NATIONAL WESTERN LIFE GROUP, INC. – 10-K

Forward-Looking Statements

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

Management's discussion and analysis of the financial condition and results of
operations ("MD&A") of National Western Life Group, Inc. ("NWLGI") for the three
years ended December 31, 2021 follows. Where appropriate, discussion specific to
the insurance operations of National Western Life Insurance Company is denoted
by "National Western" or "NWLIC". This discussion should be read in conjunction
with the Company's Consolidated Financial Statements and related notes beginning
on page 97 of this report.

Effective January 31, 2019, the Company completed its previously announced
acquisition of Ozark National Life Insurance Company ("Ozark National") and
N.I.S. Financial Services, Inc. ("NIS") following the receipt of regulatory
approvals. NWLGI and National Western paid cash in an aggregate amount of
approximately $205.4 million in exchange for all of the outstanding stock of
Ozark National (wholly owned by National Western) and NIS (wholly owned by
NWLGI). The eleven month results of Ozark National and NIS are included in the
Company's Consolidated Financial Statements as of and for the year ended
December 31, 2019 and reference to each is made in this MD&A where appropriate.
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Overview

National Western has historically provided life insurance products on a global
basis for the savings and protection needs of policyholders and issued annuity
contracts for the asset accumulation and retirement needs of contract holders,
both domestic and international residents. As disclosed in the Company's 2018
filings, the Company discontinued accepting applications for its international
life insurance products from all foreign residents in other countries in the
second quarter of 2018.

The Company, National Western and Ozark National, accepts funds from
policyholders or contract holders and establishes a liability representing
future obligations to pay the policy or contract holders and their
beneficiaries. To ensure the Company will be able to pay these future
commitments, the funds received as premium payments and deposits are invested in
high quality investments, primarily fixed income securities.

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

   ?   the level of sales and premium revenues collected
   ?   the volume of life insurance and annuity business in force
   ?   persistency of policies and contracts

the ability to price products to earn acceptable margins over benefit costs and

? expenses

return on investments sufficient to produce acceptable spread margins over interest

? crediting rates

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

? levels of policy benefits and costs to acquire business

? the ability to manage the level of operating expenses

effect of interest rate changes on revenues and investments including asset and

? liability matching

? maintaining adequate levels of capital and surplus

? corporate tax rates and the treatment of financial statement items under tax rules

and accounting

? actual levels of surrenders, withdrawals, claims and interest spreads

? changes in assumptions for amortization of deferred policy acquisition expenses and

deferred sales inducements

? changes in the fair value of derivative index options and embedded derivatives

pertaining to fixed-index life and annuity products

pricing and availability of adequate counterparties for reinsurance and index option

? contracts

litigation subject to unfavorable judicial development, including the time and

   ?   expense of litigation



The Company monitors these factors continually as key business indicators. The
discussion that follows in this Item 6 includes these indicators and presents
information useful to an overall understanding of the Company's business
performance in 2021, incorporating required disclosures in accordance with the
rules and regulations of the Securities Exchange Commission ("SEC").

Impact of Recent Business Environment

The Company's business is generally aided by an economic environment
experiencing growth, whether moderate or vibrant, characterized by improving
employment data and increases in personal income. Important metrics indicating
sustained economic growth over the longer term principally revolve around
employment and confidence, both consumer and business sentiment.
The COVID-19 pandemic not only affected how businesses conducted operations but
also introduced a great deal of uncertainty to the life insurance industry. The
morbidity exposure of COVID-19 translated into a higher death claim incidence
throughout the industry and was a frequently discussed item in company earnings
releases. In 2021, the Company (National Western and Ozark National) incurred
approximately $32 million in net death claims for which COVID-19 was identified
as the cause of death, an increase from $8 million in the preceding year.
However, composite reports tracking the incidence of COVID-19 death activity
appear to suggest that a peak occurred in the third quarter of 2021 with
noticeable declines observed thereafter.

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Another consequence of the pandemic has been the impact on investment yields and
asset valuations. Interest rates have hovered at levels making traditional
industry investments in fixed income debt securities insufficient to price
products competitively or to meet minimum interest rate guarantees without
reducing internal rates of return below required targets. Seizing on this
situation, large investment entities have entered the industry through
acquisitions or reinsurance transactions in order to tap insurance company
portfolios of low yielding assets with the goal of using specific investment
expertise to roll these assets into higher yielding, and higher risk, assets.
While the COVID-19 environment has not caused widespread declines in the value
of invested assets through downgrades in credit market securities, insurers have
still faced fair value decreases resulting in unrealized losses,
impairment-related losses or sizable additions being made to the allowance for
current credit losses in financial statements.

In recent years, in an attempt to acquire additional investment yield in the low
rate environment, life insurers substantially increased allocations to BBB-
rated bonds. In a recession, many of these investment grade corporate credits
are at risk for downgrades, as well as the potential to default. Risk-based
capital (RBC) formulas assess higher required capital charges as investment
quality declines. A meaningful shift of BBB- rated debt securities to
non-investment grade categories could have significant implications in terms of
required capital levels which would depress RBC ratios of impacted insurers.
Life insurance companies also have a large exposure to real estate in its
investment portfolios through commercial mortgage, direct real estate
investment, alternative investment funds, and mortgage-backed securities. These
investments are highly dependent upon occupancy and payment of rent and lease
obligations.

With regard to the credit market, industry analysts and observers generally
agree that a sudden jump in interest rate levels would be harmful to life
insurers with interest-sensitive products as it could provide an impetus for
abnormal levels of product surrenders and withdrawals at the same time fixed
debt securities held by insurers declined in market value. The current rise of
inflation rates has prompted Federal Reserve officials to begin signalling their
intent to commence with a series of interest rate increases in order to head off
the crippling effects of rising prices. Ultimately, a mix of monetary policy
adjustments, fiscal policy, and economic fundamentals will determine the degree
of interest rate increases and the speed of such shifts. It is uncertain what
impacts, if any, such movements would have on the Company's business, results of
operations, cash flows or financial condition.

In an environment such as this, the need for a strong capital position that can
cushion against unexpected bumps is critical for stability and ongoing business
activity. The Company's operating strategy continues to be focused on
maintaining capital levels substantially above regulatory and rating agency
requirements. In addition, its business model is predicated upon steady growth
in invested assets while managing the block of business within profitability
objectives. A key premise of the Company's financial management is maintaining a
high quality investment portfolio, well matched in terms of duration with
policyholder obligations, that continues to outperform the industry with respect
to adverse impairment experience. This discipline enables the Company to sustain
resources more than adequate to fund future growth and absorb abnormal periods
of cash outflows.

Critical Accounting Policies

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

Impairment of Investment Securities. The Company's accounting policy requires
that a decline in the value of a security below its amortized cost basis be
evaluated to determine if the decline is a result of credit loss. The primary
factors considered in evaluating whether a decline in value for fixed income and
equity securities without readily determinable fair values is a result of credit
loss are: (a) the length of time and the extent to which the fair value has been
less than cost, (b) the reasons for the decline in value (credit event, interest
rate related, credit spread widening), (c) the overall financial condition as
well as the near-term prospects of the issuer, (d) whether the debtor is current
on contractually obligated principal and interest payments, and (e) that the
Company does not intend or be required to sell the investment prior to
recovery. In addition, certain securitized financial assets with contractual
cash flows are evaluated periodically by the Company to update the estimated
cash flows over the life of the security. If the Company determines that the
fair value of the securitized financial asset is less than its carrying amount
and there has been a decrease in the present value of the estimated cash flows
since the previous purchase or prior impairment, then a credit loss charge is
recognized. The Company would recognize impairment of securities due to changing
interest rates or market dislocations only if the Company intended to sell the
securities prior to recovery. When a security is deemed to be impaired, a charge
is recorded equal to the difference between the fair value and amortized cost
basis of the security. In compliance with GAAP guidance after adoption of ASU
2016-13, Financial Instruments-Credit Losses the estimated credit loss is
recorded as an allowance with changes in the allowance recorded to Net
investment income in the Consolidated Statements of Earnings.

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

DPAC is also subject to periodic recoverability and loss recognition
testing. These tests ensure that the present value of future contract-related
cash flows will support the capitalized DPAC balance to be amortized in the
future. The present value of these cash flows, less the benefit reserve, is
compared with the unamortized DPAC balance and if the DPAC balance is greater,
the deficiency is charged to expense as a component of amortization and the
asset balance is reduced to the recoverable amount. For more information about
accounting for DPAC see Note (1), Summary of Significant Accounting Policies, in
the accompanying Notes to Consolidated Financial Statements in this report.

Deferred Sales Inducements ("DSI"). Costs related to sales inducements offered
on sales to new customers, principally on investment type contracts and
primarily in the form of additional credits to the customer's account value or
enhancements to interest credited for a specified period, which are beyond
amounts currently being credited to existing contracts, are deferred and
recorded as other assets. All other sales inducements are expensed as incurred
and included in interest credited to contract holders' funds. Deferred sales
inducements are amortized to income using the same methodology and assumptions
as DPAC, and are included in interest credited to contract holders'
funds. Deferred sales inducements are also periodically reviewed for
recoverability. For more information about accounting for deferred sales
inducements see Note (1), Summary of Significant Accounting Policies, in the
accompanying Notes to Consolidated Financial Statements in this report.

Value of Business Acquired ("VOBA"). VOBA is a purchase accounting convention
for life insurance companies in business combinations based upon an actuarial
determination of the difference between the fair value of policyholder
liabilities acquired and the same policyholder liabilities measured in
accordance with the acquiring company's accounting policies. The difference,
referred to as VOBA, is an intangible asset subject to periodic amortization.
Similar to DPAC and DSI, VOBA is subject to periodic analysis assessing
recoverability.

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

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

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Investment activities of the Company are integral to its insurance operations.
Since life insurance benefits may not be paid until many years into the future,
the accumulation of cash flows from premium receipts are invested with income
reported as revenue when earned. Anticipated yields on investments are reflected
in premium rates, contract liabilities, and other product contract
features. These anticipated yields are implied in the interest required on the
Company's net insurance liabilities (future policy benefits less deferred
acquisition costs) and contractual interest obligations in its insurance and
annuity products. The Company benefits to the extent actual net investment
income exceeds the required interest on net insurance liabilities and manages
the rates it credits on its products to maintain the targeted excess or "spread"
of investment earnings over interest credited. The Company will continue to be
required to provide for future contractual obligations in the event of a decline
in investment yield. For more information concerning revenue recognition,
investment accounting, and interest sensitivity, please refer to Note (1),
Summary of Significant Accounting Policies, and Note (3), Investments, in the
accompanying Notes to Consolidated Financial Statements in this report, and the
discussions under Investments in Item 6 of this report.

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

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

Other postretirement benefit assumptions include future events affecting
retirement age, mortality, dependency status, per capita claims costs by age,
health care trend rates, and discount rates. Per capita claims cost by age is
the current cost of providing postretirement health care benefits for one year
at each age from the youngest age to the oldest age at which plan participants
are expected to receive benefits under the plan. Health care trend rates involve
assumptions about the annual rate(s) of change in the cost of health care
benefits currently provided by the plan, due to factors other than changes in
the composition of the plan population by age and dependency status. These rates
implicitly consider estimates of health care inflation, changes in utilization,
technological advances, and changes in health status of the participants.

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

? exercise price

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

 ?     exercise
 ?     current price
 ?     expected volatility
 ?     risk-free interest rates
 ?     expected dividends


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

Other significant accounting policies, although not involving the same level of
measurement uncertainties as those discussed above, but nonetheless important to
an understanding of the financial statements, are described in Note (1), Summary
of Significant Accounting Policies, in the accompanying Notes to Consolidated
Financial Statements in this report.


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RESULTS OF OPERATIONS

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

Consolidated Operations

Revenues. The following details Company revenues:

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Universal life and annuity contract charges                $   134,254               145,405               149,721
Traditional life premiums                                       90,043                92,542                90,248

Net investment income (excluding index option derivatives) 441,812

          402,448               432,285
Other revenues                                                  22,314                18,522                17,486

Derivative gain, index options                                 120,718                14,754               123,207
Net realized investment gains                                   14,950                21,071                 6,241

Total revenues                                             $   824,091               694,742               819,188



Universal life and annuity contract revenues - Revenues for universal life and
annuity products consist of policy charges for the cost of insurance,
administration charges, and surrender charges assessed against policyholder
account balances, less reinsurance premiums. As depicted in the following table,
revenues for universal life and annuity contract charges decreased in 2021
compared to 2020 due to lower surrender charge revenue from terminated policies
and lower cost of insurance charges associated with decreased levels of
universal life insurance in force.

                                                                              Years Ended December 31,
Contract Charges:                                                 2021                 2020                  2019
                                                                                   (In thousands)

Cost of insurance and administrative charges                 $   122,961               124,821               126,049
Surrender charges                                                 25,363                26,623                33,079
Other charges                                                      4,347                11,430                 8,171
Gross contract revenues                                          152,671               162,874               167,299

Reinsurance premiums                                             (18,417)              (17,469)              (17,578)

Net contract charges                                         $   134,254               145,405               149,721



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Cost of insurance charges were $95.9 million in 2021 compared to $98.9 million
in 2020 and $102.0 million in 2019. Cost of insurance charges typically trend
with the size of the universal life insurance block in force and the amount of
new business issued during the period. The volume of universal life insurance in
force during 2021 decreased to $12.7 billion from $13.5 billion at year-end 2020
and $14.4 billion at year-end 2019. Administrative charges were $27.1 million,
$25.9 million, and $24.1 million for the years ended December 31, 2021, 2020 and
2019, respectively, and correlate with new universal life insurance business
sales by the number of policies placed, the amount of premiums received and the
volume of insurance issued.

Surrender charges assessed against policyholder account balances upon withdrawal
were $25.4 million in 2021 compared to $26.6 million in 2020 and $33.1 million
in 2019. The Company earns surrender charge income that is assessed upon policy
terminations, however, the Company's overall profitability is enhanced when
policies remain in force and additional contract revenues are realized and the
Company continues to make an interest rate spread equivalent to the difference
it earns on its investment and the amounts that it credits to policyholders.
While policy lapse rates in 2021 for the domestic life insurance and
international life insurance segments were somewhat lower than those experienced
in 2020, the annuities segment continued to exhibit a higher lapse rate due to
liquidity demands prompted by the pandemic crisis. Surrender charge income
recognized is also dependent upon the duration of policies at the time of
surrender (i.e. later duration policy surrenders have lower surrender charges
assessed and earlier policy surrenders have a higher surrender charge assessed).
The declining trend in assessed surrender charges is indicative of policy
surrenders later in the surrender charge period.

Other charges include the net amortization into income of the premium load on
single premium life insurance products which is deferred at the inception of the
policy. The net income reported for this activity is dependent upon the level of
amortization of accumulated deferrals compared to current premium loads being
deferred. In addition, as part of the Company's annual unlocking analysis, a
prospective unlocking of the unearned revenue reserve was done for each year
shown. The effect of the unlocking in the year ended December 31, 2021 was a
decrease in other charges revenue of $(0.6) million while the effect of the
unlockings increased other charges revenue by $5.9 million and $0.5 million in
the years ended December 31, 2020 and 2019, respectively.

Traditional life premiums - Traditional life premiums include the activity of
Ozark National subsequent to their acquisition on January 31, 2019. Ozark
National's principal product is a non-participating whole life insurance policy
with premiums remitted primarily on a monthly basis. The product is sold in
tandem with a mutual fund investment product offered through its broker-dealer
affiliate, NIS. Traditional life insurance premiums for products such as whole
life and term life are recognized as revenues over the premium-paying period. A
sizable portion of National Western's traditional life business resided in the
International Life insurance segment which ceased accepting new applications in
2018. However, National Western's overall life insurance sales focus has
historically been primarily centered around universal life products. The
addition of Ozark National's business of repetitive paying permanent life
insurance adds an important complement to National Western's life insurance
sales. Included in the amounts for the years ended December 31, 2021, 2020, and
2019 is $73.5 million, $74.8 million, and $69.0 million, respectively, of life
insurance renewal premium from Ozark National. Universal life products,
especially National Western's equity indexed universal life products, which
offer the opportunity for consumers to acquire life insurance protection and
receive credited interest linked in part to an outside market index, have been
the more popular product offerings in the Company's markets.

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

                                                                           Years Ended December 31,
                                                               2021                 2020                  2019
                                                                                (In thousands)

Gross investment income:
Debt and equities                                         $   309,082               373,479               403,372
Mortgage loans                                                 20,155                13,162                12,595
Policy loans                                                    2,667                 3,361                 3,539
Short-term investments                                            293                 2,160                 2,974
Other invested assets                                          16,321                12,698                13,057

Total investment income                                       348,518               404,860               435,537
Less: investment expenses                                       2,762                 2,412                 3,252

Net investment income (excluding derivatives and trading
securities)

                                                   345,756               402,448               432,285
Index option derivative gain                                  120,718                14,754               123,207
Embedded derivative on reinsurance                             84,725                     -                     -
Trading securities market adjustments                          11,331                     -                     -

Net investment income                                     $   562,530               417,202               555,492



The Company's strategy is to invest a substantial portion of its cash flows in
fixed debt securities within its guidelines for credit quality, duration, and
diversification. National Western's debt and equities investment income
continues to experience higher yielding debt securities maturing or being called
by borrowers and being replaced with lower yielding securities in the current
interest rate environment. In addition, the excess of annuity outflows over
inflows has caused the debt security portfolio to contract. As part of the
acquisition of Ozark National and NIS in the first quarter of 2019, a sizable
part of National Western's investable cash resources were applied toward the
purchase of the two companies and then subsequently to pay back line of credit
borrowings of $75 million used to fund a part of the acquisition price.

The Company's investable funds are derived from incremental cash flow from new
business and investment income from its portfolio above its operational
requirements to pay policy benefits, commissions, and expenses. The debt
securities portfolio increased from $10.5 billion at December 31, 2019 to $10.8
billion at December 31, 2020, largely the result of recording certain holdings
at fair value instead of amortized cost as had been done previously. At December
31, 2021, the debt securities portfolio declined to $10.1 billion. Investment
yields on new bond purchases in 2021 and 2020 were less than the portfolio's
weighted average yield after exceeding the portfolio yield in the prior two
years. The portfolio weighted average yield was approximately 3.62% at December
31, 2021, while the yield on debt security purchases to fund insurance
operations was 3.02%, 3.33%, and 4.06% in 2021, 2020, and 2019, respectively.
Ozark National's weighted average portfolio yield at December 31, 2021 was
3.62%. Bond portfolio yields have continued to be impacted by higher yielding
debt securities maturing or being called by borrowers with the proceeds being
reinvested into lower yielding securities.

Fair value changes of equity securities are included in the Consolidated
Statements of Earnings as a component of net investment income. For the years
ended December 31, 2021, 2020, and 2019 an unrealized gain (loss) of $6.0
million, $(1.0) million, and $3.5 million, respectively, has been included in
net investment income reflecting the change in fair value of equity securities
during the periods. The carrying value of the Company's portfolio of equity
securities was $28.2 million at December 31, 2021.

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Prior to 2020, the Company's new mortgage loan activity had been challenged by
the low level of interest rates and highly competitive underwriting of
commercial properties. The COVID-19 pandemic crisis further impeded the
underwriting of new loan applications early in 2020 until clarity regarding the
impacts of closing down the economy upon commercial real estate became
discernible. Eventually the volume of new mortgage loan originations during the
latter half of 2020 resumed a pace closer to that of the pre-pandemic
environment. Additional resources were added with the goal of increasing
mortgage loan investments to a more appreciable percentage of total invested
assets. The Company originated new mortgage loans in the amount of $183.6
million, $80.2 million, and $121.4 in 2021, 2020, and 2019, respectively.
Mortgage loan investment income also benefits from incremental contributions
from loan prepayment fees and profit participation receipts.

Policy loan and other invested asset balances outstanding have remained
relatively stable over the past few years. During the latter part of 2020,
National Western, in order to obtain incremental investment yield, expanded its
invested asset vehicles to include alternative investments. These assets are
typically syndicated, targeted capital pools with specific investment objectives
managed by investment firms having specific expertise in designated asset
opportunities. At December 31, 2021 and 2020, the Company held balances of $67.7
million and $28.9 million, respectively, in this investment category.

Effective January 1, 2021, the Company's net investment income is reduced for
amounts ceded to the reinsurer under the funds withheld reinsurance agreement
associated with funds withheld assets. For the year ended December 31, 2021, the
Company ceded net investment income of $55.1 million, substantially comprised of
investment income from debt securities.

The Company adopted new accounting guidance pertaining to current expected
credit losses on financial instruments ("CECL") in 2020. The adoption as of
January 1, 2020 was reported as a change in accounting with initial balances
recorded and $3.0 million, net of taxes, charged to retained earnings.
Remeasurement of the CECL allowance during 2020 resulted in a decrease in the
allowance of $2.0 million for the year ended December 31, 2020 which is netted
in gross investment income. During the year ended December 31, 2021,
remeasurement of the CECL allowance resulted in an increase to the allowance of
$0.5 million.

In order to evaluate underlying profitability and results from ongoing
operations, net investment income performance is analyzed excluding derivative
gain (loss), which is a common practice in the insurance industry. Although this
is considered a non-GAAP financial measure, Company management believes this
financial measure provides useful supplemental information by removing the
swings associated with fair value changes on derivative instruments. Net
investment income and average invested assets shown below includes cash and cash
equivalents. Net investment income performance is summarized as follows:

                                                                                     Years Ended December 31,
                                                                  2021                      2020                         2019
                                                                                 (In thousands except percentages)

Excluding derivatives and trading
securities:
Net investment income                                        $   345,756                       402,448                      432,285
Average invested assets, at amortized
cost                                                           9,420,544                    10,994,033                   10,881,052
Annual yield on average invested
assets                                                              3.67   %                      3.66  %                      3.97  %

Including derivatives and trading
securities:
Net investment income                                        $   562,530                       417,202                      555,492
Average invested assets, at amortized
cost                                                          11,163,776                    11,139,238                   10,967,188
Annual yield on average invested
assets                                                              5.04   %                      3.75  %                      5.07  %



The decline in average invested asset yield, excluding derivatives and trading
securities, from 2019 to 2020 is due to the Company continuing to obtain lower
yields on newly invested cash inflows as higher yielding assets mature or are
called. The average invested asset yield in 2021 remained level with 2020
reflecting diversification during 2021 into other invested assets, namely
commercial mortgage loans and alternative investments, which have incrementally
higher yields.

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The pattern in average invested asset yield, including derivatives and trading
securities, incorporates increases and decreases in the fair value of index
options purchased by National Western to support its fixed-index products as
well as net investment income from the embedded derivative funds withheld
liability. Fair values of the purchased call options recorded net gains in 2021,
2020, and 2019 corresponding to the movement in the S&P 500 Index® during these
periods (the primary index the fixed-index products employ). Refer to the
derivatives discussion following this section for a more detailed explanation.

Other revenues - Other revenues pertain to NIS, the broker-dealer affiliate of
Ozark National; the operations of Braker P III ("BP III"), a subsidiary which
owns and manages a commercial office building which includes the home office
operations of National Western; and a maintenance expense allowance earned by
National Western for administering the funds withheld block of annuity policies
ceded to a third party reinsurer. The operations of the Company's previously
owned two nursing home operations in Reno, Nevada and San Marcos, Texas are
included in the results for the year ended December 31, 2019 up to their
respective dates of sales.

NIS revenues were $12.5 million, $9.9 million, and $8.2 million for the years
ended December 31, 2021, 2020, and 2019, respectively. NIS revenues in 2019 were
for the period subsequent to its acquisition effective January 31, 2019.

Revenues associated with BP III were $5.1 million, $4.7 million, and $3.9
million in December 31, 2021, 2020, and 2019, respectively, reflecting
additional tenant leases subsequently executed. The facility is currently fully
leased.
Under terms of the funds withheld reinsurance contract, National Western earns a
monthly expense allowance equal to the average policy count of the funds
withheld reinsurance block of business multiplied by a stated amount per policy.
In the year ended December 31, 2021, the Company reported $5.4 million as
maintenance expense allowance revenue.

The Company closed on the sale of its Reno nursing home operations effective
February 1, 2019 and on the sale of its San Marcos nursing home operations
effective May 1, 2019. Revenues associated with these operations were $(0.2)
million, $(0.6) million, and $4.3 million in 2021, 2020, and 2019, respectively.
In addition, net gains from the sale of personal property and equipment at the
Reno facility of $1.4 million are included in 2019 revenues.

The Company's acquisition of Ozark National (by National Western) included a
contingent payment provision that was dependent upon the subsequent persistency
of Ozark National's in force block of business that was acquired. The Company
had been progressively accruing for this potential obligation in its financial
statements. During 2020, the Company executed an agreement with the seller under
which both parties agreed that the Company had fulfilled its payment obligation
under the Stock Purchase Agreement executed October 3, 2018. Consequently, the
Company reversed the contingent payment amounts previously accrued and
recognized as Other revenues $4.1 million in the year ended December 31, 2020.

Other revenues also include semi-annual distributions from the life interest in
the Libbie Shearn Moody Trust. Revenues recognized from these distributions were
$5.7 million, $5.3 million, and $6.7 million for the years ended December 31,
2021, 2020, and 2019, respectively.

Index option derivative gain (loss) - Index options are derivative financial
instruments used to hedge the equity return component of National Western's
fixed-index products. Derivative gain or loss includes the amounts realized from
the sale or expiration of the options. Since the index options do not meet the
requirements for hedge accounting under GAAP, they are marked to fair value on
each reporting date and the resulting unrealized gain or loss is reflected as a
component of net investment income. As the options hedging the notional amount
of policyholder contract obligations are purchased as close as possible to like
amounts, the amount of the options returns tend to correlate closely with
indexed interest credited.

Gains and losses from index options are substantially due to changes in equity
market conditions. Index options are intended to act as hedges to match the
returns on the product's underlying reference index and the rise or decline in
the index relative to the index level at the time of the option purchase which
causes option values to likewise rise or decline. As income from index options
fluctuates with the underlying index, the contract interest expense to
policyholder accounts for the Company's fixed-index products also fluctuates in
a similar manner and direction. The Company recorded derivative gain (loss) and
contract interest amounts as shown below.
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                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Index option derivatives:
Unrealized gain (loss)                                     $   (16,564)               (9,740)              152,993
Realized gain (loss)                                           137,282                24,494               (29,786)

Total gain included in net investment income               $   120,718                14,754               123,207

Total contract interest                                    $   213,184               206,250               295,330



The economic impact of option performance in the Company's financial statements
is not generally determined solely by the option gain or loss included in net
investment income as there is a corresponding amount recorded in the contract
interest expense line. The Company's profitability with respect to these options
is largely dependent upon the purchase cost of the option remaining within the
financial budget for acquiring options embedded in the product pricing. Option
prices vary with interest rates, volatility, and dividend yields among other
things. As option prices vary, the Company manages for the variability by making
offsetting adjustments to product caps, participation rates, and management
fees. For the periods shown, the Company's option costs have generally been
within the product pricing budgets.

The financial statement investment spread, the difference between investment
income and interest credited to contract holders, is subject to variations from
option performance during any given period. For example, many of the Company's
equity-index annuity products provide for the collection of asset management
fees. These asset management fees are assessed when returns on expiring options
are positive, and they are collected prior to passing any additional returns
above the assessed management fees to the policy contractholders. During periods
of positive returns, the collected asset management fees serve to increase the
financial statement spread by increasing option realized gains reported as
investment income in an amount greater than interest credited to policy
contractholders which is reported as contract interest expense. Asset management
fees collected in 2021, 2020, and 2019 were $5.8 million, $30.7 million, and
$15.9 million, respectively. While the level of asset management fees collected
is dependent upon equity market performance, the reduced amount in 2021 is
primarily the result of the Company's change in option hedging to an
"out-of-the-money" basis during the second quarter of 2020. Consequently, no
asset management fees were collected during the third and fourth quarters of
2021 as the out-of-the-money hedges constituted all hedges maturing during these
time periods. Though asset management fees are no longer being collected, the
costs to purchase the out-of-the-money options similarly decreases.

Net realized investment gains (losses) - Realized gains (losses) on investments
generally include proceeds from bond calls, sales and impairment write-downs, as
well as gains and losses on the sale of real estate property. Net gains reported
in 2021 consisted of gross gains of $16.4 million which were mostly from bond
calls of debt securities in the available-for-sales category, offset by gross
losses of $(1.4) million. Gross losses include $1.4 million pertaining to
property held by Ozark National which was sold during 2021. Gross gains in 2020
and 2019 include proceeds from bond calls of securities classified in the
held-to-maturity category at that time.

Included the year ended December 31, 2019 gross gains is $5.7 million from the
sale of land and building associated with the nursing home in Reno, Nevada and a
$3.2 million gain on the sale of the Company's former Austin, Texas home office
facility. Included in 2019 gross losses is a $2.0 million loss on the sale of
the building pertaining to the San Marcos, Texas nursing home and an
other-than-temporary impairment on a single debt security credit in the amount
of $7.8 million.

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Prior to January 1, 2020 and the adoption of the new accounting guidance on
current expected credit losses, the Company recorded impairment write-downs when
a decline in value was considered to be other-than-temporary and full recovery
of the investment was not expected. Impairments due to credit factors were
recorded in the Company's Consolidated Statements of Earnings while non-credit
(liquidity) impairment losses were included in the Consolidated Statements of
Comprehensive Income (Loss). Under current expected credit loss accounting
guidance, credit loss allowances for available-for-sale debt securities are
recorded following the same process previously applied for impairment accounting
and are recorded through net investment income in the Consolidated Statement of
Earnings. Impairment or valuation write-downs recorded prior to January 1, 2020
under previous accounting guidance totaled $7.8 million in the year ended
December 31, 2019.

Benefits and Expenses. The following details benefits and expenses.

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Life and other policy benefits                             $   187,577               131,337               137,342
Amortization of deferred transaction costs                      69,461               140,503               116,802
Universal life and annuity contract interest                   213,184               206,250               295,330
Other operating expenses                                       126,612               104,584               104,558

Totals                                                     $   596,834               582,674               654,032



Life and other policy benefits - Life and other policy benefits include death
claims of $96.3 million, $72.5 million and $65.8 million for 2021, 2020 and
2019, respectively. Included in the amounts for the years ended December 31,
2021, 2020, and 2019, are $39.6 million, $37.0 million and $29.3 million in
death claims pertaining to Ozark National. Death claim amounts are subject to
variation from period to period. Death claims reported in 2021 and 2020 include
net benefit amounts (after reinsurance) pertaining to death from COVID-19 of
$23.5 million and $5.1 million for National Western and $8.2 million and $2.8
million for Ozark National. In 2021, the number of National Western life
insurance claims incurred was level with that of 2020 while the average dollar
amount per net claim increased 42% to $61,900 from $43,600. National Western's
mortality experience has generally been consistent with or better than its
product pricing assumptions. The average net claim for Ozark National during
2021 increased to $15,400 from the 2020 period amount of $14,800. The average
face amount of insurance in force for Ozark National was $33,600 at December 31,
2021. Mortality exposure is managed through reinsurance treaties under which the
Company's retained maximum net amount at risk on any one life is capped at
$500,000. Ozark National's retained maximum net amount at risk is capped at
$200,000 under its reinsurance treaties with limited exceptions related to the
conversion of child protection and guaranteed insurability riders.

Life and other policy benefits also includes policy liabilities held associated
with the Company's traditional life products, including riders such as the
guaranteed minimum withdrawal benefit rider ("WBR"), a popular rider to National
Western's equity-indexed annuity products. The increases in these liabilities
for National Western were $46.5 million, $10.7 million, and $24.4 million in
2021, 2020, and 2019, respectively. In each of these years, National Western
unlocked its policy benefit reserves associated with the WBR which resulted in
an increase/(decrease) to the policy benefit liability of $27.4 million, $(11.9)
million, and $0.7 million in 2021, 2020, and 2019, respectively. The 2020
adjustment included an unlocking amount pertaining to mortality experience on
payout annuities with life contingencies of $(3.3) million.

Life and other policy benefits in the years ended December 31, 2021, 2020, and
2019 includes changes in traditional life reserves and miscellaneous benefit
payments associated with Ozark National's operations of $29.5 million, $30.7
million, and $30.5 million, respectively, reflecting normal business conditions.

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Amortization of deferred transaction costs - Life insurance companies are
required to defer certain expenses that vary with, and are directly related to,
the cost of acquiring new business. The majority of these acquisition expenses
consist of commissions paid to agents, underwriting costs, and certain marketing
expenses. Recognition of these deferred policy acquisition costs ("DPAC") as an
expense in the Consolidated Financial Statements occurs over future periods in
relation to the expected emergence of profits priced into the products
sold. This emergence of profits is based upon assumptions regarding premium
payment patterns, mortality, persistency, investment performance, and expense
patterns. Companies are required to review universal life and annuity contract
assumptions periodically to ascertain whether actual experience has deviated
significantly from that assumed. If it is determined that a significant
deviation has occurred, the emergence of profits pattern is to be "unlocked" and
reset based upon the actual experience. DPAC balances are also adjusted each
period to reflect current policy lapse or termination rates, expense levels and
credited rates on policies as compared to anticipated experience ("true-up")
with the adjustment reflected in current period amortization expense. In
accordance with GAAP guidance, the Company must also write off deferred
acquisition costs and unearned revenue liabilities upon internal replacement of
certain contracts as well as annuitizations of deferred annuities.

The following table identifies the effects of unlocking adjustments on DPAC
balances recorded through amortization expense separate from recurring
amortization expense components for 2021, 2020, and 2019.

                                               Years Ended December 31,
Amortization of DPAC                       2021                   2020          2019
                                                    (In thousands)

Unlocking adjustments           $                 (36,510)       22,358        (8,643)
Other amortization components                      84,349       107,917       117,748

Totals                          $                  47,839       130,275       109,105



The amortization amounts for the years ended December 31, 2021, 2020, and 2019
were comprised of DPAC amortization by National Western of $47.2 million, $129.7
million, and $108.4 million and by Ozark National of $0.6 million, $0.6 million,
and $0.7 million. Ozark National's deferred policy acquisition cost balance was
initiated February 1, 2019 following its acquisition by National Western.

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In 2021, the Company unlocked its DPAC balances for: (1) mortality rates, lapse
rates, portfolio yield rates and spreads, and increased cost of insurance
("COI") charges on International universal life products inforce which
collectively increased DPAC balances (and decreased amortization expense) on its
Life segment by $33.3 million; and (2) surrender rates, annuitization rates,
portfolio yield rates and spreads, mortality experience on payout annuities, and
utilization of the Company's withdrawal benefit rider which collectively
increased DPAC balances (and decreased amortization expense) on its Annuity
segment by $3.2 million.

In 2020, the Company unlocked its DPAC balances for: (1) mortality rates, lapse
rates, portfolio yield rates and spreads, which collectively decreased DPAC
balances (and increased amortization expense) on its Life segment by $7.4
million; and (2) surrender rates, annuitization rates, portfolio yield rates and
spreads, mortality experience on payout annuities, and utilization of the
Company's withdrawal benefit rider which collectively decreased DPAC balances
(and increased amortization expense) on its Annuity segment by $15.0 million.

In 2019, the Company unlocked its DPAC balances for: (1) mortality rates, lapse
rates, portfolio yield rates and spreads, and maintenance expense on its
International life business which collectively increased DPAC balances (and
reduced amortization expense) on its Life segment by $11.2 million; and (2)
surrender rates, annuitization rates, portfolio yield rates and spreads, and
utilization of the Company's withdrawal benefit rider which collectively
decreased DPAC balances (and increased amortization expense) on its Annuity
segment by $2.6 million.

As the DPAC balance is an asset on the Company's Consolidated Balance Sheets,
GAAP provides for an earned interest return on the unamortized balance each
period. The earned interest serves to increase the DPAC balance and reduce other
amortization component expense. The rate at which the DPAC balance earns
interest is the average credited interest rate on universal life and annuity
policies in force, including credited interest on equity-indexed policies. The
amount of earned interest on DPAC balances was $32.7 million, $17.2 million, and
$12.0 million in 2021, 2020, and 2019, respectively, each decreasing other
amortization component expense. The increasing interest amounts reflect larger
realized returns on equity-index products, particularly life insurance products.

As part of the purchase accounting required with the acquisition of Ozark
National effective January 31, 2019, the Company recorded an intangible asset of
$145.8 million referred to as the value of business acquired ("VOBA"). VOBA
represents the difference between the acquired assets and liabilities of Ozark
National measured in accordance with the Company's accounting policies and the
fair value of these same assets and liabilities. During the year ended December
31, 2020, the cash value of certain acquired reserves was increased which
resulted in a commensurate $35.1 million increase in both the traditional life
reserve liability and the related VOBA balance reported on the Consolidated
Balance Sheets. The VOBA balance sheet amount is amortized following a
methodology similar to that used for amortizing deferred policy acquisition
costs. In the years ended December 31, 2021, 2020, and 2019 the Company's VOBA
amortization was $8.5 million, and $10.2 million, and $7.7 million,
respectively.

Universal life and annuity contract interest - The Company closely monitors its
credited interest rates on interest sensitive policies (National Western
products), taking into consideration such factors as profitability goals,
policyholder benefits, product marketability, and economic market conditions. As
long-term interest rates change, the Company's credited interest rates are often
adjusted accordingly, taking into consideration the factors described above. The
difference between yields earned on investments over policy credited rates is
often referred to as the "interest spread."

Contract interest reported in the financial statements also encompasses the
performance of the index options associated with the Company's fixed-index
products. As previously noted, the market value changes of these derivative
features resulted in net realized and unrealized gains/(losses) in 2021, 2020,
and 2019 of $120.7 million, $14.8 million, and $123.2 million, respectively. In
2021, this figure was comprised of unrealized losses totaling $(16.6) million
offset by realized gains of $137.3 million. In 2020, this figure was comprised
of unrealized losses totaling $(9.7) million offset by realized gains of $24.5
million. In 2019, the amount consisted of unrealized gains of $153.0 million
offset by realized losses of $(29.8) million. These returns similarly
increased/(decreased) the computed average credited rates for the periods shown
above. Policyholders of equity-indexed products cannot receive an interest
credit below 0% according to the policy contract terms.

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Contract Interest Expense                                   December 31,
                                                  2021             2020          2019

Gross reserve changes                        $      24,250        18,748        26,893
Ceded reserve changes under funds withheld         (26,429)            -    

Unlocking adjustments, net                         (14,547)       17,180    

10,274

Asset management fees collected                     (5,835)      (30,675)   

(15,856)

Projected asset management fees                      6,477        34,426    

(33,600)

Other embedded derivative components                 5,814        (5,188)        6,389

Totals                                       $     (10,270)       34,491        (5,900)



Contract interest expense includes reserve changes for immediate annuities, two
tier annuities, excess death benefit reserves, excess annuitizations, and
amortization of deferred sales inducement balances. These gross reserve items
are offset by policy charges assessed for policies having the withdrawal benefit
rider (WBR). As changes in these items collectively impact contract interest
expense, financial statement interest spread is also affected. Netted against
reserve changes in the years ended December 31, 2021, 2020, and 2019 are WBR
assessed policy charges of $28.2 million, $24.8 million, and $23.8 million,
respectively.

Beginning in 2021, reserve changes associated with funds withheld annuity
policies are ceded to the reinsurer and no longer reflected in the financial
statements of the Company. Accordingly, contract interest expense is adjusted to
remove these expense items which are shown in the above table for the year ended
December 31, 2021. In addition to these amounts, the Company also cedes the
fixed interest credited on the funds withheld annuity policies. For the year
ended December 31, 2021, the fixed interest credited ceded was $29.8 million.

Generally, the impact of the market value change of index options on asset
values aligns closely with the movement of the embedded derivative liability
held for the Company's fixed-index products such that the net effect upon pretax
earnings is negligible (i.e. net realized and unrealized gains/(losses) included
in net investment income approximate the change in contract interest associated
with the corresponding embedded derivative liability change). However, other
aspects of the embedded derivatives can cause deviations to occur between the
change in index option asset values included in net investment income and the
change in the embedded derivative liability included in contract interest. As
noted in the discussion of net investment income, the collection of asset
management fees in a period can cause investment income to increase marginally
higher than contract interest expense since these collected fees are deducted
from indexed interest credited to policyholders. As shown in the table above,
the collection of asset management fees are deductions from contract interest
expense.

Accounting rules require the embedded derivative liability to include a
projection of asset management fees estimated to be collected in the succeeding
fiscal year due to the Company's historical practice of purchasing options
priced to incorporate an expected probability of collecting asset management
fees (referred to as "at the money hedging"). This projection for the embedded
derivative liability is based upon the most recent performance of the reference
equity index. Increases in projected asset management fees to be collected
reduce contract interest expense while decreases in projected asset management
fees to be collected increase contract interest expense. During the years ended
December 31, 2021, 2020, and 2019, contract interest was increased/(decreased)
by $6.5 million, $34.4 million, and $(33.6) million, respectively, for the
projected change in asset management fees to be collected. During 2020, the
Company changed its embedded derivative hedging process to incorporate
"out-of-the-money" hedging which reduces option costs and eliminates the
requirement for estimating probability projections of collected asset management
fees. The remaining inventory of at the money option hedges purchase with a one
year term completed its roll over to out-of-the-money hedges during the second
quarter of 2021. Consequently, the embedded derivative liability component for
projected asset management fees to be collected was phased out as of the end of
the 2021 second quarter. Refer to Note (3) Derivative Investments in the
accompanying Notes to Consolidated Financial Statements in this report for
further information.

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Other embedded derivative components include changes pertaining to other
modeling differences, changes in future interest adjustments, and the change in
the host contract component of the embedded derivative products. In the first
quarter of 2020, the Company incurred an additional charge to contract interest
of $12.1 million pertaining to an assumption regarding the embedded derivative
option budget which was made several years ago when the Company's investment
portfolio yield was higher. The combination of the embedded derivative option
budget being out of date relative to the Company's current investment portfolio
yield and the historically low interest rate levels introduced an embedded
derivative floor which prevented the Company's contract interest expense from
declining in tandem with the option value decreases recorded in net investment
income. The Company subsequently unlocked for this out of date embedded
derivative option budget assumption to reflect the Company's current investment
portfolio yield. The effect of the unlocking was to remove the embedded
derivative floor and reverse the contract interest charge recorded in the first
quarter of 2020 so that there was no effect for this occurrence for the year
ended December 31, 2020.

Another contract interest expense component is the amortization of deferred
sales inducements (included in Gross reserve changes above). Similar to deferred
policy acquisition costs, the Company defers sales inducements in the form of
first year credited interest bonuses on annuity products that are directly
related to the production of new business. These bonus interest charges are
deferred and amortized using the same methodology and assumptions used to
amortize other capitalized acquisition costs and the amortization is included in
contract interest. In addition, deferred sales inducement balances ("DSI") are
also reviewed periodically to ascertain whether actual experience has deviated
significantly from that assumed (unlock) and are adjusted to reflect current
policy lapse or termination rates, expense levels and credited rates on policies
compared to anticipated experience (true-up). These adjustments, plus or minus,
are included in contract interest expense. As part of the DPAC balance
unlockings for the Annuity segment previously discussed for 2021, 2020, and
2019, the Company also unlocked its DSI balance. The effect of these prospective
unlockings was to increase/(decrease) the DSI balance by $1.0 million, $(4.4)
million, and $(0.6) million, respectively. These amounts are included in the
previous table in the Unlocking adjustments line.

Other operating expenses - Other operating expenses consist of general
administrative expenses, licenses and fees, commissions not subject to deferral,
real estate expenses, brokerage expenses, compensation costs, and reinsurance
ceded commission expense. These are summarized in the table that follows.

                                                      Years Ended December 31,
                                                  2021                   2020          2019
                                                           (In thousands)

General administrative expenses        $                  51,317        42,688        42,353

Compensation expenses                                     40,178        30,372        31,956
Commission expenses                                       10,810        11,159        10,502
Real estate expenses                                       5,947         5,598         5,236
Brokerage expenses (NIS)                                   6,123         5,085         4,372
Reinsurance ceded commission expense                          12             -             -
Taxes, licenses and fees                                  12,225         9,682        10,139

Totals                                 $                 126,612       104,584       104,558



General administrative expenses include software amortization of previously
capitalized information technology (IT) expenditures including National
Western's proprietary policy administration systems. Software costs, including
amortization expense, for 2021, 2020, and 2019 were $13.8 million, $12.6
million, and $12.7 million, respectively. Other IT expenditures include
consulting costs for system implementations, assistance with analysis involving
a security incident experienced by National Western, and contractor resources to
fill IT staffing shortages. These amounts in the years ended December 31, 2021
and 2020 were $17.5 million and $10.4 million, respectively. General
administrative expenses also include payments and provisions made relating to
potential or contingent legal liabilities and legal fees. Expenses in this
category were $6.0 million, $2.8 million, and $3.8 million in 2021, 2020, and
2019, respectively. The 2021 amount includes $4.4 million accrued for potential
settlement of a class action lawsuit pertaining to the IT security incident
experienced by National Western. General administrative expenses for the year
ended December 31, 2019 include a $3.3 million broker fee paid in connection
with the acquisition of Ozark National and NIS which closed early in 2019. GAAP
precludes this fee from being part of the purchase price for acquiring these
businesses. General administrative expenses in the years ended December 31,
2021, 2020, and 2019 include Ozark National expenses in the amount of $4.3
million, $4.4 million, and $4.2 million, respectively.
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General administrative expenses include nursing home expenses that reflect the
operations of the Company's two facilities which were sold during 2019. The
Reno, Nevada nursing home was sold effective February 1, 2019, while the San
Marcos, Texas nursing home sale closed effective May 1, 2019. Expenses shown for
2019 reflect operations up to the date of sale for each facility. The Company
must maintain the legal entities for a specified time period subsequent to each
sale and incur various record safekeeping and other administrative expenses in
the interim.

Compensation expenses include share-based compensation costs related to
outstanding vested and nonvested stock appreciation rights ("SARs"), restricted
stock units ("RSUs"), and performance share units ("PSUs"). The related
share-based compensation costs move in tandem not only with the number of awards
outstanding but also with the movement in the market price of the Company's
Class A common stock as a result of marking the SARs, RSUs, and PSUs to fair
value under the liability method of accounting. Consequently, the related
expense amount varies positive or negative in any given period. In the amounts
shown above, share-based compensation expense totaled $5.8 million in 2021,
$(2.2) million in 2020, and $2.4 million in 2019. The negative expense level in
2020 reflects a change in the Company's Class A common share price to $206.44 at
December 31, 2020 from $290.88 at December 31, 2019. In addition to the changes
in price of the Company's Class A common shares, there were 64,157, 40,990, and
20,380 SARs granted to officers in 2021, 2020, and 2019, respectively. Refer to
Note (12) Stockholders' Equity in the accompanying Notes to Consolidated
Financial Statements of this report for a discussion of performance share
awards.

Commission expenses in 2021, 2020, and 2019 include Ozark National
non-deferrable commissions of $3.0 million, $3.1 million, and $3.2 million,
respectively.

Real estate expenses pertain to the commercial building operated by Braker P
III. The building was acquired at year-end 2016 and National Western relocated
to this facility during the fourth quarter of 2017. The trending increase in the
level of operating expenses reflects the addition of new tenants and associated
operating expenses. At December 31, 2021, the facility was fully occupied.

Taxes, licenses and fees include premium taxes and licensing fees paid to state
insurance departments, guaranty fund assessments, the company portion of social
security and Medicare taxes, real estate taxes, state income taxes, and other
state and municipal taxes. Ozark National taxes, licenses and fees were $2.5
million in 2021, $2.3 million in 2020, and $2.2 million in 2019. The increase in
taxes, licenses and fee expenses in 2021 is due to the State of Colorado,
National Western's domiciliary state, enacting a premium tax on non-qualified
annuities effective January 1, 2021. While the impact upon Colorado premiums
taxes was not significant, the Colorado law increased the Company's retaliatory
premium tax burden with other states by $3.5 million.
Segment Operations

Summary of Segment Earnings

A summary of segment earnings from continuing operations for the years ended
December 31, 2021, 2020, and 2019 is provided below. The segment earnings
exclude realized gains and losses on investments, net of taxes.

                              Domestic Life
                                Insurance            International Life Insurance            Annuities             ONL & Affiliates             All Others               Totals
                                                                                                 (In thousands)

Segment earnings (loss):
2021                         $      2,548                        51,420                        81,868                   14,550                    18,485                168,871
2020                                1,499                        51,609                        (9,308)                  14,036                    17,830                 75,666
2019                                2,163                        34,818                        53,582                   16,617                    19,506                126,686



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Domestic Life Insurance Operations

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

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Premiums and other revenues:
Premiums and contract revenues                             $    51,294                53,834                45,709
Net investment income                                           90,006                54,516                77,672
Other revenues                                                     105                    58                   313

Total premiums and other revenues                              141,405               108,408               123,694

Benefits and expenses:
Life and other policy benefits                                  24,416                18,471                18,948
Amortization of deferred transaction costs                       9,580                17,661                11,797
Universal life insurance contract interest                      77,246                44,782                69,849
Other operating expenses                                        26,959                25,730                20,376

Total benefits and expenses                                    138,201               106,644               120,970

Segment earnings before Federal income taxes                     3,204                 1,764                 2,724

Provision for Federal income taxes                                 656                   265                   561

Segment earnings                                           $     2,548                 1,499                 2,163



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

                                                     Years Ended December 31,
                                                 2021                  2020          2019
                                                          (In thousands)

Universal life insurance revenues     $                 58,637        60,664        51,591
Traditional life insurance premiums                      4,620         4,349         5,063
Reinsurance premiums                                   (11,963)      (11,179)      (10,945)

Totals                                $                 51,294        53,834        45,709



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National Western's domestic life insurance in force, in terms of policy counts,
has been declining for some time. The pace of new policies issued has lagged the
number of policies terminated from death or surrender causing a declining level
of policies in force from which contract revenue is received. Consequently, the
number of domestic life insurance policies in force has declined from 47,900 at
December 31, 2019 to 46,900 at December 31, 2020 and to 46,100 at December 31,
2021. Policy lapse rates in 2021 remained level with the 6.0% experienced in
2020. While policy counts have declined, the face amount of life insurance in
force has increased from $3.4 billion at December 31, 2019 to $3.5 billion at
December 31, 2020 and to $3.7 billion at December 31, 2021.

Universal life insurance revenues are also generated with the issuance of new
business based upon amounts per application and percentages of the face amount
(volume) of insurance issued. The number of domestic policies issued during 2021
increased 2% over that in 2020 and the volume of insurance issued increased 5%
from that in 2020.

Universal life insurance revenues also include surrender charge income realized
on terminating policies and, in the case of domestic universal life,
amortization into income of the premium load on single premium policies which is
deferred. Amounts deferred are amortized into revenues over future periods
corresponding with the duration of the policies. The net premium load
amortization associated with this activity was $4.3 million, $11.4 million, and
$8.2 million in 2021, 2020, and 2019, respectively. The net amortization amount
in 2020 includes $5.9 million from the Company's annual unlocking of actuarial
assumptions.

Premiums collected on universal life products are not reflected as revenues in
the Company’s Consolidated Statements of Earnings in accordance with
GAAP. Actual domestic universal life premiums collected are detailed below.

                                                Years Ended December 31,
                                            2021                   2020          2019
                                                     (In thousands)

Universal life insurance:
First year and single premiums   $                 203,329       194,520       180,457
Renewal premiums                                    16,870        17,905        18,124

Totals                           $                 220,199       212,425       198,581



Domestic life insurance sales for some time have consisted substantially of
single premium policies which do not have much in the way of recurring premium
payments. These products utilize wealth transfer strategies involving the
movement of accumulated wealth in alternative investment vehicles, including
annuities, into life insurance products. As a result, renewal premium levels
have not been exhibiting a corresponding level of increase as that of first year
and single premiums.

Net investment income for this segment of business, excluding derivative
gain/(loss), has been gradually increasing due to the increased new business
activity described above (single premium policies) and a higher level of
investments needed to support the corresponding growth in policy obligations,
especially those for single premium policies. The increase in net investment
income has been partially muted by lower investment yields from debt security
investment purchases during this time frame. Net investment income also includes
the gains and losses on index options purchased to back the index crediting
mechanism on fixed-index universal life products. A detail of net investment
income for domestic life insurance operations is provided below.
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                                                                       Years Ended December 31,
                                                           2021                 2020                  2019
                                                                            (In thousands)

Net investment income (excluding index option
derivatives)                                          $    51,733                47,380                44,399
Index option derivative gain                               38,273                 7,136                33,273

Net investment income                                 $    90,006                54,516                77,672

Universal life insurance contract interest            $    77,246                44,782                69,849



Life and policy benefits for a smaller block of business are subject to
variation from period to period. Claim count activity during 2021 decreased 5%
compared to 2020 while the average net claim amount increased to $37,700 from
$30,600. In 2021, National Western's domestic life insurance segment incurred
129 COVID-19 claims with a net benefit amount (after reinsurance) of $4.5
million, roughly 9% of the total net claims for this segment. In 2020, National
Western's domestic life insurance segment incurred 70 COVID-19 claims with a net
benefit amount (after reinsurance) of $2.4 million, roughly 6% of the total net
claims for this segment. The low face amount per domestic life claim relative to
the current issued amounts of insurance per policy reflects the older block of
domestic life insurance policies sold which were final expense type products
(i.e. purchased to cover funeral costs). The overall mortality experience for
this segment has been consistent with pricing assumptions.

Included in amortization of deferred transaction costs is DPAC amortization. As
noted previously in the discussion of results from Consolidated Operations, the
Company records true-up adjustments to DPAC balances each period to reflect
current policy lapse or termination rates, expense levels and credited rates on
policies as compared to anticipated experience with the adjustment reflected in
current period amortization expense. To the extent required, unlocking
adjustments may also be recorded to DPAC balances. The following table
identifies the effects of unlocking adjustments on domestic life insurance DPAC
balances recorded through amortization expense separate from recurring
amortization expense components for 2021, 2020, and 2019.

                                              Years Ended December 31,
                                           2021                  2020         2019
                                                   (In thousands)
Amortization of DPAC
Unlocking adjustments           $                     495        7,391         (360)
Other amortization components                       9,085       10,270       12,157

Totals                          $                   9,580       17,661       11,797



In 2021, DPAC balances were unlocked for this segment for mortality, lapse
rates, and portfolio yield (interest spread) increasing amortization expense by
$0.5 million. In 2020, DPAC balances were unlocked for this segment for
mortality, lapse rates, and investment spread also increasing amortization
expense. In 2019, DPAC balances were unlocked for this segment for mortality
rates, lapse rates, and portfolio yield rates (investment spread margin) which
cumulatively had the effect of marginally increasing DPAC balances (and reducing
amortization expense).

In the Consolidated Operations discussion of amortization of deferred
acquisition costs it was noted that interest earned on DPAC balances serves to
offset (decrease) amortization expense and that the interest rate used is the
crediting rate experience during the period. The decrease in the core
amortization expense in 2021 relative to 2020 reflects higher interest earned on
universal life DPAC balances due to increased realized gains from index options.

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Contract interest expense includes the fluctuations that are the result of the
effect upon the embedded derivative for the performance of the underlying equity
indices associated with fixed-indexed universal life products. For liability
purposes, the embedded option in the Company's policyholder obligations for this
feature is bifurcated and reserved for separately. Accordingly, the impact for
the embedded derivative component in the equity-index universal life product is
reflected in contract interest expense for approximately the same amounts as in
net investment income for each respective period.

Contract interest also includes certain policy reserve balance changes which are
also subject to unlocking adjustments in conjunction with DPAC. As part of the
unlockings discussed above, the Company increased its domestic life insurance
excess benefit reserve balance by $0.5 million, $1.4 million, and $0.3 million
in 2021, 2020, and 2019, respectively (increasing contract interest expense).

Operating expenses are allocated to lines of business based upon a functional
cost analysis of the business activity giving rise to incurred expenses. With
the Company's decision to cease accepting applications from international
residents and the lower level of annuity sales, a higher proportion of operating
expenses were allocated to the Domestic Life segment in 2021 and 2020 given the
increase in activity in this segment and its greater share of the overall
operational resources.

International Life Insurance Operations

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

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Premiums and other revenues:
Premiums and contract revenues                             $    79,085                88,167                99,417
Net investment income                                           52,227                27,273                47,004
Other revenues                                                      95                    67                    86

Total premiums and other revenue                               131,407               115,507               146,507

Benefits and expenses:
Life and other policy benefits                                  26,481                14,084                17,064
Amortization of deferred transaction costs                     (11,118)               24,929                17,593
Universal life insurance contract interest                      31,696                (2,087)               48,561
Other operating expenses                                        19,679                17,829                19,447

Total benefits and expenses                                     66,738                54,755               102,665

Segment earnings before Federal income taxes                    64,669                60,752                43,842

Provision for Federal income taxes                              13,249                 9,143                 9,024

Segment earnings                                           $    51,420                51,609                34,818



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

                                                     Years Ended December 31,
                                                 2021                  2020          2019
                                                          (In thousands)

Universal life insurance revenues     $                 77,225        85,185        95,391
Traditional life insurance premiums                      8,314         9,272        10,659
Reinsurance premiums                                    (6,454)       (6,290)       (6,633)

Totals                                $                 79,085        88,167        99,417



Universal life revenues and operating earnings are largely generated from the
amount of life insurance in force. Over the past three years, the volume of
insurance in force for this segment has contracted from $13.7 billion at
December 31, 2019 to $12.4 billion at December 31, 2020 and to $11.3 billion at
December 31, 2021. The decline in volume of in force reflects the decision to
begin progressively disengaging from certain countries and ultimately making the
decision in 2018 to cease accepting international policy applications from
residents from all remaining countries.

Another component of international universal life revenues include surrender
charges assessed upon surrender of contracts by policyholders. In addition to
termination rates trending lower, the resulting surrender charge fee revenue has
been less due to policy contract provisions which provide for lower surrender
charge fees to be assessed later in the contract term. The following table
illustrates National Western's recent international life termination experience.

Volume In Force Terminations Amount in $’s Annualized Termination Rate

                                    (millions)

Year Ended December 31, 2021     $      1,080.1                             8.7  %
Year Ended December 31, 2020            1,295.2                             9.5  %
Year Ended December 31, 2019            1,671.5                            10.9  %
Year Ended December 31, 2018            1,706.3                            10.0  %
Year Ended December 31, 2017            2,309.7                            

12.2 %



As noted previously, premiums collected on universal life products are not
reflected as revenues in the Company's Consolidated Statements of Earnings in
accordance with GAAP. Actual international universal life premiums collected are
detailed below.

                                                Years Ended December 31,
                                            2021                  2020          2019
                                                     (In thousands)

Universal life insurance:
First year and single premiums   $                      -             -           989
Renewal premiums                                   50,518        55,383        67,066

Totals                           $                 50,518        55,383        68,055



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National Western's most popular international products were its fixed-index
universal life products in which the policyholder could elect to have the
interest rate credited to their policy account values linked in part to the
performance of an outside equity index. These products issued were not generally
available in the local markets when sold. Included in the totals in the above
table are collected premiums for fixed-index universal life products of
approximately $28.9 million, $32.4 million, and $41.3 million for the years
ended 2021, 2020, and 2019, respectively. The declining trend in renewal
premiums during these periods corresponds with the decline in policies in force
due to the elimination of new sales and the termination activity as discussed
above.

As previously noted, net investment income and contract interest include
period-to-period changes in fair values pertaining to call options purchased to
hedge the interest crediting feature on the fixed-index universal life products.
With the relatively large size of the fixed-index universal life block of
business, the period-to-period changes in fair values of the underlying options
have a significant effect on net investment income and universal life contract
interest. A detail of net investment income for international life insurance
operations is provided below.

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Net investment income (excluding index option derivatives) $ 22,866

          26,938                30,126
Index option derivative gain                                    29,361                   335                16,878

Net investment income                                      $    52,227                27,273                47,004

Universal life insurance contract interest                 $    31,696                (2,087)               48,561



The gain or loss on index options follows the movement of the reference indice
with realized gains or losses being recognized on the anniversary of each index
option based upon the reference indice level at the expiration date relative to
the index level at the time the index option was purchased. Unrealized gains and
losses are recorded for index options outstanding based upon their fair values,
largely determined by the reference indice level, at the balance sheet reporting
date as compared to the original purchase cost of each respective option.

Life and policy benefits primarily consist of death claims on policies. National
Western's clientele for international products are generally wealthy individuals
with access to U.S. dollars and quality medical care. Consequently, the amounts
of coverage purchased historically tended to be larger amounts. Life and policy
benefit expense for the international life segment reflects the larger policies
historically purchased, however mortality due to natural causes is comparable to
that in the United States. The Company's maximum risk exposure per insured life
is capped at $500,000 through reinsurance. The average international life net
claim amount (after reinsurance) in 2021 increased to $202,900 from $158,200
while the number of claims incurred increased 43% from the amount incurred in
2020. Included in International Life death claims for 2021 were 72 with a cause
of death identified as COVID-19 which aggregated to $19.0 million in net claims.
Included in International Life death claims for 2020 were 18 with a cause of
death identified as COVID-19 which aggregated to $2.7 million in net claims. The
increased number of reported COVID-19 death claims accounts for substantially
most of the increase in claim activity.

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Included in amortization of deferred transaction costs is DPAC amortization. The
Company records true-up adjustments to DPAC balances each period to reflect
current policy lapse or termination rates, expense levels, and credited rates on
policies as compared to anticipated experience as well as unlocking adjustments
as necessary. The following table identifies the effects of unlocking
adjustments on international life insurance DPAC balances recorded through
amortization expense separate from recurring amortization expense components for
2021, 2020, and 2019.

                                               Years Ended December 31,
                                           2021                   2020          2019
                                                    (In thousands)
Amortization of DPAC
Unlocking adjustments           $                 (33,800)          (20)      (10,860)
Other amortization components                      22,682        24,949        28,453

Totals                          $                 (11,118)       24,929        17,593



In 2021, the Company unlocked DPAC balances associated with its International
Life segment for lapse rates, mortality, investment portfolio yields and cost of
insurance ("COI") charge increases. The effect of the prospective unlocking,
particularly for the COI charge increases, was to increase DPAC balances (and
decrease amortization expense) by $33.8 million.

In 2020, the Company unlocked DPAC balances for lapse rates, mortality, and
investment spread. While this unlocking had a relatively small impact on the
International Life segment DPAC balance, a substantially larger effect was
recorded in benefit reserves the change of which is reflected in contract
interest expense as discussed below.

In 2019, DPAC balances were unlocked for mortality rates, lapse rates,
maintenance expenses, and investment spread which increased DPAC balances and
reduced amortization expense. Favorable mortality experience on the block of
business was the primary cause behind the DPAC balance increase and the
amortization expense decrease.

Contract interest expense includes the fluctuations that are the result of the
effect upon the embedded derivative for the performance of the underlying equity
indices associated with fixed-indexed universal life products. For liability
purposes, the embedded option in the Company's policyholder obligations for this
feature is bifurcated and reserved for separately. Accordingly, the impact for
the embedded derivative component in the equity-index universal life product is
reflected in the contract interest expense for approximately the same amounts as
the purchased call options are reported in net investment income for each
respective period. Amounts realized on purchase call options generally
approximate the amounts credited to policyholders.

As part of the mortality unlocking analysis done in 2021, the Company decreased
its excess death benefit reserves by $14.1 million for favorable experience. The
reduction in reserve is reported as an offset to contract interest expense. In
2020, the Company's excess benefit reserve was also unlocked resulting in a
decrease in the amount of $22.8 million which served to decrease contract
interest expense by a like amount. In 2019, the excess death benefit was
unlocked producing a $7.9 million increase in the reserve and a similar increase
in contract interest expense.

As noted in the Domestic Life segment discussion, operating expenses are
allocated to lines of business based upon a functional cost analysis of the
activity by business area giving rise to incurred expenses. A greater proportion
of the Company's overall operating expenses have been allocated toward the
Domestic Life and Annuity segments and away from the International Life segment
due to the decreased activity in this segment relative to the former two
segments.

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Annuity Operations

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

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)

Premiums and other revenues:
Premiums and contract revenues                             $    16,809                17,025                20,317
Net investment income                                          368,234               290,576               380,357
Other revenues                                                   5,374                    43                   (34)

Total premiums and other revenues                              390,417               307,644               400,640

Benefits and expenses:
Life and other policy benefits                                  67,515                31,043                41,487
Amortization of deferred transaction costs                      61,881                87,133                79,064
Annuity contract interest                                      104,242               163,555               176,920
Other operating expenses                                        53,817                36,870                35,699

Total benefits and expenses                                    287,455               318,601               333,170

Segment earnings (loss) before Federal income taxes            102,962               (10,957)               67,470

Provision (benefit) for Federal income taxes                    21,094                (1,649)               13,888

Segment earnings (loss)                                    $    81,868                (9,308)               53,582



Premiums and contract charges primarily consist of surrender charge income
recognized on terminated policies. The amount of the surrender charge income
recognized is determined by the volume of surrendered contracts as well as the
duration of each contract at the time of surrender given the pattern of
declining surrender charge rates over time that is common to most annuity
contracts. The Company's lapse rate for annuity contracts during 2021 was 8.6%,
an increase from a rate of 8.1% in 2020 and the 7.4% rate experienced in 2019.
The 2021 and 2020 lapse rates are elevated as an outcome of the COVID-19
pandemic crisis with consumers fortifying their liquidity positions. This has
manifested by consumers accessing funds available from their policies through
greater withdrawal and surrender activity. In addition, annuity contracts with
fixed interest rates are more prone to terminate as contracts approach the end
of their surrender charge period and in periods of rising interest rates.

Deposits collected on annuity contracts are not reflected as revenues in the
Company's Consolidated Statements of Earnings in accordance with GAAP. Actual
annuity deposits collected are detailed below.

                                          Years Ended December 31,
                                      2021                   2020          2019
                                               (In thousands)

Fixed-index annuities      $                 425,734       330,899       241,253
Other deferred annuities                       3,727         7,355        14,747
Immediate annuities                           32,488        20,627         8,648

Totals                     $                 461,949       358,881       264,648



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Fixed-index products are more attractive for consumers when interest rate levels
remain low and equity markets produce positive returns. Since National Western
does not offer variable products or mutual funds, fixed-index products provide
an important alternative to the Company's existing fixed interest rate annuity
products. Fixed-index annuity deposits as a percentage of total annuity deposits
were 92%, 92%, and 91% for the years ended December 31, 2021, 2020, and 2019,
respectively. The percentage of fixed-index products to total annuity sales
reflects the low interest rate environment and the overall positive performance
in the equities market.

Some of the Company's deferred products, including fixed-index annuity products,
contain a first year interest bonus, in addition to the base first year interest
rate, which is credited to the account balance when premiums are applied. These
sales inducements are deferred in conjunction with other capitalized policy
acquisition costs. The amounts currently deferred to be amortized over future
periods amounted to approximately $18.1 million, $10.3 million, and $3.2 million
for the years ended December 31, 2021, 2020, and 2019, respectively.
Amortization of deferred sales inducements is included as a component of annuity
contract interest as described later in this discussion of Annuity Operations.

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

                                                                           Years Ended December 31,
                                                               2021                 2020                  2019
                                                                                (In thousands)

Net investment income (excluding derivatives and trading
securities)

                                               $   219,094               283,293               307,301
Index option derivative gain                                   53,084                 7,283                73,056
Embedded derivative liability decrease                         84,725                     -                     -
Trading securities market adjustment                           11,331                     -                     -

Net investment income                                     $   368,234               290,576               380,357



As noted in the Consolidated Operations discussion, the Company ceded net
investment income of $55.1 million to the reinsurer under the funds withheld
reinsurance agreement. This amount consisted entirely of net investment income
from investments supporting the fixed and payout annuities ceded under the
agreement.

As seen in the above table, net investment income also includes the derivative
gains and losses on index options purchased to back the index crediting
mechanism on fixed-index products. The derivative gain or loss on index options
follows the movement of the reference indice with realized gains and losses
being recognized on the anniversary of each index option based upon the
reference indice at the expiration date relative to the index level at the time
the index option was purchased. Unrealized gains and losses are recorded for
index options outstanding based upon their fair value, largely determined by the
reference indice level, at the balance sheet reporting date as compared to the
original purchase cost of each respective option.

Since the embedded derivative option in the policies is bifurcated when
determining the contract reserve liability, the impact of the market value
change of index options on asset values generally aligns closely with the
movement of the embedded derivative liability such that the net effect upon
pretax earnings is negligible (i.e. net realized and unrealized gains/(losses)
included in net investment income approximate the change in contract interest
associated with the corresponding embedded derivative liability change). See
further discussion below regarding contract interest activity.

The funds withheld reinsurance agreement executed December 31, 2020 introduced
embedded derivative accounting with respect to the annuity policyholder
obligations reinsured. During the year ended December 31, 2021, the embedded
derivative liability decreased $84.7 million which was recorded as a component
of investment income. Debt securities supporting the funds withheld policyholder
obligations classified as trading securities incurred an $11.3 million market
value increase in the year ended December 31, 2021 which was also recorded as a
component of net investment income. The total of these two amounts, the embedded
liability decrease and the change in market value of trading securities, or
$96.0 million, increased net investment income for the Annuity segment.

Other revenues in the year ended December 31, 2021, includes $5.4 million of
maintenance expense allowance revenue. Under the terms of the funds withheld
reinsurance contract, National Western earns from the reinsurer a monthly
expense allowance equal to the average policy count of the funds withheld
reinsured block of business multiplied by a stated amount per policy.

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Life and other policy benefits for the Annuity segment include the effects of
the annual prospective unlocking exercise performed by the Company. In 2021, the
Company unlocked updating assumptions for the ultimate election rates associated
with guaranteed minimum withdrawal benefit (GMWB) riders on its annuity
contracts, GMWB utilization rates in certain durations, and portfolio yield
rates supporting this business. The effect of the prospective unlocking was to
increase the GMWB reserve by $27.4 million which increased Life and other policy
benefits.

Life and other policy benefits for the Annuity segment in 2020 also included the
effects of the annual prospective unlocking exercise performed by the Company.
The Company unlocked updating assumptions for the ultimate election rates
associated with guaranteed minimum withdrawal benefit (GMWB) riders on its
annuity contracts. The effect of the prospective unlocking was to reduce the
GMWB reserve by $8.5 million which reduced Life and other policy benefits. The
Company also unlocked for the mortality assumption associated with it payout
annuity business. The effect of the prospective unlocking was to accelerate the
deferred profit liability for this business by $3.3 million which also reduced
Life and other policy benefits. Combined, the two unlockings decreased Life and
other policy benefits by $11.8 million in 2020.

As part of the unlockings performed in 2019, the Company also unlocked its
policy benefits reserves associated with the assumptions regarding policyholder
utilization of the GMWB rider. The assumptions were updated for actual
utilization experience versus that which was previously assumed. The effect of
this prospective unlocking was to increase policy reserves by $0.7 million (and
increase Life and other policy benefits expense) in 2019.

Included in amortization of deferred transaction costs is DPAC amortization.
Consistent with the domestic and international life segments, the Company
records true-up adjustments to DPAC balances each period to reflect current
policy lapse or termination rates, expense levels and credited rates on policies
as compared to anticipated experience as well as unlocking adjustments as
necessary. The following table identifies the effects of unlocking adjustments
on annuity DPAC balances recorded through amortization expense separate from
recurring amortization expense components for 2021, 2020, and 2019.

                                                                            Years Ended December 31,
                                                                2021                 2020                  2019
                                                                                 (In thousands)
Amortization of deferred transaction costs
Unlocking adjustments                                      $    (3,205)               14,987                 2,577
DPAC amortization expense                                       51,932                72,146                76,487
Cost of reinsurance amortization expense                        13,154                     -                     -

Totals                                                     $    61,881                87,133                79,064



In 2021, the Company unlocked Annuity segment DPAC balances for assumptions
pertaining to lapse rates, annuitization rates, portfolio investment yield rates
supporting the block of business, and expenses. The effect of the prospective
unlocking was to increase DPAC balances by $3.2 million (and decrease
amortization expense).

In 2020, the Company unlocked Annuity segment DPAC balances for assumptions
pertaining to lapse rates, annuitization rates, and portfolio investment yield
rates supporting the block of business which increased amortization expense
approximately $15.0 million.

DPAC balances associated with the Annuity segment were unlocked in 2019 for
assumptions pertaining to lapse rates, annuitization rates, investment spreads,
and utilization of the Company's withdrawal benefit rider. The effect of the
prospective unlocking was to increase amortization expense $2.6 million.

Amortization of DPAC balances is proportional to estimated expected gross
profits ("EGPs") for a line of business. The EGPs of the block of annuity
policies have been steadily decreasing with the declining amount of policies in
force, as well as DPAC unlocking in recent years for unfavorable experience. In
addition, experience which deviates from the EGPs assumed, such as the amounts
of asset fees collected, can similarly increase or decrease the amortization of
DPAC. In the year ended December 31, 2021, DPAC amortization expense was reduced
by $6.2 million for DPAC ceded to a reinsurer under the funds withheld
reinsurance agreement entered into at December 31, 2020.
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Amortization of deferred transaction costs includes amortization of the cost of
reinsurance recorded at year-end 2020 associated with the funds withheld
reinsurance agreement. At December 31, 2020, the Company recorded as an asset on
the Consolidated Balance Sheet a deferred Cost of Reinsurance ("COR") amount of
$102.8 million associated with the funds withheld reinsurance transaction. This
represents the amount of assets transferred at the closing date of the funds
withheld agreement (debt securities, policy loans, and cash) in excess of the
GAAP liability ceded plus a $48 million ceding commission paid to the reinsurer.
The COR balance is amortized commensurate with the runoff of the ceded block of
funds withheld business. In the year ended December 31, 2021, COR amortization
expense of $13.2 million is included in Amortization of deferred transaction
costs.

Annuity contract interest includes the equity component return associated with
the call options purchased to hedge National Western's fixed-index annuities.
The detail of fixed-index annuity contract interest as compared to contract
interest for all other annuities is as follows:

                                                                             Years Ended December 31,
                                                                 2021                 2020                  2019
                                                                                  (In thousands)

Fixed-indexed annuities                                     $   108,878                65,785               100,292
All other annuities                                                (281)               85,307                59,434

Gross contract interest                                         108,597               151,092               159,726
Bonus interest deferred and capitalized                         (18,117)              (10,344)               (3,160)
Bonus interest amortization                                      13,762                22,807                20,354

Total contract interest                                     $   104,242               163,555               176,920



The fluctuation in reported contract interest amounts for fixed-index annuities
is driven by sales levels, the level of the business in force, and the effect of
positive or negative market returns of option values on projected interest
credits. As noted in the net investment income discussion, the amounts shown for
contract interest for fixed-index annuities generally align with the derivative
gains/(losses) included in net investment income due to the market change of
index options aligning closely with the movement of the embedded derivative
liability held for these products.

In the year ended December 31, 2020, in addition to the effects of the unlocking
adjustments on Life and other policy benefits and amortization of DPAC expenses,
the unlocking assumption changes impacted certain annuity benefit reserves. The
Company unlocked the mortality assumption with regards to payout annuities
(contracts paying systematic benefits), with the effect of the prospective
unlocking increasing annuity benefit reserves by $22.8 million which increased
contract interest expense by a like amount. For other deferred fixed rate
annuities, 2020 unlocking assumption changes pertaining to lapse rates,
annuitization rates and portfolio yields supporting the block of business
increased annuitization and excess death benefit reserves by $11.3 million which
similarly increased contract interest expense.

Collection of asset management fees on positive returns of expiring options is
subtracted from contract interest credited to policyholders. This offset serves
to lessen the increase in contract interest expense relative to the option gains
reported in the Company's net investment income. Asset management fees collected
during 2021, 2020, and 2019 were $5.8 million, $30.7 million, and $15.9 million,
respectively. As previously noted, the Company changed its option hedging
methodology during 2020 to an "out-of-the-money" approach. During 2021, all
outstanding options had been converted to this methodology which no longer
hedges for the collection of asset management fees. Consequently, asset
management fees collected during 2021 exhibited a decline.
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As previously noted, accounting rules require the embedded derivative liability
to include a projection of asset management fees estimated to be collected in
the succeeding fiscal year due to the Company's historical practice of
purchasing options priced to incorporate an expected probability of collecting
asset management fees (referred to as "at the money hedging"). This projection
for the embedded derivative liability is based upon the recent performance of
the reference equity index. Increases in projected asset management fees to be
collected reduce contract interest expense while decreases in projected asset
management fees to be collected increase contract interest. During the years
ended December 31, 2021, 2020, and 2019, contract interest was
increased/(decreased) by $6.5 million, $34.4 million, and $(33.6) million,
respectively, for this occurrence. As noted above, the Company changed its
option hedging methodology during 2020 to an "out-of-the-money" approach. By the
end of the second quarter of 2021, all outstanding options had been converted to
this methodology which no longer hedges for the collection of asset management
fees. As a result, projections of collected asset management fees were no longer
applicable in the second half of 2021 (as the inventory of annual at the money
hedges rolled over to only out-of-the-money hedges).
Annuity contract interest includes true-up adjustments for the deferred sales
inducement balance which are done each period similar to that done with respect
to DPAC balances with the adjustment reflected in current period contract
interest expense. To the extent required, the Company may also record unlocking
adjustments to deferred sales inducement balances in conjunction with DPAC
balance unlockings. In conjunction with the previously discussed unlocking
adjustments, the Company unlocked its deferred sales inducement balance during
the years ended December 31, 2021, 2020, and 2019 the effect of which was to
increase/(decrease) bonus interest amortization by $(1.0) million, $4.4 million,
and $0.6 million, respectively.

As noted in the Domestic Life insurance and International Life insurance
segments, the Company’s overall operating expenses are allocated based upon
functional business activity and volumes.

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ONL & Affiliates

Effective January 31, 2019, Ozark National and NIS were acquired and their
results included in the Consolidated Financial Statements of the Company. Ozark
National and NIS have been combined into a separate segment "ONL & Affiliates"
given their inter-related marketing and sales approach which consists of a
coordinated sale of a non-participating whole life insurance product (Ozark
National) and a mutual fund investment product (NIS). An analysis of results of
operations for the Company's acquired businesses segment is detailed below. The
2019 results include activity subsequent to the acquisition date.

                                                  2021          2020          2019

                                                           (In thousands)

Premiums and contract revenues:
Premiums and contract charges                  $ 77,109        78,921        74,526
Net investment income                            26,989        26,383        22,593
Other revenues                                   12,654        10,118         8,445

Total revenues                                  116,752       115,422       105,564

Benefits and expenses:
Life and other policy benefits                   69,165        67,739       

59,843

Amortization of deferred transaction costs 9,118 10,780

  8,348

Other operating expenses                         20,244        18,454        17,056

Total benefits and expenses                      98,527        96,973        85,247

Segment earnings before Federal income taxes 18,225 18,449

20,317

Provision for Federal income taxes                3,675         4,413         3,700

Segment earnings                               $ 14,550        14,036        16,617



Revenues from acquired businesses principally include life insurance premiums on
traditional type products. Unlike universal life, revenues from traditional
products are simply life premiums recognized as income over the premium-paying
period of the related policies. The detail of premiums is provided below.

                                                 2021          2020         

2019

                                                          (In thousands)

Traditional life insurance premiums           $ 79,450        81,222        

76,576

Other insurance premiums and considerations        423           434           419
Reinsurance premiums                            (2,764)       (2,735)       (2,469)

Totals                                        $ 77,109        78,921        74,526



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Ozark National's traditional life block of business at December 31, 2021
included 175,610 policies in force representing $5.9 billion of life insurance
coverage. The repetitive pay nature of Ozark National's business promotes a
higher level of persistency with an annualized lapse rate of 4.0% for the year
ended December 31, 2021 as compared to 4.1% in 2020.  Traditional life premiums
by first year and renewal are detailed below.

                                          2021         2020         2019
                                                  (In thousands)

Traditional life insurance premiums:
First year premiums                    $  3,419        3,943        5,332
Renewal premiums                         76,031       77,279       71,244

Totals                                 $ 79,450       81,222       76,576



Other revenues consists primarily of brokerage revenue of NIS. Brokerage
revenues of $12.5 million for 2021, $9.9 million for 2020, and $8.2 million for
2019 had associated brokerage expenses of $6.1 million, $5.1 million, and $4.4
million, respectively, which are included in Other operating expenses. The 2019
figures are for the eleven months subsequent to its acquisition by the Company.

The average face value of Ozark National's policies in force at December 31,
2021 was approximately $33,600. Consequently, life and policy benefits for
smaller face amounts are subject to variation from quarter to quarter. Incurred
death claims in 2021 were $39.6 million representing an average net claim of
$15,400. Incurred death claims in 2020 were $37.0 million representing an
average net claim of $14,800. For the eleven months of operations in 2019
incurred death claims were $29.3 million representing an average net claim of
$15,300. Included in 2021 death claims were 458 reported claims with a cause of
death identified as COVID-19 which aggregated to $8.2 million in net claims.
Included in 2020 death claims were 191 claims with a reported cause of death
identified as COVID-19 which aggregated to $2.8 million in net claims. Ozark
National's maximum retention on any single insured life is $200,000 with limited
exceptions related to the conversion of child protection and guaranteed
insurability riders. The balance of life and policy benefits during 2021, 2020,
and 2019 consists of increases in insurance reserves and payments of other
policy benefits.

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Amortization of deferred transaction costs for this segment includes
amortizatioin of DPAC and the value of business acquired. As part of the
purchase accounting required with the acquisition of Ozark National effective
January 31, 2019, the Company recorded an intangible asset of $145.8 million
referred to as the value of business acquired ("VOBA"). VOBA represents the
difference between the acquired assets and liabilities of Ozark National
measured in accordance with the Company's accounting policies and the fair value
of these same assets and liabilities. The VOBA balance sheet amount is amortized
following a methodology similar to that used for amortizing deferred policy
acquisition costs. During the year ended December 31, 2020, the cash value of
certain acquired reserves was increased which resulted in a commensurate
increase in both the traditional life reserve liability and the related VOBA
balance reported on the Consolidated Balance Sheets.

Subsequent to its acquisition effective January 31, 2019, Ozark National began
deferring policy acquisition costs and amortizing these deferrals similar to the
methodology employed by National Western. The following table identifies the
amortization expense of Ozark National's DPAC and VOBA for the years shown.

Amortization of deferred transaction costs     2021          2020         2019
                                                       (In thousands)

Unlocking                                    $     -             -           -
VOBA amortization expense                      8,468        10,228       7,697
DPAC amortization expense                        650           552         651

Totals                                       $ 9,118        10,780       8,348



Other Operations

The Company's primary business encompasses its domestic and international life
insurance operations, its annuity operations, and ONL & Affiliates. However, the
Company also has real estate and other investment operations through its wholly
owned subsidiaries, and owned nursing home operations through the early part of
2019.

As discussed in the Consolidated Operations section, the Company closed on the
sales of its two nursing home facilities during 2019. Operating results for each
entity are included to the date of their respective sales. Nursing home
operations generated $(0.2) million, $(0.7) million, and $0.8 million of pre-tax
earnings in 2021, 2020, and 2019, respectively. The results for 2019 include net
gains of $1.4 million from the sale of Reno personal property and equipment.

Pre-tax operating amounts include the results of BP III, the entity owning and
operating the Company's home office facility in Austin, Texas. BP III incurred
pre-tax losses of $(0.8) million, $(0.9) million, and $(1.4) million in 2021,
2020, and 2019, respectively. National Western maintains its home office in the
facility leasing approximately 40% of the space available. Lease and operating
expense payments made by National Western to BP III have been eliminated in
consolidation.

The remaining pre-tax earnings in Other Operations of $24.2 million, $22.6
million, and $25.2 million for the years ended December 31, 2021, 2020, and
2019, respectively, includes investment income from real estate, municipal
bonds, and common and preferred equities held in subsidiary company portfolios
principally for tax-advantage purposes. Included in these amounts are
semi-annual distributions from a life interest in the Libbie Shearn Moody Trust
which is held in NWLSM, Inc. Pretax distributions from this trust were $5.7
million, $5.3 million, and $6.7 million in 2021, 2020, and 2019, respectively.
In addition, the Company holds a modest portfolio of equity securities,
primarily in NWL Financial, Inc., whose fair value changes are recorded in net
investment income. For the years ended December 31, 2021, 2020, and 2019, the
market value changes for these securities were $6.0 million, $(1.0) million, and
$3.5 million, respectively.

Pre-tax earnings in 2020 include other revenue of $4.1 million pertaining to the
release of a contingent purchase price liability associated with the Ozark
National acquisition which the buyer and seller mutually agreed had been
satisfied. Pre-tax earnings in 2019 include expenses of $3.3 million related to
the purchase of Ozark National and NIS which were not eligible for inclusion in
the purchase price.


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INVESTMENTS

General

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

The Company's overall investment philosophy is reflected in the allocation of
its investments, which is detailed below as of December 31, 2021 and 2020. The
Company has historically emphasized investment grade debt securities.

                                                                    December 31, 2021                                   December 31, 2020
                                                         Carrying Value                   %                  Carrying Value                   %
                                                         (In thousands)                                      (In thousands)

Debt securities available-for-sale                    $        9,068,946                    82.7          $       10,770,923                    94.2
Debt securities trading                                        1,077,438                     9.8                           -                       -
Mortgage loans                                                   487,304                     4.4                     332,521                     2.9
Policy loans                                                      71,286                     0.6                      74,083                     0.6
Derivatives, index options                                       101,622                     0.9                     132,821                     1.2
Real estate                                                       28,606                     0.3                      33,783                     0.3
Equity securities                                                 28,217                     0.3                      17,744                     0.2
Other                                                            109,064                     1.0                      70,330                     0.6

Totals                                                $       10,972,483                   100.0          $       11,432,205                   100.0



Invested assets at December 31, 2021 include Ozark National amounts as follows:
Debt securities of $823.0 million; Policy loans of $23.3 million; and Real
estate of $0.0 million. These amounts as of December 31, 2020 consisted of: Debt
securities of $811.6 million; Policy loans of $25.5 million; and Real estate of
$4.6 million.

The Company's investment portfolio decreased 4% to $11.0 billion at December 31,
2021 compared to $11.4 billion at December 31, 2020 primarily reflecting a
reduction in unrealized gains for investments recorded at their fair market
values and higher balances maintained in cash and cash equivalents at December
31, 2021.

Effective December 31, 2020, National Western entered into a Funds Withheld
Coinsurance Agreement ("Agreement") with Prosperity Life Assurance Limited
("Prosperity") under which it ceded a 100% quota share of contractual statutory
annuity reserve liabilities approximating $1.7 billion. Under terms of the
Agreement, National Western, on behalf of Prosperity, transferred debt
securities to a funds withheld account on its Consolidated Balance Sheet. These
securities had previously been classified as held-to-maturity with an amortized
cost value of $964.8 million and as available-for-sale at a fair market value of
$712.5 million. Prosperity, as investment manager of the funds withheld account,
indicated their intention to actively trade these securities in an effort to
secure higher yields. Since Prosperity's intent was to not hold the funds
withheld debt securities to maturity, the Company was required to reclassify the
transferred holdings in the held-to-maturity category to the available-for-sale
portfolio category for financial statement purposes. An unrealized gain of $67.1
million was recorded as a result of this transfer and resulted in all funds
withheld debt securities recorded at fair market value as of December 31, 2020.

During 2021, the reinsurer actively engaged in selling debt securities in the
funds withheld account and purchasing other debt securities. The debt securities
acquired by the reinsurer remain as invested assets on the Company's financial
statements and have been classified as trading debt securities. The designation
as trading debt securities allows the market value fluctuation of these
securities to be recorded directly in the Consolidated Statements of Earnings.
This results in offsetting the embedded derivative liability change due to
market value fluctuations which is also recorded directly in the Consolidated
Statements of Earnings.

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The Company historically designated approximately 70% of its debt securities in
the held-to-maturity portfolio category, which is reported at amortized cost,
with the remainder designated in the available-for-sale portfolio, which is
reported at fair market value. As an outcome of the accounting for the
securities involved in the Agreement with Prosperity, the Company's remaining
held-to-maturity securities not included in the Agreement were also precluded
from retaining the held-to-maturity classification. Accordingly, at December 31,
2020 the Company reclassified debt securities with a $5.7 billion amortized cost
to the available-for-sale category and recognized an unrealized gain of $523.8
million in reporting the securities at their fair market values. Consequently,
the increase in the investment portfolio during 2020 was primarily due to
reporting balances at fair market value.

Derivatives are call options purchased to hedge the interest crediting mechanism
associated with the Company's fixed-index universal life and annuity policies.
These options are reported on the Consolidated Balance Sheets at fair value in
accordance with GAAP. The unrealized gain position of options held at
December 31, 2021 was $54.4 million which was $16.6 million lower than the
unrealized gain position at December 31, 2020 of $71.0 million. The decrease is
due to the Company moving to an "out-of-the-money" option approach during 2020
which reduces the cost of options by not hedging for potential collection of
asset management fees on the associated equity-indexed annuity contracts. The
purchase cost of options outstanding at December 31, 2021 was $47.2 million and
at December 31, 2020 was $61.8 million.

The Other investment category primarily consists of investments in alternative
investment opportunities which have the potential for higher yields than that
available with other investment securities. The typical structure involves a
fund under the management of an investment management firm with direct lending
expertise in a particular market niche which seeks to construct portfolios
comprised of senior secured debt. The Company participates through capital
funding commitments approved by its Board of Directors based upon the
recommendation of the Company's senior investment management team. The funds
have targeted dollar sizes and targeted internal rates of return. The Company
strategically targeted increasing the portion of its investment portfolio
allocated to mortgage loans and alternative investments in the past two years.

Debt Securities

The Company maintains a diversified debt securities portfolio which consists
mostly of corporate, mortgage-backed, and public utility fixed income
securities. Investments in mortgage-backed securities primarily include U.S.
government agency pass-through securities and collateralized mortgage
obligations ("CMO"). The Company's investment guidelines prescribe limitations
by type of security as a percent of the total investment portfolio and all
holdings were within these threshold limits. As of December 31, the Company's
debt securities portfolio classified as available-for-sale consisted of the
following for 2021 and 2020:

                                                              December 31, 2021                                December 31, 2020
                                                   Carrying Value                %                  Carrying Value                   %
                                                   (In thousands)                                   (In thousands)

Corporate                                          $  6,700,953                    73.8          $        8,098,973                    75.2
Residential mortgage-backed                             549,623                     6.1                     953,788                     8.9
Public utilities                                        784,969                     8.7                     909,910                     8.4
State and political subdivisions                        505,960                     5.6                     566,089                     5.3
U.S. agencies                                            44,543                     0.5                      75,441                     0.7
Asset-backed securities                                 390,260                     4.3                     120,524                     1.1
Commercial mortgage-backed                               27,757                     0.3                      31,471                     0.3
Foreign governments                                      62,391                     0.7                      11,449                     0.1
U.S. Treasury                                             2,490                       -                       3,278                       -

Totals                                             $  9,068,946                   100.0          $       10,770,923                   100.0



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A substantial portion of the Company's investable cash flows are directed toward
the purchase of long-term debt securities. The Company's investment policy calls
for investing in debt securities that are investment grade, meet quality and
yield objectives, and provide adequate liquidity for obligations to
policyholders. Particular attention is paid to avoiding concentration in any one
industry classification or in large singular credit exposures. Debt securities
with intermediate maturities are targeted by the Company as they more closely
match the intermediate nature of the Company's policy liabilities and provide an
appropriate strategy for managing cash flows. In the past several years, the
Company has purchased a higher level of longer maturity debt securities to match
the increased duration of its growing life insurance policy liabilities. The
Company holds minimal levels of U.S. Treasury securities due to their low yields
and deposits most of these holdings with various state insurance departments in
order to meet security deposit on hand requirements in these jurisdictions. At
December 31, 2021, the Company has no investments in debt securities in
businesses based in Russia or Ukraine and has minimal, if any, holdings in debt
securities with exposure to these areas.

Long-term debt securities purchased to fund National Western insurance company
operations are summarized below.

                             Years Ended December 31,
                               2021              2020
                              (Dollars in thousands)

Cost of acquisitions     $   1,104,009       $ 727,947
Average S&P quality                    A-            BBB+
Effective annual yield            3.02  %         3.33  %
Spread to treasuries              1.31  %         2.10  %
Effective duration             10.5 years      12.2 years



The Company has deemphasized mortgage-backed securities for a number of years
given the low interest rate environment and the lack of incremental yield
relative to other classes of debt securities. Rating agencies generally view
mortgage-backed securities as having additional risk for insurers holding
interest sensitive liabilities given the potential for asset/liability
disintermediation. Consequently, the Company holds predominantly agency
mortgage-backed securities. Because mortgage-backed securities are subject to
prepayment and extension risk, the Company has substantially reduced these risks
by investing in collateralized mortgage obligations ("CMO"), which have more
predictable cash flow patterns than pass-through securities. These securities,
known as planned amortization class I ("PAC I"), very accurately defined
maturity ("VADM"), and sequential tranches, are designed to amortize in a more
predictable manner than other CMO classes or pass-throughs. The Company does not
purchase tranches, such as PAC II and support tranches, that subject the
portfolio to greater than average prepayment risk. Using this strategy, the
Company can more effectively manage and reduce prepayment and extension risks,
thereby helping to maintain the appropriate matching of the Company's assets and
liabilities.

In addition to diversification, an important aspect of the Company's investment
approach is managing the credit quality of its investment in debt
securities. Thorough credit analysis is performed on potential corporate
investments including examination of a company's credit and industry outlook,
financial ratios and trends, and event risks. This emphasis is reflected in the
high average credit rating of the Company's debt securities portfolio with
98.3%, as of December 31, 2021, held in investment grade securities. In the
table below, investments in debt securities available-for-sale are classified
according to credit ratings by nationally recognized statistical rating
organizations.

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                                                         December 31, 2021                                December 31, 2020
                                              Carrying Value                %                  Carrying Value                   %
                                              (In thousands)                                   (In thousands)

AAA                                           $    126,954                     1.4          $          116,147                     1.1
AA                                               2,474,572                    27.3                   1,818,879                    16.9
A                                                1,861,686                    20.5                   3,188,008                    29.6
BBB                                              4,452,694                    49.1                   5,344,412                    49.6
BB and other below investment grade                153,040                     1.7                     303,477                     2.8

Totals                                        $  9,068,946                   100.0          $       10,770,923                   100.0



Historically, the Company's investment guidelines have not permitted the
purchase of below investment grade securities. Recently, these guidelines were
amended to allow for purchases of below investment grade securities that are
part of an alternative investment ("Schedule BA assets"). The Company continues
its longstanding practice of not purchasing any other below investment grade
securities. Investments held in available-for-sale debt securities may become
below investment grade as the result of subsequent downgrades of the
securities. These below investment grade holdings, including structured notes
associated with the Schedule BA assets category, are further summarized below.

                                                                  

Available-for-Sale Below Investment Grade Debt Securities

                                                                                                                                 % of Invested
                                                 Amortized Cost               Carrying Value              Fair Value                 Assets
                                                                              (In thousands except percentages)
December 31, 2021                           $             150,447                153,040                   153,040                         1.4  %

December 31, 2020                           $             300,417                303,477                   303,477                         2.7  %



The Company's percentage of below investment grade securities compared to total
invested assets at December 31, 2021 decreased compared to year-end 2020
primarily due to the disposal of below investment grade securities during
2021. The Company's holdings of below investment grade securities are relatively
small and as a percentage of total invested assets remain low compared to
industry averages.

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Holdings in below investment grade securities by category as of December 31,
2021 are summarized below, including their comparable fair value as of December
31, 2020 for those debt securities rated below investment grade at December 31,
2021. The Company continually monitors developments in these industries for
issues that may affect security valuation.

                                                                            

Available-for-Sale Below Investment Grade Debt Securities

                                                                                                                          Fair Value                Fair Value
               Industry Category                         Amortized Cost 2021             Carrying Value 2021                  2021                      2020
                                                                                                     (In thousands)

Asset-backed securities                                                 1,139                    1,154                        1,154                     1,156

Oil & gas                                                              93,581                   95,772                       95,772                    91,982
Manufacturing                                                          37,823                   38,032                       38,032                    39,510

Other                                                                  17,904                   18,082                       18,082                     6,352

Total before allowance for credit losses                              150,447                  153,040                      153,040                   139,000

Allowance for credit losses                                                 -                        -                            -                         -

Totals                                                $               150,447                  153,040                      153,040                   139,000



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

Generally accepted accounting principles through the end of 2019 required that
investments in debt securities be written down to fair value when declines in
value were judged to be other-than-temporary. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price
methodology). Refer to Note (4), Fair Values of Financial Instruments, of the
accompanying Notes to Consolidated Financial Statements for further discussion.

During 2019, the Company recorded a $7.8 million other-than-temporary impairment
on a single debt security issuer. Under the GAAP guidance at that time
pertaining to the recognition and accounting for other-than-temporary
impairments and their classification as either a credit loss or non-credit loss,
the Company recognized a cumulative total of $7.8 million of
other-than-temporary impairments of which $7.8 million was deemed credit related
and recognized as realized investment losses in earnings, and $0.0 million, net
of amortization, which was deemed non-credit related and recognized in other
comprehensive income.

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As disclosed in Note (1) Summary of Significant Accounting Policies in the
accompanying Notes to Consolidated Financial Statements in this report, the
Company adopted new accounting guidance effective January 1, 2020 for credit
loss recognition of certain financial assets, including debt securities
classified in the "held-to-maturity" category. The Company employed a cohort
cumulative loss rate method in estimating current expected credit losses with
respect to its held-to-maturity debt securities as of January 1, 2020 and
derived an initial allowance of $3.3 million. This method applied publicly
available industry wide statistics of default incidence by defined segmentations
of debt security investments combined with future assumptions regarding economic
conditions (i.e. GDP forecasts) both in the near term and the long term. As
noted previously, at December 31, 2020, the Company was required to reclassify
all of its held-to-maturity debt securities to the available-for-sale category
eliminating the allowance previously recorded. The following table presents the
allowance for credit losses activity for the period shown.

                                                          December 31,
                                                        2021           2020

Debt Securities Allowance for Credit Losses:
Balance, beginning of the period                   $    -            $     -
Impact of adopting new accounting guidance              -              

3,334

(Releases)/provision during the period                  -             (3,334)

Balance, end of period                             $    -            $     -




The Company is required to classify its investments in debt securities into one
of three categories: (a) trading securities; (b) securities available-for-sale;
or (c) securities held-to-maturity. The Company's investment philosophy calls
for purchases of securities with the intent to hold to maturity. Historically, a
determination was made on categorization based on various factors including the
type and quality of the particular security and how it will be incorporated into
the Company's overall asset/liability management strategy. As shown in the table
below, at December 31, 2021, 89.4% of the Company's total debt securities were
classified as securities available-for-sale, including the debt securities in
the funds withheld account. These holdings in available-for-sale provide
flexibility to the Company to react to market opportunities and conditions and
to practice active management within the portfolio to provide adequate liquidity
to meet policyholder obligations and other cash needs.

                                                                                                 December 31, 2021
                                                                                                               Allowance For
                                                           Fair Value                Amortized Cost             Credit Loss            Net Unrealized Gains
                                                                                                  (In thousands)

Debt securities available-for-sale                    $        9,068,946              8,604,250                         -                    464,696
Debt securities trading                                        1,077,438              1,066,108                         -                     11,330

Totals                                                $       10,146,384              9,670,358                         -                    476,026



Under the terms of the funds withheld reinsurance agreement, effective December
31, 2020, the Company, on behalf of the reinsurer, transferred debt securities
approximating $1.7 billion to a funds withheld account. Due to the nature of the
reinsurance transaction, these debt securities remained as invested assets on
the Company's financial statements and were included in the available-for-sale
category. In accordance with the terms of the agreement, the reinsurer, or their
appointed sub-advisor, was granted investment management authority with respect
to these securities following agreed upon investment guidelines defined in the
reinsurance agreement. During 2021, the reinsurer actively engaged in selling
debt securities in the funds withheld account and purchased other debt
securities. The debt securities acquired by the reinsurer remain as invested
assets on the Company's financial statements and have been classified as trading
debt securities. The designation as trading debt securities allows the market
value fluctuation of these securities to be recorded directly in the
Consolidated Statements of Earnings. This results in offsetting the embedded
derivative liability change due to market value fluctuations which is also
recorded directly in the Consolidated Statements of Earnings.



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The Company's trading debt securities portfolio consisted of the following
classes of securities:


                                                          December 31, 2021                                 December 31, 2020
                                                  Carrying                      %                     Carrying                    %
                                                    Value                                               Value
                                               (In thousands)                                      (In thousands)

Corporate                                   $          423,778                       39.4       $                -                      -
Residential mortgage-backed securities                  44,772                        4.2                        -                      -
Public utilities                                        36,973                        3.4                        -                      -
State and political subdivisions                        17,487                        1.6                        -                      -

Asset-backed securities                                313,855                       29.1                        -                      -
Commercial mortgage-backed                             240,573                       22.3                        -                      -

Totals                                      $        1,077,438                      100.0       $                -                      -



In the table below, investments in trading debt securities are classified
according to credit ratings by nationally recognized statistical rating
organizations.

                                              December 31, 2021                December 31, 2020
                                             Carrying                           Carrying
                                              Value               %              Value             %
                                          (In thousands)                     (In thousands)

AAA                                    $            6,473          0.6    $                -        -
AA                                                251,507         23.3                     -        -
A                                                 207,637         19.3                     -        -
BBB                                               573,139         53.2                     -        -
BB and other below investment grade                38,682          3.6                     -        -

Totals                                 $        1,077,438        100.0    $                -        -


The investments in the trading debt securities below investment grade are
summarized below.

                                                             Below 

Investment Grade Trading Debt Securities

                                          Amortized                  Carrying                  Fair                     % of
                                             Cost                     Value                    Value                  Invested
                                                                                                                       Assets

                                                                   (In

thousands, except percentages)

December 31, 2021                    $          39,470                 38,682                   38,682                        0.4  %


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Mortgage Loans and Real Estate

The Company originates loans on high quality, income-producing properties such
as shopping centers, freestanding retail stores, office buildings, industrial
and sales or service facilities, selected apartment buildings, hotels, and
health care facilities. The location of these properties is typically in major
metropolitan areas that offer a potential for property value appreciation.
Credit and default risk is minimized through strict underwriting guidelines and
diversification of underlying property types and geographic locations. In
addition to being secured by the property, mortgage loans with leases on the
underlying property are often guaranteed by the lease payments. This approach
has proved over time to result in quality mortgage loans with few
defaults. Mortgage loan interest income is recognized on an accrual basis with
any premium or discount amortized over the life of the loan. Prepayment and late
fees are recorded on the date of collection.

The Company targets a minimum specified yield on mortgage loan investments
determined by reference to currently available debt security instrument yields,
plus a desired amount of incremental basis points. A low interest rate
environment, along with a competitive marketplace, more recently resulted in
fewer loan opportunities being available that met the Company's required rate of
return. During 2020, mortgage loan originations were further impeded by the
COVID-19 pandemic and its effects upon the commercial real estate market. As
stabilization returned to the commercial real estate market, the Company
directed resources and effort towards expanding its mortgage loan investment
portfolio. Mortgage loans originated by the Company totaled $183.6 million and
$80.2 million for the years 2021 and 2020, respectively. Principal repayments on
mortgage loans in 2021 and 2020 were $28.8 million and $14.8 million,
respectively.

Loans in foreclosure, loans considered impaired or loans past due 90 days or
more are placed on a non-accrual status. If a mortgage loan is determined to be
on non-accrual status, the mortgage loan does not accrue any revenue into the
Consolidated Statements of Earnings. The loan is independently monitored and
evaluated as to potential impairment or foreclosure. If delinquent payments are
made and the loan is brought current, then the Company returns the loan to
active status and accrues income accordingly. The Company currently has no loans
past due 90 days which are accruing interest. As a result of the economic
climate change induced by the COVID-19 virus, during 2020 various mortgage loan
borrowers of the Company requested a temporary forbearance of principal payments
on loans in the range of three to nine months. There were eight loans
representing an aggregate principal balance of $29.2 million with borrowers
meeting specified criteria of the Company that forbearance terms were agreed to.
At December 31, 2020, only one of these loans with a principal balance of $4.7
million remained in forbearance. All forbearance loans returned to the terms of
the original loan agreements during the first quarter of 2021.

Included in the mortgage loan investment balance at December 31, 2021, are three
mortgage loan investments made by the reinsurer under the funds withheld
reinsurance agreement totaling $8.5 million. Similar to trading debt securities,
these loans are reported at fair market values in order to allow the market
value fluctuation to be recorded directly in the Consolidated Statements of
Earnings and to offset the embedded derivative liability change due to market
value fluctuations.

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The Company held net investments in mortgage loans, after allowances for
possible losses, totaling $487.3 million and $332.5 million at December 31, 2021
and 2020, respectively. The diversification of the portfolio by geographic
region, property type, and loan-to-value ratio was as follows:

                                                       December 31, 2021                           December 31, 2020
                                                Amount                   %                  Amount                   %
                                                  (In                                         (In
                                              thousands)                                  thousands)

Mortgage Loans by Geographic Region:
West South Central                           $  237,644                    48.5          $  201,501                    60.1
East North Central                               61,397                    12.6              16,478                     4.9
South Atlantic                                   81,847                    16.7              51,857                    15.5
East South Central                               20,069                     4.1              27,590                     8.2
West North Central                               12,213                     2.5              12,423                     3.7
Pacific                                          13,800                     2.8               6,228                     1.9
Middle Atlantic                                  36,296                     7.4               1,975                     0.6
Mountain                                         26,613                     5.4              16,955                     5.1

Gross balance                                   489,879                   100.0             335,007                   100.0

Market value adjustment                             412                     0.1                   -                       -
Allowance for credit losses                      (2,987)                   (0.6)             (2,486)                   (0.7)

Totals                                       $  487,304                    99.5          $  332,521                    99.3



                                                        December 31, 2021                           December 31, 2020
                                                 Amount                   %                  Amount                   %
                                                   (In                                         (In
                                               thousands)                                  thousands)

Mortgage Loans by Property Type:
Retail                                        $  164,895                    33.7          $   92,173                    27.5
Office                                           142,824                    29.2             111,735                    33.3
Hotel                                             23,748                     4.8               8,372                     2.5
Storage Facility                                  73,401                    15.0              53,591                    16.0
Industrial                                        34,212                     7.0              29,131                     8.7
Land/Lots                                          4,597                     0.9               4,680                     1.4
Apartments                                        38,920                     7.9              29,743                     8.9
Residential                                        1,905                     0.4                   -                       -
All other                                          5,377                     1.1               5,582                     1.7
Gross balance                                    489,879                   100.0             335,007                   100.0

Market value adjustment                              412                     0.1                   -                       -
Allowance for credit losses                       (2,987)                   (0.6)             (2,486)                   (0.7)

Totals                                        $  487,304                    99.5          $  332,521                    99.3



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                                                          December 31, 2021                           December 31, 2020
                                                   Amount                   %                  Amount                   %
                                                     (In                                         (In
                                                 thousands)                                  thousands)

Mortgage Loans by Loan-to-Value Ratio (1):
Less than 50%                                   $  100,806                    20.6          $   66,635                    19.9
50% to 60%                                         128,191                    26.2              64,536                    19.3
60% to 70%                                         202,670                    41.3             153,414                    45.8
70% to 80%                                          58,212                    11.9              50,422                    15.0
80% to 90%                                               -                       -                   -                       -

Gross balance                                      489,879                   100.0             335,007                   100.0

Market value adjustment                                412                     0.1                   -                       -
Allowance for credit losses                         (2,987)                   (0.6)             (2,486)                   (0.7)

Totals                                          $  487,304                    99.5          $  332,521                    99.3



(1) Loan-to-Value Ratio using the most recent appraised value. Appraisals are
required at the time of funding and may be updated if a material change occurs
from the original loan agreement.

All mortgage loans are analyzed quarterly in order to monitor the financial
quality of these assets. Based on ongoing monitoring, mortgage loans with a
likelihood of becoming delinquent are identified and placed on an internal
"watch list". Among the criteria that would indicate a potential problem are:
major tenant vacancies or bankruptcies, late payments, and loan
relief/restructuring requests. The mortgage loan portfolio is analyzed for the
need for a valuation allowance on any loan that is on the internal watch list,
in the process of foreclosure, or that currently has a valuation allowance.

Prior to January 1, 2020, mortgage loans were considered impaired when, based on
current information and events, it was probable that the Company would be unable
to collect all amounts due according to the contractual terms of the loan
agreement. When it was determined that a loan was impaired, a loss was
recognized for the difference between the carrying amount of the mortgage loan
and the estimated value reduced by the cost to sell. Estimated value was
typically based on the loan's observable market price or the fair value of the
collateral less cost to sell. Impairments and changes in the valuation allowance
were reported in net realized investment gains (losses) in the Consolidated
Statements of Earnings. The Company held a valuation allowance of $0.7 million
at December 31, 2019.

As disclosed in Note (1) Summary of Significant Accounting Policies in the
accompanying Notes to Consolidated Financial Statements in this report, the
Company adopted new accounting guidance for credit loss recognition criteria for
certain financial assets, including mortgage loans. For mortgage loan
investments the Company employed the Weighted Average Remaining Maturity
("WARM") method in estimating current expected losses with respect to mortgage
loan investments as of January 1, 2020 and each succeeding calendar quarter-end.
The WARM method applies publicly available data of default incidence of
commercial real estate properties by several defined segmentations combined with
future assumptions regarding economic conditions (i.e. GDP forecasts) both in
the near term and the long term. Under this new accounting guidance, at January
1, 2020 a balance of $1.2 million was recorded for mortgage loan investments
which incorporated the previous year-end balance under the prior accounting
method. The adjustment resulted in a charge to retained earnings as a change in
accounting, net of tax, of $0.4 million. Subsequent changes in the allowance for
current expected credit losses are reported in net investment income in the
Consolidated Statements of Earnings.

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The following table represents the mortgage loan allowance for credit losses.

                                                       Years Ended December 31,
                                                           2021                  2020
                                                            (In thousands)

Mortgage Loans Allowance for Credit Losses:
Balance, beginning of the period                $                   2,486   

675

Impact of adoption of new accounting guidance                           -         504
Provision during the period                                           501       1,307
Releases                                                                -           -

Balance, end of period                          $                   2,987       2,486


The Company had no mortgage loans past due six months or more at December 31,
2021
or 2020. There was no interest income that was not recognized in 2021,
2020, or 2019.

The contractual maturities of mortgage loan principal balances at December 31,
2021
and 2020 were as follows:

                                                        December 31, 2021                           December 31, 2020
                                                 Amount                   %                  Amount                   %
                                                   (In                                         (In
                                               thousands)                                  thousands)

Principal Balance by Contractual Maturity:
Due in one year or less                       $   13,422                     2.7          $    4,208                     1.3
Due after one year through five years            127,766                    26.1              60,826                    18.1
Due after five years through ten years           222,444                    45.4             154,787                    46.1
Due after ten years through fifteen years        115,313                    23.5             107,662                    32.1
Due after fifteen years                           11,280                     2.3               7,977                     2.4

Totals                                        $  490,225                   100.0          $  335,460                   100.0



The Company's direct investments in real estate total approximately $28.6
million at December 31, 2021 and $33.8 million at December 31, 2020, and consist
primarily of income-producing properties which are being operated by a wholly
owned subsidiary of National Western. Included in the amount at December 31,
2020 was a surface parking property owned by Ozark National in Kansas City,
Missouri which contracted it out for rent. The value of this real estate
investment was appraised at $4.3 million at January 31, 2019 as part of the
purchase accounting done as of that date. During 2021, Ozark National sold its
home office properties, including the surface parking property. The Company
recognized operating income on its direct investments in real estate of
approximately $2.9 million, $2.9 million and $2.9 million for the years ended
December 31, 2021, 2020, and 2019, respectively. The Company monitors the
conditions and market values of these properties on a regular basis and makes
repairs and capital improvements to keep the properties in good condition.

The Company recorded net realized investment gains (losses) of $(1.4) million,
$2.7 million and $6.9 million associated with real estate investments in the
years ended December 31, 2021, 2020 and 2019, respectively. The net real estate
loss for the year ended December 31, 2021 was related to Ozark National sale of
the home office, parking garage and parking lot described above. Net realized
investment gains for the year ended December 31, 2020 pertain to property
located in Travis County, Texas which was sold. Included in net realized
investment gains during 2019 are the sale of the Company's former home office
facility in Austin, Texas at a gain of $3.2 million and the sale of the
Company's two nursing home facilities at a net gain of $3.7 million.
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Other invested asset balances outstanding have remained relatively stable over
the past few years. National Western, in order to obtain incremental investment
yield, began expanding its invested asset vehicles to include alternative
investments during 2020. These assets consist of syndicated, targeted capital
pools with specific investment objectives managed by investment firms having
expertise in designated asset opportunities. At December 31, 2021 and 2020, the
Company held balances of $67.7 million and $28.9 million, respectively, in this
investment type which are included in the Other category in the investment table
at the beginning of this section.

Derivatives, Index Options

The Company offers fixed-index universal life and annuity products that
guarantee the return of principal to policyholders and, at the policyholder's
election, credit interest based on a percentage gain in a specified equity
market index (policyholders may alternatively elect a fixed interest rate).
Premiums and deposits received on these products are predominantly invested in
investment grade fixed income securities with a portion used to purchase
derivatives consisting of call options on the applicable market index to fund
the index credits due to fixed-index policyholders. The call options purchased
are one year over-the-counter option contracts coinciding with the initial
issuance of the policy and subsequent annual renewal periods in order to match
the Company's funding requirements for the underlying policies. On the
respective anniversary dates of the index policies, the index used to compute
the annual index credit is reset and a new one-year call option is purchased to
fund the next annual index credit.
Although the call options are employed to be effective hedges against the
Company's policyholder obligations from an economic standpoint, they do not meet
the requirements for hedge accounting under GAAP. Accordingly, the call options
are marked to fair value on each reporting date with the change in fair value,
plus or minus, included as a component of net investment income. The change in
fair value of the call options includes the realized gains or losses recognized
at the expiration of the option term and the unrealized gain or loss changes in
fair value for open contracts.

The Company's design of its fixed-index products incorporates a budget for the
purchase of over-the-counter call options to fund the index credits due to
policyholders. Management monitors current prices of these call options and
manages component features of the fixed-index products in accordance with the
terms of the policy contracts in order to control the cost of purchases. These
terms permit the Company to change caps, participation rates, and asset fees,
subject to guaranteed minimums, thus managing the cost of the call options
quoted by counterparties. In addition, the Company's product terms allow for the
Company to withdraw from offering a particular index option at any time
effective on the next policy anniversary date.

The fair value of derivative instruments presented in the Company's Consolidated
Financial Statements totaling $101.6 million at December 31, 2021 and $132.8
million at December 31, 2020 pertain to notional policyholder account values of
$2.1 billion and $2.1 billion at December 31, 2021 and 2020, respectively,
electing interest credits based upon applicable market index performance.

Market Risk

Market risk is the risk of change in market values of financial instruments due
to changes in interest rates, currency exchange rates, commodity prices, or
equity prices. The most significant market risk exposure for the Company is
interest rate risk. Substantial and sustained increases and decreases in market
interest rates can affect the profitability of insurance products and the fair
value of investments. The yield realized on new investments generally increases
or decreases in direct relationship with interest rate changes. The fair values
of fixed income debt securities correlate to external market interest rate
conditions as market values typically increase when market interest rates
decline and decrease when market interest rates rise. However, market values may
fluctuate for other reasons, such as changing economic conditions, market
dislocations, declination in credit quality, or increasing event-risk concerns.

Interest Rate Risk

A gradual increase in interest rates from current levels would generally be a
positive development for the Company. Rate increases would be expected to
provide incremental net investment income, produce increased sales of fixed rate
products, and limit the potential erosion of the Company's interest rate spread
on products due to minimum guaranteed crediting rates in products.
Alternatively, a rise in interest rates would reduce the fair value of the
Company's investment portfolio and if long-term rates rise dramatically within a
relatively short time period the Company could be exposed to disintermediation
risk. Disintermediation risk is the risk that policyholders will surrender their
policies in a rising interest rate environment forcing the Company to liquidate
assets when they are in an unrealized loss position.

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A decline in interest rates could cause certain mortgage-backed securities in
the Company's portfolio to be more likely to pay down or prepay. In this
situation, the Company typically will be unable to reinvest the proceeds at
comparable yields. Lower interest rates will likely also cause lower net
investment income, subject the Company to reinvestment rates risks, and possibly
reduce profitability through reduced interest rate margins associated with
products having minimum guaranteed crediting rates. Alternatively, the fair
value of the Company's investment portfolio will increase when interest rates
decline.

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

                                                                                            December 31,
                                                                                 2021                        2020
                                                                                  (In thousands except percentages)

Available-for-Sale Debt securities - fair value                           $   9,068,946                       10,770,923
Available-for-Sale Debt securities - amortized cost                       $   8,604,250                        9,874,543

Fair value as a percentage of amortized cost                                     105.40    %                      109.08  %
Unrealized gains at year-end                                              $     464,696                          896,380

Ten-year U.S. Treasury bond – increase (decrease) in yield for the year

        0.59    %                       (1.00) %



The Company’s trading debt securities, which are exclusively in the funds
withheld assets managed by the reinsurer, are recorded at fair value upon
purchase. While the recorded value of these trading debt securities subsequently
fluctuates with market prices, the fair value movement of the securities is
entirely offset by an identical fair value movement of the associated funds
withheld liabilities.

The Company's unrealized gain balance for available-for-sale and trading debt
securities held at December 31, 2021 and 2020 is shown in the following table.
                                                                                       Unrealized Gain Balance
                                                                Net Balance at          Net Balance at
                                                                 December 31,            December 31,               Change in Net
                                                                     2021                    2020                      Balance
                                                                                           (In thousands)

Debt securities available-for-sale                              $   464,696                896,380                    (431,684)
Debt securities trading                                              11,331                      -                      11,331

Totals                                                          $   476,027                896,380                    (420,353)



The change in the unrealized balance pertaining to debt securities
available-for-sale is recorded in Other comprehensive income in the Consolidated
Statements of Comprehensive Income while the change in the unrealized balance
pertaining to trading debt securities is recorded in net investment income in
the Consolidated Statements of Earnings.

Changes in interest rates typically have a sizable effect on the fair values of
the Company's debt securities. During 2021, the market interest rate of the
ten-year U.S. Treasury bond increased 59 basis points from 0.92% at year-end
2020 to 1.51% at year-end 2021. Therefore, the decrease in the unrealized gain
position is an expected portfolio value movement.

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

The Company has the ability to adjust interest rates, participation rates, and
asset management fees and caps, as applicable, in response to changes in
investment portfolio yields for a substantial portion of its business in force.
The ability to adjust these rates is subject to competitive forces in the market
for the Company's products. Surrender rates could increase and new sales could
be negatively affected if crediting rates are not competitive with the rates on
competing products offered by other insurance companies and financial service
entities. The Company designs its interest sensitive and annuity products with
features encouraging persistency, such as surrender and withdrawal penalty
provisions. Typically, surrender charge rates gradually decrease each year the
contract is in force.

The Company seeks to minimize the impact of interest rate risk through surrender
charges that are imposed to discourage policy surrenders and to offset
unamortized deferred policy acquisition costs. Certain products, such as
supplementary contracts with life contingencies, are not subject to surrender or
discretionary withdrawal. The Company may also include a market value adjustment
("MVA") feature on its annuity products which could increase or decrease the
amount paid to contract holders upon surrender of their contract as a means to
further mitigate interest rate risk.

The following table profiles the Company's insurance liabilities at December 31,
2021 for annuities, deposit-type contracts and supplementary contracts with life
contingencies by surrender and discretionary withdrawal characteristics.

                                                 December 31, 2021
                                                 Amount              %
                                             (In thousands)

Subject to discretionary withdrawal:
With market value adjustment              $          145,634         2.2
With surrender charge of 5% or more                4,439,039        65.9
With surrender charge of 5% or less                1,761,750        26.2
Not subject to discretionary withdrawal              385,937         5.7

Total Gross                                        6,732,360       100.0

Reinsurance ceded                                  1,504,044

Total Net                                 $        5,228,316



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Interest Rate Sensitivity

The following table illustrates the market risk sensitivity of the Company's
interest rate sensitive assets. The table shows the effect of a change in
interest rates on the fair value of the portfolio using models that measure the
change in fair value arising from an immediate and sustained change in interest
rates in increments of 100 basis points.

                                                                            

Fair Values of Assets

Changes in Interest Rates in Basis Points

                                           -100                        0                        100                    200                    300
                                                                                       (In thousands)

Debt and equity securities          $    10,790,199                  
10,174,601              9,631,667              9,145,271              8,706,995
Mortgage loans                              544,575                      513,246                484,481                458,028                433,663
Other loans                                  25,500                       25,085                 24,683                 24,291                 23,911
Derivatives                                 100,148                      101,622                103,083                104,559                106,040



The selection of the 100 basis point parallel shift in the yield curve was made
as an illustration of the potential hypothetical impact of such an event and
should not be construed as a prediction of future market events. Actual results
could vary materially from those illustrated due to the nature of the estimates
and assumptions used in the above analysis. Expected maturities of debt
securities may differ from contractual maturities due to call or prepayment
provisions. The models assume that prepayments on mortgage-backed securities are
influenced by agency and pool types, the level of interest rates, loan age,
refinancing incentive, month of the year, and underlying coupon. During periods
of declining interest rates, principal payments on mortgage-backed securities
and collateralized mortgage obligations tend to increase as the underlying
mortgages are prepaid. Conversely, during periods of rising interest rates, the
rate of prepayment slows. Both of these situations can expose the Company to the
possibility of asset-liability cash flow and yield mismatch. The model uses a
proprietary method of sampling interest rate paths along with a mortgage
prepayment model to derive future cash flows. The initial interest rates used
are based on the current U.S. Treasury yield curve as well as current mortgage
rates for the various types of collateral in the portfolio.

Mortgage and other loans were modeled by discounting scheduled cash flows
through the scheduled maturities of the loans, starting with interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Policy loans were modeled by discounting estimated cash flows using
U.S. Treasury Bill interest rates as base rates at December 31, 2021. The
estimated cash flows include assumptions as to whether such loans will be repaid
by the policyholders or settled upon payment of death or surrender benefits on
the underlying insurance contracts and incorporate both Company experience and
mortality assumptions associated with such contracts.

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

The Company's market risk liabilities, which include policy liabilities for
annuity and supplemental contracts, are managed for interest rate risk through
cash flow testing as previously described. As part of this cash flow testing,
the Company has analyzed the potential impact on net earnings of a 100 basis
point decrease and increases in increments of 100 basis points in the U.S.
Treasury yield curve as of December 31, 2021. The potential impact on net
earnings from these interest rate changes are summarized below.

                                                                Changes in 

Interest Rates in Basis Points

                                                  -100                   100                  200                   300
                                                                             (In thousands)

Impact on net earnings                      $       (1,189)               1,485                4,280                10,357


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

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The above described scenarios produce estimated changes in cash flows as well as
cash flow reinvestment projections. Estimated cash flows in the Company's model
assume cash flow reinvestments, which are representative of the Company's
current investment strategy. Calls and prepayments include scheduled maturities
and those expected to occur which would benefit the security issuers. Assumed
policy surrenders consider differences and relationships between credited
interest rates and market interest rates as well as surrender charges on
individual policies. The impact to earnings also includes the expected effects
on amortization of deferred policy acquisition costs. The model considers only
annuity and supplemental contracts in force at December 31, 2021, and does not
consider new product sales or the possible impact of interest rate changes on
sales.

Credit Risk

The Company is exposed to credit risk through counterparties and within its
investment portfolio. Credit risk relates to the uncertainty associated with an
obligor's continued ability to make timely payments of principal and interest in
accordance with the contractual terms of an instrument or contract. As
previously discussed, the Company manages credit risk through established
investment credit policies and guidelines which address the quality of creditors
and counterparties, concentration limits, diversification practices and
acceptable risk levels. These policies and guidelines are regularly reviewed and
approved by senior management and the Company's Board of Directors.

In connection with the Company's use of call options to hedge the equity return
component of its fixed-indexed annuity and life products, the Company is exposed
to the risk that a counterparty fails to perform under terms of the option
contract. The Company purchases one-year option contracts from multiple
counterparties and evaluates the creditworthiness of all counterparties prior to
the purchase of the contracts. For consideration in contracting with a
counterparty the rating required by the Company is a credit rating of "A" or
higher. Accordingly, all options are purchased from nationally recognized
financial institutions with a demonstrated performance for honoring their
financial obligations and possessing substantial financial capacity. In
addition, each counterparty is required to execute a credit support agreement
obligating the counterparty to provide collateral to the Company when the fair
value of the Company's exposure to the counterparty exceeds specified amounts.
Counterparty credit ratings and credit exposure are monitored continuously by
National Western's Investment Department with adjustments to collateral levels
managed as incurred under the credit support agreements.

The Company follows the industry practice of reinsuring (ceding) portions of its
insurance risks with a variety of reinsurance companies on either a coinsurance
or a modified coinsurance basis in order to limit risk. Use of reinsurance does
not relieve the Company of its primary liability to pay the full amount of the
insurance benefit in the event the reinsurer (counterparty) fails to honor its
contractual obligation. Consequently, the Company avoids concentrating
reinsurance counterparty credit risk with any one reinsurer and only maintains
reinsurance agreements with reputable carriers which are well-capitalized and
highly rated by independent rating agencies. With respect to the funds withheld
coinsurance arrangement entered into by National Western, assets backing the
reserves for the policyholder obligations under the agreement are retained by
the Company and are available to meet benefit payment commitments. In addition,
National Western is the beneficiary of an incremental collateral trust account
provided by the reinsurer providing additional security for the payment of all
amounts due under the reinsurance agreement.

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The Company's net exposure to loss due to credit risk if option counterparties
failed to completely perform according to the terms of their one-year contracts
is as follows at December 31, 2021 and 2020.

                                                              December 31, 2021
                               Moody/               Fair              Collateral          Net
      Counterparty           S&P Rating            Value                 Held          Exposure
                                                               (In thousands)

Credit Suisse               WR/A+           $           12,659        12,965               -
Wells Fargo                 Aa2/A+                      19,169        19,868               -
Bank of America             Aa2/A+                      13,451        13,740               -
Barclays Bank               A1/A                         8,119         8,597               -
BNP Paribas                 Aa3/A+                      25,906        27,004               -

Royal Bank of Canada        Aa2/AA-                      5,923         6,845               -
Canadian Imperial Bank      Aa2/A+                       6,125         6,592               -
Societe Generale            A1/A                        10,270        10,660               -

                                            $          101,622       106,271               -



                                                              December 31, 2020
                               Moody/               Fair              Collateral          Net
      Counterparty           S&P Rating            Value                 Held          Exposure
                                                               (In thousands)

Credit Suisse               Aa3/A+          $           14,044        13,485             559
Wells Fargo                 Aa2/A+                      30,278        30,611               -
Bank of America             Aa2/A+                      14,677        14,976               -
Barclays Bank               A1/A                        34,088        33,717             371
BNP Paribas                 Aa3/A+                       7,361         6,657             704

Royal Bank of Canada        Aa2/AA-                      5,108         5,083              25
Canadian Imperial Bank      Aa2/A+                      12,572        12,388             184
Societe Generale            A1/A                        14,693        14,480             213

                                            $          132,821       131,397           2,056


The Company has never incurred a loss on index options due to counterparty
default.

The Company is also exposed to credit spread risk related to market prices of
investment securities and cash flows associated with changes in credit spreads.
Credit spread tightening will reduce net investment income associated with new
purchases of fixed debt securities but will also increase the fair value of the
investment portfolio. Credit spread widening will reduce the fair value of the
investment portfolio but will also increase net investment income on new
purchases.


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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity requirements are met primarily by funds provided from operations.
Premium deposits and annuity considerations, investment income, and investment
maturities and prepayments are the primary sources of funds while investment
purchases, policy benefits in the form of claims, and payments to policyholders
and contract holders in connection with surrenders and withdrawals as well as
operating expenses are the primary uses of funds. To ensure the Company will be
able to pay future commitments, the funds received as premium payments and
deposits are invested in high quality investments, primarily fixed income
securities. Funds are invested with the intent that the income from investments,
plus proceeds from maturities, will meet the ongoing cash flow needs of the
Company. The approach of matching asset and liability durations and yields
requires an appropriate mix of investments. Although the Company historically
has not been put in the position of having to liquidate invested assets to
provide cash flow, its investments consist primarily of marketable debt
securities that could be readily converted to cash for liquidity needs. National
Western maintains a line of credit facility of $75 million which it may access
for short-term cash needs. As part of the acquisition of Ozark National and NIS
effective January 31, 2019, National Western borrowed $75 million to partly fund
the closing cash purchase price of $205.4 million. The amounts borrowed were
subsequently repaid during the first quarter of 2019 and there have been no
borrowings under the line of credit since that time including as at December 31,
2021.

In addition, National Western became a member of the Federal Home Loan Bank of
Dallas (FHLB) during 2020 through an initial minimum required stock investment
of $4.3 million. Through this membership, National Western is able to create a
specified borrowing capacity based upon the amount of collateral it elects to
establish. At December 31, 2021, cash and securities in the amount of $57.3
million (fair value of $60.6 million) were pledged as collateral to FHLB.

A primary liquidity concern for life insurers is the risk of an extraordinary
level of early policyholder withdrawals, particularly with respect to annuity
products which can move more rapidly with interest rate changes. The Company
includes provisions within its annuity and universal life insurance policies,
such as surrender and market value adjustments, that help limit and discourage
early withdrawals.

The following table sets forth withdrawal characteristics of National Western's
annuity reserves and deposit liabilities (based on statutory reporting liability
values) as of the dates indicated.

                                                                December 31, 2021                                     December 31, 2020
                                                        Amount                   % of Total                   Amount                   % of Total
                                                                                   (In thousands except percentages)

Not subject to discretionary withdrawal
provisions                                       $         385,937                        5.7  %       $         369,627                        5.4  %

Subject to discretionary withdrawal, with
adjustment:
With market value adjustment                               145,634                        2.2  %                 290,794                        4.2  %
At contract value less current surrender charge
of 5% or more                                            4,439,039                       65.9  %               4,644,808                       67.6  %

Subtotal                                                 4,970,610                       73.8  %               5,305,229                       77.2  %
Subject to discretionary withdrawal at contract
value with no surrender charge or surrender
charge of less than 5%                                   1,761,750                       26.2  %               1,564,485                       22.8  %

Total annuity reserves and deposit liabilities -
Gross                                                    6,732,360                      100.0  %               6,869,714                      100.0  %

Reinsurance ceded                                        1,504,044                                             1,707,361

Total annuity reserves and deposit liabilities -
Net                                              $       5,228,316                                     $       5,162,353




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The actual amounts paid out by product line in connection with surrenders and
withdrawals are noted in the table below.

                                  Years Ended December 31,
                              2021                   2020          2019
                                       (In thousands)

Product Line:
Traditional Life   $                  16,348        17,022        17,614
Universal Life                        95,628        96,031       101,187
Annuities                            658,403       643,223       705,892

Total              $                 770,379       756,276       824,693



The above contractual withdrawals, as well as the level of surrenders
experienced, and the associated cash outflows did not have an adverse impact on
overall liquidity. The amounts shown includes funds withheld policyholder
obligations in 2021 and Ozark National cash outflows (subsequent to their
acquisition on January 31, 2019). Individual life insurance policies are
typically less susceptible to withdrawal than annuity reserves and deposit
liabilities because policyholders may need to undergo a new underwriting process
in order to obtain a new insurance policy elsewhere. Annuity dollar outflows are
generally more sensitive to economic conditions, interest rate levels, and the
level of surrender charges assessed upon withdrawal or termination. Cash flow
projections and tests under various market interest rate scenarios and
assumptions are performed to assist in evaluating liquidity needs and
adequacy. With economic decline precipitated by the COVID-19 pandemic, Company
management conducted additional liquidity scenario testing during 2020 using
more severe assumptions and concluded that liquid assets were more than adequate
under these scenarios. Accordingly, the Company currently expects available
liquidity sources and future cash flows to be more than adequate to meet the
demand for funds.

Cash flows from the Company's insurance operations have historically been
sufficient to meet current needs. Cash flows from operating activities were
$276.8 million, $373.1 million, and $329.0 million in 2021, 2020, and 2019,
respectively. The Company also has significant cash flows from both scheduled
and unscheduled investment security maturities, redemptions, and prepayments.
These cash flows totaled $1,582.0 million, $1,294.8 million, and $995.8 million
in 2021, 2020, and 2019, respectively. Operating and investing activity cash
flow items could be reduced if interest rates rise at an accelerated rate in the
future. Net cash inflows/(outflows) from the Company's universal life and
annuity product operations totaled $(322.2) million, $(437.4) million, and
$(584.7) million in 2021, 2020, and 2019, respectively. The lower net outflow in
2021 reflects a higher level of fixed-index annuity sales.

Capital Resources

The Company relies on stockholders for its capital resources as there is no
long-term debt outstanding and the Company does not anticipate the need for any
long-term debt in the near future. As of December 31, 2021, the Company
maintained commitments for its normal operating and investment activities.

The Company has declared and paid an annual dividend on its common shares since
2005. The Company's practice has been to take a conservative approach to
dividends, and the Board of Directors has adopted a strategic position to
substantially reinvest earnings internally. This conservative approach yields
the following benefits: (1) providing capital to finance the development of new
business; (2) enabling the Company to take advantage of potential acquisitions
and other competitive situations as they arise; (3) building a strong capital
base to support the Company's financial strength ratings; (4) maintaining the
Company's liquidity and solvency during difficult economic and market
conditions; and (5) enhancing the Company's regulatory capital position. For
similar reasons, despite the fact the Company's market price of its Class A
common shares has been trading at a discount to the book value per share for
some time, there are no imminent plans for the Company to repurchase its shares.

As the largest subsidiary of NWLGI, National Western serves as the primary
funding source for NWLGI. The capacity of National Western to pay dividends to
NWLGI is limited by law in the state of Colorado to earned profits (statutory
unassigned surplus). At December 31, 2021, the maximum amount legally available
for distribution during 2022 without further regulatory approval is $64.4
million.

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The National Association of Insurance Commissioners ("NAIC") has established
risk-based capital ("RBC") standards for U.S. life insurers as well as a
risk-based capital model act ("RBC Model Act"). The RBC Model Act requires that
life insurers annually submit a report to state regulators regarding their RBC
amounts based upon four categories of risk (asset risk, insurance risk, interest
rate risk, and business risk). The capital requirement for each is determined by
applying factors that vary based upon the degree of risk to various asset,
premium and policy benefit reserve items. The formula is an early warning tool
to identify potential weakly capitalized companies for purposes of initiating
further regulatory action. Independent rating agencies utilize proprietary
versions similar to the NAIC RBC model incorporating additional risk factors
identified in their respective rating methodology. At December 31, 2021,
National Western and Ozark National each maintained statutory capital
substantially in excess of applicable statutory requirements.

It is Company practice to not enter into off-balance sheet arrangements or to
issue guarantees to third parties, other than in the normal course of issuing
insurance contracts. Commitments related to insurance products sold are
reflected as liabilities for future policy benefits. Insurance contracts
guarantee certain performances by National Western and Ozark National.

Insurance reserves are the means by which life insurance companies determine the
liabilities that must be established to assure that future policy benefits are
provided for and can be paid. These reserves are required by law and based upon
standard actuarial methodologies to ensure fulfillment of commitments guaranteed
to policyholders and their beneficiaries, even though the obligations may not be
due for many years. Refer to Note (1) Summary of Significant Accounting Policies
in the accompanying Notes to Consolidated Financial Statements in this report
for a discussion of reserving methods.

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

                                                                                        Payment Due by Period
                                         Total                Less Than 1 Year              1 - 3 Years               3 - 5 Years             More Than 5 Years
                                                                                            (In thousands)

Loan commitments                    $      18,500                  18,500                           -                         -                         

Commitments for capital calls to
investment funds                          256,392                  85,882                     126,010                         -                     44,500
Lease obligations (1)                       1,346                     343                         659                       344                          -
Claims payable (2)                         77,536                  77,536                           -                         -                          -
Other long-term reserve liabilities
reflected on the balance sheet
under GAAP (3)                         12,632,010               1,017,321                   1,924,228                 1,683,675                  8,006,786

Total                               $  12,985,784               1,199,582                   2,050,897                 1,684,019                  8,051,286


(1) Refer to Note (17) Commitments and Contingencies in the accompanying Notes
to Consolidated Financial Statements in this report relating to Company leases.

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

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


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ACCOUNTING STANDARDS AND CHANGES IN ACCOUNTING

Changes in Accounting Principles

Effective January 1, 2020, the Company implemented ASU 2016-13, Financial
Instruments - Credit Losses. This standard replaced the previous incurred loss
recognition model with an expected loss recognition model for certain financial
assets. Adoption of the standard resulted in an incremental allowance for credit
losses as of January 1, 2020 of $3.8 million, and a charge to retained earnings,
net of tax, of $3.0 million as a change in accounting. There were no other
changes in accounting principles during the periods reported in this Form 10-K.

Recently Issued Accounting Standards

Refer to Note (1), Summary of Significant Accounting Policies in the
accompanying Notes to Consolidated Financial Statements in this report.

Correction of Errors

None.


               ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                               ABOUT MARKET RISK

The information called for by Item 6A is set forth in the Investments section of
the Management's Discussion and Analysis of Financial Condition and Results of
Operations.



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