon a change in control.
The following tables reflect our estimates of the payments and
benefits our Named Executive Officers would have received in lump sum if a termination of employment or a change of control had occurred on December 31, 2023.
President and Chief Operating Officer - Nationwide Financial
Benefits and Payments upon Termination |
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Termination
Without Cause |
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1
Reflects the amount Mr. Carter would receive with respect to the 2023 annual incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Carter would have qualified for retirement on December 31, 2023, he would receive the PIP payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance
agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Carter would receive with respect to the 2021-2023 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Carter would receive with respect to the 2022-2024 and 2023-2025 awards under the LTPP upon termination on December 31, 2023. Mr. Carter would have
qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2025, and a one-third
distribution of the total 2023-2025 award, which would be paid in 2026, using a performance
score that was estimated as of December 31, 2023. The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023 matching amounts in the NSP and NSDC Plan; one times the
2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Carter and his family. The amounts were not reduced to their present
value.
Steven A. Ginnan
SVP and Chief Financial Officer – Nationwide Financial
Benefits and Payments upon Termination |
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Termination
Without Cause |
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1
Reflects the amount Mr. Ginnan would receive with respect to the 2023 annual incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Ginnan would have qualified for retirement on December 31, 2023, he would receive the PIP payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance
agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Ginnan would receive with respect to the 2021-2023 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Ginnan would receive with respect to the 2022-2024 and 2023-2025 awards under the LTPP upon termination on December 31, 2022. Mr. Ginnan would have qualified for retirement under the LTPP. Accordingly, the amounts shown
assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2025, and a one-third distribution of the total
2023-2025 award, which would be paid in 2026, using a performance
score that was estimated as of December 31, 2023. The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023 matching amounts in the NSP and NSDC Plan; one times the
2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Ginnan and his family. The amounts were not reduced to their present value.
NMIC Chief Executive Officer
Benefits and Payments upon Termination |
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Termination
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1
Reflects the amount Mr. Walker would receive with respect to the 2023 annual incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Walker would have qualified for retirement on December 31, 2023, he would receive the PIP payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance
agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Walker would receive with respect to the 2021-2023 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Walker would receive with respect to the 2022-2024 and 2023-2025 awards under the LTPP upon a termination employment without cause or upon death, disability or retirement on December 31, 2023. Mr. Walker would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds
distribution of the total 2022-2024 award, which would be paid in
2025, and a one-third distribution of the total
2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023. The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of two times base salary; two times the 2022 matching amounts in the NSP and
NSDC Plan; two times the 2023 annual
incentive bonus; and the annual COBRA rate for 2024 and 2025, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Walker and his family. The amounts were not reduced to their present
value.
President - Nationwide Annuity
Benefits and Payments upon Termination |
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Termination
Without Cause |
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1
Reflects the amount Mr. Henderson would receive with respect to the 2023 annual incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Henderson would have qualified for retirement on December 31, 2023, he would receive the PIP payment. The "Termination Without Cause" column does not include the 2022 annual incentive
opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Henderson would receive with respect to the 2021-2023 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Henderson would receive with respect to the 2022-2024 and 2023-2025 awards under the LTPP upon termination on December 31, 2023. Mr. Henderson would have
qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2024, and a one-third distribution of the total 2023-2025 award, which would be paid in 2026, using a performance
score that was estimated as of December 31, 2023. The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023 matching amounts in the NSP and NSDC Plan; one times the
2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Frommeyer.
The amounts were not reduced to their present value.
Benefits and Payments upon Termination |
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Termination
Without Cause |
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1
Reflects the amount Mr. Frommeyer would receive with
respect to the 2023 annual incentive payment under the PIP upon a termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Frommeyer would have qualified for retirement on December 31, 2023, he would receive the PIP payment. The "Termination
Without Cause" column does not include the 2023 annual incentive opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be
made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Frommeyer would receive with
respect to the 2021-2023 awards under the LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Frommeyer would receive with
respect to the 2022-2024 and 2023-2025 awards under the LTPP upon termination on December 31, 2022. Mr. Frommeyer would have
qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2025, and a one-third
distribution of the total 2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023. The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023 matching amounts in the NSP and NSDC Plan; one times
the 2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Frommeyer.
The amounts were not reduced to their present value.
Directors Compensation for 2023
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Fees Earned or Paid in Cash |
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1
The Directors included in the table, and discussion pertaining to it, are limited to compensation paid to internal directors of the NLIC company. Messrs. Carter, Frommeyer, Ginnan, Henderson, and Walker’s compensation as employees in 2023 is reflected in
the Summary Compensation Table and the accompanying discussion.
2
Ms. Snyder received no additional compensation for her service as a member of the NLIC Board of Directors.
As detailed in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. John A. Carter, our Principal Executive Officer (PEO):
For 2023, our last completed fiscal year:
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the total compensation for the PEO and median employee is calculated based on allocated total compensation to NLIC;
and
•
the median of the annual total compensation of all employees of our company (other than our
PEO) was $39,552; and
•
the annual total compensation of our PEO, as reported in the "Summary Compensation Table", was
$3,995,625; and
•
our PEO’s total annual allocated compensation to NLIC was approximately 101 times that of the median of the annual total
compensation of all of our employees.
To identify the median of the annual compensation of all of our employees, and to
determine the annual total compensation of our median employee and our PEO, we took the following steps:
1.
We determined that, as of December 31, 2023, our NLIC employee population consisted of 2,870 associates.
2.
To identify the median employee, we calculated total compensation, which is calculated by
adding annual base pay earnings (which is determined based on the actual number of hours all employees are scheduled to work in a year), annual and long-term incentives earned in
2023, contributions made on behalf of the associate under the Nationwide Supplemental Defined Contribution Plan, change in pension value, and recognition awards. We used this method
to determine the median employee because it enabled us to identify an employee based on a measure that approximated total annual compensation of all employees in a typical
year.
3.
Once we identified our median employee, we identified all elements of annual compensation as
required by the "Summary Compensation Table" calculations, resulting in the amount shown above. With respect to the annual total compensation of our PEO, we used the number reported in the Total column of the "Summary Compensation Table" shown
above.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and
calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a
variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to
the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership as of March 1, 2024, of the holders of our common stock. Our directors and executive officers do not beneficially own any of our common stock.
The following table sets forth the number of issued and outstanding shares of our common stock owned by each person or
entity known by us to be the beneficial owner of more than five percent of such common stock.
Name and address of beneficial owner |
Amount and nature
of
beneficial ownership |
|
Nationwide Financial Services, Inc. 1 Nationwide Plaza
Columbus, Ohio 43215 |
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
NLIC has entered into significant, recurring transactions and
agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations. These include annuity and life insurance contracts, office space cost sharing
arrangements, and agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. Measures used to determine the allocation among
companies includes individual employee estimates of time spent, special cost studies, the number of full-time employees and other methods agreed to by the participating
companies.
See Note 12 (Transactions with Affiliates) to the audited financial statements included in the F pages of this report for further discussion of related party
transactions, including amounts specifically allocated to NLIC under the Cost Sharing
Agreement.
License to Use Nationwide Name and Service Marks
We have a license to use the "Nationwide" trade name and certain other service marks solely for the purpose of identifying
and advertising our long-term savings and retirement business and related activities.
Policies and Procedures for Review and Approval of
Related Person Transactions
We have a written conflict of interests policy that is administered by the Office of Ethics. All executive officers and directors are subject to the policy, which is designed to cover related persons transactions with executive officers, directors and their immediate family members. The policy prohibits:
•
using position at Nationwide or affiliation with any Nationwide company for personal gain or
advantage; and
•
any interest or association that interferes with independent exercise of judgment in the best
interest of Nationwide.
We require our executive officers and directors to annually complete a
conflict of interests certificate. This certificate requires the executive officers and directors to represent that they have read the Code of Conduct, which contains the conflict of interests policy, and disclose any conflicts of interests. Each reported possible conflict of interest is reviewed by the Office of Ethics and addressed by appropriate action. The Office of Ethics submits an annual summary report to the Audit
Committee covering each conflict of interest reported by a director or an executive officer who reports to Mr. Walker, and the disposition of each matter. An annual summary report
of the matters disclosed by other elected officers is submitted to the Chief Legal Officer.
NATIONWIDE LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
Independent Auditors’ Report
Audit Committee of the Board of Directors
Nationwide Life
Insurance Company:
Opinions
We
have audited the financial statements of Nationwide Life Insurance Company (the Company), which comprise the statutory statements of admitted assets, liabilities, capital and surplus as of December 31, 2023 and 2022, and the related statutory
statements of operations, changes in capital and surplus, and cash flow for each of the years in the three-year period ended December 31, 2023, and the related notes to the statutory financial statements.
Unmodified Opinion on Statutory Basis of Accounting
In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities, capital and
surplus of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flow for each of the years in the three-year period ended December 31, 2023, in accordance with accounting practices prescribed or
permitted by the Ohio Department of Insurance (Department) described in Note 2.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted
Accounting Principles section of our report, the statutory financial statements do not present fairly, in accordance with U.S. generally accepted accounting principles, the financial position of the Company as of December 31, 2023 and 2022, or
the results of its operations or its cash flows for each of the years in the three-year period ended December 31, 2023.
Basis for Opinions
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our
responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical
responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 to the financial statements, the financial statements are prepared by the Company using accounting practices prescribed
or permitted by the Department, which is a basis of accounting other than U.S. generally accepted accounting principles. Accordingly, the financial statements are not intended to be presented in accordance with U.S. generally accepted accounting
principles. The effects on the financial statements of the variances between the statutory accounting practices and U.S. generally accepted accounting principles are also described in Note 2.
Emphasis of Matter
As discussed in Note 2 to the financial statements, the Company’s subsidiary received permission from the Department in 2023 to account
for an excess of loss reinsurance recoverable as an admitted asset. Under prescribed statutory accounting practices, the excess of loss reinsurance recoverable would not be an admitted asset. As of December 31, 2023, that permitted accounting
practice increased statutory surplus over what it would have been had that prescribed accounting practice been followed. Our opinions are not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting practices
prescribed or permitted by the Department. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are issued.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance
with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the
financial statements.
In performing an audit in accordance with GAAS, we:
| |
• |
|
Exercise professional judgment and maintain professional skepticism throughout the audit.
|
| |
• |
|
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| |
• |
|
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| |
• |
|
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| |
• |
|
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise
substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
F-2
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Supplementary Information
Our audits
were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information included in the Schedule I Summary of Investments - Other Than Investments in Related Parties, Schedule III Supplementary
Insurance Information, Schedule IV Reinsurance, and Schedule V Valuation and Qualifying Accounts is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information
required by the Securities and Exchange Commission’s Regulation S-X. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial
statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting
and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with GAAS. In our opinion, the information is fairly stated in all material respects in relation to
the financial statements as a whole.
/s/ KPMG LLP
Columbus, Ohio
March 20, 2024
F-3
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (in millions, except share amounts) |
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
| Admitted assets |
|
|
|
|
|
|
|
|
| Invested assets |
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
43,867 |
|
|
$ |
40,208 |
|
| Stocks |
|
|
3,714 |
|
|
|
3,700 |
|
| Mortgage loans, net of allowance |
|
|
9,144 |
|
|
|
8,363 |
|
| Policy loans |
|
|
969 |
|
|
|
933 |
|
| Derivative assets |
|
|
113 |
|
|
|
143 |
|
| Cash, cash equivalents and short-term investments |
|
|
1,555 |
|
|
|
1,621 |
|
| Securities lending collateral assets |
|
|
359 |
|
|
|
232 |
|
| Other invested assets |
|
|
2,198 |
|
|
|
1,848 |
|
| Total invested assets |
|
$ |
61,919 |
|
|
$ |
57,048 |
|
| Accrued investment income |
|
|
965 |
|
|
|
585 |
|
| Deferred federal income tax assets, net |
|
|
632 |
|
|
|
589 |
|
| Other assets |
|
|
404 |
|
|
|
378 |
|
| Separate account assets |
|
|
113,270 |
|
|
|
102,808 |
|
| Total admitted assets |
|
$ |
177,190 |
|
|
$ |
161,408 |
|
|
|
|
|
|
|
|
|
|
| Liabilities, capital and surplus |
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
|
|
| Future policy benefits and claims |
|
$ |
49,373 |
|
|
$ |
45,482 |
|
| Policyholders’ dividend accumulation |
|
|
380 |
|
|
|
398 |
|
| Asset valuation reserve |
|
|
841 |
|
|
|
707 |
|
| Payable for securities |
|
|
512 |
|
|
|
323 |
|
| Securities lending payable |
|
|
359 |
|
|
|
232 |
|
| Funds held under coinsurance |
|
|
1,323 |
|
|
|
1,608 |
|
| Other liabilities |
|
|
1,447 |
|
|
|
1,253 |
|
| Accrued transfers from separate accounts |
|
|
(1,548 |
) |
|
|
(1,598 |
) |
| Separate account liabilities |
|
|
113,270 |
|
|
|
102,808 |
|
| Total liabilities |
|
$ |
165,957 |
|
|
$ |
151,213 |
|
|
|
|
|
|
|
|
|
|
| Capital and surplus |
|
|
|
|
|
|
|
|
| Capital shares ($1 par value; authorized - 5,000,000 shares,issued and outstanding - 3,814,779
shares) |
|
$ |
4 |
|
|
$ |
4 |
|
| Surplus notes |
|
|
1,100 |
|
|
|
1,100 |
|
| Special surplus funds |
|
|
93 |
|
|
|
- |
|
| Additional paid-in capital |
|
|
2,443 |
|
|
|
2,308 |
|
| Unassigned surplus |
|
|
7,593 |
|
|
|
6,783 |
|
| Total capital and surplus |
|
$ |
11,233 |
|
|
$ |
10,195 |
|
| Total liabilities, capital and surplus |
|
$ |
177,190 |
|
|
$ |
161,408 |
|
See accompanying notes to statutory financial statements.
F-4
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| Premiums and annuity considerations |
|
$ |
14,670 |
|
|
$ |
14,535 |
|
|
$ |
12,664 |
|
| Net investment income |
|
|
3,136 |
|
|
|
2,019 |
|
|
|
2,231 |
|
| Other revenues |
|
|
2,389 |
|
|
|
2,346 |
|
|
|
2,455 |
|
| Total revenues |
|
$ |
20,195 |
|
|
$ |
18,900 |
|
|
$ |
17,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Benefits and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Benefits to policyholders and beneficiaries |
|
$ |
17,416 |
|
|
$ |
15,963 |
|
|
$ |
16,884 |
|
| Increase in reserves for future policy benefits and claims |
|
|
3,747 |
|
|
|
2,525 |
|
|
|
807 |
|
| Net transfers from separate accounts |
|
|
(3,742 |
) |
|
|
(1,635 |
) |
|
|
(3,002 |
) |
| Commissions |
|
|
766 |
|
|
|
810 |
|
|
|
858 |
|
| Reserve adjustment on reinsurance assumed |
|
|
(153 |
) |
|
|
(161 |
) |
|
|
(151 |
) |
| Other expenses |
|
|
702 |
|
|
|
564 |
|
|
|
469 |
|
| Total benefits and expenses |
|
$ |
18,736 |
|
|
$ |
18,066 |
|
|
$ |
15,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before federal income tax expense (benefit) and net realized capital (losses) gains on
investments |
|
$ |
1,459 |
|
|
$ |
834 |
|
|
$ |
1,485 |
|
| Federal income tax expense (benefit) |
|
|
108 |
|
|
|
100 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before net realized capital (losses) gains on investments |
|
$ |
1,351 |
|
|
$ |
734 |
|
|
$ |
1,494 |
|
| Net realized capital (losses) gains on investments, net of federal income tax
(benefit) expense of $(4), $3 and $59 in 2023, 2022 and 2021, respectively, and excluding $(30), $(103) and $15 of net realized capital (losses) gains transferred to the interest maintenance reserve in 2023, 2022 and 2021, respectively |
|
|
(402 |
) |
|
|
240 |
|
|
|
(683 |
) |
| Net income |
|
$ |
949 |
|
|
$ |
974 |
|
|
$ |
811 |
|
See accompanying notes to statutory financial statements.
F-5
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Changes in Capital and Surplus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Capital
shares |
|
|
Surplus
notes |
|
|
Special
surplus funds |
|
|
Additional
paid-in capital |
|
|
Unassigned
surplus |
|
|
Capital and
surplus |
|
| Balance as of December 31, 2020 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
6,003 |
|
|
$ |
9,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in reserve on account of change in valuation basis |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
| Cumulative effect of change in accounting
principle |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
6 |
|
| Balance as of January 1, 2021 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
6,011 |
|
|
$ |
9,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
811 |
|
|
|
811 |
|
| Change in asset valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(144 |
) |
|
|
(144 |
) |
| Change in deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50 |
|
|
|
50 |
|
| Change in net unrealized capital gains and losses, net of tax expense of $30 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(142 |
) |
|
|
(142 |
) |
| Change in nonadmitted assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47 |
) |
|
|
(47 |
) |
| Dividends paid to Nationwide Financial Services,
Inc. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(550 |
) |
|
|
(550 |
) |
| Balance as of December 31, 2021 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
5,989 |
|
|
$ |
9,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Correction of error (see Note 2) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
|
|
(39 |
) |
| Balance as of January 1, 2022 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
5,950 |
|
|
$ |
9,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
974 |
|
|
|
974 |
|
| Change in asset valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(97 |
) |
|
|
(97 |
) |
| Change in deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28 |
|
|
|
28 |
|
| Change in net unrealized capital gains and losses, net of tax expense of $37 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(40 |
) |
|
|
(40 |
) |
| Change in nonadmitted assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(33 |
) |
|
|
(33 |
) |
| Capital contributions from Nationwide Financial Services, Inc. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
310 |
|
|
|
- |
|
|
|
310 |
|
| Other, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
| Balance as of December 31, 2022 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
2,308 |
|
|
$ |
6,783 |
|
|
$ |
10,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
949 |
|
|
|
949 |
|
| Change in asset valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(103 |
) |
|
|
(103 |
) |
| Change in deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
132 |
|
|
|
132 |
|
| Change in net unrealized capital gains and losses, net of tax benefit of $37 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(77 |
) |
|
|
(77 |
) |
| Change in nonadmitted assets, including admitted disallowed interest maintenance reserve |
|
|
- |
|
|
|
- |
|
|
|
93 |
|
|
|
- |
|
|
|
(126 |
) |
|
|
(33 |
) |
| Capital contributions from Nationwide Financial Services, Inc. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
135 |
|
|
|
- |
|
|
|
135 |
|
| Other, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
35 |
|
|
|
35 |
|
| Balance as of December 31, 2023 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
93 |
|
|
$ |
2,443 |
|
|
$ |
7,593 |
|
|
$ |
11,233 |
|
See accompanying notes to statutory financial statements.
F-6
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Premiums collected, net of reinsurance |
|
$ |
14,675 |
|
|
$ |
14,545 |
|
|
$ |
12,661 |
|
| Net investment income |
|
|
2,775 |
|
|
|
2,064 |
|
|
|
2,404 |
|
| Other revenue |
|
|
2,021 |
|
|
|
3,178 |
|
|
|
2,367 |
|
| Policy benefits and claims paid |
|
|
(17,567 |
) |
|
|
(15,962 |
) |
|
|
(16,735 |
) |
| Commissions, operating expenses and taxes, other than federal income tax paid |
|
|
(1,268 |
) |
|
|
(1,275 |
) |
|
|
(1,122 |
) |
| Net transfers from separate accounts |
|
|
3,792 |
|
|
|
1,658 |
|
|
|
2,871 |
|
| Policyholders’ dividends paid |
|
|
(28 |
) |
|
|
(30 |
) |
|
|
(36 |
) |
| Federal income taxes recovered (paid) |
|
|
98 |
|
|
|
(261 |
) |
|
|
121 |
|
| Net cash provided by operating activities |
|
$ |
4,498 |
|
|
$ |
3,917 |
|
|
$ |
2,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from investments sold, matured or repaid: |
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
2,594 |
|
|
$ |
3,444 |
|
|
$ |
6,953 |
|
| Stocks |
|
|
46 |
|
|
|
19 |
|
|
|
127 |
|
| Mortgage loans |
|
|
635 |
|
|
|
1,139 |
|
|
|
1,053 |
|
| Derivative assets |
|
|
- |
|
|
|
431 |
|
|
|
- |
|
| Other invested assets and other |
|
|
467 |
|
|
|
641 |
|
|
|
279 |
|
| Total investment proceeds |
|
$ |
3,742 |
|
|
$ |
5,674 |
|
|
$ |
8,412 |
|
| Cost of investments acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
(6,256 |
) |
|
$ |
(6,024 |
) |
|
$ |
(7,744 |
) |
| Stocks |
|
|
(35 |
) |
|
|
(901 |
) |
|
|
(538 |
) |
| Mortgage loans |
|
|
(1,370 |
) |
|
|
(1,305 |
) |
|
|
(1,441 |
) |
| Derivative assets |
|
|
(556 |
) |
|
|
- |
|
|
|
(589 |
) |
| Other invested assets and other |
|
|
(766 |
) |
|
|
(1,057 |
) |
|
|
(594 |
) |
| Total investments acquired |
|
$ |
(8,983 |
) |
|
$ |
(9,287 |
) |
|
$ |
(10,906 |
) |
| Net increase in policy loans |
|
|
(37 |
) |
|
|
(19 |
) |
|
|
(25 |
) |
| Net cash used in investing activities |
|
$ |
(5,278 |
) |
|
$ |
(3,632 |
) |
|
$ |
(2,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities and miscellaneous sources: |
|
|
|
|
|
|
|
|
|
|
|
|
| Capital contributions from Nationwide Financial Services, Inc. |
|
$ |
135 |
|
|
$ |
310 |
|
|
$ |
- |
|
| Dividend paid to Nationwide Financials Services, Inc. |
|
|
- |
|
|
|
- |
|
|
|
(550 |
) |
| Net change in deposits on deposit-type contract funds and other insurance liabilities |
|
|
270 |
|
|
|
391 |
|
|
|
517 |
|
| Other cash provided (used) |
|
|
309 |
|
|
|
(1 |
) |
|
|
196 |
|
| Net cash provided by financing activities and
miscellaneous |
|
$ |
714 |
|
|
$ |
700 |
|
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net (decrease) increase in cash, cash equivalents and short-term investments |
|
$ |
(66 |
) |
|
$ |
985 |
|
|
$ |
175 |
|
| Cash, cash equivalents and short-term investments at
beginning of year |
|
|
1,621 |
|
|
|
636 |
|
|
|
461 |
|
| Cash, cash equivalents and short-term investments at
end of year |
|
$ |
1,555 |
|
|
$ |
1,621 |
|
|
$ |
636 |
|
| Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Exchange of bond investments |
|
$ |
385 |
|
|
$ |
349 |
|
|
$ |
277 |
|
| Intercompany transfer of securities from merger |
|
$ |
203 |
|
|
$ |
- |
|
|
$ |
- |
|
See accompanying notes to statutory financial statements.
F-7
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Nationwide Life Insurance Company (“NLIC” or “the Company”) is an Ohio domiciled stock life insurance
company. The Company is a member of the Nationwide group of companies (“Nationwide”), which is comprised of Nationwide Mutual Insurance Company (“NMIC”) and all of its subsidiaries and affiliates.
All of the outstanding shares of NLIC’s common stock are owned by Nationwide Financial Services, Inc. (“NFS”),
a holding company formed by Nationwide Corporation, a wholly-owned subsidiary of NMIC.
The Company is a leading provider
of long-term savings and retirement products in the United States of America (“U.S.”). The Company develops and sells a wide range of products and services, which include life insurance, fixed and variable individual annuities, private and
public sector group retirement plans, investment advisory services, pension risk transfer (“PRT”) contracts and other investment products. The Company is licensed to conduct business in all fifty states, the District of Columbia, Guam,
Puerto Rico and the U.S. Virgin Islands.
The Company sells its products through a diverse distribution network.
Unaffiliated entities that sell, recommend or direct the purchase of the Company’s products to their own customer bases include independent broker-dealers, financial institutions, wirehouses and regional firms, pension plan administrators, life
insurance agencies, life insurance specialists and registered investment advisors. Affiliates that market products directly to a customer base include Nationwide Retirement Solutions, Inc., Nationwide Securities, LLC and Nationwide Financial General
Agency, Inc. The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively under various economic conditions.
Wholly-owned subsidiaries of NLIC as of December 31, 2023 include Nationwide Life and Annuity Insurance Company
(“NLAIC”) and its wholly-owned subsidiaries, Olentangy Reinsurance, LLC (“Olentangy”) and Nationwide SBL, LLC (“NWSBL”), Jefferson National Life Insurance Company (“JNL”) and its wholly-owned subsidiary,
Jefferson National Life Insurance Company of New York (“JNLNY”), Eagle Captive Reinsurance, LLC (“Eagle”), Nationwide Investment Services Corporation (“NISC”) and Nationwide Investment Advisors, LLC (“NIA”).
NLAIC primarily offers individual annuity contracts including fixed annuity contracts, group annuity contracts including PRT contracts, universal life insurance, variable universal life insurance, term life insurance and corporate-owned life
insurance on a non-participating basis. Olentangy is a dormant Vermont domiciled special purpose financial insurance company and nonadmitted subsidiary. NWSBL is an Ohio limited liability company and offers a securities-based lending product and is
a nonadmitted subsidiary. JNL and JNLNY primarily offer individual deferred fixed and variable annuity products. Eagle is an Ohio domiciled special purpose financial captive insurance company. NISC is a registered broker-dealer. NIA is a registered
investment advisor and nonadmitted subsidiary.
The Company is subject to regulation by the insurance departments of
states in which it is domiciled and/or transacts business and undergoes periodic examinations by those departments.
As of
December 31, 2023 and 2022, the Company did not have a significant concentration of financial instruments in a single investee, industry or geographic region. Also, the Company did not have a concentration of business transactions with a
particular customer, lender, distribution source, market or geographic region in which a single event could cause a severe impact to the Company’s financial position after considering insurance risk that has been transferred to external
reinsurers.
| (2) |
Summary of Significant Accounting Policies |
Use of Estimates
The preparation of the statutory financial statements requires the Company to make estimates and assumptions that affect the
amounts reported in the statutory financial statements and accompanying notes. Significant estimates include certain investment and derivative valuations and future policy benefits and claims. Actual results could differ significantly from those
estimates.
Basis of Presentation
Effective October 1, 2023, Jefferson National Financial Corporation (“JNFC”), a holding company and
wholly-owned subsidiary of the Company, completed a merger agreement with the Company. Pursuant to the merger agreement, which was deemed a statutory merger, the operations of JNFC were merged with and into the Company, with the Company continuing
as the surviving corporation. Concurrently, JNL, a wholly-owned subsidiary of JNFC prior to the merger, became a wholly-owned subsidiary of the Company. There was not a material impact on the Company’s surplus as a result of the merger.
F-8
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Effective January 1, 2022, Harleysville Life Insurance Company
(“HLIC”), an Ohio domiciled stock life insurance company and subsidiary of NMIC that offered universal and traditional life insurance, disability income insurance and fixed annuity contracts on a non-participating basis, completed a merger
agreement with NLAIC. Pursuant to the merger agreement, which was deemed a statutory merger, the operations of HLIC were merged with and into NLAIC, with NLAIC continuing as the surviving entity. All shares of HLIC were cancelled and the outstanding
surplus balance was merged into NLAIC’s additional paid-in capital and unassigned surplus. There was not a material impact on the Company’s surplus as a result of the merger.
The statutory financial statements of the Company are presented on the basis of accounting practices prescribed or permitted
by the Ohio Department of Insurance (“the Department”). Prescribed statutory accounting practices are those practices incorporated directly or by reference in state laws, regulations and general administrative rules applicable to all
insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the domiciliary state but allowed by the domiciliary state regulatory authority.
NLIC and NLAIC have elected to apply a prescribed practice promulgated under Ohio Administrative Code Section 3901-1-67
(“OAC 3901-1-67”) to its derivative instruments hedging indexed products and indexed annuity reserve liabilities in order to better align the measurement of indexed product reserves and the derivatives that hedge them. Under OAC 3901-1-67,
derivative instruments are carried at amortized cost with the initial hedge cost amortized over the term and asset payoffs realized at the end of the term being reported through net investment income, rather than the derivative instruments being
carried at fair value with asset payoffs realized over the term through net realized capital gains and losses. Additionally, the cash surrender value reserves for indexed annuity products only reflect index interest credits at the end of the
crediting term as compared to partial index interest credits accumulating throughout the crediting term in increase in reserves for future policy benefits and claims.
Eagle applies one prescribed practice with multiple applications as provided under the State of Ohio’s captive law, which
values assumed guaranteed minimum death benefits (“GMDB”) and guaranteed lifetime withdrawal benefits (“GLWB”) risks on variable annuity contracts from NLIC and GLWB risks on fixed indexed annuity contracts from NLIC and NLAIC
using an alternative reserving basis from the Statutory Accounting Principles detailed within the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) pursuant to
Ohio Revised Code Chapter 3964 and approved by the Department.
Effective October 1, 2023, Eagle was granted a
permitted practice from the Department, allowing Eagle to carry a reinsurance recoverable asset under an excess of loss reinsurance agreement with a third-party reinsurer as an admitted asset.
Prior to October 1, 2023, Olentangy was granted a permitted practice from the State of Vermont allowing Olentangy to
carry the assets placed into a trust account by Union Hamilton Reinsurance Ltd. on its statutory statements of admitted assets, liabilities and surplus at net admitted asset value for certain universal life and term life insurance policies.
Effective October 1, 2023, Olentangy terminated this permitted practice due to NLAIC’s recapture of the reinsurance agreements.
F-9
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
If the prescribed or permitted practices were not applied, the Company’s
risk-based capital would continue to be above regulatory action levels. A reconciliation of the Company’s net income between NAIC SAP and prescribed and permitted practices is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
SSAP # |
|
|
F/S
Page |
|
|
State of
domicile |
|
|
2023 |
|
|
December 31,
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statutory Net Income |
|
|
|
|
|
|
|
|
|
|
OH |
|
|
$ |
949 |
|
|
$ |
974 |
|
|
$ |
811 |
|
| State Prescribed Practice: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OAC 3901-1-67: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative instruments |
|
|
86 |
|
|
|
4 |
|
|
|
OH |
|
|
|
110 |
|
|
|
(43 |
) |
|
|
9 |
|
| Reserves for indexed annuities |
|
|
51 |
|
|
|
4 |
|
|
|
OH |
|
|
|
(75 |
) |
|
|
15 |
|
|
|
(20 |
) |
| Tax impact |
|
|
101 |
|
|
|
4 |
|
|
|
OH |
|
|
|
(7 |
) |
|
|
6 |
|
|
|
3 |
|
| NAIC SAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
977 |
|
|
$ |
952 |
|
|
$ |
803 |
|
A reconciliation of the Company’s capital and surplus between NAIC SAP and prescribed and
permitted practices is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
F/S |
|
|
State of |
|
|
As of December 31, |
|
| (in millions) |
|
SSAP # |
|
|
Page |
|
|
domicile |
|
|
2023 |
|
|
2022 |
|
| Surplus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statutory Capital and Surplus |
|
|
|
|
|
|
|
|
|
|
OH |
|
|
$ |
11,233 |
|
|
$ |
10,195 |
|
| State Prescribed Practice: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OAC 3901-1-67: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative instruments |
|
|
86 |
|
|
|
2,4 |
|
|
|
OH |
|
|
|
84 |
|
|
|
(30 |
) |
| Reserves for indexed annuities |
|
|
51 |
|
|
|
3,4 |
|
|
|
OH |
|
|
|
(82 |
) |
|
|
(7 |
) |
| Tax impact |
|
|
101 |
|
|
|
2,4 |
|
|
|
OH |
|
|
|
- |
|
|
|
8 |
|
| Subsidiary Valuation - NLAIC |
|
|
51,86,101 |
|
|
|
2 |
|
|
|
OH |
|
|
|
89 |
|
|
|
(232 |
) |
| Subsidiary valuation - Eagle |
|
|
51 |
|
|
|
2 |
|
|
|
OH |
|
|
|
(228 |
) |
|
|
118 |
|
| State Permitted Practice: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subsidiary valuation - Eagle |
|
|
61R |
|
|
|
2 |
|
|
|
OH |
|
|
|
(853 |
) |
|
|
- |
|
| Subsidiary valuation - Olentangy |
|
|
20 |
|
|
|
2 |
|
|
|
VT |
|
|
|
- |
|
|
|
(67 |
) |
| NAIC SAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,243 |
|
|
$ |
9,985 |
|
Statutory accounting practices vary in some respects from U.S. generally accepted accounting
principles (“GAAP”), including the following practices:
Financial Statements
| |
● |
|
Statutory financial statements are prepared using language and groupings substantially the same as the annual
statements of the Company filed with the NAIC and state regulatory authorities; |
| |
● |
|
assets must be included in the statutory statements of admitted assets, liabilities, capital and surplus at
net admitted asset value and nonadmitted assets are excluded through a charge to capital and surplus; |
| |
● |
|
an asset valuation reserve (“AVR”) is established in accordance with the NAIC Annual Statement
Instructions for Life and Accident and Health Insurance Companies and is reported as a liability, and changes in the AVR are reported directly in capital and surplus; |
| |
● |
|
an interest maintenance reserve (“IMR”) is established in accordance with the NAIC Annual Statement
Instructions for Life and Accident and Health Insurance Companies and is reported as a liability or other asset, and the amortization of the IMR is reported as revenue; |
| |
● |
|
the expense allowance associated with statutory reserving practices for investment contracts held in the
separate accounts is reported in the general account as a negative liability; |
| |
● |
|
accounting for contingencies requires recording a liability at the midpoint of a range of estimated possible
outcomes when no better estimate in the range exists; |
| |
● |
|
surplus notes are accounted for as a component of capital and surplus; |
F-10
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
| |
● |
|
costs related to successful policy acquisitions are charged to operations in the year incurred;
|
| |
● |
|
negative cash balances are reported as negative assets; |
| |
● |
|
certain income and expense items are charged or credited directly to capital and surplus;
|
| |
● |
|
amounts on deposit in internal qualified cash pools are reported as cash equivalents; |
| |
● |
|
the statutory statements of cash flow are presented on the basis prescribed by the NAIC; and
|
| |
● |
|
the statutory financial statements do not include accumulated other comprehensive income.
|
Future Policy Benefits and Claims
| |
● |
|
Deposits to universal life contracts, investment contracts and limited payment contracts are included in
revenue; and |
| |
● |
|
future policy benefit reserves are based on statutory requirements. |
Reinsurance Ceded
| |
● |
|
Certain assets and liabilities are reported net of ceded reinsurance balances; and |
| |
● |
|
provision is made for amounts receivable and outstanding for more than 90 days through a charge to capital and
surplus. |
Investments
| |
● |
|
Investments in bonds are generally stated at amortized cost, except those with an NAIC designation of
“6”, which are stated at the lower of amortized cost or fair value; |
| |
● |
|
investments in preferred stocks are generally stated at amortized cost, except those with an NAIC designation
of “4” through “6”, which are stated at the lower of amortized cost or fair value; |
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● |
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other-than-temporary impairments on bonds, excluding loan-backed and structured securities, are measured based
on fair value and are not reversible; |
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● |
|
the proportional amortized cost method is utilized to determine the liquidation value of Low-Income Housing
Tax Credit Funds (“Tax Credit Funds”); |
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● |
|
admitted subsidiary, controlled and affiliated entities are not consolidated; rather, those investments are
generally carried at audited statutory capital and surplus or GAAP equity, as appropriate, and are recorded as an equity investment in stocks or other invested assets; |
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● |
|
equity in earnings of subsidiary companies is recognized directly in capital and surplus as net unrealized
capital gains or losses, while dividends from unconsolidated companies are recorded in operations as net investment income; |
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● |
|
undistributed earnings and valuation adjustments from investments in joint ventures, partnerships and limited
liability companies are recognized directly in capital and surplus as net unrealized capital gains or losses; and |
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● |
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gains on sales of investments between affiliated companies representing economic transactions are deferred at
the parent level until the related assets are paid down or an external sale occurs. |
Separate Accounts
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Assets and liabilities of guaranteed separate accounts are reported as separate account assets and separate
account liabilities, respectively. |
Derivative Instruments
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● |
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Derivatives used in effective hedging transactions are valued in a manner consistent with the hedged asset or
liability; |
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with the exception of derivatives applying the prescribed practice under OAC 3901-1-67, unrealized gains and
losses on derivatives that are not considered to be effective hedges are charged to capital and surplus; |
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interest earned on derivatives is charged to net investment income; and |
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embedded derivatives are not separated from the host contract and accounted for separately as a derivative
instrument. |
F-11
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Goodwill
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● |
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Goodwill is limited to 10% of the prior reporting period’s adjusted statutory surplus, with any goodwill
in excess of this limitation nonadmitted through a charge to surplus; and |
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goodwill is amortized and charged to surplus. |
Federal Income Taxes
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● |
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Changes in deferred federal income taxes are recognized directly in capital and surplus with limitations on
the amount of deferred tax assets that can be reflected as an admitted asset (15% of capital and surplus); and |
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uncertain tax positions are subject to a “more likely than not” standard for federal and foreign
income tax loss contingencies only. |
Nonadmitted Assets
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In addition to the nonadmitted assets described above, certain other assets are nonadmitted and charged
directly to capital and surplus. These include prepaid assets, certain software and other receivables outstanding for more than 90 days. |
The financial information included herein is prepared and presented in accordance with SAP prescribed or permitted by the
Department. Certain differences exist between SAP and GAAP, which are presumed to be material.
Revenues and Benefits
Life insurance premiums are recognized as revenue over the premium paying period of the related policies when due. Annuity
considerations are recognized as revenue when received. Health insurance premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Policy benefits and claims that are expensed include interest
credited to policy account balances, benefits and claims incurred in the period in excess of related policy reserves and other changes in future policy benefits.
Future Policy Benefits and Claims
Future policy benefits for traditional products are based on statutory mortality and interest requirements without
consideration of withdrawals. The principal statutory mortality tables and interest assumptions used on policies in force are the 1958 Commissioner’s Standard Ordinary (“CSO”) table at interest rates of 2.5%, 3.0%, 3.5%, 4.0% and
4.5%, the 1941 CSO table at an interest rate of 2.5%, the 1980 CSO table at interest rates of 4.0%, 4.5%, 5.0% and 5.5%, the 2001 CSO table at an interest rate of 4.0% and 3.5% and the 2017 CSO table at an interest rate of 3.5% and 4.5%. The Company
has applied principle-based reserving to all new individual life business. For business subject to principle-based reserving, additional reserves may be held where the deterministic and/or stochastic reserves are in excess of net premium reserves,
as defined by Valuation Manual 20, Requirements for Principle-Based Reserves for Life Products (“VM-20”).
Future policy benefits for universal life and variable universal life contracts have been calculated based on
participants’ contributions plus interest credited on any funds in the fixed account less applicable contract charges. These policies have been adjusted for possible future surrender charges in accordance with the Commissioner’s Reserve
Valuation Method (“CRVM”). For business subject to principle-based reserving, the Company has calculated reserves under VM-20.
Future policy benefits for annuity products have been established based on contract term, interest rates and various contract
provisions. Individual deferred annuity contracts issued in 1990 and after have been adjusted for possible future surrender charges in accordance with the Commissioner’s Annuity Reserve Valuation Method (“CARVM”).
Future policy benefits for PRT contracts have been established in accordance with the CRVM. Statutory reserves for PRT
business written during or after 2020 are calculated as the present value of future benefit payments, using the prescribed 1994 Group Annuity Mortality (“GAM”) table along with the AA projection mortality improvement scale and prescribed
valuation rates as specified in Chapter 22 of the Valuation Manual. For the PRT business written before 2020, the statutory reserves are calculated using prescribed GAM tables and valuation interest rates that vary by issue year, as specified in the
Standard Valuation Law.
The Company calculated its reserves for variable annuities using a stochastic reserve, which is
floored at the cash surrender value, per Valuation Manual 21, Requirements for Principle-Based Reserves for Variable Annuities.
The aggregate reserves for individual accident and health policies consist of active life reserves, disabled life reserves and
unearned premium reserves. The active life reserves for disability income are reserved for on the net level basis, at a 3.0% interest rate, using either the 1964 Commissioner’s Disability Table (for policies issued prior to 1982) or the 1985
Commissioner’s Individual Disability Table A (for policies issued after 1981). The active life reserves for major medical insurance (both scheduled and unscheduled benefits) are based on the benefit ratio method for policies issued after 1981.
F-12
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The active life reserves for accident and health policies are reserved for on
the net level basis, at a 3.0% interest rate, using either the 1956 Inter-Company Hospital-Surgical tables, the 1974 Medical Expense tables or the 1959 Accidental Death Benefits table.
The disabled life reserves for accident and health policies are calculated using the 1985 Commissioner’s Individual
Disability Table A at a 3.0% interest rate. Unearned premium reserves are based on the actual gross premiums and actual days.
The aggregate reserves for group accident and health and franchise accident and health policies consist of disabled life
reserves and unearned premium reserves. Reserves for benefits payable on disabled life claims are based on the 2012 Group Long-Term Disability Valuation Table, at varying interest rates of 2.75% - 6.0%, for group policies and the 1987
Commissioner’s Group Disability Table, at varying interest rates of 2.75% - 10.25%, for franchise policies.
Future
policy benefits and claims for group long-term disability policies are the present value (discounted between 2.75% and 6.00%) of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. Future
policy benefits and claims on other group health policies are not discounted.
The Company issues fixed and floating rate
funding agreements to the Federal Home Loan Bank of Cincinnati (“FHLB”). The liabilities for such funding agreements are treated as annuities under Ohio law for life insurance companies and recorded in future policy benefits and claims.
Refer to Note 9 for additional details.
Separate Accounts
Separate account assets represent contractholders’ funds that have been legally segregated into accounts with specific
investment objectives. Separate account assets are primarily recorded at fair value, with the value of separate account liabilities set to equal the fair value of separate account assets. Separate account assets are primarily comprised of public,
privately-registered and non-registered mutual funds, whose fair value is primarily based on the funds’ net asset value. Other separate account assets are recorded at fair value based on the methodology that is applicable to the underlying
assets. In limited circumstances, other separate account assets are recorded at book value when the policyholder does not participate in the underlying portfolio experience.
Separate account liabilities, in conjunction with accrued transfers from separate accounts, represent contractholders’
funds adjusted for possible future surrender charges in accordance with the CARVM and the CRVM, respectively. The difference between full account value and CARVM/CRVM is reflected in accrued transfers to/from separate accounts, as prescribed by the
NAIC, in the statutory statements of admitted assets, liabilities, capital and surplus. The annual change in the difference between full account value and CARVM/CRVM and its applicable federal income tax is reflected in the statutory statements of
operations as part of the net transfers to/from separate accounts and federal income tax, respectively.
Retained Assets
The Company does not retain beneficiary assets. During a death benefit claim, the death benefit settlement method
is payment to the beneficiary in the form of a check or electronic funds transfer.
Investments
Bonds and stocks of unaffiliated companies. Bonds are generally stated at amortized cost, except those with an
NAIC designation of “6”, which are stated at the lower of amortized cost or fair value. Preferred stocks are generally stated at amortized cost, except those with an NAIC designation of “4” through “6”, which are stated
at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in the fair value of bonds and stocks stated at fair value are charged to capital and surplus.
Loan-backed and structured securities, which are included in bonds in the statutory financial statements, are stated in a
manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S. government agencies,
commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined for each security. The initial NAIC designation, which takes into consideration the
security’s amortized cost relative to an NAIC-prescribed valuation matrix, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost or fair value).
Interest income is recognized when earned, while dividends are recognized when declared. The Company nonadmits investment
income due and accrued when amounts are over 90 days past due.
For investments in loan-backed and structured securities,
the Company recognizes income and amortizes discounts and premiums using the effective-yield method based on prepayment assumptions, generally obtained using a model provided by a third-party vendor, and the estimated economic life of the
securities. When actual prepayments differ significantly from estimated prepayments, the effective-yield is recalculated to reflect actual payments to date and anticipated future payments. Any resulting adjustment is included in net investment
income in the period the estimates are revised. All other investment income is recorded using the effective-yield method without anticipating the impact of prepayments.
F-13
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Purchases and sales of bonds and stocks are recorded on the trade date, with
the exception of private placement bonds, which are recorded on the funding date. Realized gains and losses are determined on a specific identification method on the trade date.
Independent pricing services are most often utilized, and compared to pricing from additional sources when available, to
determine the fair value of bonds and stocks for which market quotations or quotations on comparable securities or models are used. For these bonds and stocks, the Company obtains the pricing services’ methodologies and classifies the
investments accordingly in the fair value hierarchy.
Corporate pricing matrices are used in valuing certain bonds. The
corporate pricing matrices were developed using publicly and privately available spreads segmented by various weighted average lives and credit quality ratings. Certain private placement bonds have adjusted spreads to capture the impacts of
liquidity premium based on industry sector. The weighted average life and credit quality rating of a particular bond to be priced using those matrices are important inputs into the model and are used to determine a corresponding spread that is added
to the appropriate industry sector or U.S. Treasury yield to create an estimated market yield for that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular bond.
Non-binding broker quotes are also utilized to determine the fair value of certain bonds when deemed appropriate or when
valuations are not available from independent pricing services or corporate pricing matrices. These bonds are classified with the lowest priority in the fair value hierarchy as only one broker quote is ordinarily obtained, the investment is not
traded on an exchange, the pricing is not available to other entities and/or the transaction volume in the same or similar investments has decreased. Inputs used in the development of prices are not provided to the Company by the brokers, as the
brokers often do not provide the necessary transparency into their quotes and methodologies. At least annually, the Company performs reviews and tests to ensure that quotes are a reasonable estimate of the investment’s fair value. Price
movements of broker quotes are subject to validation and require approval from the Company’s management. Management uses its knowledge of the investment and current market conditions to determine if the price is indicative of the
investment’s fair value.
For all bonds, the Company considers its ability and intent to hold the security for a
period of time sufficient to allow for the anticipated recovery in value, the expected recovery of principal and interest and the extent to which the fair value has been less than amortized cost. If the decline in fair value to below amortized cost
is determined to be other-than-temporary, a realized loss is recorded equal to the difference between the amortized cost of the investment and its fair value.
The Company periodically reviews loan-backed and structured securities in an unrealized loss position by comparing the present
value of cash flows, including estimated prepayments, expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected, discounted at the security’s effective
interest rate, is less than the amortized cost basis of the security, the impairment is considered other-than-temporary and a realized loss is recorded.
All other bonds in an unrealized loss position are periodically reviewed to determine if a decline in fair value to below
amortized cost is other-than-temporary. Factors considered during this review include timing and amount of expected cash flows, ability of the issuer to meet its obligations, financial condition and future prospects of the issuer, amount and quality
of any underlying collateral and current economic and industry conditions that may impact an issuer.
Stocks may
experience other-than-temporary impairment based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the stock to recovery. If a stock is determined to be
other-than-temporarily impaired, a realized loss is recorded equal to the difference between the cost basis of the investment and its fair value.
Investments in subsidiaries. The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC,
JNL and Eagle, are carried using the equity method of accounting applicable to U.S. insurance subsidiary, controlled and affiliated (“SCA”) entities. This requires the investment to be recorded based on the value of its underlying audited
statutory surplus. Furthermore, the equity method of accounting would be discontinued if the investment is reduced to zero, unless the Company has guaranteed obligations of the subsidiary or otherwise committed to provide further financial support.
The Company’s investment in NISC and NIA, wholly-owned non-insurance subsidiaries, are carried using the equity method of accounting applicable to U.S. non-insurance subsidiary, controlled and affiliated entities. This requires the investment
to be recorded based on its underlying audited GAAP equity. Investments in NLAIC, JNL and NISC are included in stocks, and the investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities,
capital and surplus.
Mortgage loans, net of allowance. The Company holds commercial mortgage loans that are
collateralized by properties throughout the U.S. Mortgage loans are held at unpaid principal balance adjusted for premiums and discounts, less a valuation allowance. The Company also holds commercial mortgage loans of these property types that are
under development. Mortgage loans under development are collateralized by the borrower’s common stock.
F-14
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
As part of the underwriting process, specific guidelines are followed to
ensure the initial quality of a new mortgage loan. Third-party appraisals are obtained to support loaned amounts as the loans are collateral dependent or guaranteed.
The collectability and value of a mortgage loan is based on the ability of the borrower to repay and/or the value of the
underlying collateral. Many of the Company’s mortgage loans are structured with balloon payment maturities, exposing the Company to risks associated with the borrowers’ ability to make the balloon payment or refinance the property. Loans
are considered delinquent when contractual payments are 90 days past due.
Mortgage loans require a loan-specific reserve
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 management determines that a loan requires a loan-specific
reserve, a provision for loss is established equal to the difference between the carrying value and the fair value of the collateral less costs to sell. Loan-specific reserve charges are recorded in net unrealized capital gains and losses. In the
event a loan-specific reserve charge is reversed, the recovery is also recorded in net unrealized capital gains and losses. If the mortgage loan is determined to be other-than-temporarily impaired, a realized loss is recorded equal to the difference
between the cost basis of the loan and the fair value of the collateral less estimated costs to obtain and sell. Any previously recorded loan-specific reserve is reversed.
Management evaluates the credit quality of individual mortgage loans and the portfolio as a whole through a number of loan
quality measurements, including, but not limited to, loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios. The LTV ratio is calculated as a ratio of the amortized cost of a loan to the estimated value of the underlying
collateral. DSC is the amount of cash flow generated by the underlying collateral of the mortgage loan available to meet periodic interest and principal payments of the loan. These loan quality measurements contribute to management’s assessment
of relative credit risk in the mortgage loan portfolio. Based on underwriting criteria and ongoing assessment of the properties’ performance, management believes the amounts, net of valuation allowance, are collectible. This process identifies
the risk profile and potential for loss individually and in the aggregate for the commercial mortgage loan portfolios. These factors are updated and evaluated at least annually. Due to the nature of the collateral underlying mortgage loans under
development, these loans are not evaluated using the LTV and DSC ratios described above and instead are evaluated using other qualitative metrics.
Interest income on performing mortgage loans is recognized in net investment income over the life of the loan using the
effective-yield method. Loans in default or in the process of foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received. Loans are restored to
accrual status when the principal and interest is current and it is determined the future principal and interest payments are probable or the loan is modified.
Policy loans. Policy loans, which are collateralized by the related insurance policy, are held at the
outstanding principal balance and do not exceed the net cash surrender value of the policy. As such, no valuation allowance for policy loans is required.
Cash and cash equivalents. Cash and cash equivalents include highly liquid investments with original maturities
of less than three months and amounts on deposit in internal qualified cash pools. The Company and various affiliates maintain agreements with Nationwide Cash Management Company (“NCMC”), an affiliate, under which NCMC acts as a common
agent in handling the purchase and sale of short-term securities for the respective accounts of the participants in the internal qualified cash pool.
Short-term investments. Short-term investments consist of government agency discount notes with maturities of
twelve months or less at acquisition. Short-term investments also include outstanding promissory notes with initial maturity dates of one-year or less with certain affiliates. The Company carries short-term investments at amortized cost, which
approximates fair value.
Securities Lending. The Company has entered into securities lending
agreements with a custodial bank whereby eligible securities are loaned to third parties, primarily major brokerage firms. These transactions are used to generate additional income in the securities portfolio. The Company is entitled to receive from
the borrower any payments of interest and dividends received on loaned securities during the loan term. The agreements require a minimum of 102% of the fair value of the loaned securities to be held as collateral. Cash collateral is invested by the
custodial bank in investment-grade securities, which are included in the total invested assets of the Company. Periodically, the Company may receive non-cash collateral, which would be recorded off-balance sheet. The Company recognizes loaned
securities in bonds. A securities lending payable is recorded for the amount of cash collateral received. If the fair value of the collateral received (cash and/or securities) is less than the fair value of the securities loaned, the shortfall is
nonadmitted. Net income received from securities lending activities is included in net investment income. Because the borrower or the Company may terminate a securities lending transaction at any time, if loans are terminated in advance of the
reinvested collateral asset maturities, the Company would repay its securities lending obligations from operating cash flows or the proceeds of sales from its investment portfolio, which includes significant liquid securities.
F-15
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Other invested assets. Other invested assets consist
primarily of alternative investments in private equity funds, private debt funds, tax credit funds, real estate partnerships, limited liability companies, joint ventures and the investment in Eagle. Except for investments in certain tax credit
funds, these investments are recorded using the equity method of accounting. Changes in carrying value as a result of the equity method are reflected as net unrealized capital gains and losses as a direct adjustment to capital and surplus. Gains and
losses are generally recognized through income at the time of disposal or when operating distributions are received. Partnership interests in tax credit funds are held at amortized cost with amortization charged to net investment income over the
period in which the tax benefits, primarily credits, are earned. Tax credits are recorded as an offset to tax expense in the period utilized.
The Company sold $3.1 billion, $2.9 billion and $2.6 billion in Tax Credit Funds to unrelated third parties with outstanding
guarantees as of December 31, 2023, 2022 and 2021, respectively. The Company guarantees after-tax benefits to the third-party investors through periods ending in 2041. These guarantees are in effect for periods of approximately 15 years each.
The Tax Credit Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. If the tax benefits are not sufficient to provide these cumulative after-tax yields, the Company must fund any shortfall. The
maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $1.8 billion, but the Company does not anticipate making any material payments related to the guarantees. The
Company’s risks are mitigated in the following ways: (1) the Company has the right to buyout the equity related to the guarantee under certain circumstances, (2) the Company may replace underperforming properties to mitigate exposure
to guarantee payments, (3) the Company oversees the asset management of the deals and (4) changes in tax laws are explicitly excluded from the Company’s guarantees of after-tax benefits.
Derivative Instruments
The Company uses derivative instruments to manage exposures and mitigate risks primarily associated with interest rates,
equity markets and foreign currency. These derivative instruments primarily include interest rate swaps, cross-currency swaps, futures and options.
Derivative instruments used in hedging transactions considered to be effective hedges are reported in a manner consistent with
the hedged items. With the exception of derivatives applying the prescribed practice under OAC 3901-1-67, derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at
fair value with changes in fair value recorded in capital and surplus as unrealized gains or losses.
The fair value of
derivative instruments is determined using various valuation techniques relying predominantly on observable market inputs and internal models. These inputs include interest rate swap curves, credit spreads, interest rates, counterparty credit risk,
equity volatility and equity index levels.
The Company’s derivative transaction counterparties are generally
financial institutions. To reduce the credit risk associated with open contracts, the Company enters into master netting agreements which permit the closeout and netting of transactions with the same counterparty upon the occurrence of certain
events. In addition, the Company attempts to reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral vary based on an assessment of the credit risk of the counterparty. The
Company accepts collateral in the forms of cash and marketable securities. Non-cash collateral received is recorded off-balance sheet.
Cash flows and payment accruals on derivatives are recorded in net investment income.
Fair Value Measurements
Fair value is defined as 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. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect the
Company’s view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In determining fair value,
the Company uses various methods, including market, income and cost approaches.
The Company categorizes its financial
instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. 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 in its entirety.
The Company categorizes assets and liabilities held at fair value in the
statutory statements of admitted assets, liabilities, capital and surplus as follows:
Level 1.
Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date and mutual funds where the value per share (unit) is determined and published daily and is the basis for current transactions.
F-16
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Level 2. Unadjusted quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable
market data through correlation or other means. Primary inputs to this valuation technique may include comparative trades, bid/asks, interest rate movements, U.S. Treasury rates, London Interbank Offered Rate (“LIBOR”), Secured Overnight
Financing Rate (“SOFR”), prime rates, cash flows, maturity dates, call ability, estimated prepayments and/or underlying collateral values.
Level 3. Prices or valuation techniques that require inputs that are both unobservable and significant to
the overall fair value measurement. Inputs reflect management’s best estimates of the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the
method of valuation and the valuation inputs. Primary inputs to this valuation technique include broker quotes and comparative trades.
The Company reviews its fair value hierarchy classifications for assets and liabilities quarterly. Changes in the
observability of significant valuation inputs identified during these reviews may trigger reclassifications. Reclassifications are reported as transfers at the beginning of the reporting period in which the change occurs.
Asset Valuation Reserve
The Company maintains an AVR as prescribed by the NAIC for the purpose of offsetting potential credit related investment
losses on each invested asset category, excluding cash, policy loans and income receivable. The AVR contains a separate component for each category of invested assets. The change in AVR is charged or credited directly to capital and surplus.
Interest Maintenance Reserve
The Company records an IMR as prescribed by the NAIC, which represents the net deferral for interest-related gains or losses
arising from the sale of certain investments, such as bonds, mortgage loans and loan-backed and structured securities sold. The IMR is applied as follows:
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for bonds, the designation from the NAIC Capital Markets and Investments Analysis Office must not have changed
more than one designation between the beginning of the holding period and the date of sale; |
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the bond must never have been classified as a default security; |
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for mortgage loans, during the prior two years, they must not have had interest more than 90 days past due,
been in the process of foreclosure or in the course of voluntary conveyance, nor had restructured terms; and |
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for loan-backed and structured securities, all interest-related other-than-temporary impairments and
interest-related realized gains or losses on sales of the securities. |
The realized gains or losses, net
of related federal income tax, from the applicable bonds and mortgage loans sold, have been removed from the net realized gain or loss amounts and established as the IMR. The IMR is amortized into income such that the amount of each capital gain or
loss amortized in a given year is based on the excess of the amount of income which would have been reported that year, if the asset had not been disposed of over the amount of income which would have been reported had the asset been repurchased at
its sale price. In the event the unamortized IMR liability balance is negative, the balance is reclassified as an asset and evaluated for admittance under INT 23-01, Net Negative (Disallowed) Interest Maintenance Reserve (“INT 23-01”). The
Company utilizes the grouped method for amortization. Under the grouped method, the IMR is amortized into income over the remaining period to expected maturity based on the groupings of the individual securities into five-year bands. Refer to
Recently Adopted Accounting Standards for additional discussion of IMR.
Goodwill
For companies whose operations are primarily insurance related, goodwill is the excess of the cost to acquire a company over
the Company’s share of the statutory book value of the acquired entity. Goodwill is recorded in stocks in the statutory statements of admitted assets, liabilities and surplus. Goodwill is amortized on a straight-line basis over the period of
economic benefit, not to exceed ten years, with a corresponding charge to surplus. Goodwill was immaterial as of December 31, 2023 and 2022.
F-17
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Federal Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets,
net of any nonadmitted portion and statutory valuation allowance, and deferred tax liabilities, are recognized for the expected future tax consequences attributable to differences between the statutory financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be
recovered or settled. The change in deferred taxes is charged directly to surplus, with the impact of taxes on unrealized capital gains or losses and nonadmitted assets reported separately in the statutory statements of changes in capital and
surplus.
The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe.
Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax
credits differs from estimates, the Company may be required to change the provision for federal income taxes recorded in the statutory financial statements, which could be significant.
Tax reserves are reviewed regularly and are adjusted as events occur that the Company believes impact its liability for
additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits or substantial agreement with taxing authorities on the deductibility/nondeductibility of uncertain items, additional exposure based on current
calculations, identification of new issues, release of administrative guidance or rendering of a court decision affecting a particular tax issue. The Company believes its tax reserves reasonably provide for potential assessments that may result from
Internal Revenue Service (“IRS”) examinations and other tax-related matters for all open tax years.
The Company
is included in the NMIC consolidated federal income tax return.
Reinsurance Ceded
The Company cedes insurance to other companies in order to limit potential losses and to diversify its exposures. Such
agreements do not relieve the Company of its primary obligation to the policyholder in the event the reinsurer is unable to meet the obligations it has assumed. Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred
are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported in the statutory statements of admitted assets, liabilities, capital and surplus on a net basis within the related future
policy benefits and claims of the Company.
Participating Business
Participating business, which refers to policies that participate in profits through policyholder dividends, represented
approximately 3% and 4% of the Company’s life insurance in force in 2023 and 2022, respectively, and 48% and 49% of the number of life insurance policies in force in 2023 and 2022, respectively. The provision for policyholder dividends was
based on the respective year’s dividend scales, as approved by the Board of Directors. Policyholder dividends are recognized when declared. No additional income was allocated to participating policyholders during 2023 and 2022.
Accounting Changes and Corrections of Errors
Effective January 1, 2021, the Company elected to apply OAC 3901-1-67 to its derivative instruments hedging indexed
products and indexed annuity reserve liabilities. As a result of the Company’s election to apply OAC 3901-1-67 as of January 1, 2021, the Company’s admitted assets decreased $3 million, total liabilities decreased $2 million
and capital and surplus decreased $1 million, which included a $3 million reduction to unassigned surplus from the cumulative effect of the change in accounting principle.
During 2022, the Company identified and corrected an error in annuity product allocation drivers for general operating
expenses between the Company and NLAIC that resulted in an understatement of the Company’s general insurance expenses for the years ended December 31, 2021, 2020 and 2019. The error resulted in an overstatement of net income of
$22 million, an overstatement of total surplus of $45 million, an overstatement of total assets of $13 million and an understatement of total liabilities of $32 million as of and for the year ended December 31, 2021. In
accordance with SSAP No. 3, Accounting Changes and Corrections of Errors (“SSAP No. 3”), the total prior period correction was recorded as a decrease to total surplus of $45 million, a decrease to total assets of
$13 million and an increase to total liabilities of $32 million as of January 1, 2022. Additionally, the Company’s subsidiary, NLAIC, identified and corrected errors as of January 1, 2022 that increased the Company’s
investment in NLAIC and total surplus by $6 million. The net decrease to the Company’s total surplus of $39 million in 2022 as a result of these corrections is reported as a negative adjustment to unassigned surplus.
F-18
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Recently Adopted Accounting Standards
Effective December 31, 2023, the Company adopted INT 23-04, Life Reinsurance Liquidation Questions, that clarifies
accounting and reporting considerations of SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets (“SSAP No. 5R”), as it relates to the liquidation of Scottish Re U.S. (“SRUS”). On July 18, 2023, SRUS
was declared insolvent and ordered liquidated by the Court of Chancery of the State of Delaware (“Court”), resulting in termination of the reinsurance agreements between the Company and SRUS effective September 30, 2023, and the
recapture of the ceded liabilities. The Company has accrued adequate provisions as of December 31, 2023, in accordance with SSAP No. 5R related to SRUS reinsurance recoverables and assets held in a trust that secure the annuity reinsurance
recoverables. The Company will continue to work with the SRUS liquidator and the Court to resolve when the Company will be able to access the trust assets. As of December 31, 2023, assets held in trust and reinsurance recoverables related to
SRUS are immaterial.
Effective September 30, 2023, the Company adopted INT 23-01, a short-term solution related to
the accounting treatment of an insurer’s negative IMR balance. INT 23-01 allows an insurer with an authorized control level risk-based capital greater than 300%, after an adjustment to total adjusted capital, to admit negative IMR up to 10% of
its general account capital and surplus, subject to certain restrictions and reporting obligations. There is no admitted disallowed IMR in the separate accounts. Fixed income investments generating IMR losses comply with the Company’s
investment policies. There are no deviations from the investment policies and sales were not compelled by liquidity pressures. The Company has not allocated gains or losses to IMR from derivatives that were reported at fair value prior to the
termination of the derivative. As of December 31, 2023, the Company has $93 million of admitted disallowed IMR in capital and surplus in the general account.
Effective January 1, 2021, the Company adopted revisions to SSAP No. 32R, Preferred Stock (“SSAP
No. 32R”). The adopted revisions updated the definition for redeemable and perpetual preferred stock and furthermore, updated the valuation classification for perpetual preferred stock to fair value. Previously, perpetual preferred stock
could have been valued at amortized cost or fair value based on the rating of the security. Per SSAP No. 32R, any valuation classification changes from amortized cost to fair value are to be recognized in statutory surplus. Going forward,
changes to fair value will be recognized as a change in net unrealized capital gains and losses in statutory surplus. As a result of this change, the Company recorded an increase to statutory capital and surplus of $9 million as of
January 1, 2021.
Subsequent Events
The Company evaluated subsequent events through March 20, 2024, the date the statutory financial statements were issued.
F-19
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
| (3) |
Analysis of Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics
|
The following table summarizes the analysis of individual annuities actuarial reserves by
withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
General
account1 |
|
|
Separate
account with
guarantees |
|
|
Separate
account non-
guaranteed |
|
|
Total |
|
|
% of
Total |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
4,389 |
|
|
$ |
64 |
|
|
$ |
- |
|
|
$ |
4,453 |
|
|
|
6 |
% |
| At book value less current surrender charge of 5% or more |
|
|
2,210 |
|
|
|
- |
|
|
|
- |
|
|
|
2,210 |
|
|
|
3 |
% |
| At fair value |
|
|
10 |
|
|
|
- |
|
|
|
61,993 |
|
|
|
62,003 |
|
|
|
83 |
% |
| Total with market value adjustment or at fair value |
|
$ |
6,609 |
|
|
$ |
64 |
|
|
$ |
61,993 |
|
|
$ |
68,666 |
|
|
|
92 |
% |
| At book value without adjustment (minimal or no charge or adjustment) |
|
|
3,532 |
|
|
|
- |
|
|
|
6 |
|
|
|
3,538 |
|
|
|
5 |
% |
| Not subject to discretionary withdrawal |
|
|
2,342 |
|
|
|
- |
|
|
|
62 |
|
|
|
2,404 |
|
|
|
3 |
% |
| Total, gross |
|
$ |
12,483 |
|
|
$ |
64 |
|
|
$ |
62,061 |
|
|
$ |
74,608 |
|
|
|
100 |
% |
| Less: Reinsurance ceded |
|
|
(98 |
) |
|
|
- |
|
|
|
- |
|
|
|
(98 |
) |
|
|
|
|
| Total, net |
|
$ |
12,385 |
|
|
$ |
64 |
|
|
$ |
62,061 |
|
|
$ |
74,510 |
|
|
|
|
|
| Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment)’ |
|
$ |
78 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
78 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
2,279 |
|
|
$ |
90 |
|
|
$ |
- |
|
|
$ |
2,369 |
|
|
|
4 |
% |
| At book value less current surrender charge of 5% or more |
|
|
675 |
|
|
|
- |
|
|
|
- |
|
|
|
675 |
|
|
|
1 |
% |
| At fair value |
|
|
11 |
|
|
|
- |
|
|
|
57,823 |
|
|
|
57,834 |
|
|
|
87 |
% |
| Total with market value adjustment or at fair value |
|
$ |
2,965 |
|
|
$ |
90 |
|
|
$ |
57,823 |
|
|
$ |
60,878 |
|
|
|
92 |
% |
| At book value without adjustment (minimal or no charge or adjustment) |
|
|
3,365 |
|
|
|
- |
|
|
|
6 |
|
|
|
3,371 |
|
|
|
5 |
% |
| Not subject to discretionary withdrawal |
|
|
2,009 |
|
|
|
- |
|
|
|
56 |
|
|
|
2,065 |
|
|
|
3 |
% |
| Total, gross |
|
$ |
8,339 |
|
|
$ |
90 |
|
|
$ |
57,885 |
|
|
$ |
66,314 |
|
|
|
100 |
% |
| Less: Reinsurance ceded |
|
|
(110 |
) |
|
|
- |
|
|
|
- |
|
|
|
(110 |
) |
|
|
|
|
| Total, net |
|
$ |
8,229 |
|
|
$ |
90 |
|
|
$ |
57,885 |
|
|
$ |
66,204 |
|
|
|
|
|
| Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment)’ |
|
$ |
65 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
65 |
|
|
|
|
|
| 1 |
Includes reserves applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2.
|
F-20
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the analysis of group annuities actuarial
reserves by withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
General
account1 |
|
|
Separate
account with
guarantees |
|
|
Separate
account non-
guaranteed |
|
|
Total |
|
|
% of
Total |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
17,300 |
|
|
$ |
1,857 |
|
|
$ |
- |
|
|
$ |
19,157 |
|
|
|
45 |
% |
| At book value less current surrender charge of 5% or more |
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
0 |
% |
| At fair value |
|
|
- |
|
|
|
- |
|
|
|
17,922 |
|
|
|
17,922 |
|
|
|
43 |
% |
| Total with market value adjustment or at fair value |
|
$ |
17,302 |
|
|
$ |
1,857 |
|
|
$ |
17,922 |
|
|
$ |
37,081 |
|
|
|
88 |
% |
| At book value without adjustment (minimal or no charge or adjustment) |
|
|
3,867 |
|
|
|
- |
|
|
|
- |
|
|
|
3,867 |
|
|
|
9 |
% |
| Not subject to discretionary withdrawal |
|
|
1,237 |
|
|
|
102 |
|
|
|
- |
|
|
|
1,339 |
|
|
|
3 |
% |
| Total, gross |
|
$ |
22,406 |
|
|
$ |
1,959 |
|
|
$ |
17,922 |
|
|
$ |
42,287 |
|
|
|
100 |
% |
| Less: Reinsurance ceded |
|
|
(29 |
) |
|
|
- |
|
|
|
- |
|
|
|
(29 |
) |
|
|
|
|
| Total, net |
|
$ |
22,377 |
|
|
$ |
1,959 |
|
|
$ |
17,922 |
|
|
$ |
42,258 |
|
|
|
|
|
| Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment)’ |
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
18,397 |
|
|
$ |
2,069 |
|
|
$ |
- |
|
|
$ |
20,466 |
|
|
|
49 |
% |
| At book value less current surrender charge of 5% or more |
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
0 |
% |
| At fair value |
|
|
- |
|
|
|
- |
|
|
|
15,701 |
|
|
|
15,701 |
|
|
|
38 |
% |
| Total with market value adjustment or at fair value |
|
$ |
18,403 |
|
|
$ |
2,069 |
|
|
$ |
15,701 |
|
|
$ |
36,173 |
|
|
|
87 |
% |
| At book value without adjustment (minimal or no charge or adjustment) |
|
|
4,211 |
|
|
|
- |
|
|
|
- |
|
|
|
4,211 |
|
|
|
10 |
% |
| Not subject to discretionary withdrawal |
|
|
1,051 |
|
|
|
103 |
|
|
|
- |
|
|
|
1,154 |
|
|
|
3 |
% |
| Total, gross |
|
$ |
23,665 |
|
|
$ |
2,172 |
|
|
$ |
15,701 |
|
|
$ |
41,538 |
|
|
|
100 |
% |
| Less: Reinsurance ceded |
|
|
(53 |
) |
|
|
- |
|
|
|
- |
|
|
|
(53 |
) |
|
|
|
|
| Total, net |
|
$ |
23,612 |
|
|
$ |
2,172 |
|
|
$ |
15,701 |
|
|
$ |
41,485 |
|
|
|
|
|
| Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment)’ |
|
$ |
6 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6 |
|
|
|
|
|
| 1 |
Includes reserves applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2.
|
F-21
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the analysis of deposit-type contracts and
other liabilities without life or disability contingencies by withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
General
account |
|
|
Separate
account non-
guaranteed |
|
|
Total |
|
|
% of
Total |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
| Total with market value adjustment or at fair value |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
| At book value without adjustment (minimal or no charge or adjustment) |
|
|
781 |
|
|
|
2 |
|
|
|
783 |
|
|
|
17 |
% |
| Not subject to discretionary withdrawal |
|
|
3,677 |
|
|
|
17 |
|
|
|
3,694 |
|
|
|
83 |
% |
| Total, gross |
|
$ |
4,459 |
|
|
$ |
19 |
|
|
$ |
4,478 |
|
|
|
100 |
% |
| Less: Reinsurance ceded |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
| Total, net |
|
$ |
4,459 |
|
|
$ |
19 |
|
|
$ |
4,478 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
| Total with market value adjustment or at fair value |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
| At book value without adjustment (minimal or no charge or adjustment) |
|
|
666 |
|
|
|
2 |
|
|
|
668 |
|
|
|
16 |
% |
| Not subject to discretionary withdrawal |
|
|
3,522 |
|
|
|
14 |
|
|
|
3,536 |
|
|
|
84 |
% |
| Total, gross |
|
$ |
4,189 |
|
|
$ |
16 |
|
|
$ |
4,205 |
|
|
|
100 |
% |
| Less: Reinsurance ceded |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
| Total, net |
|
$ |
4,189 |
|
|
$ |
16 |
|
|
$ |
4,205 |
|
|
|
|
|
The following table is a reconciliation of total annuity actuarial reserves and deposit fund
liabilities, as of the dates indicated:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
| Life, accident and health annual statement: |
|
|
|
|
|
|
|
|
| Annuities, net (excluding supplemental contracts with life contingencies) |
|
$ |
34,748 |
|
|
$ |
31,827 |
|
| Supplemental contracts with life contingencies, net |
|
|
14 |
|
|
|
14 |
|
| Deposit-type contracts |
|
|
4,459 |
|
|
|
4,189 |
|
| Subtotal |
|
$ |
39,221 |
|
|
$ |
36,030 |
|
| Separate accounts annual statement: |
|
|
|
|
|
|
|
|
| Annuities, net (excluding supplemental contracts with life contingencies) |
|
$ |
82,006 |
|
|
$ |
75,848 |
|
| Other contract deposit funds |
|
|
19 |
|
|
|
16 |
|
| Subtotal |
|
$ |
82,025 |
|
|
$ |
75,864 |
|
| Total annuity actuarial reserves and deposit fund
liabilities, net |
|
$ |
121,246 |
|
|
$ |
111,894 |
|
F-22
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the analysis of life actuarial reserves by
withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
General account |
|
|
Separate account - nonguaranteed |
|
| (in millions) |
|
Account
value |
|
|
Cash
value |
|
|
Reserve |
|
|
Account
value |
|
|
Cash
value |
|
|
Reserve |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal, surrender values or policy loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Term policies with cash value |
|
$ |
- |
|
|
$ |
10 |
|
|
$ |
10 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Universal life |
|
|
2,616 |
|
|
|
2,629 |
|
|
|
2,790 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Universal life with secondary guarantees |
|
|
453 |
|
|
|
390 |
|
|
|
1,032 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Indexed universal life with secondary guarantees |
|
|
341 |
|
|
|
265 |
|
|
|
367 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Other permanent cash value life insurance |
|
|
- |
|
|
|
1,919 |
|
|
|
2,398 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Variable life |
|
|
3,435 |
|
|
|
3,483 |
|
|
|
3,603 |
|
|
|
29,611 |
|
|
|
29,607 |
|
|
|
29,607 |
|
| Subtotal |
|
$ |
6,845 |
|
|
$ |
8,696 |
|
|
$ |
10,200 |
|
|
$ |
29,611 |
|
|
$ |
29,607 |
|
|
$ |
29,607 |
|
| Not subject to discretionary withdrawal or no cash value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Term policies without cash value |
|
|
- |
|
|
|
- |
|
|
|
181 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Accidental death benefits |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Disability - active lives |
|
|
- |
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Disability - disabled lives |
|
|
- |
|
|
|
- |
|
|
|
59 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Miscellaneous reserves |
|
|
- |
|
|
|
- |
|
|
|
32 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total, gross |
|
$ |
6,845 |
|
|
$ |
8,696 |
|
|
$ |
10,490 |
|
|
$ |
29,611 |
|
|
$ |
29,607 |
|
|
$ |
29,607 |
|
| Less: reinsurance ceded |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
(151 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total, net |
|
$ |
6,837 |
|
|
$ |
8,688 |
|
|
$ |
10,339 |
|
|
$ |
29,611 |
|
|
$ |
29,607 |
|
|
$ |
29,607 |
|
F-23
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
General account |
|
|
Separate account - nonguaranteed |
|
| (in millions) |
|
Account
value |
|
|
Cash
value |
|
|
Reserve |
|
|
Account
value |
|
|
Cash
value |
|
|
Reserve |
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subject to discretionary withdrawal, surrender values or policy loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Term policies with cash value |
|
$ |
- |
|
|
$ |
11 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Universal life |
|
|
2,626 |
|
|
|
1,982 |
|
|
|
2,802 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Universal life with secondary guarantees |
|
|
426 |
|
|
|
353 |
|
|
|
929 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Indexed universal life with secondary guarantees |
|
|
283 |
|
|
|
210 |
|
|
|
304 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Other permanent cash value life insurance |
|
|
- |
|
|
|
1,979 |
|
|
|
2,473 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Variable life |
|
|
2,850 |
|
|
|
2,898 |
|
|
|
3,010 |
|
|
|
25,626 |
|
|
|
25,621 |
|
|
|
25,260 |
|
| Subtotal |
|
$ |
6,185 |
|
|
$ |
7,433 |
|
|
$ |
9,529 |
|
|
$ |
25,626 |
|
|
$ |
25,621 |
|
|
$ |
25,260 |
|
| Not subject to discretionary withdrawal or no cash value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Term policies without cash value |
|
|
- |
|
|
|
- |
|
|
|
206 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Accidental death benefits |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Disability - active lives |
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Disability - disabled lives |
|
|
- |
|
|
|
- |
|
|
|
59 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Miscellaneous reserves |
|
|
- |
|
|
|
- |
|
|
|
31 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total, gross |
|
$ |
6,185 |
|
|
$ |
7,433 |
|
|
$ |
9,841 |
|
|
$ |
25,626 |
|
|
$ |
25,621 |
|
|
$ |
25,260 |
|
| Less: reinsurance ceded |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(178 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total, net |
|
$ |
6,176 |
|
|
$ |
7,424 |
|
|
$ |
9,663 |
|
|
$ |
25,626 |
|
|
$ |
25,621 |
|
|
$ |
25,260 |
|
The following table is a reconciliation of life actuarial reserves, as of the dates
indicated:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
| Life, accident and health annual statement: |
|
|
|
|
|
|
|
|
| Life Insurance, net |
|
$ |
10,241 |
|
|
$ |
9,569 |
|
| Accidental death benefits, net |
|
|
1 |
|
|
|
1 |
|
| Disability - active lives, net |
|
|
17 |
|
|
|
14 |
|
| Disability - disabled lives, net |
|
|
53 |
|
|
|
52 |
|
| Miscellaneous reserves, net |
|
|
27 |
|
|
|
27 |
|
| Subtotal |
|
$ |
10,339 |
|
|
$ |
9,663 |
|
| Separate accounts annual statement: |
|
|
|
|
|
|
|
|
| Life insurance1 |
|
$ |
29,909 |
|
|
$ |
25,570 |
|
| Subtotal |
|
$ |
29,909 |
|
|
$ |
25,570 |
|
| Total life actuarial reserves, net |
|
$ |
40,248 |
|
|
$ |
35,233 |
|
| |
1 |
Life insurance account value, cash value and reserve include separate accounts with guarantees of
$302 million and $310 million for universal life as of December 31, 2023 and 2022, respectively. |
The total direct premium written by managing general agents and third-party administrators was $451 million,
$415 million and $444 million as of December 31, 2023, 2022 and 2021, respectively.
F-24
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company’s separate account statement includes assets legally insulated from the general account as of the dates
indicated, attributed to the following product lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2023 |
|
|
December 31, 2022 |
|
| (in millions) |
|
Separate
account assets legally
insulated |
|
|
Separate
account assets
(not legally
insulated) |
|
|
Separate
account assets legally
insulated |
|
|
Separate
account assets
(not legally
insulated) |
|
| Product / Transaction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Individual annuities |
|
$ |
67,634 |
|
|
$ |
- |
|
|
$ |
63,282 |
|
|
$ |
- |
|
| Group annuities |
|
|
15,453 |
|
|
|
- |
|
|
|
13,743 |
|
|
|
- |
|
| Life insurance |
|
|
30,082 |
|
|
|
- |
|
|
|
25,688 |
|
|
|
- |
|
| Pension risk transfer group annuities |
|
|
101 |
|
|
|
- |
|
|
|
95 |
|
|
|
- |
|
| Total |
|
$ |
113,270 |
|
|
$ |
- |
|
|
$ |
102,808 |
|
|
$ |
- |
|
The following table summarizes amounts paid towards separate account guarantees by the general
account and related risk charges paid by the separate account for the years ended:
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Total paid toward
separate account
guarantees |
|
|
Risk charges paid to
general account |
|
| 2023 |
|
$ |
78 |
|
|
$ |
780 |
|
| 2022 |
|
$ |
79 |
|
|
$ |
722 |
|
| 2021 |
|
$ |
12 |
|
|
$ |
674 |
|
| 2020 |
|
$ |
26 |
|
|
$ |
631 |
|
| 2019 |
|
$ |
58 |
|
|
$ |
612 |
|
The Company does not engage in securities lending transactions within its separate accounts.
Most separate accounts held by the Company relate to individual and group variable annuity and variable universal life
insurance contracts of a non-guaranteed return nature. The net investment experience of the separate accounts is credited directly to the contract holder and can be positive or negative. The individual variable annuity contracts generally provide an
incidental death benefit of the greater of account value or premium paid (net of prior withdrawals). However, many individual variable annuity contracts also provide death benefits equal to (i) the most recent fifth-year anniversary account
value, (ii) the highest account value on any previous anniversary, (iii) premiums paid increased 5% or certain combinations of these, all adjusted for prior withdrawals. The death benefit and cash value under the variable universal life
policies may vary with the investment performance of the underlying investments in the separate accounts. The assets and liabilities of these separate accounts are carried at fair value and are non-guaranteed.
Certain other separate accounts offered by the Company contain groups of variable universal life policies wherein the assets
supporting account values on the underlying policies reside in Private Placement Separate Accounts. They provide a quarterly interest rate based on a crediting formula that reflects the market value to book value ratio of the investments, investment
portfolio yield and a specified duration.
Certain other separate accounts relate to a guaranteed term option, which
provides a guaranteed interest rate that is paid over certain maturity durations ranging from three to ten years, so long as certain conditions are met. If amounts allocated to the guaranteed term option are distributed prior to the maturity period,
a market value adjustment can be assessed. The assets and liabilities of these separate accounts are carried at fair value.
The Company has a separate account that holds group annuity contracts offered through the Company’s PRT business, wherein
the Company provides guaranteed benefit payments to annuitants. The Company issues PRT business out of both the general and separate accounts, and within both, the assets and liabilities of this business are carried at amortized cost. The PRT
separate account business has been included as a nonindexed guarantee less than or equal to 4%.
Another separate account
offered by the Company contains a group of universal life policies wherein the assets supporting the account values on the underlying policies reside in a Private Placement Separate Account. It provides an annual interest rate guarantee, subject to
a minimum guarantee of 3%. The interest rate declared each year reflects the anticipated investment experience of the account. The business has been included as a nonindexed guarantee less than or equal to 4%.
F-25
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following tables summarize the separate account reserves of the Company,
as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Nonindexed
guarantee
less than or
equal to 4% |
|
|
Nonindexed
guarantee
more than
4% |
|
|
Nonguaranteed
separate
accounts |
|
|
Total |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Premiums, considerations or deposits |
|
$ |
88 |
|
|
$ |
- |
|
|
$ |
6,181 |
|
|
$ |
6,269 |
|
| Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For accounts with assets at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair value |
|
$ |
1,781 |
|
|
$ |
143 |
|
|
$ |
109,609 |
|
|
$ |
111,533 |
|
| Amortized cost |
|
|
401 |
|
|
|
- |
|
|
|
- |
|
|
|
401 |
|
| Total reserves1 |
|
$ |
2,182 |
|
|
$ |
143 |
|
|
$ |
109,609 |
|
|
$ |
111,934 |
|
| By withdrawal characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
1,779 |
|
|
$ |
143 |
|
|
$ |
- |
|
|
$ |
1,922 |
|
| At fair value |
|
|
- |
|
|
|
- |
|
|
|
109,522 |
|
|
|
109,522 |
|
| At book value without market value adjustment and with
current surrender charge less than 5% |
|
|
304 |
|
|
|
- |
|
|
|
6 |
|
|
|
310 |
|
| Subtotal |
|
$ |
2,083 |
|
|
$ |
143 |
|
|
$ |
109,528 |
|
|
$ |
111,754 |
|
| Not subject to discretionary withdrawal |
|
|
99 |
|
|
|
- |
|
|
|
81 |
|
|
|
180 |
|
| Total reserves1 |
|
$ |
2,182 |
|
|
$ |
143 |
|
|
$ |
109,609 |
|
|
$ |
111,934 |
|
| |
1 |
The total reserves balance does not equal the liabilities related to separate accounts of $113.3 billion in
the statutory statements of admitted assets, liabilities, capital and surplus by $1.3 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Nonindexed
guarantee
less than or
equal to 4% |
|
|
Nonindexed
guarantee
more than
4% |
|
|
Nonguaranteed
separate
accounts |
|
|
Total |
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Premiums, considerations or deposits |
|
$ |
174 |
|
|
$ |
- |
|
|
$ |
7,583 |
|
|
$ |
7,757 |
|
| Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For accounts with assets at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair value |
|
$ |
2,016 |
|
|
$ |
145 |
|
|
$ |
98,862 |
|
|
$ |
101,023 |
|
| Amortized cost |
|
|
411 |
|
|
|
- |
|
|
|
- |
|
|
|
411 |
|
| Total reserves1 |
|
$ |
2,427 |
|
|
$ |
145 |
|
|
$ |
98,862 |
|
|
$ |
101,434 |
|
| By withdrawal characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| With market value adjustment |
|
$ |
2,117 |
|
|
$ |
145 |
|
|
$ |
- |
|
|
$ |
2,262 |
|
| At fair value |
|
|
- |
|
|
|
- |
|
|
|
98,784 |
|
|
|
98,784 |
|
| At book value without market value adjustment and with
current surrender charge less than 5% |
|
|
310 |
|
|
|
- |
|
|
|
8 |
|
|
|
318 |
|
| Subtotal |
|
$ |
2,427 |
|
|
$ |
145 |
|
|
$ |
98,792 |
|
|
$ |
101,364 |
|
| Not subject to discretionary withdrawal |
|
|
- |
|
|
|
- |
|
|
|
70 |
|
|
|
70 |
|
| Total reserves1 |
|
$ |
2,427 |
|
|
$ |
145 |
|
|
$ |
98,862 |
|
|
$ |
101,434 |
|
| |
1 |
The total reserves balance does not equal the liabilities related to separate accounts of $102.8 billion in
the statutory statements of admitted assets, liabilities, capital and surplus by $1.4 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
F-26
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table is a reconciliation of net transfers from separate
accounts, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
December 31, |
|
|
|
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
| Net transfers as reported in the statutory statements of operations of the separate
accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
| Transfers to separate accounts |
|
$ |
6,268 |
|
|
$ |
7,757 |
|
|
$ |
8,309 |
|
| Transfers from separate accounts |
|
|
(9,446 |
) |
|
|
(8,860 |
) |
|
|
(10,860 |
) |
| Net transfers from separate accounts |
|
$ |
(3,178 |
) |
|
$ |
(1,103 |
) |
|
$ |
(2,551 |
) |
| Reconciling adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
| Exchange accounts offsetting in the general account |
|
|
(889 |
) |
|
|
(606 |
) |
|
|
(552 |
) |
| Fees not included in general account transfers |
|
|
41 |
|
|
|
47 |
|
|
|
68 |
|
| Other miscellaneous adjustments not included in the
general account balance |
|
|
284 |
|
|
|
27 |
|
|
|
33 |
|
| Net transfers as reported in the statutory statements
of operations |
|
$ |
(3,742 |
) |
|
$ |
(1,635 |
) |
|
$ |
(3,002 |
) |
F-27
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Bonds and Stocks
The following table summarizes the carrying value, the excess of fair value over carrying value, the excess of carrying value
over fair value and the fair value of bonds and stocks, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Carrying
value |
|
|
Fair value
in excess
of carrying
value |
|
|
Carrying
value in
excess
of fair
value |
|
|
Fair value |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Government |
|
$ |
173 |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
176 |
|
| States, territories and possessions |
|
|
609 |
|
|
|
10 |
|
|
|
44 |
|
|
|
575 |
|
| Political subdivisions |
|
|
371 |
|
|
|
11 |
|
|
|
21 |
|
|
|
361 |
|
| Special revenues |
|
|
2,994 |
|
|
|
57 |
|
|
|
248 |
|
|
|
2,803 |
|
| Industrial and miscellaneous |
|
|
31,796 |
|
|
|
311 |
|
|
|
2,206 |
|
|
|
29,901 |
|
| Loan-backed and structured securities |
|
|
7,924 |
|
|
|
38 |
|
|
|
304 |
|
|
|
7,658 |
|
| Total bonds |
|
$ |
43,867 |
|
|
$ |
430 |
|
|
$ |
2,823 |
|
|
$ |
41,474 |
|
| Common stocks unaffiliated |
|
$ |
231 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
231 |
|
| Preferred stocks unaffiliated |
|
|
47 |
|
|
|
- |
|
|
|
1 |
|
|
|
46 |
|
| Total unaffiliated stocks1 |
|
$ |
278 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
277 |
|
| Total bonds and unaffiliated stocks1 |
|
$ |
44,145 |
|
|
$ |
430 |
|
|
$ |
2,824 |
|
|
$ |
41,751 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Government |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1 |
|
| States, territories and possessions |
|
|
561 |
|
|
|
7 |
|
|
|
55 |
|
|
|
513 |
|
| Political subdivisions |
|
|
380 |
|
|
|
9 |
|
|
|
28 |
|
|
|
361 |
|
| Special revenues |
|
|
3,035 |
|
|
|
36 |
|
|
|
362 |
|
|
|
2,709 |
|
| Industrial and miscellaneous |
|
|
29,529 |
|
|
|
118 |
|
|
|
3,115 |
|
|
|
26,532 |
|
| Loan-backed and structured securities |
|
|
6,702 |
|
|
|
30 |
|
|
|
438 |
|
|
|
6,294 |
|
| Total bonds |
|
$ |
40,208 |
|
|
$ |
200 |
|
|
$ |
3,998 |
|
|
$ |
36,410 |
|
| Common stocks unaffiliated |
|
$ |
239 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
239 |
|
| Preferred stocks unaffiliated |
|
|
30 |
|
|
|
1 |
|
|
|
- |
|
|
|
31 |
|
| Total unaffiliated stocks1 |
|
$ |
269 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
270 |
|
| Total bonds and unaffiliated stocks1 |
|
$ |
40,477 |
|
|
$ |
201 |
|
|
$ |
3,998 |
|
|
$ |
36,680 |
|
| |
1 |
Excludes affiliated common stocks with a carrying value of $3.4 billion as of December 31, 2023 and
2022, respectively. Affiliated common stocks include investment in NLAIC and JNL of $3.2 billion and $203 million as of December 31, 2023, respectively. Affiliated common stocks include investment in NLAIC and JNFC of $3.2 billion and
$186 million as of December 31, 2022, respectively. |
The carrying value of bonds on deposit
with various states as required by law or special escrow agreement was immaterial as of December 31, 2023 and 2022.
F-28
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the carrying value and fair value of bonds, by
contractual maturity, as of December 31, 2023. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without early redemption penalties:
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Carrying value |
|
|
Fair value |
|
| Bonds: |
|
|
|
|
|
|
|
|
| Due in one year or less |
|
$ |
1,325 |
|
|
$ |
1,312 |
|
| Due after one year through five years |
|
|
10,189 |
|
|
|
9,936 |
|
| Due after five years through ten years |
|
|
10,242 |
|
|
|
9,646 |
|
| Due after ten years |
|
|
14,187 |
|
|
|
12,922 |
|
| Total bonds excluding loan-backed and structured securities |
|
$ |
35,943 |
|
|
$ |
33,816 |
|
| Loan-backed and structured securities |
|
|
7,924 |
|
|
|
7,658 |
|
| Total bonds |
|
$ |
43,867 |
|
|
$ |
41,474 |
|
The following table summarizes the fair value and unrealized losses on bonds and stocks
(amount by which cost or amortized cost exceeds fair value), for which other-than-temporary declines in value have not been recognized, based on the amount of time each type of bond or stock has been in an unrealized loss position, as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than or equal to
one year |
|
|
More than one year |
|
|
Total |
|
| (in millions) |
|
Fair
value |
|
|
Unrealized
losses |
|
|
Fair
value |
|
|
Unrealized
losses |
|
|
Fair
value |
|
|
Unrealized
losses |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Government |
|
$ |
79 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
80 |
|
|
$ |
- |
|
| States, territories and possessions |
|
|
30 |
|
|
|
- |
|
|
|
373 |
|
|
|
44 |
|
|
|
403 |
|
|
|
44 |
|
| Political subdivisions |
|
|
51 |
|
|
|
- |
|
|
|
148 |
|
|
|
21 |
|
|
|
199 |
|
|
|
21 |
|
| Special revenues |
|
|
45 |
|
|
|
1 |
|
|
|
1,934 |
|
|
|
247 |
|
|
|
1,979 |
|
|
|
248 |
|
| Industrial and miscellaneous |
|
|
1,093 |
|
|
|
43 |
|
|
|
21,615 |
|
|
|
2,266 |
|
|
|
22,708 |
|
|
|
2,309 |
|
| Loan-backed and structured securities |
|
|
485 |
|
|
|
2 |
|
|
|
4,671 |
|
|
|
303 |
|
|
|
5,156 |
|
|
|
305 |
|
| Total bonds |
|
$ |
1,783 |
|
|
$ |
46 |
|
|
$ |
28,742 |
|
|
$ |
2,881 |
|
|
$ |
30,525 |
|
|
$ |
2,927 |
|
| Common stocks unaffiliated |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
37 |
|
|
$ |
5 |
|
|
$ |
37 |
|
|
$ |
5 |
|
| Preferred stocks unaffiliated |
|
|
3 |
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
| Total unaffiliated stocks |
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
43 |
|
|
$ |
5 |
|
|
$ |
46 |
|
|
$ |
5 |
|
| Total bonds and unaffiliated stocks |
|
$ |
1,786 |
|
|
$ |
46 |
|
|
$ |
28,785 |
|
|
$ |
2,886 |
|
|
$ |
30,571 |
|
|
$ |
2,932 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Government |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
| States, territories and possessions |
|
|
352 |
|
|
|
49 |
|
|
|
23 |
|
|
|
6 |
|
|
|
375 |
|
|
|
55 |
|
| Political subdivisions |
|
|
157 |
|
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
|
157 |
|
|
|
27 |
|
| Special revenues |
|
|
1,935 |
|
|
|
332 |
|
|
|
55 |
|
|
|
22 |
|
|
|
1,990 |
|
|
|
354 |
|
| Industrial and miscellaneous |
|
|
21,261 |
|
|
|
2,526 |
|
|
|
2,604 |
|
|
|
739 |
|
|
|
23,865 |
|
|
|
3,265 |
|
| Loan-backed and structured securities |
|
|
3,800 |
|
|
|
263 |
|
|
|
2,079 |
|
|
|
177 |
|
|
|
5,879 |
|
|
|
440 |
|
| Total bonds |
|
$ |
27,506 |
|
|
$ |
3,197 |
|
|
$ |
4,761 |
|
|
$ |
944 |
|
|
$ |
32,267 |
|
|
$ |
4,141 |
|
| Common stocks unaffiliated |
|
$ |
45 |
|
|
$ |
11 |
|
|
$ |
19 |
|
|
$ |
6 |
|
|
$ |
64 |
|
|
$ |
17 |
|
| Preferred stocks unaffiliated |
|
|
20 |
|
|
|
2 |
|
|
|
3 |
|
|
|
1 |
|
|
|
23 |
|
|
|
3 |
|
| Total unaffiliated stocks |
|
$ |
65 |
|
|
$ |
13 |
|
|
$ |
22 |
|
|
$ |
7 |
|
|
$ |
87 |
|
|
$ |
20 |
|
| Total bonds and unaffiliated stocks |
|
$ |
27,571 |
|
|
$ |
3,210 |
|
|
$ |
4,783 |
|
|
$ |
951 |
|
|
$ |
32,354 |
|
|
$ |
4,161 |
|
As of December 31, 2023, management evaluated securities in an unrealized loss position
for impairment. As of the reporting date, the Company has the intent and ability to hold these securities until the fair value recovers, which may be at maturity, and therefore, does not consider the securities to be other-than-temporarily impaired.
There was no intent to sell loan-backed and structured securities that have been identified as having
other-than-temporary impairments for the years ended December 31, 2023 and 2022.
F-29
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Mortgage Loans, Net of Allowance
The following table summarizes the amortized cost of mortgage loans and the related valuation allowances by type of credit
loss, as of the dates indicated:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
| Total amortized cost |
|
$ |
9,146 |
|
|
$ |
8,401 |
|
| Valuation allowance: |
|
|
|
|
|
|
|
|
| Non-specific reserves2 |
|
$ |
- |
|
|
$ |
37 |
|
| Specific reserves |
|
|
2 |
|
|
|
1 |
|
| Total valuation allowance1 |
|
$ |
2 |
|
|
$ |
38 |
|
| Mortgage loans, net of allowance |
|
$ |
9,144 |
|
|
$ |
8,363 |
|
| |
1 |
For the years ended December 31, 2023, 2022 and 2021, changes in the valuation allowance were
immaterial and due to current period provisions. |
| |
2 |
Effective January 1, 2023, the Company changed its method for reserving for mortgage loans by removing
the need for a non-specific reserve. In the Company’s judgment, the change in reserving approach appropriately reflects the credit risk inherent for mortgage loans held. The impact of the change was recorded as a reversal of the non-specific
reserves, resulting in an increase to unassigned surplus of $4 million and recorded through ‘Other, net’ activity within the statutory statements of changes in capital and surplus. There was no impact on net income.
|
As of December 31, 2023 and 2022, the Company’s mortgage loans classified as delinquent
and/or in non-accrual status were immaterial in relation to the total mortgage loan portfolio.
The following table
summarizes the LTV ratio and DSC ratio of the mortgage loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
LTV ratio |
|
|
|
|
DSC ratio |
|
| (in millions) |
|
Less than
90% |
|
|
90% or
greater |
|
|
Total |
|
|
|
|
Greater
than 1.00 |
|
|
Less than or
equal to 1.00 |
|
|
Total |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Apartment |
|
$ |
3,831 |
|
|
$ |
22 |
|
|
$ |
3,853 |
|
|
|
|
$ |
3,823 |
|
|
$ |
29 |
|
|
$ |
3,852 |
|
| Industrial |
|
|
1,842 |
|
|
|
- |
|
|
|
1,842 |
|
|
|
|
|
1,842 |
|
|
|
- |
|
|
|
1,842 |
|
| Office |
|
|
1,057 |
|
|
|
71 |
|
|
|
1,128 |
|
|
|
|
|
1,126 |
|
|
|
3 |
|
|
|
1,129 |
|
| Retail |
|
|
1,888 |
|
|
|
8 |
|
|
|
1,896 |
|
|
|
|
|
1,887 |
|
|
|
9 |
|
|
|
1,896 |
|
| Other |
|
|
256 |
|
|
|
- |
|
|
|
256 |
|
|
|
|
|
216 |
|
|
|
40 |
|
|
|
256 |
|
|
Total1 |
|
$ |
8,874 |
|
|
$ |
101 |
|
|
$ |
8,975 |
|
|
|
|
$ |
8,894 |
|
|
$ |
81 |
|
|
$ |
8,975 |
|
| Weighted average DSC ratio |
|
|
2.20 |
|
|
|
1.33 |
|
|
|
2.19 |
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
| Weighted average LTV ratio |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
56 |
% |
|
|
71 |
% |
|
|
57% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Apartment |
|
$ |
3,651 |
|
|
$ |
22 |
|
|
$ |
3,673 |
|
|
|
|
$ |
3,632 |
|
|
$ |
41 |
|
|
$ |
3,673 |
|
| Industrial |
|
|
1,437 |
|
|
|
- |
|
|
|
1,437 |
|
|
|
|
|
1,437 |
|
|
|
- |
|
|
|
1,437 |
|
| Office |
|
|
1,223 |
|
|
|
3 |
|
|
|
1,226 |
|
|
|
|
|
1,214 |
|
|
|
12 |
|
|
|
1,226 |
|
| Retail |
|
|
1,815 |
|
|
|
8 |
|
|
|
1,823 |
|
|
|
|
|
1,794 |
|
|
|
29 |
|
|
|
1,823 |
|
| Other |
|
|
225 |
|
|
|
- |
|
|
|
225 |
|
|
|
|
|
217 |
|
|
|
8 |
|
|
|
225 |
|
|
Total1 |
|
$ |
8,351 |
|
|
$ |
33 |
|
|
$ |
8,384 |
|
|
|
|
$ |
8,294 |
|
|
$ |
90 |
|
|
$ |
8,384 |
|
| Weighted average DSC ratio |
|
|
2.20 |
|
|
|
0.82 |
|
|
|
2.19 |
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
| Weighted average LTV ratio |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
57 |
% |
|
|
81 |
% |
|
|
57% |
|
| |
1 |
Excludes $171 million and $17 million of commercial mortgage loans that were under development as
of December 31, 2023 and 2022, respectively. |
As of December 31, 2023 and 2022, the Company
has a diversified mortgage loan portfolio with no more than 23% in a geographic region in the U.S. and no more than 1% with any one borrower. The maximum and minimum lending rates for mortgage loans originated or acquired during 2023 were 9.2% and
4.8%, respectively, and for those originated or acquired during 2022 were 11.0% and 2.9%, respectively. As of December 31, 2023 and 2022, the maximum LTV ratio of any one loan at the time of loan origination was 78% and 80%, respectively. As of
December 31, 2023 and 2022, the Company did not hold mortgage loans with interest 90 days or more past due. Additionally, there were no taxes, assessments or any amounts advanced and not included in the mortgage loan portfolio.
F-30
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Securities Lending
The fair value of loaned securities was $922 million and $611 million as of December 31, 2023 and 2022,
respectively. The Company held $359 million and $232 million of cash collateral on securities lending as of December 31, 2023 and 2022, respectively. The carrying value and fair value of reinvested collateral assets were
$359 million and $232 million and had a contractual maturity of under 30 days as of December 31, 2023 and 2022, respectively. The fair value of bonds acquired with reinvested collateral assets was $366 million and
$236 million as of December 31, 2023 and 2022, respectively. There are no securities lending transactions that extend beyond one year as of the reporting date. The Company received $584 million and $394 million of non-cash
collateral on securities lending as of December 31, 2023 and 2022, respectively.
Net Investment Income
The following table summarizes net investment income by investment type, for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
| Bonds |
|
$ |
1,917 |
|
|
$ |
1,511 |
|
|
$ |
1,417 |
|
| Mortgage loans |
|
|
357 |
|
|
|
334 |
|
|
|
358 |
|
| Other invested assets |
|
|
868 |
|
|
|
196 |
|
|
|
499 |
|
| Policy loans |
|
|
43 |
|
|
|
42 |
|
|
|
43 |
|
| Derivative instruments1 |
|
|
24 |
|
|
|
19 |
|
|
|
31 |
|
| Other |
|
|
62 |
|
|
|
44 |
|
|
|
12 |
|
| Gross investment income |
|
$ |
3,271 |
|
|
$ |
2,146 |
|
|
$ |
2,360 |
|
| Investment expenses |
|
|
(135 |
) |
|
|
(127 |
) |
|
|
(129) |
|
| Net investment income |
|
$ |
3,136 |
|
|
$ |
2,019 |
|
|
$ |
2,231 |
|
| |
1 |
Includes net investment income applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2.
|
The amount of investment income due and accrued that was nonadmitted as of December 31, 2023 and
2022 was immaterial. Investment income due and accrued as of December 31, 2023 and 2022 that was admitted was $965 million and $585 million, respectively.
Net Realized Capital Gains and Losses
The following table summarizes net realized capital gains and losses for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
| Gross gains on sales |
|
$ |
31 |
|
|
$ |
31 |
|
|
$ |
106 |
|
| Gross losses on sales |
|
|
(68 |
) |
|
|
(149 |
) |
|
|
(32 |
) |
| Net realized (losses) gains on sales |
|
$ |
(37 |
) |
|
$ |
(118 |
) |
|
$ |
74 |
|
| Net realized derivative (losses) gains |
|
|
(378 |
) |
|
|
284 |
|
|
|
(679 |
) |
| Other-than-temporary impairments |
|
|
(21 |
) |
|
|
(26 |
) |
|
|
(4 |
) |
| Total net realized (losses) gains |
|
$ |
(436 |
) |
|
|
$140 |
|
|
$ |
(609 |
) |
| Tax (benefit) expense on net (losses) gains |
|
|
(4 |
) |
|
|
3 |
|
|
|
59 |
|
| Net realized capital (losses) gains, net of tax |
|
$ |
(432 |
) |
|
|
$137 |
|
|
$ |
(668 |
) |
| Less: Realized (losses) gains transferred to the
IMR |
|
|
(30 |
) |
|
|
(103 |
) |
|
|
15 |
|
| Net realized capital (losses) gains, net of tax and
transfers to the IMR |
|
$ |
(402 |
) |
|
$ |
240 |
|
|
$ |
(683 |
) |
For the year ended December 31, 2023, gross realized gains and gross realized losses on
sales of bonds were $25 million and $64 million, respectively. For the year ended December 31, 2022, gross realized gains and gross realized losses on sales of bonds were $7 million and $145 million, respectively. For the
year ended December 31, 2021, gross realized gains and gross realized losses on sales of bonds were $80 million and $31 million, respectively.
The Company did not enter into any material repurchase transactions that would be considered wash sales during the years ended
December 31, 2023, 2022 and 2021.
F-31
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Investment Commitments
The Company had unfunded commitments related to its investment in limited partnerships and limited liability companies
totaling $1.0 billion and $894 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, there were $99 million and $207 million of commitments to purchase private placement bonds,
respectively. There were $490 million and $291 million of outstanding commitments to fund mortgage loans as of December 31, 2023 and 2022, respectively.
| (6) |
Derivative Instruments |
The Company is exposed to certain risks related to its ongoing business operations which are managed using derivative
instruments.
Interest rate risk management. In the normal course of business, the Company enters into transactions
that expose it to interest rate risk arising from mismatches between assets and liabilities. The Company may use interest rate swaps and futures to reduce or alter interest rate exposure.
Interest rate contracts are used by the Company in association with fixed and variable rate investments to achieve cash flow
streams that support certain financial obligations of the Company and to produce desired investment returns. As such, interest rate contracts are generally used to convert fixed rate cash flow streams to variable rate cash flow streams or vice
versa.
Equity market risk management. The Company issues a variety of insurance products that expose it to equity
risks. To mitigate these risks, the Company enters into a variety of derivatives including futures and options.
Indexed crediting risk management. The Company issues a variety of insurance and annuity products with indexed
crediting features that expose the Company to risks related to the performance of an underlying index. To mitigate these risks, the Company enters into a variety of derivatives including index options, total return swaps and futures. The underlying
indices can have exposure to equites, commodities and fixed income securities.
Other risk management. As part of
its regular investing activities, the Company may purchase foreign currency denominated investments. These investments and the associated income expose the Company to volatility associated with movements in foreign exchange rates. As foreign
exchange rates change, the increase or decrease in the cash flows of the derivative instrument are intended to mitigate the changes in the functional-currency equivalent cash flows of the hedged item. To mitigate this risk, the Company uses
cross-currency swaps.
Credit risk associated with derivatives transactions. The Company periodically evaluates the
risks within the derivative portfolios due to credit exposure. When evaluating this risk, the Company considers several factors which include, but are not limited to, the counterparty credit risk associated with derivative receivables, the
Company’s own credit as it relates to derivative payables, the collateral thresholds associated with each counterparty and changes in relevant market data in order to gain insight into the probability of default by the counterparty. The Company
also considers the impact credit exposure could have on the effectiveness of the Company’s hedging relationships. As of December 31, 2023 and 2022, the impact of the exposure to credit risk on the fair value measurement of derivatives and
the effectiveness of the Company’s hedging relationships was immaterial.
F-32
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the fair value, carrying value and related
notional amounts of derivative instruments, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Notional
amount |
|
|
Net Carrying
Value |
|
|
Fair value
asset |
|
|
Fair value
liability |
|
|
Average fair
value |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate swaps |
|
$ |
2,410 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Options |
|
|
137 |
|
|
|
1 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
| Cross currency swaps |
|
|
1,621 |
|
|
|
94 |
|
|
|
120 |
|
|
|
(22 |
) |
|
|
1 |
|
| Futures |
|
|
2,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total derivatives¹ |
|
$ |
7,093 |
|
|
$ |
95 |
|
|
$ |
127 |
|
|
$ |
(22 |
) |
|
$ |
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate swaps |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Options |
|
|
96 |
|
|
|
1 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
| Cross currency swaps |
|
|
1,498 |
|
|
|
135 |
|
|
|
174 |
|
|
|
(9 |
) |
|
|
2 |
|
| Futures |
|
|
3,316 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total derivatives¹ |
|
$ |
4,910 |
|
|
$ |
136 |
|
|
$ |
176 |
|
|
$ |
(9 |
) |
|
$ |
2 |
|
| |
1 |
Fair value balance excludes immaterial accrued interest on derivative assets for December 31, 2023 and
2022. |
The Company received $253 million and $178 million of cash collateral and held
$49 million and $20 million of securities off-balance sheet as collateral for derivative assets as of December 31, 2023 and 2022, respectively. Cash and securities pledged for derivative liabilities were immaterial as of
December 31, 2023 and 2022. The impact of netting as a result of master netting agreements reduced the fair value of derivative assets and liabilities by $20 million and $8 million as of December 31, 2023 and 2022, respectively.
As a result, the Company’s uncollateralized position for derivatives instruments was immaterial in each respective period. In addition, the Company posted initial margin on derivative instruments of $256 million and $236 million as of
December 31, 2023 and 2022, respectively.
The following table summarizes net gains and losses on derivatives
programs by type of derivative instrument, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net realized (losses) gains recorded in
operations |
|
|
Unrealized (losses) gains recorded in capital
and surplus |
|
| |
|
December 31, |
|
|
December 31, |
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
| Cross currency swaps |
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
(43 |
) |
|
$ |
103 |
|
|
$ |
69 |
|
| Futures |
|
|
(378 |
) |
|
|
283 |
|
|
|
(680 |
) |
|
|
(173 |
) |
|
|
124 |
|
|
|
27 |
|
| Total |
|
$ |
(378 |
) |
|
$ |
284 |
|
|
$ |
(679 |
) |
|
$ |
(216 |
) |
|
$ |
227 |
|
|
$ |
96 |
|
F-33
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
| (7) |
Fair Value Measurements |
The following table summarizes assets and liabilities held at fair value as of December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Net Asset
Value (NAV) |
|
|
Total |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
- |
|
|
$ |
7 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7 |
|
| Common stocks unaffiliated |
|
|
67 |
|
|
|
164 |
|
|
|
- |
|
|
|
- |
|
|
|
231 |
|
| Preferred stocks unaffiliated |
|
|
- |
|
|
|
39 |
|
|
|
7 |
|
|
|
- |
|
|
|
46 |
|
| Separate account assets |
|
|
104,555 |
|
|
|
1,637 |
|
|
|
51 |
|
|
|
6,430 |
|
|
|
112,673 |
|
| Assets at fair value |
|
$ |
104,622 |
|
|
$ |
1,847 |
|
|
$ |
58 |
|
|
$ |
6,430 |
|
|
$ |
112,957 |
|
The following table presents the rollforward of Level 3 assets and liabilities held at fair
value during the year ended December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Preferred stocks
unaffiliated |
|
|
Separate account
assets |
|
|
Assets
at fair value |
|
| Balance as of December 31, 2022 |
|
$ |
6 |
|
|
$ |
55 |
|
|
$ |
61 |
|
| Net gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
| In surplus |
|
|
1 |
|
|
|
(1 |
) |
|
|
- |
|
| Purchases |
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
| Sales |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
| Balance as of December 31, 2023 |
|
$ |
7 |
|
|
$ |
51 |
|
|
$ |
58 |
|
The following table summarizes assets and liabilities held at fair value as of
December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Net Asset
Value (NAV) |
|
|
Total |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
- |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
11 |
|
| Common stocks unaffiliated |
|
|
77 |
|
|
|
162 |
|
|
|
- |
|
|
|
- |
|
|
|
239 |
|
| Preferred stocks unaffiliated |
|
|
- |
|
|
|
25 |
|
|
|
6 |
|
|
|
- |
|
|
|
31 |
|
| Separate account assets |
|
|
97,015 |
|
|
|
1,795 |
|
|
|
55 |
|
|
|
3,552 |
|
|
|
102,417 |
|
| Assets at fair value |
|
$ |
97,092 |
|
|
$ |
1,993 |
|
|
$ |
61 |
|
|
$ |
3,552 |
|
|
$ |
102,698 |
|
The following table presents the rollforward of Level 3 assets and liabilities held at fair
value during the year ended December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Bonds1 |
|
|
Preferred
stocks unaffiliated |
|
|
Separate account
assets |
|
|
Assets
at fair value |
|
| Balance as of December 31, 2021 |
|
$ |
1 |
|
|
$ |
6 |
|
|
$ |
49 |
|
|
$ |
56 |
|
| Net gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In surplus |
|
|
- |
|
|
|
- |
|
|
|
24 |
|
|
|
24 |
|
| Purchases |
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
| Sales |
|
|
- |
|
|
|
(2 |
) |
|
|
(18 |
) |
|
|
(20 |
) |
| Transfers out of Level 3 |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
| Balance as of December 31, 2022 |
|
$ |
- |
|
|
$ |
6 |
|
|
$ |
55 |
|
|
|
61 |
|
| |
1 |
Bonds transfer out of Level 3 during the year ended December 31, 2022, result from the application of
the lower of amortized cost or fair value rules based on NAIC rating. |
F-34
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the carrying value and fair value of the
Company’s assets and liabilities not held at fair value as of the dates indicated. The valuation techniques used to estimate these fair values are described below or in Note 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value |
|
|
|
|
| (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total fair
value |
|
|
Carrying
value |
|
| December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
175 |
|
|
$ |
35,293 |
|
|
$ |
5,999 |
|
|
$ |
41,467 |
|
|
$ |
43,860 |
|
| Mortgage loans, net of allowance |
|
|
- |
|
|
|
- |
|
|
|
8,047 |
|
|
|
8,047 |
|
|
|
9,144 |
|
| Policy loans |
|
|
- |
|
|
|
- |
|
|
|
969 |
|
|
|
969 |
|
|
|
969 |
|
| Derivative assets |
|
|
- |
|
|
|
120 |
|
|
|
7 |
|
|
|
127 |
|
|
|
113 |
|
| Cash, cash equivalents and short-term investments |
|
|
(52 |
) |
|
|
1,607 |
|
|
|
- |
|
|
|
1,555 |
|
|
|
1,555 |
|
| Securities lending collateral assets |
|
|
359 |
|
|
|
- |
|
|
|
- |
|
|
|
359 |
|
|
|
359 |
|
| Separate account assets |
|
|
5 |
|
|
|
411 |
|
|
|
157 |
|
|
|
573 |
|
|
|
597 |
|
| Total assets |
|
$ |
487 |
|
|
$ |
37,431 |
|
|
$ |
15,179 |
|
|
$ |
53,097 |
|
|
$ |
56,597 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment contracts |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,265 |
|
|
$ |
3,265 |
|
|
$ |
3,242 |
|
| Derivative liabilities |
|
|
- |
|
|
|
22 |
|
|
|
- |
|
|
|
22 |
|
|
|
17 |
|
| Total liabilities |
|
$ |
- |
|
|
$ |
22 |
|
|
$ |
3,265 |
|
|
$ |
3,287 |
|
|
$ |
3,259 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bonds |
|
$ |
1 |
|
|
$ |
32,048 |
|
|
$ |
4,350 |
|
|
$ |
36,399 |
|
|
$ |
40,197 |
|
| Mortgage loans, net of allowance |
|
|
- |
|
|
|
- |
|
|
|
7,351 |
|
|
|
7,351 |
|
|
|
8,363 |
|
| Policy loans |
|
|
- |
|
|
|
- |
|
|
|
933 |
|
|
|
933 |
|
|
|
933 |
|
| Derivative assets |
|
|
- |
|
|
|
174 |
|
|
|
2 |
|
|
|
176 |
|
|
|
143 |
|
| Cash, cash equivalents and short-term investments |
|
|
613 |
|
|
|
1,008 |
|
|
|
- |
|
|
|
1,621 |
|
|
|
1,621 |
|
| Securities lending collateral assets |
|
|
232 |
|
|
|
- |
|
|
|
- |
|
|
|
232 |
|
|
|
232 |
|
| Separate account assets |
|
|
4 |
|
|
|
311 |
|
|
|
41 |
|
|
|
356 |
|
|
|
391 |
|
| Total assets |
|
$ |
850 |
|
|
$ |
33,541 |
|
|
$ |
12,677 |
|
|
$ |
47,068 |
|
|
$ |
51,880 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment contracts |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,158 |
|
|
$ |
3,158 |
|
|
$ |
3,148 |
|
| Derivative liabilities |
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
9 |
|
|
|
7 |
|
| Total liabilities |
|
$ |
- |
|
|
$ |
9 |
|
|
$ |
3,158 |
|
|
$ |
3,167 |
|
|
$ |
3,155 |
|
Mortgage loans, net of allowance. The fair values of mortgage loans are primarily
estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit ratings.
Policy loans. The carrying amount reported in the statutory statements of admitted assets, liabilities, capital and
surplus approximates fair value as policy loans are fully collateralized by the cash surrender value of underlying insurance policies.
Securities lending collateral assets. These assets are comprised of bonds and short-term investments and the respective
fair values are estimated based on the fair value methods described in Note 2.
Investment contracts. For
investment contracts without defined maturities, fair value is the amount payable on demand, net of surrender charges. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis.
Interest rates used in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. The fair value of adjustable-rate contracts approximates their carrying value.
F-35
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following tables summarize the net admitted deferred tax assets, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2023 |
|
| (in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
| Total gross deferred tax assets |
|
$ |
953 |
|
|
$ |
21 |
|
|
$ |
974 |
|
| Statutory valuation allowance adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Adjusted gross deferred tax assets |
|
$ |
953 |
|
|
$ |
21 |
|
|
$ |
974 |
|
| Less: Deferred tax assets nonadmitted |
|
|
(222 |
) |
|
|
- |
|
|
|
(222) |
|
| Net admitted deferred tax assets |
|
$ |
731 |
|
|
$ |
21 |
|
|
$ |
752 |
|
| Less: Deferred tax liabilities |
|
|
(105 |
) |
|
|
(15 |
) |
|
|
(120) |
|
| Net admitted deferred tax assets |
|
$ |
626 |
|
|
$ |
6 |
|
|
$ |
632 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2022 |
|
| (in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
| Total gross deferred tax assets |
|
$ |
820 |
|
|
$ |
32 |
|
|
$ |
852 |
|
| Statutory valuation allowance adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Adjusted gross deferred tax assets |
|
$ |
820 |
|
|
$ |
32 |
|
|
$ |
852 |
|
| Less: Deferred tax assets nonadmitted |
|
|
(96 |
) |
|
|
(7 |
) |
|
|
(103) |
|
| Net admitted deferred tax assets |
|
$ |
724 |
|
|
$ |
25 |
|
|
$ |
749 |
|
| Less: Deferred tax liabilities |
|
|
(147 |
) |
|
|
(13 |
) |
|
|
(160) |
|
| Net admitted deferred tax assets |
|
$ |
577 |
|
|
$ |
12 |
|
|
$ |
589 |
|
The following table summarizes components of the change in deferred income taxes reported in
capital and surplus before consideration of nonadmitted assets and changes from the prior year, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
|
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
| Adjusted gross deferred tax assets |
|
$ |
974 |
|
|
$ |
852 |
|
|
$ |
122 |
|
| Total deferred tax liabilities |
|
|
(120 |
) |
|
|
(160 |
) |
|
|
40 |
|
| Net deferred tax assets |
|
$ |
854 |
|
|
$ |
692 |
|
|
$ |
162 |
|
| Less: Tax effect of unrealized gains and losses |
|
|
|
|
|
|
|
|
|
|
37 |
|
| Less: Tax effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
| Less: Merger adjustment |
|
|
|
|
|
|
|
|
|
|
1 |
|
| Change in deferred income tax |
|
|
|
|
|
|
|
|
|
$ |
132 |
|
F-36
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following tables summarize components of the admitted deferred tax assets
calculation, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2023 |
|
| (in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
| Federal income taxes recoverable through loss carryback |
|
$ |
- |
|
|
$ |
3 |
|
|
$ |
3 |
|
| Adjusted gross deferred tax assets expected to be realized1 |
|
|
623 |
|
|
|
6 |
|
|
|
629 |
|
| Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities |
|
|
108 |
|
|
|
12 |
|
|
|
120 |
|
| Admitted deferred tax
assets |
|
$ |
731 |
|
|
$ |
21 |
|
|
$ |
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2022 |
|
| (in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
| Federal income taxes recoverable through loss carryback |
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
8 |
|
| Adjusted gross deferred tax assets expected to be realized1 |
|
|
577 |
|
|
|
4 |
|
|
|
581 |
|
| Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities |
|
|
147 |
|
|
|
13 |
|
|
|
160 |
|
| Admitted deferred tax
assets |
|
$ |
724 |
|
|
$ |
25 |
|
|
$ |
749 |
|
| |
1 |
Note that this amount is calculated as the lesser of the adjusted gross deferred tax assets expected to be
realized following the balance sheet date or the adjusted gross deferred tax assets allowed per the limitation threshold. For the years ended December 31, 2023 and 2022, the threshold limitation for adjusted capital and surplus was $1.6 billion
and $1.4 billion, respectively. |
The adjusted capital and surplus used to determine the recovery period
and adjusted gross deferred tax assets allowed per the limitation threshold was $10.5 billion and $9.5 billion as of December 31, 2023 and 2022, respectively. The ratio percentage used to determine the recovery period and adjusted gross
deferred tax assets allowed per the limitation threshold was 1,062% and 1,071% as of December 31, 2023 and 2022, respectively.
The following tables summarize the impact of tax planning strategies, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2023 |
|
| |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
| Adjusted gross deferred tax assets |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
| Net admitted adjusted gross deferred tax assets |
|
|
7.19 |
% |
|
|
0.00 |
% |
|
|
7.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2022 |
|
| |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
| Adjusted gross deferred tax assets |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
| Net admitted adjusted gross deferred tax assets |
|
|
25.51 |
% |
|
|
0.00 |
% |
|
|
25.51 |
% |
The Company’s tax planning strategies included the use of affiliated reinsurance for the
years ended December 31, 2023 and 2022.
There are no temporary differences for which deferred tax liabilities are
not recognized for the years ended December 31, 2023 and 2022.
F-37
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the tax effects of temporary differences and
the change from the prior year, for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
|
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
| Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Ordinary: |
|
|
|
|
|
|
|
|
|
|
|
|
| Future policy benefits and claims |
|
$ |
231 |
|
|
$ |
132 |
|
|
$ |
99 |
|
| Investments |
|
|
110 |
|
|
|
89 |
|
|
|
21 |
|
| Deferred acquisition costs |
|
|
297 |
|
|
|
260 |
|
|
|
37 |
|
| Tax credit carry-forward |
|
|
259 |
|
|
|
294 |
|
|
|
(35 |
) |
| Other |
|
|
56 |
|
|
|
45 |
|
|
|
11 |
|
| Subtotal |
|
$ |
953 |
|
|
$ |
820 |
|
|
$ |
133 |
|
| Nonadmitted |
|
|
(222 |
) |
|
|
(96 |
) |
|
|
(126 |
) |
| Admitted ordinary deferred tax assets |
|
$ |
731 |
|
|
$ |
724 |
|
|
$ |
7 |
|
| Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
| Investments |
|
|
21 |
|
|
|
32 |
|
|
|
(11 |
) |
| Subtotal |
|
$ |
21 |
|
|
$ |
32 |
|
|
$ |
(11 |
) |
| Nonadmitted |
|
|
- |
|
|
|
(7 |
) |
|
|
7 |
|
| Admitted capital deferred tax assets |
|
$ |
21 |
|
|
$ |
25 |
|
|
$ |
(4 |
) |
| Admitted deferred tax assets |
|
$ |
752 |
|
|
$ |
749 |
|
|
$ |
3 |
|
| Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Ordinary: |
|
|
|
|
|
|
|
|
|
|
|
|
| Investments |
|
$ |
(68 |
) |
|
$ |
(100 |
) |
|
$ |
32 |
|
| Future policy benefits and claims |
|
|
(22 |
) |
|
|
(32 |
) |
|
|
10 |
|
| Other |
|
|
(15 |
) |
|
|
(15 |
) |
|
|
- |
|
| Subtotal |
|
$ |
(105 |
) |
|
$ |
(147 |
) |
|
$ |
42 |
|
| Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
| Investments |
|
|
(15 |
) |
|
|
(13 |
) |
|
|
(2 |
) |
| Subtotal |
|
$ |
(15 |
) |
|
$ |
(13 |
) |
|
$ |
(2 |
) |
| Deferred tax liabilities |
|
$ |
(120 |
) |
|
$ |
(160 |
) |
|
$ |
40 |
|
| Net deferred tax assets |
|
$ |
632 |
|
|
$ |
589 |
|
|
$ |
43 |
|
In assessing the realizability of deferred tax assets, the Company considers whether it is
more likely than not that some portion of the total deferred tax assets will not be realized. Valuation allowances are established when necessary to reduce the deferred tax assets to amounts expected to be realized. Based on the Company’s
analysis, it is more likely than not that the results of future operations and the implementation of tax planning strategies will generate sufficient taxable income to enable the Company to realize all deferred tax assets. Therefore, no valuation
allowances have been established as of December 31, 2023 and 2022.
F-38
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the Company’s income tax incurred and
change in deferred income tax. The total income tax and change in deferred income tax differs from the amount obtained by applying the federal statutory rate to income (loss) before tax as follows, for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
|
|
| (in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
| Current income tax expense |
|
$ |
104 |
|
|
$ |
103 |
|
|
$ |
50 |
|
| Change in deferred income tax (without tax on unrealized
gains and losses) |
|
|
(132 |
) |
|
|
(28 |
) |
|
|
(50 |
) |
| Total income tax (benefit) expense
reported |
|
$ |
(28 |
) |
|
$ |
75 |
|
|
$ |
- |
|
| Income before income and capital gains taxes |
|
$ |
1,053 |
|
|
$ |
1,077 |
|
|
$ |
861 |
|
| Federal statutory tax rate |
|
|
21 |
% |
|
|
21 |
% |
|
|
21 |
% |
| Expected income tax expense at statutory tax rate |
|
$ |
221 |
|
|
$ |
226 |
|
|
$ |
181 |
|
| (Decrease) increase in actual tax reported resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends received deduction |
|
|
(211 |
) |
|
|
(80 |
) |
|
|
(137 |
) |
| Tax credits |
|
|
(45 |
) |
|
|
(58 |
) |
|
|
(47 |
) |
| Other |
|
|
7 |
|
|
|
(13 |
) |
|
|
3 |
|
| Total income tax (benefit) expense
reported |
|
$ |
(28 |
) |
|
$ |
75 |
|
|
$ |
- |
|
The Company incurred $11 million in federal income tax expense in 2021, which is
available for recoupment in the event of future net losses.
The following table summarizes operating loss or tax credit
carry-forwards available as of December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Amount |
|
|
Origination |
|
|
Expiration |
|
| Operating loss carryforwards |
|
$ |
2 |
|
|
|
2017 |
|
|
|
2032 |
|
| Business credits |
|
$ |
32 |
|
|
|
2016 |
|
|
|
2036 |
|
| Business credits |
|
$ |
62 |
|
|
|
2017 |
|
|
|
2037 |
|
| Business credits |
|
$ |
30 |
|
|
|
2018 |
|
|
|
2038 |
|
| Business credits |
|
$ |
27 |
|
|
|
2019 |
|
|
|
2039 |
|
| Business credits |
|
$ |
29 |
|
|
|
2020 |
|
|
|
2040 |
|
| Business credits |
|
$ |
28 |
|
|
|
2021 |
|
|
|
2041 |
|
| Business credits |
|
$ |
27 |
|
|
|
2022 |
|
|
|
2042 |
|
| Business credits |
|
$ |
24 |
|
|
|
2023 |
|
|
|
2043 |
|
F-39
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company is included in the NMIC consolidated federal income tax return
which includes the following entities:
|
|
|
| Nationwide Mutual Insurance Company AGMC
Reinsurance, Ltd Allied Insurance Company of America Allied
Property & Casualty Insurance Company Allied Texas Agency, Inc.
AMCO Insurance Company American Marine Underwriters
Crestbrook Insurance Company Depositors Insurance Company
DVM Insurance Agency, Inc. Eagle Captive Reinsurance, LLC
Freedom Specialty Insurance Company Harleysville Insurance
Company of New York Harleysville Insurance Company
Harleysville Insurance Company of New Jersey Harleysville Lake
States Insurance Company Harleysville Preferred Insurance Company
Harleysville Worcester Insurance Company Jefferson National
Financial Corporation Jefferson National Life Insurance Company
Jefferson National Life Insurance Company of New York Lone Star
General Agency, Inc. National Casualty Company Nationwide
Advantage Mortgage Company Nationwide Affinity Insurance Company of America
Nationwide Agent Risk Purchasing Group. Inc. Nationwide
Agribusiness Insurance Company Nationwide Assurance Company
Nationwide Cash Management Company Nationwide
Corporation |
|
Nationwide Financial Assignment Company
Nationwide Financial General Agency, Inc. Nationwide Financial
Services, Inc. Nationwide General Insurance Company
Nationwide Indemnity Company Nationwide Insurance Company of
America Nationwide Insurance Company of Florida Nationwide
Investment Services Corporation Nationwide Life and Annuity Insurance Company
Nationwide Life Insurance Company Nationwide Lloyds
Nationwide Property & Casualty Ins. Company Nationwide
Retirement Solutions, Inc. Nationwide Sales Solutions, Inc.
Nationwide Trust Company, FSB NBS Insurance Agency, Inc.
NFS Distributors, Inc. Registered Investment Advisors Services,
Inc. Retention Alternatives, Ltd. Retention Alternatives Ltd.
In Respect of Cell No. 1 Segregated Account Scottsdale
Indemnity Company Scottsdale Insurance Company Scottsdale
Surplus Lines Insurance Company Titan Insurance Company Titan
Insurance Services, Inc. Veterinary Pet Insurance Company
Victoria Fire & Casualty Company Victoria Select
Insurance Company VPI Services, Inc. |
The method of allocation of regular tax among the companies is based upon separate return
calculations with current benefit for tax losses and credits utilized in the consolidated return. Effective January 1, 2023, the Company revised its tax sharing agreement to address corporate alternative minimum tax (“CAMT”). If the
consolidated federal income tax return group is an Applicable Corporation and has a CAMT liability, all members of the group will be treated as Applicable Corporations subject to CAMT. CAMT is paid by affiliates based on the ratio of the
subsidiary’s CAMT liability to the total CAMT liabilities of all subsidiaries.
The Company did not have any
protective tax deposits under Section 6603 of the Internal Revenue Code as of December 31, 2023 and 2022.
The
Company does not have any tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date.
In August 2022, the Inflation Reduction Act of 2022 (“Act”) was passed by the U.S. Congress and signed into law. The
Act includes a new Federal CAMT, effective in 2023, that is based on the adjusted financial statement income (“AFSI”) set forth on the applicable financial statement (“AFS”) of an applicable corporation. A corporation is an
applicable corporation if its rolling average pre-tax AFSI over three prior years (starting with 2020-2022) is greater than $1.0 billion. For a group of related entities, the $1.0 billion threshold is determined on a group basis, and the
group’s AFS is generally treated as the AFS for all separate taxpayers in the group. Except under limited circumstances, once a corporation is an applicable corporation, it is an applicable corporation in all future years.
An applicable corporation is not automatically subject to a CAMT liability. The corporation’s tentative CAMT liability is
equal to 15% of its adjusted AFSI, and CAMT is payable to the extent the tentative CAMT liability exceeds regular corporate income tax. However, any CAMT paid would be indefinitely available as a credit carryover that could reduce future regular tax
in excess of CAMT.
F-40
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Reporting entities that reasonably expect to be applicable corporations for
the current reporting period are considered applicable reporting entities. The Company comprises a controlled group of corporations and has determined that it likely will be an applicable corporation, and therefore an appliable reporting entity, in
2023. In making such determination, the group has made certain interpretations of, and assumptions regarding, the CAMT provisions of the Act. The Company does not consider its CAMT status when evaluating its deferred tax assets under the regular tax
system. The U.S. Treasury Department is expected to issue guidance throughout 2024 that may differ from the group’s interpretations and assumptions and that could alter the group’s determination.
The reporting entity has made an accounting policy election to disregard CAMT when evaluating the need for a valuation
allowance for its non-CAMT deferred tax assets.
For the years ended December 31, 2023 and 2022, the Act did not
impact the Company’s total tax.
| (9) |
Short-Term Debt and FHLB Funding Agreements |
Short-Term Debt
The Company is a party to a $750 million revolving variable rate credit facility agreement. The Company had no amounts
outstanding under the facility as of December 31, 2023 and 2022.
The Company has entered into an agreement with its
custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. The maximum amount available under the agreement is $350 million. The borrowing rate on this program is equal to Effective
Federal Funds Rate plus 0.18%. The Company had no amounts outstanding under this agreement as of December 31, 2023 and 2022.
The terms of certain debt instruments contain various restrictive covenants, including, but not limited to, minimum statutory
surplus defined in the agreements. The Company was in compliance with all covenants as of December 31, 2023 and 2022.
The amount of interest paid on short-term debt was immaterial in 2023, 2022 and 2021.
FHLB Funding Agreements
The Company is a member of the FHLB. Through its membership, the FHLB established the Company’s capacity for short-term
borrowings and cash advances under the funding agreement program at up to 50% of total admitted assets.
The
Company’s Board of Directors has authorized the issuance of funding agreements up to $6.0 billion to the FHLB, shared between the Company and NLAIC, in exchange for cash advances, which are collateralized by pledged securities. The Company uses
these funds in an investment spread strategy, consistent with its other investment spread operations. As such, the Company applies SSAP No. 52, Deposit-Type Contracts, accounting treatment to these funds, consistent with its other
deposit-type contracts. It is not part of the Company’s strategy to utilize these funds for operations, and any funds obtained from the FHLB for use in general operations would be accounted for consistent with SSAP No. 15, Debt and Holding
Company Obligations, as borrowed money. FHLB membership requires the Company to purchase and hold a minimum amount of FHLB capital stock plus additional stock based on outstanding advances. The Company has $20 million in membership stock as of
December 31, 2023 and 2022. As part of the agreement, the Company purchased and held an additional $144 million and $139 million in activity stock and an immaterial amount in excess stock as of December 31, 2023 and 2022,
respectively, which is included in stocks on the statutory statements of admitted assets, liabilities, capital and surplus. The Company’s liability for advances from the FHLB was $3.3 billion and $3.1 billion as of December 31, 2023 and
2022, respectively, which is included in future policy benefits and claims on the statutory statements of admitted assets, liabilities, capital and surplus.
The Company has agreements with the FHLB to provide financing for operations. These agreements, which were renewed in February
2024 and expire January 2025, allow the Company access to borrow up to $1.1 billion. As of December 31, 2023 and 2022, the Company had no amounts outstanding under these agreements.
Bonds and mortgage loans with a carrying value of $5.3 billion (3.0% of total admitted assets) as of December 31, 2023
and $4.6 billion (2.8% of total admitted assets) as of December 31, 2022 were pledged as collateral under FHLB agreements and are included in bonds and mortgage loans on the statutory statements of admitted assets, liabilities, capital and
surplus.
F-41
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the carrying value of surplus notes issued by the Company to NFS, as of the dates indicated:
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| Date issued |
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Interest
rate |
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Par value |
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Carrying
value |
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Interest and/
or principal
paid in
current year |
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Total interest
and/or
principal paid |
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Unapproved
interest and/or
principal |
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Date of
maturity |
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| December 31, 2023 |
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| 12/19/2001 |
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|
7.50 |
% |
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$ |
300 |
|
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$ |
300 |
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$ |
23 |
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$ |
495 |
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$ |
- |
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12/31/2031 |
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| 6/27/2002 |
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8.15 |
% |
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300 |
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300 |
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24 |
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521 |
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- |
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6/27/2032 |
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| 12/23/2003 |
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6.75 |
% |
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100 |
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100 |
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7 |
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132 |
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- |
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12/23/2033 |
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| 12/20/2019 |
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4.21 |
% |
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400 |
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400 |
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16 |
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67 |
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- |
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12/19/2059 |
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| Total |
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$ |
1,100 |
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$ |
1,100 |
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$ |
70 |
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$ |
1,215 |
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$ |
- |
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| |
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| December 31, 2022 |
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| 12/19/2001 |
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|
7.50 |
% |
|
$ |
300 |
|
|
$ |
300 |
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$ |
22 |
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$ |
472 |
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$ |
- |
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12/31/2031 |
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| 6/27/2002 |
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8.15 |
% |
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300 |
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300 |
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24 |
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497 |
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- |
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6/27/2032 |
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| 12/23/2003 |
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6.75 |
% |
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100 |
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100 |
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6 |
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125 |
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- |
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12/23/2033 |
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| 12/20/2019 |
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4.21 |
% |
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400 |
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400 |
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17 |
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51 |
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- |
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12/19/2059 |
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| Total |
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$ |
1,100 |
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$ |
1,100 |
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$ |
69 |
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$ |
1,145 |
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$ |
- |
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The surplus notes were issued in accordance with Section 3901.72 of the Ohio
Revised Code. The principal and interest on these surplus notes shall not be a liability or claim against NLIC, or any of its assets, except as provided in Section 3901.72 of the Ohio Revised Code. The Department must approve interest and
principal payments before they are paid.
The Company has 100% coinsurance agreements with funds withheld with Eagle to cede specified GMDB and GLWB obligations
provided under substantially all of the variable annuity contracts and certain fixed indexed annuity contracts issued and to be issued by NLIC. While the GMDB and GLWB contract riders are ceded by NLIC to Eagle, the base annuity contracts and any
non-reinsured risks will be retained by NLIC. Amounts ceded to Eagle during 2023, 2022 and 2021 included premiums of $635 million, $637 million and $607 million, respectively, benefits and claims, net of third-party reinsurance
recoveries, of $73 million, $75 million, and $8 million respectively, net investment earnings on funds withheld assets of $55 million, $52 million and $40 million, respectively, and an expense allowance for third-party
reinsurance premiums of $1 million, $2 million and $1 million, respectively. As of December 31, 2023 and 2022, the carrying value of the funds withheld assets recorded within funds held under coinsurance was $1.3 billion and $1.6
billion, respectively, which consists of bonds and cash equivalents that had a carrying value of $1.2 billion and $1.5 million, respectively, and mortgage loans that had a carrying value of $73 million and $95 million, respectively.
As of December 31, 2023 and 2022, the Company’s reserve credit for guaranteed benefits ceded under the reinsurance agreements was $91 million and $253 million, respectively. Amounts payable to Eagle related to the reinsurance
agreements were $377 million and $424 million as of December 31, 2023 and 2022, respectively.
The Company
has a reinsurance agreement with NMIC whereby nearly all of the Company’s accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on
January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets, and investment earnings are paid to the reinsurer. Under the terms of the Company’s agreement, the investment risk
associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by the Company, although a fee is paid to the Company for the retention of such risk. The ceding of risk does not discharge the Company, as the
original insurer, from its primary obligation to the policyholder. Amounts ceded to NMIC include revenues of $307 million, $287 million and $281 million for the years ended December 31, 2023, 2022 and 2021, respectively, while
benefits, claims and expenses ceded were $301 million, $267 million and $257 million, respectively.
F-42
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company has an intercompany reinsurance agreement with NLAIC whereby
certain inforce and subsequently issued fixed individual deferred annuity contracts are assumed on a modified coinsurance basis. Under modified coinsurance agreements, the ceding company retains invested assets and investment earnings are paid to
the reinsurer. Under terms of the agreement, the Company bears the investment risk associated with changes in interest rates. Risk of asset default remains with NLAIC, and the Company pays a fee to NLAIC for the retention of such risk. The agreement
will remain inforce until all contract obligations are settled. The ceding of risk does not discharge the original insurer from its primary obligation to the contractholder. Amounts assumed from NLAIC are included in the Company’s statutory
statements of operations for 2023, 2022 and 2021 and include considerations of $46 million, $10 million and $10 million, respectively, net investment income of $31 million, $35 million and $42 million, respectively, and
benefits, claims and other expenses of $186 million, $161 million and $147 million, respectively. The reserve adjustment for 2023, 2022 and 2021 of $(153) million, $(161) million and $(151) million, respectively,
represents changes in reserves related to this fixed block of business, offset by investment earnings on the underlying assets. Policy reserves under this agreement totaled $737 million and $859 million as of December 31, 2023 and
2022, respectively, and amounts payable related to this agreement were $6 million and $14 million as of December 31, 2023 and 2022, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby certain variable universal life insurance, whole life
insurance and universal life insurance policies are assumed on a modified coinsurance basis. Total policy reserves under this treaty were $34 million and $33 million as of December 31, 2023 and 2022, respectively. Total premiums
assumed under this treaty were $12 million, $12 million and $12 million during 2023, 2022 and 2021, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby a certain life insurance contract is assumed on a
100% coinsurance basis. Policy reserves assumed under this agreement totaled $154 million and $156 million as of December 31, 2023 and 2022, respectively.
The Company has entered into reinsurance contracts to cede a portion of its individual annuity and life insurance business to
unrelated reinsurers. Total reserve credits taken as of December 31, 2023 and 2022 were $278 million and $345 million, respectively. The ceding of risk does not relieve the Company, as the original insurer, from its primary obligation
to the policyholder.
| (12) |
Transactions with Affiliates |
The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries
as a part of its ongoing operations. These include, but are not limited to, annuity and life insurance contracts, and agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany
repurchases, cash management services and software licensing. In addition, several benefit plans sponsored by NMIC are available to Nationwide employees, for which the Company has no legal obligations. Measures used to determine the allocation among
companies includes individual employee estimates of time spent, special cost studies, the number of full-time employees and other methods agreed to by the participating companies in conformity with NAIC statutory accounting principles. In addition,
the Company may underwrite insurance policies for its officers, directors, and/or other personnel providing services to the Company. The Company may offer discounts on certain products that are subject to applicable state insurance laws and
approvals.
Affiliate receivables and payables are the result of cost sharing and intercompany service agreements between
the Company and its affiliates in which settlement has not yet occurred. Affiliate receivables are presented net of affiliate payables when the Company has the right to offset. The gross amounts due from affiliates were $19 million and
$226 million as of December 31, 2023 and 2022, respectively, and are included in other assets in the Company’s statutory statements of admitted assets, liabilities, capital and surplus. The gross amounts due to affiliates were
$133 million and $177 million as of December 31, 2023 and 2022, respectively, and are included in other liabilities in the Company’s statutory statements of admitted assets, liabilities, capital and surplus. These arrangements
are subject to written agreements which require that intercompany balances be settled within a certain time period, generally 30 to 60 days.
In addition, Nationwide Services Company, LLC (“NSC”), a subsidiary of NMIC, provided data processing, systems
development, hardware and software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed pursuant to the enterprise cost sharing agreement. As of January 1, 2022 NSC merged into
NNOV8, LLC, a subsidiary of NMIC, and all services going forward were provided by NMIC. For the years ended December 31, 2023 and 2022, the Company was allocated costs from NMIC totaling $245 million and $285 million, respectively.
For the year ended December 31, 2021, the Company was allocated costs from NMIC and NSC totaling $288 million.
The Company has issued group annuity and life insurance contracts and performs administrative services for various employee
benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $3.4 billion and $3.7 billion as of December 31, 2023 and 2022, respectively. Total revenues from these contracts were $125 million,
$127 million and $121 million for the years ended December 31, 2023, 2022 and 2021, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest
credited to the account balances were $84 million, $87 million and $113 million for the years ended December 31, 2023, 2022 and 2021, respectively.
F-43
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company receives an annual fee payable from the Tax Credit Funds, for
which it is a guarantor and Managing Member, for its services in connection with the oversight of the performance of the Investee Partnerships and the compliance by their managing members and managing agents thereof with the provisions of the
various operating level agreements and applicable laws. The amount the Company earned for the years ended December 31, 2023, 2022 and 2021 were immaterial.
Funds of Nationwide Funds Group (“NFG”), a group of Nationwide businesses that develops, sells and services mutual
funds, are offered to the Company’s customers as investment options in certain of the Company’s products. As of December 31, 2023 and 2022, customer allocations to NFG funds totaled $63.9 billion and $63.0 billion, respectively. For
the years ended December 31, 2023, 2022 and 2021, NFG paid the Company $234 million, $242 million and $265 million, respectively, for the distribution and servicing of these funds.
Amounts on deposit with NCMC for the benefit of the Company were $1.3 billion and $1.0 billion as of December 31, 2023
and 2022, respectively. As of December 31, 2023 and 2022, amounts on deposit with NCMC were comprised of $1.0 billion and $883 million, respectively, of cash equivalents, with remaining amounts in short-term investments.
Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees
paid to these affiliates for the years ended December 31, 2023, 2022 and 2021 was $63 million, $112 million and $74 million, respectively.
The Company provides commercial mortgage loans to subsidiaries of Nationwide Realty Investors, LTD, a subsidiary of NMIC with
interest rates ranging from 3.62% to 4.90% and maturity dates ranging from January 2031 to July 2041. As of December 31, 2023 and 2022, the Company had $304 million and $338 million, respectively, outstanding under these arrangements.
The Company also participates in intercompany repurchase agreements with affiliates whereby the seller transfers
securities to the buyer at a stated value. Upon demand or after a stated period, the seller repurchases the securities from the buyer at the original sales price plus interest. As of December 31, 2023 and 2022, the Company had no outstanding
borrowings from affiliated entities under such agreements. The amounts the Company incurred for interest expense on intercompany repurchase agreements during 2023, 2022 and 2021 were immaterial.
During 2023, the Company received capital contributions of $135 million from NFS. During 2024, the Company received an
additional capital contribution of $30 million from NFS. During 2022, the Company received capital contributions of $310 million from NFS.
During 2023, there were no capital contributions paid to NLAIC by the Company. During 2024, the Company has paid capital
contributions to NLAIC of $100 million as of the subsequent event date. During 2022 and 2021, the Company paid capital contributions of $800 million and $400 million, respectively, to NLAIC. In addition, the Company contributed
$60 million to NLAIC in connection with the January 1, 2022 merger of HLIC.
The Company has a replacement
unsecured promissory note and revolving line of credit agreement with JNLNY whereby JNLNY can borrow up to $5 million. No amounts have been drawn on the note as of December 31, 2023 or through the subsequent event date.
Pursuant to financial support agreements, the Company has agreed to provide NLAIC and JNL with the minimum capital and surplus
required by each state in which NLAIC and JNL does business. These agreements do not constitute the Company as guarantor of any obligation or indebtedness of NLAIC or JNL or provide any creditor of NLAIC or JNL with recourse to or against any of the
assets of the Company.
F-44
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Eagle’s surplus position is evaluated quarterly to determine if an
additional surplus contribution is required from the Company or if a distribution to the Company can be declared as of each quarter end. During 2023 and 2022, the Company made surplus contributions to Eagle. On September 29, 2023, the Company
made a surplus contribution to Eagle of $10 million. On June 30, 2022 and July 19, 2022, the Company made surplus contributions to Eagle of $225 million and $1 million, respectively. During 2023 and 2022 Eagle declared
distributions to the Company based on their earned surplus position. On February 9, 2024, the Company received a total distribution of $421 million that was declared on December 29, 2023 and consisted of a return of contributed
surplus of $10 million and a dividend of $411 million. The return of contributed surplus receivable was recorded in other invested assets and the dividend receivable was recorded in investment income due and accrued as of December 31,
2023. On August 10, 2023, the Company received a dividend distribution of $205 million that was declared on June 30, 2023. On May 9, 2023, the Company received a dividend distribution of $204 million that was declared on
March 31, 2023. On February 10, 2023, the Company received a total distribution of $332 million that was declared on December 30, 2022 and consisted of a return of contributed surplus of $221 million and a dividend of
$111 million. The return of contributed surplus receivable was recorded in other invested assets and the dividend receivable was recorded in investment income due and accrued as of December 31, 2022. On November 10, 2022, the Company
received a return of contributed surplus distribution of $5 million that was declared on September 30, 2022. On May 10, 2022, the Company received a dividend distribution of $19 million that was declared on March 31, 2022.
On February 10, 2022, the Company received a dividend distribution of $168 million that was declared on December 31, 2021.
On December 22, 2021, the Company and NLAIC entered into a short-term loan where NLAIC borrowed $80 million from the
Company. NLAIC repaid the short-term loan in full on January 4, 2022.
In March 2022, the Company executed a
$850 million unsecured promissory note and revolving line of credit agreement with Nationwide SBL, LLC (“NWSBL”), an affiliate, at an interest rate of 1-month LIBOR plus 1.25% with a maturity date of March 1, 2023. As of
December 31, 2022 NWSBL had outstanding borrowings of $168 million. During 2023, additional draws increased the outstanding balance to $198 million when, on March 1, 2023, the outstanding balance was repaid and a replacement
agreement was entered into at an interest rate of 1-month SOFR plus 0.9% and a maturity date of February 28, 2024. As of December 31, 2023, NWSBL had outstanding borrowings of $328 million. During 2024, additional draws increased the
outstanding balance to $363 million when, on February 28, 2024, the outstanding balance was repaid and a replacement agreement was entered into at an interest rate of 1-month SOFR plus 0.9% and a maturity date of February 27, 2025
with an initial draw of $363 million. Subsequently, additional draws have increased the outstanding balance to $381 million as of the subsequent event date.
During 2022, the Company and NMIC entered into unsecured promissory note agreements. On August 11, 2022, NMIC borrowed
$50 million from the Company and subsequently repaid the note in full on August 15, 2022. On September 8, 2022, NMIC borrowed $150 million from the Company and subsequently repaid the note in full on September 15, 2022.
The Company utilizes the look-through approach in valuing its investment in Nationwide Real Estate Investors (NLIC), LLC
(“NW REI (NLIC)”), a subsidiary of NMIC, at $251 million and $140 million as of December 31, 2023 and 2022, respectively. NW REI (NLIC)’s financial statements are not audited and the Company has limited the value of its
investment in NW REI (NLIC) to the value contained in the audited financial statements of the underlying investments. All liabilities, commitments, contingencies, guarantees or obligations of the NW REI (NLIC), which are required under applicable
accounting guidance, are reflected in the Company’s determination of the carrying value of the investment in NW REI (NLIC), if not already recorded in the financial statements of NW REI (NLIC).
Legal and Regulatory Matters
The Company is subject to legal and regulatory proceedings in the ordinary course of its business. These include proceedings
specific to the Company and proceedings generally applicable to business practices in the industries in which the Company operates. The outcomes of these proceedings cannot be predicted due to their complexity, scope, and many uncertainties. The
Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory proceedings is not likely to have a material adverse effect on the Company’s financial condition.
F-45
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The various businesses conducted by the Company are subject to oversight by
numerous federal and state regulatory entities, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the IRS, the Office of the Comptroller of the Currency and
state insurance authorities. Such regulatory entities may, in the normal course of business, be engaged in general or targeted inquiries, examinations and investigations of the Company and/or its affiliates. With respect to all such scrutiny
directed at the Company or its affiliates, the Company is cooperating with regulators.
Guarantees
In accordance with SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, for all guarantees made to or on
behalf of wholly-owned subsidiaries, no initial liability recognition has been made and there is no net financial statement impact related to these guarantees.
The contractual obligations under NLAIC’s single premium deferred annuity (“SPDA”) contracts in force and
issued before September 1, 1988 are guaranteed by the Company. Total SPDA contracts affected by this guarantee in force were immaterial as of December 31, 2023 and 2022.
The Company has guaranteed the obligations and liabilities of NISC, including, without limitation, the full and prompt payment
of all accounts payable to any party now or in the future. If for any reason NISC fails to satisfy any of its obligations, the Company will cause such obligation, loss or liability to be fully satisfied.
Indemnifications
In the normal course of business, the Company provides standard indemnifications to contractual counterparties. The types of
indemnifications typically provided include breaches of representations and warranties, taxes and certain other liabilities, such as third-party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the
normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated, and the contingencies triggering
the obligation to indemnify have not occurred and are not expected to occur. Consequently, the amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these
obligations.
| (14) |
Regulatory Risk-Based Capital, Dividend Restrictions and Unassigned Surplus |
The NAIC Risk-Based Capital (“RBC”) model law requires every insurer to calculate its total adjusted capital and RBC
requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a company’s total adjusted capital falling below established
relationships to required RBC. The model includes components for asset risk, liability risk, interest rate exposure and other factors. The State of Ohio, where the Company is domiciled, imposes minimum RBC requirements that are developed by the
NAIC. The formulas in the model for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a
ratio of total adjusted capital to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action. The Company exceeded
the minimum RBC requirements for all periods presented.
The State of Ohio insurance laws require insurers to seek prior
regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (i) 10% of
surplus as regards policyholders as of the prior December 31 or (ii) the net income of the insurer as of the prior year. No dividends were paid by the Company to NFS for the years ended December 31, 2023 and 2022. In March 2021, the
Company paid an ordinary dividend of $550 million to NFS. The Company’s surplus as regards policyholders as of December 31, 2023, was $11.2 billion and statutory net income for 2023 was $949 million. As of January 1, 2024,
the Company has the ability to pay dividends to NFS totaling $1.1 billion without obtaining prior approval.
The State of
Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned capital and surplus. Earned capital and surplus is defined under the State of Ohio insurance laws as the amount equal to the
Company’s unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurer’s policyholder capital
and surplus must be reasonable in relation to the insurer’s outstanding liabilities and adequate for its financial needs. The payment of dividends by the Company may also be subject to restrictions set forth in the insurance laws of the State
of New York that limit the amount of statutory profits on the Company’s participating policies (measured before dividends to policyholders) available for the benefit of the Company and its stockholders.
F-46
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule I Summary of Investments – Other Than Investments in
Related Parties
As of December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
| |
|
Type of investment |
|
Cost |
|
|
Fair value |
|
|
Amount at which is
shown in the statutory
statements of admitted
assets, liabilities, capital
and
surplus |
|
| Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury securities and obligations of U.S. government corporations |
|
$ |
173 |
|
|
$ |
175 |
|
|
$ |
173 |
|
| U.S. government and agencies |
|
|
104 |
|
|
|
105 |
|
|
|
104 |
|
| Obligations of states and political subdivisions |
|
|
3,576 |
|
|
|
3,361 |
|
|
|
3,576 |
|
| Foreign governments |
|
|
342 |
|
|
|
321 |
|
|
|
342 |
|
| Public utilities |
|
|
4,758 |
|
|
|
4,410 |
|
|
|
4,736 |
|
| All other corporate, mortgage-backed and asset-backed securities |
|
|
35,011 |
|
|
|
33,102 |
|
|
|
34,936 |
|
| Total fixed
maturity securities |
|
$ |
43,964 |
|
|
$ |
41,474 |
|
|
$ |
43,867 |
|
| Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
| Banks, trust and insurance companies |
|
|
65 |
|
|
|
67 |
|
|
|
67 |
|
| Industrial, miscellaneous and all other |
|
|
164 |
|
|
|
164 |
|
|
|
164 |
|
| Nonredeemable preferred stocks |
|
|
42 |
|
|
|
46 |
|
|
|
46 |
|
| Total equity
securities1 |
|
$ |
271 |
|
|
$ |
277 |
|
|
$ |
277 |
|
| Mortgage loans2 |
|
|
9,146 |
|
|
|
|
|
|
|
9,144 |
|
| Short-term investments |
|
|
1,555 |
|
|
|
|
|
|
|
1,555 |
|
| Policy loans |
|
|
970 |
|
|
|
|
|
|
|
969 |
|
| Other long-term
investments3 |
|
|
2,346 |
|
|
|
|
|
|
|
2,346 |
|
| Total
invested assets |
|
$ |
58,252 |
|
|
|
|
|
|
$ |
58,158 |
|
| 1 |
Amount does not agree to the statutory statements of admitted assets, liabilities, capital and surplus as
investments in related parties of $3.4 billion are excluded. |
| 2 |
Difference from Column B is attributable to valuation allowances on mortgage loans (see Note 5 to the
audited statutory financial statements). |
| 3 |
Includes derivatives, securities lending reinvested collateral assets and other invested assets. Amount does
not agree to the statutory statements of admitted assets, liabilities, capital and surplus as investments in related parties of $324 million are excluded. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-47
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule III Supplementary Insurance Information
As of December 31, 2023, 2022 and 2021 and for each of the years then ended (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
Column F |
|
| Year: Segment |
|
Deferred policy
acquisition
costs1 |
|
|
Future
policy benefits,
losses, claims and
loss expenses |
|
|
Unearned
premiums2 |
|
|
Other policy
claims and
benefits
payable2 |
|
|
Premium
revenue |
|
| 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
|
|
|
|
$ |
5,428 |
|
|
|
|
|
|
|
|
|
|
$ |
412 |
|
| Annuities |
|
|
|
|
|
|
15,213 |
|
|
|
|
|
|
|
|
|
|
|
7,368 |
|
| Retirement Solutions |
|
|
|
|
|
|
20,351 |
|
|
|
|
|
|
|
|
|
|
|
4,150 |
|
| Corporate Solutions and Other |
|
|
|
|
|
|
8,381 |
|
|
|
|
|
|
|
|
|
|
|
2,740 |
|
| Total |
|
|
|
|
|
$ |
49,373 |
|
|
|
|
|
|
|
|
|
|
$ |
14,670 |
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
|
|
|
|
$ |
5,353 |
|
|
|
|
|
|
|
|
|
|
$ |
415 |
|
| Annuities |
|
|
|
|
|
|
10,635 |
|
|
|
|
|
|
|
|
|
|
|
5,758 |
|
| Retirement Solutions |
|
|
|
|
|
|
21,824 |
|
|
|
|
|
|
|
|
|
|
|
5,097 |
|
| Corporate Solutions and Other |
|
|
|
|
|
|
7,670 |
|
|
|
|
|
|
|
|
|
|
|
3,265 |
|
| Total |
|
|
|
|
|
$ |
45,482 |
|
|
|
|
|
|
|
|
|
|
$ |
14,535 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
|
|
|
|
$ |
5,306 |
|
|
|
|
|
|
|
|
|
|
$ |
425 |
|
| Annuities |
|
|
|
|
|
|
8,026 |
|
|
|
|
|
|
|
|
|
|
|
6,512 |
|
| Retirement Solutions |
|
|
|
|
|
|
22,446 |
|
|
|
|
|
|
|
|
|
|
|
4,551 |
|
| Corporate Solutions and Other |
|
|
|
|
|
|
6,721 |
|
|
|
|
|
|
|
|
|
|
|
1,176 |
|
| Total |
|
|
|
|
|
$ |
42,499 |
|
|
|
|
|
|
|
|
|
|
$ |
12,664 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Column A |
|
Column G |
|
|
Column H |
|
|
Column I |
|
|
Column J |
|
|
Column K |
|
| Year: Segment |
|
Net
investment
income3 |
|
|
Benefits,
claims,
losses and
settlement
expenses4 |
|
|
Amortization of
deferred policy
acquisition costs1 |
|
|
Other
operating expenses |
|
|
Premiums
written |
|
| 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
$ |
276 |
|
|
$ |
757 |
|
|
|
|
|
|
$ |
101 |
|
|
|
|
|
| Annuities |
|
|
613 |
|
|
|
13,619 |
|
|
|
|
|
|
|
158 |
|
|
|
|
|
| Retirement Solutions |
|
|
835 |
|
|
|
5,610 |
|
|
|
|
|
|
|
214 |
|
|
|
|
|
| Corporate Solutions and Other |
|
|
1,412 |
|
|
|
1,943 |
|
|
|
|
|
|
|
203 |
|
|
|
|
|
| Total |
|
$ |
3,136 |
|
|
$ |
21,929 |
|
|
|
|
|
|
$ |
676 |
|
|
|
|
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
$ |
261 |
|
|
$ |
730 |
|
|
|
|
|
|
$ |
105 |
|
|
|
|
|
| Annuities |
|
|
346 |
|
|
|
10,871 |
|
|
|
|
|
|
|
136 |
|
|
|
|
|
| Retirement Solutions |
|
|
860 |
|
|
|
6,178 |
|
|
|
|
|
|
|
120 |
|
|
|
|
|
| Corporate Solutions and Other |
|
|
552 |
|
|
|
1,519 |
|
|
|
|
|
|
|
174 |
|
|
|
|
|
| Total |
|
$ |
2,019 |
|
|
$ |
19,298 |
|
|
|
|
|
|
$ |
535 |
|
|
|
|
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
$ |
254 |
|
|
$ |
311 |
|
|
|
|
|
|
$ |
107 |
|
|
|
|
|
| Annuities |
|
|
337 |
|
|
|
9,411 |
|
|
|
|
|
|
|
41 |
|
|
|
|
|
| Retirement Solutions |
|
|
861 |
|
|
|
6,973 |
|
|
|
|
|
|
|
122 |
|
|
|
|
|
| Corporate Solutions and Other |
|
|
779 |
|
|
|
1,304 |
|
|
|
|
|
|
|
169 |
|
|
|
|
|
| Total |
|
$ |
2,231 |
|
|
$ |
17,999 |
|
|
|
|
|
|
$ |
439 |
|
|
|
|
|
| 1 |
Deferred policy acquisition costs and amortization of deferred policy acquisition costs are not applicable
for statutory basis of accounting. |
| 2 |
Unearned premiums and other policy claims and benefits payable are included in Column C amounts.
|
| 3 |
Allocations of net investment income and certain operating expenses are based on numerous assumptions and
estimates and reported segment operating results would change if different methods were applied. |
| 4 |
Benefits to policyholders and beneficiaries, increase in reserves for future policy benefits and claims and
commissions are included in Column H amounts. |
See accompanying notes to statutory financial statements and report of independent
registered public accounting firm.
F-48
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule IV Reinsurance
As of December 31, 2023, 2022 and 2021 and each of the years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
| |
|
Gross
amount |
|
|
Ceded to
other
companies |
|
|
Assumed
from other
companies |
|
|
Net
amount |
|
| 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life insurance in force |
|
$ |
147,725 |
|
|
$ |
(26,722 |
) |
|
$ |
579 |
|
|
$ |
121,582 |
|
| Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
$ |
2,931 |
|
|
$ |
(143 |
) |
|
$ |
12 |
|
|
$ |
2,800 |
|
| Accident and health insurance |
|
|
457 |
|
|
|
(465 |
) |
|
|
9 |
|
|
|
- |
|
| Total |
|
$ |
3,388 |
|
|
$ |
(608 |
) |
|
$ |
21 |
|
|
$ |
2,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life insurance in force |
|
$ |
145,173 |
|
|
$ |
(29,598 |
) |
|
$ |
605 |
|
|
$ |
116,180 |
|
| Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
$ |
3,473 |
|
|
$ |
(144 |
) |
|
$ |
12 |
|
|
$ |
3,341 |
|
| Accident and health insurance |
|
|
425 |
|
|
|
(424 |
) |
|
|
- |
|
|
|
1 |
|
| Total |
|
$ |
3,898 |
|
|
$ |
(568 |
) |
|
$ |
12 |
|
|
$ |
3,342 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life insurance in force |
|
$ |
144,115 |
|
|
$ |
(29,120 |
) |
|
$ |
653 |
|
|
$ |
115,648 |
|
| Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Life Insurance |
|
$ |
1,624 |
|
|
$ |
(140 |
) |
|
$ |
12 |
|
|
$ |
1,496 |
|
| Accident and health insurance |
|
|
445 |
|
|
|
(444 |
) |
|
|
- |
|
|
|
1 |
|
| Total |
|
$ |
2,069 |
|
|
$ |
(584 |
) |
|
$ |
12 |
|
|
$ |
1,497 |
|
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-49
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule V Valuation and Qualifying Accounts
Years ended December 31, 2023, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
| Description |
|
Balance at
beginning
of period |
|
|
Charged to
costs and
expenses |
|
|
Deductions1 |
|
|
Balance at
end of
period |
|
| 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Valuation allowances - mortgage loans2 |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Valuation allowances - mortgage loans |
|
$ |
43 |
|
|
$ |
(5 |
) |
|
$ |
- |
|
|
$ |
38 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Valuation allowances - mortgage loans |
|
$ |
48 |
|
|
$ |
(4 |
) |
|
$ |
(1 |
) |
|
$ |
43 |
|
| 1 |
Amounts generally represent recoveries, payoffs and sales. |
| 2 |
Effective January 1, 2023, the Company changed its method for reserving for mortgage loans. Refer to
Note 5 for further discussion and the resulting impacts of the change. |
See accompanying notes to statutory financial statements and
report of independent registered public accounting firm.
F-50
Dealer
Prospectus Delivery Obligations
All dealers
that effect transactions in these securities are required to deliver a prospectus.
The SEC maintains a website (www.sec.gov) that contains the prospectus and other
information.
PART
II
INFORMATION NOT REQUIRED IN A
PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution
The expenses in connection with the issuance and distribution of the contracts are as follows
(except for the Securities and Exchange Commission Registration Fee, all amounts shown are estimates):
Securities and Exchange Commission Registration Fee: $14,733.35
Accounting expenses: $30,000
Cost of Independent Registered Public Accounting Firm Consent: $15,000
Cost of Independent Registered Public Accounting Firm Audit of Registrant’s Financial
Statements: $5,738,033
Item 14.
Indemnification of Directors and Officers
Ohio's General Corporation Law expressly authorizes and Nationwide's Amended and Restated
Code of Regulations provides for indemnification by Nationwide of any person who, because such person is or was a director, officer or employee of Nationwide, was or is a party, or is threatened to be made a party to:
•
any threatened, pending or completed civil action, suit or proceeding;
•
any threatened, pending or completed criminal action, suit or proceeding;
•
any threatened, pending or completed administrative action or proceeding;
•
any threatened, pending or completed investigative action or proceeding.
The indemnification will be for
actual and reasonable expenses, including attorney's fees, judgments, fines and amounts paid in settlement by such person in connection with such action, suit or proceeding, to the
extent and under the circumstances permitted by Ohio's General Corporation Law. Nationwide has been informed that in the opinion of the Securities and Exchange Commission, the indemnification of directors, officers or persons controlling Nationwide for
liabilities arising under the Securities Act of 1933 ("Act") is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by a director, officer or
controlling person in connection with the securities being registered, the registrant will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act. Nationwide and
its directors, officers and/or controlling persons will be governed by the final adjudication of such issue. Nationwide will not be required to seek the court's determination if, in the opinion of Nationwide's counsel, the matter has been settled by
controlling precedent.
However, the payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action, suit or proceeding is permitted.
Item 15.
Recent Sales of Unregistered Securities.
Item 16.
Exhibits and Financial Statement Schedules
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Consent of Counsel - Attached hereto as Exhibit 5. |
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(B)
Financial Statement Schedules
All required
financial statement schedules of Nationwide Life Insurance Company are included in Part I of this registration statement.
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(a)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(b)
To reflect in the prospectus any facts or events arising after the effective date of the
registration
statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration
statement;
(c)
To include any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such information in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use.
(5)
That, for the purpose of determining liability of the Registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the
undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(a)
Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering
required to be filed pursuant to Rule 424;
(b)
Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned Registrant or used or referred to by the undersigned Registrant;
(c)
The portion of any other free writing prospectus relating to the offering containing material
information about the undersigned Registrant or its securities provided by or on behalf of the undersigned
Registrant; and
(d)
Any other communication that is an offer in the offering made by the undersigned Registrant to
the purchaser.
(B)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may
be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officers or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
As required by the Securities Act of 1933, the Registrant certifies that it has caused this Registration Statement to be signed by the undersigned, duly authorized, in the City of Columbus, and State of Ohio, on April 4,
2024.
NATIONWIDE LIFE INSURANCE COMPANY |
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By: /s/ Benjamin W. Mischnick |
Benjamin W. Mischnick
Attorney-in-Fact |
As required by the Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities indicated, on April 4, 2024.
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John L. Carter, President and Chief Operating Officer and Director (Principal Executive Officer) |
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Timothy G. Frommeyer, Executive Vice President and Director |
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Eric S. Henderson, Senior Vice President-Nationwide Annuity and Director |
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Steven A. Ginnan, Senior Vice President-Chief Financial Officer-Nationwide Financial and Director (Chief Financial Officer) |
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Holly R. Snyder, Senior Vice President-Nationwide Life and Director |
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James D. Benson, Senior Vice President-Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |
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By: /s/ Benjamin W. Mischnick |
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Benjamin W. Mischnick Attorney-in-Fact |
