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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2008

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 2-64559





NATIONWIDE LIFE INSURANCE
COMPANY

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Ohio                                                           |  | 31-4156830                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|One Nationwide Plaza, Columbus, Ohio                           |  | 43215                            
|(Address of principal executive offices)                       |  | (Zip Code)                       

(614) 249-7111

(Registrants telephone number, including area code)





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

None

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

None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

Yes  x    No   ̈

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

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller Reporting Company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes   ̈    No  x

No established published trading market exists for the registrants common stock, par value
$1.00 per share. As of February 25, 2008, 3,814,779 shares of the registrants common stock were outstanding, all of which are held by Nationwide Financial Services, Inc.

The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.









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NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

FORM 10-K

FOR THE YEAR ENDED
DECEMBER 31, 2008

TABLE OF CONTENTS



|                                                                                                       |  |     
|------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                       | 
|PART I                                                                                                 |  | 1   
|                                                                                                       | 
|ITEM 1 BUSINESS                                                                                        |  | 1   
|                                                                                                       | 
|ITEM 1A RISK FACTORS                                                                                   |  | 7   
|                                                                                                       | 
|ITEM 1B UNRESOLVED STAFF COMMENTS                                                                      |  | 15  
|                                                                                                       | 
|ITEM 2 PROPERTIES                                                                                      |  | 15  
|                                                                                                       | 
|ITEM 3 LEGAL PROCEEDINGS                                                                               |  | 15  
|                                                                                                       | 
|ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             |  | 15  
|                                                                                                       | 
|PART II                                                                                                |  | 16  
|                                                                                                       | 
|ITEM 5 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |  | 16  
|                                                                                                       | 
|ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA                                                            |  | 16  
|                                                                                                       | 
|ITEM 7 MANAGEMENTS NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS                                    |  | 17  
|                                                                                                       | 
|ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  | 56  
|                                                                                                       | 
|ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                        |  | 64  
|                                                                                                       | 
|ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            |  | 64  
|                                                                                                       | 
|ITEM 9A CONTROLS AND PROCEDURES                                                                        |  | 64  
|                                                                                                       | 
|ITEM 9B OTHER INFORMATION                                                                              |  | 64  
|                                                                                                       | 
|PART III                                                                                               |  | 65  
|                                                                                                       | 
|ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                         |  | 65  
|                                                                                                       | 
|ITEM 11 EXECUTIVE COMPENSATION                                                                         |  | 65  
|                                                                                                       | 
|ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |  | 65  
|                                                                                                       | 
|ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                      |  | 65  
|                                                                                                       | 
|ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES                                                         |  | 66  
|                                                                                                       | 
|PART IV                                                                                                |  | 67  
|                                                                                                       | 
|ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                        |  | 67  
|                                                                                                       | 
|CONSOLIDATED FINANCIAL STATEMENTS                                                                      |  |     
|                                                                                                       | 
|MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING                                         |  | F-1 
|                                                                                                       | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                                |  | F-2 
|                                                                                                       | 
|CONSOLIDATED STATEMENTS OF (LOSS) INCOME                                                               |  | F-3 
|                                                                                                       | 
|CONSOLIDATED BALANCE SHEETS                                                                            |  | F-4 
|                                                                                                       | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY                                             |  | F-5 
|                                                                                                       | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                  |  | F-6 
|                                                                                                       | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                             |  | F-7 
|                                                                                                       | 
|SIGNATURES                                                                                             |  | F-72



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##### Table of Contents

PART I

ITEM 1 BUSINESS

Overview

Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) was incorporated in 1929 and is an Ohio stock legal reserve
life insurance company. The Company is a member of the Nationwide group of companies (Nationwide), which is comprised of Nationwide Mutual Insurance Company (NMIC) and all of its subsidiaries and affiliates.

All of the outstanding shares of NLICs common stock are owned by Nationwide Financial Services, Inc. (NFS), a holding company formed by Nationwide
Corporation (Nationwide Corp.), a majority-owned subsidiary of NMIC.

Wholly-owned subsidiaries of NLIC as of December 31, 2008
include Nationwide Life and Annuity Insurance Company (NLAIC) and Nationwide Investment Services Corporation (NISC). NLAIC offers universal life insurance, variable universal life insurance, corporate-owned life insurance (COLI) and individual
annuity contracts on a non-participating basis. NISC is a registered broker/dealer.

The Company is a leading provider of long-term savings
and retirement products in the United States of America (U.S.). The Company develops and sells a diverse range of products including individual annuities, private and public sector group retirement plans, other investment products sold to
institutions, life insurance and advisory services.

The Company sells its products through a diverse distribution network. Unaffiliated
entities that sell the Companys products to their own customer bases include independent broker/dealers, financial institutions, wirehouse and regional firms, pension plan administrators, and life insurance specialists. Representatives of
affiliates who market products directly to a customer base include Nationwide Retirement Solutions, Inc. (NRS) and Nationwide Financial Network (NFN) producers. The Company also distributes products through the agency distribution force of its
ultimate parent company, NMIC. The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively in the rapidly growing retirement savings market.

Business Segments

Individual Investments

The Individual Investments segment consists of individual The BEST of
AMERICA® and private label deferred variable annuity products, individual annuity products, deferred fixed annuity products, income products and investment advisory services. Individual
deferred annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, individual variable annuity contracts
provide the customer with access to a wide range of investment options and asset protection features, while individual fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods.

Retirement Plans

The Retirement Plans
segment is comprised of the Companys private and public sector retirement plans business. The private sector primarily includes Internal Revenue Code (IRC) Section 401 business, and the public sector primarily includes IRC
Section 457 and Section 401(a) business, both in the form of full-service arrangements that provide plan administration and fixed and variable group annuities as well as administration-only business.

Individual Protection

The Individual
Protection segment consists of investment life insurance products, including individual variable, COLI and bank-owned life insurance (BOLI) products; traditional life insurance products; and universal life insurance products. Life insurance products
provide a death benefit and generally allow the customer to build cash value on a tax-advantaged basis.



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Corporate and Other

The Corporate and Other segment includes the medium-term note (MTN) program; structured products business; non-operating realized gains and losses, including mark-to-market adjustments on embedded derivatives, net of
economic hedges, related to products with living benefits included in the Individual Investments segment; and other revenues and expenses not allocated to other segments.

Additional information related to the Companys business segments is included in Note 18 to the audited consolidated financial statements included in the F pages of this report.

Reinsurance

The Company follows the industry
practice of reinsuring with other companies a portion of its life insurance and annuity risks in order to reduce net liability on individual risks, to provide protection against large losses and to obtain greater diversification of risks. During
2007, the Company increased the maximum amount of individual ordinary life insurance retained by the Company on any one life from $5.0 million to $10.0 million This increase was prospective and did not change the retained amount for policies sold
prior to the change. The Company cedes insurance primarily on an automatic basis, whereby risks are ceded to a reinsurer on specific blocks of business where the underlying risks meet certain predetermined criteria, and on a facultative basis,
whereby the reinsurers prior approval is required for each risk reinsured. The Company also cedes insurance on a case-by-case basis particularly where the Company may be writing new risks or is unwilling to retain the full costs associated
with new lines of business. The Company maintains catastrophic reinsurance coverage to protect against large losses related to a single event. The ceding of risk does not discharge the original insurer from its primary obligation to the
policyholder.

The Company has entered into reinsurance contracts with certain unaffiliated reinsurers to cede a portion of its general
account life, annuity and health business. Total amounts recoverable under these reinsurance contracts include ceded reserves, paid and unpaid claims, and certain other amounts and totaled $738.1 million and $788.1 million as of December 31,
2008 and 2007, respectively. The impact of these contracts on the Companys results of operations is immaterial. Under the terms of the contracts, specified assets have been placed in trusts as collateral for the recoveries. The trust assets
are invested in investment grade securities, the fair value of which must at all times be greater than or equal to 100% or 102% of the reinsured reserves, as outlined in each of the underlying contracts. Certain portions of the Companys
variable annuity guaranteed benefit risks are also reinsured. These treaties reduce the Companys exposure to death benefit and income benefit guarantee risk in the Individual Investments segment. The Company has no other material reinsurance
arrangements with unaffiliated reinsurers.

The Companys only material reinsurance agreements with affiliates are the modified
coinsurance agreements pursuant to which NLIC ceded to other members of Nationwide all of its accident and health insurance business not ceded to unaffiliated reinsurers, as described in Note 14 to the audited consolidated financial statements
included in the F pages of this report.

Ratings

Ratings with respect to claims-paying ability and financial strength are one factor in establishing the competitive position of insurance companies. These ratings represent each agencys opinion of an insurance
companys financial strength, operating performance, strategic position and ability to meet its obligations to policyholders. They are not evaluations directed toward the protection of investors and are not recommendations to buy, sell or hold
securities. Such factors are important to policyholders, agents and intermediaries. Rating agencies utilize quantitative and qualitative analysis, including the use of key performance indicators, financial and operating ratios and proprietary
capital models to establish ratings for the Company and certain subsidiaries. The Companys ratings are continuously evaluated relative to its performance as measured using these metrics and the impact that changes in the underlying business in
which it is engaged can have on such measures. In an effort to minimize the adverse impact of this risk, the Company maintains regular communications with the rating agencies, performs evaluations utilizing its own calculations of these key metrics,
and considers such evaluation in the way it conducts its business.



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Ratings are important to maintaining public confidence in the Company and its ability to market its
annuity and life insurance products. Rating agencies continually review the financial performance and condition of insurers, including the Company. Any lowering of the Companys ratings could have an adverse effect on the Companys ability
to market its products and could increase the rate of surrender of the Companys products. Both of these consequences could have an adverse effect on the Companys liquidity and, under certain circumstances, net income. NLIC and NLAIC each
have financial strength ratings of A+ (Superior) from A.M. Best Company, Inc. (A.M. Best), and their claims-paying ability/financial strength are rated Aa3 (Excellent) by Moodys Investors Service, Inc.
(Moodys) and A+ (Strong) by Standard & Poors Rating Services, a division of The McGraw-Hill Companies, Inc. (S&P). The Companys financial strength is also reflected in the ratings of its commercial
paper, which is rated AMB-1 by A.M. Best, P-1 by Moodys and A-1 by S&P.

On December 19,
2008, Moodys put its current rating under review for possible downgrade. Moodys review is currently ongoing. On December 22, 2008, S&P lowered its financial strength ratings of NLIC and NLAIC to A+ from
AA- with a stable outlook. Additionally, the Companys commercial paper rating was also lowered by S&P on December 22, 2008 from A-1+ to A-1. On January 27, 2009, A.M. Best placed its
ratings of NLIC on negative outlook. These actions have taken place during a time when many major life insurers have experienced similar outlook changes and/or negative downgrades, caused by weak economic conditions and volatility in the credit and
equity markets.

These ratings are subject to ongoing review by A.M. Best, Moodys and S&P, and the maintenance of such ratings
cannot be assured. If any rating is reduced from its current level, the Companys financial position and results of operations could be adversely affected.

Competition

The Company competes with many other insurers as well as non-insurance financial services companies, including
banks, broker/dealers and mutual funds, some of whom have greater financial resources, offer alternative products and, with respect to other insurers, have higher ratings than the Company. While no single company dominates the marketplace, many of
the Companys competitors have well-established national reputations and substantially greater financial resources and market share than the Company. Competition in the Companys lines of business primarily is based on price, product
features, commission structure, perceived financial strength, claims-paying ability, customer and producer service, and name recognition.

Regulation

Regulation at State Level

NLIC and NLAIC, as with other insurance companies, are subject to regulation by the states in which they are domiciled and/or transact business. Most states have enacted legislation that requires each insurance holding company and each
insurance company in an insurance holding company system to register with the insurance regulatory authority of the insurance companys state of domicile and annually furnish financial and other information concerning the operations of
companies within the holding company system that materially affect the operations, management or financial condition of the insurers within such system. Under such laws, a state insurance authority usually must approve in advance the direct or
indirect acquisition of 10% or more of the voting securities of an insurance company domiciled in its state.

NLIC and NLAIC are subject to
the insurance holding company laws in the State of Ohio. Under such laws, all transactions within an insurance holding company system affecting insurers must be fair and equitable, and each insurers policyholder surplus following any such
transaction must be both reasonable in relation to its outstanding liabilities and adequate for its needs. The State of Ohio insurance holding company laws also require prior notice or regulatory approval of the change of control of an insurer or
its holding company, material intercorporate transfers of assets within the holding company structure and certain other material transactions involving entities within the holding company structure.

NLIC and NLAIC are regulated and supervised in the jurisdictions in which they do business. Among other things, states regulate operating licenses; agent
licenses; advertising and marketing practices; the form and content of insurance policies, including pricing; the type and amount of investments; statutory capital requirements; payment of dividends by insurance company subsidiaries; assessments by
guaranty associations; affiliate transactions; and claims practices. The Company cannot predict the effect that any proposed or future legislation may have on the financial condition or results of operations of the Company.



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Insurance companies are required to file detailed annual and quarterly statutory financial statements
with state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such regulators at any time. In addition, insurance regulators periodically examine an insurers
financial condition, adherence to statutory accounting practices, and compliance with insurance department rules and regulations. Applicable state insurance laws, rather than federal bankruptcy laws, apply to the liquidation or restructuring of
insurance companies. Changes in regulations, or in the interpretation of existing laws or regulations, may adversely impact pricing, reserve adequacy or exposure to litigation and could increase the costs of regulatory compliance by the
Companys insurance subsidiaries. Any proposed or future state legislation or regulations may negatively impact the Companys financial position or results of operations.

As part of their routine regulatory oversight process, state insurance departments periodically conduct detailed examinations of the books, records and accounts of insurance companies domiciled
in their states. Such examinations generally are conducted in cooperation with the insurance departments of multiple states under guidelines promulgated by the National Association of Insurance Commissioners (NAIC). The most recently completed
examination of NLIC and NLAIC was conducted by the Ohio Department of Insurance (ODI) for the five-year period ended December 31, 2006. The examination was completed during the first quarter of 2008 and did not result in any significant issues
or adjustments.

State insurance regulatory authorities regularly make inquiries, hold investigations and administer market conduct
examinations with respect to insurers compliance with applicable insurance laws and regulations. NLIC and NLAIC are currently undergoing regulatory market conduct examinations in four states. NLIC and NLAIC continuously monitor sales,
marketing and advertising practices and related activities of their agents and personnel and provide continuing education and training in an effort to ensure compliance with applicable insurance laws and regulations. There can be no assurance that
any non-compliance with such applicable laws and regulations would not have a material adverse effect on the Company.

In December 2004,
the NAIC adopted model legislation implementing new disclosure requirements with respect to compensation of insurance producers. In 2005, related state legislation was adopted in a few states and focused on the producer rather than the insurance
company. Although the Company is not aware of regulatory or legislative developments or proposals regarding producer compensation disclosure that would have a material impact on its operations, the NAIC maintains a task force that will continue to
review producer compensation disclosure requirements, and additional changes that could impact the Company are possible.

Regulation of Dividends and
Other Payments

The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the
State of Ohio, its domiciliary state. The State of Ohio insurance laws require Ohio-domiciled life insurance companies to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof,
together with that of other dividends or distributions made in the preceding 12 months, exceeds the greater of (1) 10% of statutory-basis policyholders surplus as of the prior December 31 or (2) the statutory-basis net income of
the insurer for the prior year. During the year ended December 31, 2008, NLIC paid a dividend of $246.5 million to NFS after providing prior notice to the ODI. The dividend included $181.9 million in cash and $64.6 million in securities.
NLICs statutory capital and surplus as of December 31, 2008 was $2.26 billion, and statutory net loss for 2008 was $898.3 million. As of January 1, 2009, NLIC could not pay dividends to NFS without obtaining prior approval from the
ODI. The benefits from the use of permitted practices approved by the ODI may not be considered when determining capital and surplus available for dividends. See Note 12 to the audited consolidated financial statements included in the F pages of
this report for further discussion.

The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any
dividend paid from other than earned surplus. Earned surplus is defined under the State of Ohio insurance laws as the amount equal to the Companys unassigned funds as set forth in its most recent statutory financial statements, including net
unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurers policyholder surplus must be reasonable in relation to the insurers outstanding liabilities and adequate for its financial
needs. The payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on NLICs participating policies (measured before dividends to
policyholders) available for the benefit of the Company and its shareholder.



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Risk-Based Capital Requirements

In order to enhance the regulation of insurer solvency, the NAIC has adopted a model law to implement risk-based capital (RBC) requirements for life insurance companies. The requirements are
designed to monitor capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. The model law measures four major areas of risk facing life insurers: (1) the risk of loss from asset defaults and
asset value fluctuation; (2) the risk of loss from adverse mortality (the relative incidence of death in a given time) and morbidity (the relative incidence of disability resulting from disease or physical impairment) experience; (3) the
risk of loss from mismatching of asset and liability cash flow due to changing interest rates; and (4) business risks. Insurers having less statutory surplus than required by the RBC model formula will be subject to varying degrees of
regulatory action depending on the level of capital inadequacy.

Based on the formula adopted by the NAIC, the adjusted capital of NLIC and
NLAIC as of December 31, 2008 exceeded the levels at which they would be required to take corrective action.

Assessments Against and Refunds to
Insurers

Insurance guaranty association laws exist in each state, the District of Columbia and the Commonwealth of Puerto Rico.
Insurers doing business in any of these jurisdictions can be assessed for policyholder losses incurred by insolvent insurance companies. The amount and timing of any future assessment on or refund to NLIC and its insurance subsidiaries under these
laws cannot be reasonably estimated and are beyond the control of NLIC and its insurance subsidiaries. A large part of the assessments paid by NLIC and its insurance subsidiaries pursuant to these laws may be used as credits for a portion of NLIC
and its insurance subsidiaries premium taxes. For the years ended December 31, 2008, 2007 and 2006, net premium tax refunds received by the Company were immaterial.

Securities Laws

NLIC and NLAIC, and certain policies and contracts offered by these
companies, are subject to regulation under the federal securities laws administered by the U.S. Securities and Exchange Commission (SEC) and under certain state securities laws. Certain separate accounts of NLIC and NLAIC are registered as
investment companies under the Investment Company Act of 1940, as amended (Investment Company Act). Separate account interests under certain variable annuity contracts and variable insurance policies issued by NLIC and NLAIC are also registered
under the Securities Act of 1933, as amended (Securities Act). Certain affiliates of the Company are registered as broker/dealers under the Securities Exchange Act of 1934, as amended (Securities Exchange Act), and are members of, and subject to
regulation by, the Financial Industry Regulatory Authority. Certain subsidiaries of the Company are also subject to the SECs net capital rules.

Certain affiliates of the Company are investment advisors registered under the Investment Advisors Act of 1940, as amended, and the Securities Act. The investment companies managed by such subsidiaries are registered
with the SEC under the Investment Company Act, and the shares of certain of these entities are qualified for sale in certain states and the District of Columbia. A subsidiary of the Company is registered with the SEC as a transfer agent.

All aspects of the investment advisory activities of NLIC and NLAIC are subject to applicable federal and state laws and regulations in the
jurisdictions in which they conduct business. These laws and regulations primarily are intended to benefit investment advisory clients and investment company shareholders and generally grant supervisory agencies broad administrative powers,
including the power to limit or restrict the transaction of business for failure to comply with such laws and regulations. In such event, the possible sanctions which may be imposed include the suspension of individual employees, limitations on the
activities in which the investment advisor may engage, suspension or revocation of the investment advisors registration as an advisor, censure and fines.



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ERISA Considerations

On December 13, 1993, the U.S. Supreme Court issued its opinion in John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank,holding that certain assets in excess of amounts necessary to
satisfy guaranteed obligations held by Hancock in its general account under a participating group annuity contract are plan assets and therefore subject to certain fiduciary obligations under the Employee Retirement Income Security Act
of 1974, as amended (ERISA). ERISA requires that fiduciaries perform their duties solely in the interest of ERISA plan participants and beneficiaries, and with the care, skill, prudence and diligence that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Court imposed ERISA fiduciary obligations to the extent that the insurers general account is not reserved to pay benefits
under guaranteed benefit policies (i.e., benefits whose value would not fluctuate in accordance with the insurers investment experience).

The U.S. Secretary of Labor issued final regulations on January 5, 2000, providing guidance for determining, in cases where an insurer issues one or more policies backed by the insurers general account to or for the benefit of an
employee benefit plan, which assets of the insurer constitute plan assets for purposes of ERISA and the IRC. The regulations apply only with respect to a policy issued by an insurer to an ERISA plan on or before December 31, 1998. In the case
of such a policy, most provisions of the regulations became applicable on July 5, 2001. Generally, where the basis of a claim is that insurance company general account assets constitute plan assets, no person will be liable under ERISA or the
IRC for conduct occurring prior to July 5, 2001. However, certain provisions under the final regulations are applicable as follows: (1) certain contract termination features became applicable on January 5, 2000 if the insurer engages
in certain unilateral actions; and (2) the initial and separate account disclosure provisions became applicable July 5, 2000. New non-guaranteed policies issued after December 31, 1998 subject the issuer to ERISA fiduciary
obligations. Since NLIC issues fixed group annuity contracts that are backed by its general account and used to fund employee benefit plans, NLIC is subject to these requirements.

Tax Legislation

Life insurance products may be used to provide income tax deferral and income
tax free death benefits; annuity contracts may be used to provide income tax deferral. The value of these benefits is related to the level of income tax and capital gains tax rates. Changes to the income tax rates and the capital gains tax rates can
affect the value of these benefits, and therefore the desirability of those products.

The U.S. Congress periodically has considered
possible legislation that, if enacted, could materially reduce or eliminate many of the tax advantages of purchasing and owning annuity and life insurance products. Although the proposals have not been enacted, those proposals, or other similar
proposals, could be introduced for enactment in future periods.

The administration of President Barack Obama may propose changes to the
Internal Revenue Code to address the fiscal challenges currently faced by the federal government. These changes could include changes to the taxation of life insurance, annuities, mutual funds, retirement savings plans, and other investment
alternatives offered by the Company. Such changes could have an adverse impact on the desirability of the products offered by the Company.

Available
Information

The Company files electronically with the SEC its Current Reports on Form 8-K, Quarterly Reports on Form 10-Q, Annual
Reports on Form 10-K and other reports, which are available on the SECs web site (http://www.sec.gov). In addition, all reports filed by the Company with the SEC may be read and copied at the SECs Public Reference Room located at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company also makes available these reports, free of charge, on its web site
(http://www.nationwide.com)



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ITEM 1A RISK FACTORS

Adverse capital and credit market conditions may significantly affect the Companys ability to meet liquidity needs and impact capital position.

The capital and credit markets have been experiencing extreme volatility and disruption for more than twelve months. During the second half of 2008, the
volatility and disruption have reached unprecedented levels. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. Economic conditions have continued to deteriorate in 2009.

The Company needs liquidity to pay its operating expenses, interest on its debt and dividends on its capital stock, and to replace certain
maturing liabilities. The principal sources of the Companys liquidity are insurance premiums, annuity considerations, deposit funds, cash flow from its investment portfolio and assets, consisting mainly of cash or assets that are readily
convertible into cash. Sources of liquidity also include a variety of short- and long-term instruments, including repurchase agreements, commercial paper, bank loans, medium- and long-term debt, junior subordinated debt securities and capital
securities.

In the event current resources do not satisfy the Companys needs, the Company may have to seek additional financing. The
availability of additional financing will depend on a variety of factors such as market conditions, the availability of credit generally and specifically to the financial services industry, the volume of trading activities, the Companys credit
ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of the Companys long- or short-term financial prospects if it incurs large investment losses or if the level of business
activity decreases due to a market downturn. Similarly, the Companys access to funds may be impaired if regulatory authorities or rating agencies take negative actions against the Company. The Companys internal sources of liquidity may
prove to be insufficient, and in such case, the Company may not be able to successfully obtain additional financing on favorable terms, or at all.

Disruptions, uncertainty or volatility in the capital and credit markets may also limit the Companys access to capital required to operate its business, most significantly its insurance operations. Such market conditions may limit the
Companys ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; generate fee income and market-related revenue to meet liquidity needs; and access the capital necessary to grow its business. As
such, the Company may be forced to issue shorter-term securities than it prefers, or bear an unattractive cost of capital, which could decrease the Companys profitability and significantly reduce the Companys financial flexibility. The
Companys results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the financial markets.

Difficult conditions in the economy generally may materially adversely affect the Companys business and results of operations, and these conditions may not improve in the near future.

The Companys results of operations are materially affected by conditions in the economy in both the U.S. and elsewhere. The
stress experienced by global capital markets that began in the second half of 2007 continued and substantially increased during 2008. Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S.
mortgage market, and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices, declining business
and consumer confidence, and increased unemployment, have precipitated an economic slowdown and a recession. In addition, the fixed-income markets are experiencing a period of extreme volatility, which has negatively impacted market liquidity
conditions. Initially, the concerns on the part of market participants were focused on the Sub-prime segment of the mortgage-backed securities (MBS) market. However, these concerns have since expanded to include a broad range of MBSs (including
those backed by commercial mortgages), asset-backed securities (ABSs) and other fixed income securities, including those rated investment grade, the U.S. and international credit and interbank money markets generally, and a wide range of financial
institutions and markets, asset classes and sectors. As a result, the market for fixed income instruments has experienced decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default. Securities that
are less liquid are more difficult to value and may be hard to dispose of. These events and the continuing market upheavals may have an adverse effect on the Company, in part because the Company has a large investment portfolio and also is dependent
upon customer behavior. The Companys revenues are likely to decline in such circumstances, and the Companys profit margins could erode. In addition, in the event of extreme prolonged market events, such as the global credit crisis, the
Company could incur significant losses. Even in the absence of a market downturn, the Company is exposed to substantial risk of loss due to market volatility.



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The Company is a significant writer of variable annuity products. The account values of these products
will be affected by the downturn in capital markets. Any decrease in account values will decrease the fees generated by the Companys variable annuity products. See Part II, Item 7A  Quantitative and Qualitative Disclosures about
Market Risk  Equity Market Riskfor a complete discussion of risk factors associated with guaranteed contracts.

Factors such as
consumer spending, business investment, government spending, the volatility and strength of the capital markets, and inflation all affect the business and economic environment and, ultimately, the amount and profitability of the Companys
business. In an economic downturn characterized by higher unemployment, lower family income, increased defaults on mortgage and consumer loans, lower corporate earnings, lower business investment and lower consumer spending, the demand for the
Companys financial and insurance products could be adversely affected. In addition, the Company may experience an elevated incidence of claims and lapses or surrenders of policies. The Companys policyholders may choose to defer paying
insurance premiums or stop paying insurance premiums altogether. Adverse changes in the economy could affect earnings negatively and could have a material adverse effect on the Companys business, results of operations and financial condition.
The current mortgage crisis also has raised the possibility of future legislative and regulatory actions in addition to the recent enactment of the Emergency Economic Stabilization Act of 2008 that could further impact the Companys business.
The Company cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on the Companys business, results of operations and financial condition.

The Internal Revenue Code may be changed to address the fiscal challenges currently faced by the federal government. These changes could include changes
to the taxation of life insurance, annuities, mutual funds, retirement savings plans, and other investment alternatives offered by the Company. Such changes could have an adverse impact on the desirability of the products offered by the Company.

The impairment of other financial institutions could adversely affect the Company.

The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and
dealers, commercial banks, investment banks, hedge funds, and other investment funds and other institutions. Many of these transactions expose the Company to credit risk in the event of default of the counterparty. In addition, with respect to
secured transactions, the Companys credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to
it. The Company also has exposure to these financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. There can be no assurance that any such realized losses or impairments to the carrying value
of these assets would not materially and adversely affect the Companys business and results of operations.



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The Company is exposed to significant financial and capital markets risk, which may adversely
affect the Companys results of operations, financial condition and liquidity, and the Companys net investment income can vary from period to period.

The Company is exposed to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices, real estate values, foreign currency exchange rates, market volatility, the
performance of the economy in general, the performance of the specific obligors included in its portfolio and other factors outside the Companys control. The Companys exposure to interest rate risk relates primarily to the market price
and cash flow variability associated with changes in interest rates. A rise in interest rates will increase the net unrealized loss position of the Companys investment portfolio and, if long-term interest rates rise dramatically within a six
to twelve month time period, certain of the Companys life insurance businesses may be exposed to disintermediation risk. Disintermediation risk refers to the risk that the Companys policyholders may surrender their contracts in a rising
interest rate environment, requiring the Company to sell assets, which likely would have declined in value due to the increase in interest rates. Due to the long-term nature of the liabilities associated with certain of the Companys life
insurance businesses, guaranteed benefits on variable annuities and structured settlements, sustained declines in long-term interest rates may subject the Company to reinvestment risks and increased hedging costs. In other situations, declines in
interest rates may result in increasing the duration of certain life insurance liabilities, creating asset liability duration mismatches. The Companys investment portfolio also contains interest rate sensitive instruments, such as fixed income
securities, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic and international economic and political conditions, and other factors beyond the Companys control. A rise in interest rates
would increase the net unrealized loss position of the investment portfolio, offset by the Companys ability to earn higher rates of return on funds reinvested. Conversely, a decline in interest rates would decrease the net unrealized loss
position of the investment portfolio, offset by lower rates of return on funds reinvested. The Companys mitigation efforts with respect to interest rate risk primarily are focused toward maintaining an investment portfolio with diversified
maturities that has a weighted average duration that is approximately equal to the duration of the estimated liability cash flow profile. However, the Companys estimate of the liability cash flow profile may be inaccurate, and the Company
might need to sell assets, which likely would have declined in value due to the increase in interest rates, in order to cover the liability. Although the Company takes measures to manage the economic risks of investing in a changing interest rate
environment, the Company may not be able to mitigate the interest rate risk of the Companys assets relative to its liabilities.

The
Companys exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. A widening of credit spreads will increase the net unrealized loss position of the investment portfolio,
will increase losses associated with credit based derivatives where the Company assumes credit exposure, and, if issuer credit spreads increase significantly or for an extended period of time, would likely result in higher other-than-temporary
impairments. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturities. In addition, market volatility can make it difficult to value certain of the Companys securities if trading becomes less
frequent. As such, valuations may include assumptions or estimates that may have significant period-to-period changes, which could have a material adverse effect on the Companys results of operations or financial condition. Credit spreads on
both corporate and structured securities have widened, resulting in continuing depressed pricing. Continuing challenges include continued weakness in the U.S. real estate market and increased mortgage delinquencies, investor anxiety over the U.S.
economy, rating agency downgrades of various structured products and financial issuers, unresolved issues with structured investment vehicles and monolines, deleveraging of financial institutions and hedge funds, and a serious dislocation in the
interbank market. If significant, continued volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, market liquidity, declines in equity prices, and the strengthening or weakening of foreign
currencies against the U.S. dollar, individually or in tandem, could have a material adverse effect on the Companys results of operations, financial condition or cash flows through realized losses, impairments and changes in unrealized
positions.

The Companys primary exposure to equity risk relates to the potential for lower earnings associated with certain of the
Companys insurance businesses, such as variable annuities, where fee income is earned based upon the fair value of the assets under management. In addition, certain of the Companys annuity products offer guaranteed benefits, which
increase the Companys potential benefit exposure and statutory reserve and capital requirements should equity markets decline, which could deplete capital. Increased reserve and capital requirements could lead to rating agency downgrades.



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The Company invests a portion of its invested assets in investment funds, many of which make private
equity investments. The amount and timing of income from such investment funds tends to be uneven as a result of the performance of the underlying investments, including private equity investments. The timing of distributions from the funds, which
depends on particular events relating to the underlying investments, as well as the funds schedules for making distributions and their needs for cash, can be difficult to predict. As a result, the amount of income that the Company records from
these investments can vary substantially from quarter to quarter. Recent equity and credit market volatility may reduce investment income for these types of investments.

The Companys investments are reflected within the financial statements utilizing different accounting bases. Accordingly, the Company may not have recognized differences, which may be significant, between
cost and fair value in the Companys financial statements.

The Companys principal investments are in fixed maturity and
equity securities, trading securities, short-term investments, mortgage loans, policy loans, real estate, and real estate joint ventures and other limited partnerships. The carrying value of such investments is as follows:



| |  |  | Fixed maturity and equity securities are classified as available-for-sale, except for trading securities, and are reported at their estimated fair value.
Unrealized investment gains and losses on these securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Trading securities are recorded at fair value with subsequent changes in fair value recognized in net investment income.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are
stated at fair value.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mortgage loans held for investment are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of
valuation allowances. Commercial mortgage loans that are held for sale are carried at fair value as elected under Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, Including an amendment of Financial Accounting Standards Board (FASB) Statement No. 115.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Policy loans are stated at unpaid principal balances.
| | - |  | -----------------------------------------------------



| |  |  | Real estate joint ventures and other limited partnership interests in which the Company has more than a minor equity interest or more than a minor influence over
the joint ventures or partnerships operations, but where the Company does not have a controlling interest and is not the primary beneficiary, are carried using the equity method of accounting.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments not carried at fair value in the Companys financial statements (principally mortgage loans, policy loans, real estate, real estate
joint ventures and other limited partnerships) may have fair values which are substantially higher or lower than the carrying value reflected in the Companys financial statements. Each of such asset classes is regularly evaluated for
impairment under the accounting guidance appropriate to the respective asset class.

The Companys valuation of fixed maturity,
equity and trading securities may include methodologies, estimations and assumptions which are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect the Companys results
of operations or financial condition.

Fixed maturity, equity and trading securities and certain other investments are reported at
fair value on the balance sheet. The Company has categorized these securities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest
priority level input that is significant to the fair value measurement of the instrument in its entirety.



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The Company categorizes financial assets recorded at fair value in the consolidated balance sheets as
follows:



| |  |  | Level 1  Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets utilizing
Level 1 valuations include U.S. Treasury and agency securities, equity securities listed in active markets, investments in publicly traded mutual funds with quoted market prices, and listed derivatives.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Unadjusted quoted prices for similar assets in active markets or inputs (other than quoted prices) that are observable or that are derived
principally from or corroborated by observable market data through correlation or other means. The types of assets utilizing Level 2 valuations generally include U.S. Government agency securities, municipal bonds, structured notes and certain MBSs
and ABSs, certain corporate debt, certain private placement investments, and certain derivatives, including certain cross-currency interest rate swaps and credit default swaps.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs
reflect managements best estimate about the assumptions market participants would use at the measurement date in pricing the asset. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs.
Generally, the types of assets utilizing Level 3 valuations are certain MBSs and ABSs, certain corporate debt, certain private placement investments, certain mutual fund holdings, and certain derivatives.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Prices provided by independent pricing services and independent broker quotes used to assist in developing the fair value measurement can vary widely
even for the same security. The determination of fair values in the absence of quoted market prices is based on: 1) valuation methodologies; 2) securities the Company deems to be comparable; and 3) assumptions deemed appropriate given the
circumstances. The fair value estimates are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit
standing of the issuer or counterparty. Factors considered in estimating fair value include coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, issuer credit worthiness, industry sector of the issuer, issuer and
security specific liquidity, performance of the underlying collateral and quoted market prices of comparable securities. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.

During periods of market disruption including periods of significantly changing interest rates, rapidly widening credit spreads, inactivity or
illiquidity, it may be difficult to value certain of the Companys securities, for example Alt-A and Sub-prime MBSs or certain types of ABSs, if trading becomes less frequent and/or market data becomes less observable. There may be certain
asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, more securities may fall to Level 3 and thus result in more subjectivity and management
judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation methods, which are more sophisticated or require greater estimation, thereby resulting in values which may
be different from the value at which the investments ultimately may be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Companys
financial statements, and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on the Companys results of operations or financial condition.

Some of the Companys investments are relatively illiquid and are in asset classes that have been experiencing significant market valuation
fluctuations.

The Company holds certain investments that may lack liquidity, such as privately placed fixed maturity securities;
mortgage loans; policy loans; equity real estate, including real estate joint ventures; and other limited partnership interests. Even some of the Companys very high quality assets have been more illiquid as a result of the recent challenging
market conditions.

If the Company requires significant amounts of cash on short notice in excess of normal cash requirements or is
required to post or return collateral in connection with the investment portfolio, derivatives transactions or securities lending activities, the Company may have difficulty selling these investments in a timely manner, be forced to sell them for
less than the Company otherwise would have been able to realize, or both.

The reported value of the Companys relatively illiquid
types of investments, and, at times, the high quality, generally liquid asset classes, do not necessarily reflect the lowest observed price for the asset. If the Company was forced to sell certain assets in the current market, there can be no
assurance that the Company would be able to sell them for the prices at which they are recorded, and the Company may be forced to sell them at significantly lower prices.



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The determination of the amount of allowances and impairments taken on the Companys
investments and the valuation allowance on the deferred income tax asset are judgmental and could materially impact the Companys results of operations or financial position.

The determination of the amount of allowances and impairments vary by investment type and is based upon the Companys periodic evaluation and assessment of known and inherent risks
associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in
operations as such evaluations are revised. Furthermore, additional impairments may need to be taken or allowances provided for in the future. Historical trends may not be indicative of future impairments or allowances.

For debt and equity securities not subject to Emerging Issues Task Force Issue (EITF) No. 99-20, Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Assets, as amended by FASB Staff Position (FSP) EITF 99-20-1(EITF 99-20), an other-than-temporary impairment charge is taken when the Company does not have the ability and
intent to hold the security until the forecasted recovery or based on the probability that the Company may not be able to receive all contractual payments when due. Debt securities accounted for under EITF 99-20 may experience other-than-temporary
impairment in future periods in the event an adverse change in cash flows is anticipated or probable. Furthermore, equity securities may experience other-than-temporary impairment in the future based on the prospects for recovery in value in a
reasonable period.

Many criteria are considered during this process including, but not limited to, the current fair value as compared to
cost or amortized cost, as appropriate, of the security; the amount and length of time a securitys fair value has been below cost or amortized cost; specific known and probable credit issues and financial prospects related to the issuer and/or
collateral; managements intent and ability to hold or dispose of the security; and current economic conditions. Other-than-temporary impairment losses result in a reduction to the cost basis of the underlying investment.

See Note 11 to the audited consolidated financial statements included in the F pages of this report for a discussion of managements
considerations in assessing the realizability of deferred tax assets.

Deterioration in the public debt and equity markets could lead to
additional investment losses.

The prolonged and severe disruptions in the public debt and equity markets, including among other
things, widening of credit spreads, bankruptcies and government intervention in a number of large financial institutions, have resulted in significant realized and unrealized losses in the Companys investment portfolio. For the year ended
December 31, 2008, the Company incurred substantial realized and unrealized investment losses, as described in Part II, Item 7  MD&A. Subsequent to December 31, 2008, through the date of this report, conditions in the
public debt and equity markets have continued to deteriorate, and pricing levels have continued to decline. As a result, depending on market conditions, the Company could incur substantial additional realized and unrealized losses in future periods,
which could have a material adverse impact on the Companys results of operations, equity, business, and insurer financial strength and debt ratings.

A downgrade or potential downgrade in the Companys financial strength or credit ratings could result in a loss of business and adversely affect the Companys financial condition and results of operations.

Financial strength ratings, which various Nationally Recognized Statistical Rating Organizations (NRSROs) publish as indicators of
an insurance companys ability to meet contractholder and policyholder obligations, are important to maintaining public confidence in the Companys products, the Companys ability to market its products and its competitive position.



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Downgrades in the Companys financial strength ratings could have an adverse effect on the
Companys financial condition and results of operations in many ways, including reducing new sales of insurance products, annuities and other investment products; adversely affecting the Companys relationships with its sales force and
independent sales intermediaries; increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders; requiring the Company to reduce prices for many of its products and services to remain competitive; and
adversely affecting the Companys ability to obtain reinsurance at reasonable prices or at all.

In addition to the financial strength
ratings of the Companys insurance subsidiaries, various NRSROs also publish credit ratings for NFS and several of its subsidiaries. Credit ratings are indicators of a debt issuers ability to meet the terms of debt obligations in a timely
manner and are important factors in the Companys overall funding profile and ability to access certain types of liquidity. Downgrades in the Companys credit ratings could have an adverse effect on the Companys financial condition
and results of operations in many ways, including limiting the Companys access to capital markets, potentially increasing the cost of debt, and requiring the Company to post collateral.

On September 18, September 29, October 2, and October 10, 2008, A.M. Best Company, Inc., Fitch Ratings Ltd., Moodys and Standard & Poors,
respectively, each revised its outlook for the U.S. life insurance sector to negative from stable, citing, among other things, the significant deterioration and volatility in the credit and equity markets, economic and political uncertainty, and the
expected impact of realized and unrealized investment losses on life insurers capital levels and profitability.

In view of the
difficulties experienced recently by many financial institutions, including the Companys competitors in the insurance industry, the Company believes it is possible that the NRSROs will heighten the level of scrutiny that they apply to such
institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate, and may adjust upward the capital and other requirements employed in the NRSRO models for maintenance
of certain ratings levels.

The Company cannot predict what actions rating agencies may take, or what actions the Company may take in
response to the actions of rating agencies, which could adversely affect the Companys business. As with other companies in the financial services industry, the Companys ratings could be downgraded at any time and without any notices by
any NRSRO.

If the Companys business does not perform well or if actual experience versus estimates used in valuing and
amortizing deferred policy acquisition costs (DAC) varies significantly, the Company may be required to accelerate the amortization of DAC, which could adversely affect the Companys results of operations or financial condition.

The Company incurs significant costs in connection with acquiring new and renewal business. Those costs that vary with and
primarily are related to the production of new and renewal business are deferred and referred to as DAC. The recovery of DAC is dependent upon the future profitability of the related business. The amount of future profit or margin primarily is
dependent on investment returns in excess of the amounts credited to policyholders, mortality, morbidity, persistency, interest crediting rates, dividends paid to policyholders, expenses to administer the business, creditworthiness of reinsurance
counterparties, and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns are most likely to impact the rate of amortization of such costs. The aforementioned factors enter into
managements estimates of gross profits, which generally are used to amortize such costs. If the estimates of gross profits were overstated, then the amortization of such costs would be accelerated in the period the actual experience is known
or when estimates are reevaluated and would result in a charge to income. Significant or sustained equity market declines could result in an acceleration of amortization of DAC related to variable annuity and variable universal life contracts,
resulting in a charge to operations. Such adjustments could have a material adverse effect on the Companys results of operations or financial condition.

Deviations from assumptions regarding future persistency, mortality, morbidity and interest rates used in calculating reserve amounts could have a material adverse impact on the Companys results of
operations or financial condition.

The process of calculating reserve amounts for a life insurance organization involves the use of
a number of assumptions, including those related to persistency (how long a contract stays with a company), mortality, morbidity and interest rates (the rates expected to be paid or received on financial instruments, including insurance or
investment contracts). Actual results could differ significantly from those assumed. As such, significant deviations from one or more of these assumptions could result in a material adverse impact on the Companys results of operations or
financial condition.



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NLIC and NLAIC are subject to extensive regulations designed to benefit or protect policyholders
rather than the Company.

See Part I, Item 1  Business  Regulation  Regulation at State Level for a
general description of the regulations designed to benefit or protect policyholders. Changes in regulations or in the interpretation of existing laws or regulations may adversely impact pricing, reserve adequacy or exposure to litigation and could
increase the costs of regulatory compliance by the Companys insurance subsidiaries. Any proposed or future state legislation or regulations may negatively impact the Companys financial position or results of operations.

Certain changes in federal laws and regulations may adversely affect the Companys financial position or results of operations.

Although the federal government does not directly regulate the insurance industry, federal legislation, administrative policies and
court decisions may significantly and adversely affect certain areas of the Companys business. In addition to product tax issues, these areas include pension and employee welfare benefit plan regulation, financial services regulation and
taxation generally. For example, the following events could adversely affect the Companys business:



| |  |  | changes in laws such as ERISA, as amended, that apply to group annuities (see Part I, Item 1  Business  Regulation  ERISA
Considerations for a complete discussion of ERISA);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in tax laws that would reduce or eliminate the tax-deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance
products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | repeal of the federal estate tax;
| | - |  | ---------------------------------



| |  |  | changes in the availability of, or rules concerning the establishment and operation of, Section 401, 403(b) and 457 plans or individual retirement accounts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in tax laws, including changes that could reduce or eliminate many of the tax advantages of purchasing and owning annuity and life insurance products
(see Difficult conditions in the economy generally may adversely affect the Companys business and results of operations, and these conditions may not improve in the near future, and Part I, Item 1  Business  Regulation
Tax Legislation for a description of risk factors related to potential tax legislation and Tax Matters in Note 15 to the audited consolidated financial statements included in the F pages of this report for information regarding
the Companys separate account dividends received deduction); or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in tax regulations, such as the proposed regulations that would alter the way tax sheltered annuities described in Section 403(b) of the IRC may be
offered and sold.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Litigation or regulatory actions in connection with late trading, market timing, compensation
and bidding arrangements, unsuitable sales and replacements, the use of finite reinsurance and/or other sales practices could have a material adverse impact on the Company.

See Part I, Item 3  Legal Proceedings for a description of litigation and regulatory actions. These and future litigation matters may negatively affect the Company by resulting
in the payment of substantial awards or settlements, increasing legal and compliance costs, requiring the Company to change certain aspects of its business operations, diverting management attention from other business issues or harming the
Companys reputation with customers.

Certain changes in accounting and/or financial reporting standards issued by the FASB, the
SEC or other standard-setting bodies could have a material adverse impact on the Companys financial position or results of operations.

The Company is subject to the application of U.S. generally accepted accounting principles (GAAP), which periodically are revised and/or expanded. As such, the Company periodically is required to adopt new or revised accounting and/or
financial reporting standards issued by recognized accounting standard setters or regulators, including the FASB and the SEC. It is possible that future requirements could change the Companys current application of GAAP, resulting in a
material adverse impact on the Companys financial position or results of operations.



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The continued threat of terrorism and ongoing military and other actions may result in decreases in
the Companys consolidated net (loss) income, revenue and assets under management and may adversely impact the Companys consolidated investment portfolio.

The continued threat of terrorism within the U.S. and abroad, ongoing military and other actions, and heightened security measures in response to these types of threats may cause significant
volatility and declines in the U.S., European and other securities markets, loss of life, property damage, additional disruptions to commerce and reduced economic activity. Actual terrorist attacks could cause a decrease in the Companys
consolidated net income and/or revenue as a result of decreased economic activity and/or payment of claims. In addition, some of the assets in the Companys investment portfolio may be adversely affected by declines in the securities markets
and economic activity caused by the continued threat of terrorism, ongoing military and other actions and heightened security measures.

The Company cannot predict whether or the extent to which industry sectors in which the Company maintains investments may suffer losses as a result of potential decreased commercial and economic activity, how any such decrease might impact
the ability of companies within the affected industry sectors to pay interest or principal on their securities, or how the value of any underlying collateral might be affected.

Although the Company does not believe that the continued threat of terrorist attacks will have any material impact on the Companys financial strength or performance, the Company can offer
no assurances that this threat, future terrorist-like events in the U.S. and abroad, or military actions by the U.S. will not have a material adverse impact on the Companys business, financial position or results of operations.

The Company operates in a highly competitive industry, which can significantly impact operating results.

See Part I, Item 1  Business  Competition for a description of competitive factors affecting the Company. The Companys
revenues and profitability could be impacted negatively due to competition.

Unauthorized data access and other security breaches
could have an adverse impact on the Companys business and reputation.

Security breaches and other improper accessing of data
in the Companys facilities, networks or databases could result in loss or theft of data and information or systems interruptions that may expose the Company to liability and have an adverse impact on the Companys business. Moreover, any
compromise of the security of the Companys data could harm the Companys reputation and business. There can be no assurances that the Company will be able to implement security measures to prevent such security breaches.

ITEM 1B UNRESOLVED STAFF COMMENTS

None.

ITEM 2 PROPERTIES

Pursuant to an arrangement between NMIC and certain of its subsidiaries, during 2008 the Company leased on average approximately 890,000 square feet of office space in the three building home
office complex and in other offices in central Ohio. The Company believes that its present and planned facilities are adequate for the anticipated needs of the Company.

ITEM 3 LEGAL PROCEEDINGS

See Note 15 to the audited consolidated
financial statements included in the F pages of this report for a discussion of legal proceedings.

ITEM 4 SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted due to reduced disclosure format.



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PART II

ITEM 5 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for NLICs shares of common stock. All 3,814,779 issued and outstanding shares of NLICs common stock are owned by NFS. NLIC did not
repurchase any shares of its common stock or sell any unregistered shares of its common stock during 2008.

NLIC declared and paid
dividends to NFS of $246.5 million, $537.5 million and $375.0 million during 2008, 2007 and 2006, respectively. Dividends paid during 2007 included $242.5 million of extraordinary dividends considered a return of capital. There was no return of
capital to NFS during 2008 and 2006. The 2008 dividend paid by NLIC included $64.6 million in securities.

NLIC currently does not have a
formal dividend policy.

See Part I, Item 1  Business  Regulation  Regulation of Dividends and Other Paymentsfor information regarding dividend restrictions.

ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA

Omitted due to reduced disclosure format.



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##### Table of Contents

ITEM 7 MANAGEMENTS NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

TABLE OF CONTENTS



|                                                                      |  |   
|--------------------------------------------------------------------- |  | --
|                                                                      | 
|Forward-Looking Information                                           |  | 18
|                                                                      | 
|Overview                                                              |  | 19
|                                                                      | 
|Critical Accounting Policies and Recently Issued Accounting Standards |  | 22
|                                                                      | 
|Results of Operations                                                 |  | 28
|                                                                      | 
|Sales                                                                 |  | 32
|                                                                      | 
|Business Segments                                                     |  | 37
|                                                                      | 
|Contractual Obligations                                               |  | 54
|                                                                      | 
|Off-Balance Sheet Transactions                                        |  | 56



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##### Table of Contents

Forward-Looking Information

The information included herein contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the results of operations
and businesses of Nationwide Life Insurance Company and subsidiaries (NLIC, or collectively, the Company). Whenever used in this report, words such as anticipate, estimate, expect, intend,
plan, believe, project, target, and other words of similar meaning are intended to identify such forward-looking statements. These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include, among others, the following possibilities:



| | (i) | the potential impact on the Companys reported net income and related disclosures that could result from the adoption of certain accounting and/or financial
reporting standards issued by the Financial Accounting Standards Board, the SEC or other standard-setting bodies;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | tax law changes impacting the tax treatment of life insurance and investment products;
| | ---- | --------------------------------------------------------------------------------------



| | (iii) | repeal of the federal estate tax;
| | ----- | ---------------------------------



| | (iv) | heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new
and existing competitors;
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | adverse state and federal legislation and regulation, including limitations on premium levels, increases in minimum capital and reserves, and other financial
viability requirements; restrictions on mutual fund distribution payment arrangements such as revenue sharing and 12b-1 payments; and regulation changes resulting from industry practice investigations;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | failure to expand distribution channels in order to obtain new customers or failure to retain existing customers;
| | ---- | -----------------------------------------------------------------------------------------------------------------



| | (vii) | inability to carry out marketing and sales plans, including, among others, development of new products and/or changes to certain existing products and acceptance
of the new and/or revised products in the market;
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (viii) | changes in interest rates and the equity markets causing a reduction of investment income and/or asset fees; an acceleration of the amortization of DAC, a
reduction in separate account assets or a reduction in the demand for the Companys products;
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ix) | reduction in the value of the Companys investment portfolio as a result of changes in interest rates, yields and liquidity in the market as well as
geopolitical conditions and the impact of political, regulatory, judicial, economic or financial events, including terrorism, affecting the market generally and companies in the Companys investment portfolio specifically; increased liabilities
related to living benefits and death benefit guarantees; corresponding impact on the ultimate realizability of deferred tax assets;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (x) | general economic and business conditions which are less favorable than expected;
| | --- | --------------------------------------------------------------------------------



| | (xi) | competitive, regulatory or tax changes that affect the cost of, or demand for, the Companys products;
| | ---- | ------------------------------------------------------------------------------------------------------



| | (xii) | unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;
| | ----- | ------------------------------------------------------------------------------------------------------------



| | (xiii) | settlement of tax liabilities for amounts that differ significantly from those recorded on the balance sheets;
| | ------ | --------------------------------------------------------------------------------------------------------------



| | (xiv) | deviations from assumptions regarding future persistency, mortality (including as a result of the outbreak of a pandemic illness), morbidity and interest rates
used in calculating reserve amounts and in pricing the Companys products;
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xv) | adverse litigation results and/or resolution of litigation and/or arbitration, investigation and/or inquiry results that could result in monetary damages or
impact the manner in which the Company conducts its operations; and
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xvi) | adverse consequences, including financial and reputation costs, regulatory problems and potential loss of customers resulting from failure to meet privacy
regulations and/or protect the Companys customers confidential information.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Overview

Following is managements narrative analysis of the results of operations of the Company for the three years ended December 31, 2008. This discussion should be read in conjunction with the audited
consolidated financial statements and related notes beginning on page F-1 of this report.

See Part I, Item 1  Business
 Overview for a description of the Company and its ownership structure.

Business Segments

Management views the Companys business primarily based on its underlying products and uses this basis to define its four reportable segments:
Individual Investments, Retirement Plans, Individual Protection, and Corporate and Other.

The primary segment profitability measure that
management uses is pre-tax operating (loss) earnings, which is calculated by adjusting (loss) income from continuing operations before federal income tax (benefit) expense to exclude: (1) net realized investment gains and losses, except for
periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment and net realized gains and losses related to GMDB contracts and securitizations; and (2) the adjustment to amortization of DAC
related to net realized investment gains and losses.

See Part I, Item 1  Business  Business Segments for a
description of the components of each segment.

The following table summarizes pre-tax operating (loss) earnings by segment for the years
ended December 31:



|                       |  |      |        |   |      |   |        |  |      |  |        |       |  |     
|---------------------- |  | ---- | ------ | - | ---- | - | ------ |  | ---- |  | ------ | ----- |  | ----
|(dollars in millions)  |  | 2008 |        |   | 2007 |   | Change |  | 2006 |  | Change
|Individual Investments |  | $    | (240.3 | ) |      | $ | 269.6  |  | NM   |  | $      | 202.8 |  | 33 %
|Retirement Plans       |  |      | 142.1  |   |      |   | 144.9  |  | (2)% |  |        | 138.7 |  | 4 % 
|Individual Protection  |  |      | 206.9  |   |      |   | 225.8  |  | (8)% |  |        | 220.7 |  | 2 % 
|Corporate and Other    |  |      | (133.1 | ) |      |   | 72.9   |  | NM   |  |        | 75.0  |  | (3)%

Revenues and Expenses

The Company earns revenues and generates cash primarily from policy charges, life insurance premiums and net investment income. Policy charges include asset fees, which are earned primarily from separate account
values generated from the sale of individual and group variable annuities and investment life insurance products; cost of insurance charges earned on all life insurance products except traditional, which are assessed on the amount of insurance in
force in excess of the related policyholder account value; administrative fees, which include fees charged per contract on a variety of the Companys products and premium loads on universal life insurance products; and surrender fees, which are
charged as a percentage of premiums withdrawn during a specified period for annuity and certain life insurance contracts. Net investment income includes earnings on investments supporting fixed annuities, the MTN program and certain life insurance
products, and earnings on invested assets not allocated to product segments, all net of related investment expenses. Other income includes asset fees, administrative fees, commissions and other income earned by subsidiaries of the Company that
provide administrative, marketing and distribution services.

Management makes decisions concerning the sale of invested assets based on a
variety of market, business, tax and other factors. All realized gains and losses generated by these sales, charges related to other-than-temporary impairments of available-for-sale securities and other investments, and changes in valuation
allowances on mortgage loans on real estate are reported in net realized investment gains and losses. Also included are changes in the fair values of derivatives qualifying as fair value hedges and the related changes in the fair values of hedged
items; the ineffective, or excluded, portion of cash flow hedges; changes in the fair values of derivatives that do not qualify for hedge accounting treatment, including the mark-to-market of embedded derivatives, net of economic hedges; and
periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment.



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The Companys primary expenses include interest credited to policyholder accounts, life insurance
and annuity benefits, amortization of DAC and general business operating expenses. Interest credited principally relates to individual and group fixed annuities, funding agreements backing the Companys MTN program and certain life insurance
products. Life insurance and annuity benefits include policyholder benefits in excess of policyholder accounts for universal life and individual deferred annuities and net claims and provisions for future policy benefits for traditional life
insurance products and immediate annuities.

The Company regularly evaluates and adjusts the DAC balance when actual gross profits in a
given reporting period vary from managements initial estimates, with a corresponding charge or credit to current period earnings. This process is referred to by the Company as a true-up, which generally is performed, and the
resulting impact recognized, on a quarterly basis. Additionally, the Company regularly evaluates its assumptions regarding the future estimated gross profits used as a basis for amortization of DAC and adjusts the total amortization recorded to date
by a charge or credit to earnings if evidence suggests that these future assumptions and estimates should be revised. The Company refers to this process as unlocking, which generally is performed on an annual basis with any corresponding
charge or credit reflected in the second quarter. In addition, the Company regularly monitors its actual experience and evaluates relevant internal and external information impacting its assumptions and may unlock more frequently than annually if
such information and analysis warrants.

Profitability

The Companys profitability largely depends on its ability to effectively price and manage risk on its various products, administer customer funds and control operating expenses. Lapse rates on existing contracts
also impact profitability. The lapse rate and distribution of lapses affect surrender charges and impact DAC amortization assumptions when lapse experience changes significantly.

In particular, the Companys profitability is driven by fee income on separate account products, general and separate account asset levels, and managements ability to manage interest
spread income. While asset fees are largely at guaranteed annual rates, amounts earned vary directly with the underlying performance of the separate accounts. Interest spread income is comprised of net investment income, excluding any applicable
allocated charges for invested capital, less interest credited to policyholder accounts. Interest spread income can vary depending on crediting rates offered by the Company; performance of the investment portfolio, including the rate of prepayments;
changes in market interest rates and the level of invested assets; the competitive environment; and other factors.

In addition, life
insurance profits are significantly impacted by mortality, morbidity and persistency experience. Asset impairments and the tax position of the Company also impact profitability.

Cumulative Effect of Adoption of Accounting Principle

In September 2005, the Accounting
Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of
Insurance Contracts (SOP 05-1). The Company adopted SOP 05-1 effective January 1, 2007, which resulted in a $6.0 million charge, net of taxes, as the cumulative effect of adoption of this accounting principle.

Fair Value Measurements

As described in Note
4 to the audited consolidated financial statements included in the F pages of this report, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157), effective January 1, 2008.SFAS 157 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and
cost approaches. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

In accordance with SFAS 157, the Company categorized its financial instruments based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level
input that is significant to the fair value measurement of the instrument in its entirety.



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The Company categorizes financial assets and liabilities recorded at fair value in the consolidated
balance sheets as Level 1, Level 2 or Level 3 depending on the observability of inputs used to measure fair value.

Investments

For fixed maturity and marketable equity securities for which market quotations generally are available, the Company generally uses independent pricing
services to assist in determining the fair value measurement. For certain fixed maturity securities not priced by independent services (generally private placement securities without quoted market prices), an internally developed pricing model or
corporate pricing matrix is most often used. The corporate pricing matrix is developed by obtaining private spreads versus the U.S. Treasury yield for corporate securities with varying weighted average lives and bond ratings. The
weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the U.S. Treasury yield to
create an estimated market yield for that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. The Company also utilized broker quotes in pricing securities
or to validate modeled prices.

As of December 31, 2008, 78% of the prices of fixed maturity securities were valued with the
assistance of independent pricing services, 12% were valued with the assistance of the Companys pricing matrices, 5% were valued with the assistance of broker quotes and 5% were valued from other sources (compared to 73%, 17%, 7% and 3%,
respectively, as of December 31, 2007).

Available-for-sale securities valued using significant Level 3 inputs includes investments in
markets which the Company considers inactive, the Companys non-investment grade holdings in collateralized mortgage obligations, certain MBSs, ABSs and ABS trust preferred notes, certain broker-quoted or internally priced securities and
securities that are at or near default based on designations assigned by the NAIC. As of December 31, 2008, Level 3 investments comprised 21% of total investments measured at fair value.

Counterparty Risk Associated with Derivatives

The
Companys derivative activities primarily are with financial institutions and corporations. To attempt to minimize credit risk, the Company enters into legally enforceable master netting agreements, which reduce risk by permitting the closeout
and netting of transactions with the same counterparty upon occurrence of certain events. In addition, the Company attempts to reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of
collateral vary based on an assessment of the credit risk of the counterparty. Generally, the Company accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities.

As of December 31, 2008 and 2007, the Company had received $1,022.5 million and $245.4 million, respectively, of cash for derivative collateral,
which is in turn invested in short-term investments. The Company also held $35.4 million and $18.5 million of securities as off-balance sheet collateral on derivative transactions as of December 31, 2008 and 2007, respectively. As of
December 31, 2008 and 2007, the Company had pledged fixed maturity securities with a fair value of $24.5 million and $18.8 million, respectively, as collateral to various derivative counterparties.

The Company periodically evaluates the risks within the derivative portfolios due to credit exposure. When evaluating this risk, the Company considers
several factors which include, but are not limited to, the counterparty risk associated with derivative receivables, the Companys own credit as it relates to derivative payables, the collateral thresholds associated with each counterparty, and
changes in relevant market data in order to gain insight into the probability of default by the counterparty. In addition, the effect that the Companys exposure to credit risk could have on the effectiveness of our hedging relationships is
considered. As of December 31, 2008, the impact of the exposure to credit risk on both the fair value measurement of derivative assets and liabilities and the effectiveness of our hedging relationships was immaterial.



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Inactive Markets

Recent market conditions have led to illiquidity in certain markets for financial instruments, causing the Company to consider such markets inactive. Examples of the criterion used by the Company to determine that a
market is inactive include, but are not limited to, a significant widening of bid-ask spreads in brokered markets, significant decreases in trade volumes relative to historical levels, few observable transactions, non-binding broker quotes, and
noncurrent pricing for recent transactions with significant variance over time or among market makers in the observable prices for such transactions, thus reducing the potential relevance of those observations.

As of December 31, 2008, the Company had investments in markets that it considered inactive with an amortized cost of $4.42 billion and an estimated
fair value of $3.20 billion, which represents 17% of the estimated fair value of all fixed maturity securities available-for-sale. Of these amounts, 93% were valued with the assistance of independent pricing services.

For the remaining 7% of investments in inactive markets for which pricing from an independent pricing service is not considered, the Company uses a
weighting of broker quotes and internal pricing models to determine the estimated fair values. The Companys holdings in these financial instruments were immaterial to the overall investment portfolio as of December 31, 2008, representing
only 1% of the estimated fair value of fixed maturity securities available-for-sale.

Future Policy Benefits and Claims

The fair value measurements for future policy benefits and claims relate to embedded derivatives associated with contracts with living benefit riders
(guaranteed minimum accumulation benefits, guaranteed minimum withdrawal benefits and equity-indexed annuities). Related derivatives are internally valued. The valuation of guaranteed minimum benefit embedded derivatives is based on capital market
and actuarial risk assumptions, including risk margin considerations reflecting policyholder behavior. The Company uses observable inputs, such as published swap rates, in its capital market assumptions. Actuarial assumptions, including lapse
behavior and mortality rates, are based on actual experience.

Critical Accounting Policies and Recently Issued Accounting
Standards

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results could differ significantly from those estimates.

The
Companys most critical estimates include, but are not limited to, those used to determine the following: the balance, recoverability and amortization of DAC; whether an available-for-sale security is other-than-temporarily impaired; valuation
allowances for mortgage loans on real estate; derivative instruments; the liability for future policy benefits and claims; and federal income tax provision.

Note 2 and Note 3 to the audited consolidated financial statements included in the F pages of this report provide a summary of significant accounting policies and a discussion of recently issued accounting standards,
respectively.

Deferred Policy Acquisition Costs for Investment and Universal Life Insurance Products

Investment and universal life insurance products

The
Company has deferred certain costs of acquiring investment and universal life insurance products business, principally commissions, certain expenses of the policy issue and underwriting department, and certain variable sales expenses that relate to
and vary with the production of new and renewal business. In addition, the Company defers sales inducements, such as interest credit bonuses and jumbo deposit bonuses. Investment products primarily consist of individual and group variable and fixed
deferred annuities in the Individual Investments and Retirement Plans segments. Universal life insurance products include universal life insurance, variable universal life insurance, COLI, BOLI and other interest-sensitive life insurance policies in
the Individual Protection segment. DAC is subject to recoverability testing in the year of policy issuance and loss recognition testing at the end of each reporting period.



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For investment and universal life insurance products, the Company amortizes DAC with interest over the
lives of the policies in relation to the present value of estimated gross profits from projected interest margins, asset fees, cost of insurance charges, administrative fees, surrender charges, and net realized investment gains and losses less
policy benefits and policy maintenance expenses. The Company adjusts the DAC asset related to investment and universal life insurance products to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale, as
described in Note 2(b) to the audited consolidated financial statements included in the F pages of this report.

The assumptions used in
the estimation of future gross profits are based on the Companys current best estimates of future events and are reviewed as part of an annual process during the second quarter. During the annual process, the Company performs a comprehensive
study of assumptions, including mortality and persistency studies, maintenance expense studies, and an evaluation of projected general and separate account investment returns. The most significant assumptions that are involved in the estimation of
future gross profits include future net separate account investment performance, surrender/lapse rates, interest margins and mortality. Currently, the Companys long-term assumption for net separate account investment performance is
approximately 7% growth per year and varies by product. The Company reviews this assumption, like others, as part of its annual process. If this assumption were unlocked, the date of the unlocking could become the anchor date used in the reversion
to the mean process (defined below). Variances from the long-term assumption are expected since the majority of the investments in the underlying separate accounts are in equity securities, which strongly correlate in the aggregate with the S&P
500 Index. The Company bases its reversion to the mean process on actual net separate account investment performance from the anchor date to the valuation date. The Company then assumes different performance levels over the next three years such
that the separate account mean return measured from the anchor date to the end of the life of the product equals the long-term assumption. The assumed net separate account investment performance used in the DAC models is intended to reflect what is
anticipated. However, based on historical returns of the S&P 500 Index, and as part of its pre-set parameters, the Companys reversion to the mean process generally limits net separate account investment performance to 0-15% during the
three-year reversion period. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

Changes in assumptions can have a significant impact on the amount of DAC reported for investment and universal life insurance products and their related amortization patterns. In the event actual experience differs from assumptions or
future assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense, which could be significant. In general, increases in the estimated long-term general and separate account returns result in
increased expected future profitability and may lower the rate of DAC amortization, while increases in long-term lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate
of DAC amortization.

In addition to the comprehensive annual study of assumptions, management evaluates the appropriateness of the
individual variable annuity DAC balance quarterly within pre-set parameters. These parameters are designed to appropriately reflect the Companys long-term expectations with respect to individual variable annuity contracts while also evaluating
the potential impact of short-term experience on the Companys recorded individual variable annuity DAC balance. If the recorded balance of individual variable annuity DAC falls outside of these parameters for a prescribed period, or if the
recorded balance falls outside of these parameters and management determines it is not reasonably possible to get back within the parameters during a given period, assumptions are required to be unlocked, and DAC is recalculated using revised best
estimate assumptions. When DAC assumptions are unlocked and revised, the Company continues to use the reversion to the mean process. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

For variable annuity products, the DAC balance is sensitive to the effects of changes in the Companys estimates of gross profits,
primarily due to the significant portion of the Companys gross profits that are dependent upon the rate of return on assets held in separate accounts. This rate of return influences fees earned by the Company from these products and costs
incurred by the Company associated with minimum contractual guarantees, as well as other sources of future expected gross profits. As previously stated, the Companys current long-term assumption for net separate account investment performance
is approximately 7% growth per year. In its ongoing evaluation of this assumption, the Company monitors its historical experience, market information and other relevant trends. To demonstrate the sensitivity of both the Companys variable
annuity product DAC balance, which was approximately $1.7 billion in aggregate at December 31, 2008, and related amortization, a 1% increase (to 8%) or decrease (to 6%) in the long-term assumption for net separate account investment performance
would result in an approximately $20.0 million net increase or net decrease, respectively, in DAC amortization over the following year. These fluctuations are reasonably likely to occur. The information provided above considers only changes in the
assumption for long-term net separate account investment performance and excludes changes in other assumptions used in the Companys evaluation of DAC.



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During the second quarter of 2007, the Company conducted its annual comprehensive review of model
assumptions used to project DAC and other related balances, including sales inducement assets, VOBA, unearned revenue reserves, and guaranteed minimum death and income benefit reserves. This review included all assumptions, including expected
separate account investment returns during the three-year reversion period, lapse rates, mortality and expenses. The Company determined as part of this annual review that the overall separate account returns were expected to exceed previous
estimates due to favorable financial market trends. Additionally, while the Company estimated that the overall profitability of its variable products had improved, it expected the long-term net growth in separate account investment performance to
moderate.

Accordingly, the second quarter 2007 unlocking process included changes in several assumptions, including assumptions affecting
net separate account investment performance. This unlocking resulted in a net increase in DAC and a benefit to DAC amortization and other related balances totaling $221.6 million pre-tax, which was reported in the following segments in the pre-tax
amounts indicated: Individual Investments - $196.4 million; Retirement Plans - $10.5 million; and Individual Protection - $14.7 million, net of a $5.1 million charge for the acceleration of amortization of VOBA. First, the Company reset the anchor
date for its reversion to the mean calculations, which increased the annual net separate account growth rate to 7% during the first three years of the projection period from 0% (which was the rate of return for the three-year reversion period
required from the previous anchor date). Second, as a result of its current analysis, including its evaluation of ongoing trends and expectations regarding financial market performance, the Company unlocked and reset its long-term assumption for net
separate account growth rates to 7% from 8%. This decreased the net separate account growth rate by 1% to 7% for all years subsequent to the three-year reversion period. The combination of resetting these two factors resulted in a $167.0 million
increase in DAC and benefit to DAC amortization and other related balances. The impact of changing the annual net separate account growth rate from 0% to 7% during the three-year reversion period had a much larger effect on the DAC balance when
compared to the 1% incremental change in the long-term assumption for net separate account investment performance. The remainder of the increase in DAC and benefit to DAC amortization and other related balances resulting from the DAC unlocking
process primarily was related to the recorded balance of individual variable annuity DAC falling outside the Companys preset parameters for the prescribed time period, which was driven by favorable market performance in excess of the assumed
net separate account returns. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a $78.8 million increase in DAC and benefit to DAC amortization and other related balances. This was partially offset
by a $24.2 million decrease in DAC and increase in DAC amortization and other related balances due to increasing estimated lapse rates for fixed annuity and BOLI products.

During the second quarter of 2007, the Company added a new feature to its existing guaranteed minimum withdrawal benefit rider, Lifetime Income (L.inc). This new feature results in a substantial
change in the existing contracts and, therefore, an extinguishment of the DAC associated with those contracts pursuant to the American Institute of Certified Public Accountants Statement of Position 05-1, Accounting by Insurance Enterprises
for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts. As a result, the Company eliminated existing DAC and other related balances resulting in a $135.0 million pre-tax charge.

At the end of the second quarter of 2008, the Company determined as part of its comprehensive annual study of assumptions that certain assumptions should
be unlocked. The unlocked assumptions primarily related to lapse and spread assumptions in the Individual Investments segment, the assumed growth rate on deposits per contract in the Retirement Plans segment, and mortality and lapse assumptions in
the Individual Protection segment. Therefore, in the second quarter of 2008, the Company recorded the following pre-tax adjustments: 1) a decrease in DAC and additional DAC amortization of $13.4 million; 2) a decrease in other assets and additional
benefits and claims of $0.6 million; and 3) a decrease in unearned revenue liability and additional administrative fees of $3.1 million. The net impact of this activity was a $10.9 million unfavorable pre-tax adjustment to net income in the second
quarter of 2008, which was reported in the following segments in the pre-tax amounts indicated: Individual Investments - $9.4 million unfavorable; Retirement Plans - $2.3 million unfavorable; and Individual Protection - $0.8 million favorable.



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##### Table of Contents

During the third quarter of 2008, the Companys recorded balance of individual variable annuity DAC
fell outside the Companys preset parameters for the prescribed period, which primarily was driven by unfavorable market performance compared to the assumed net separate account returns. Accordingly, the Company recalculated DAC using revised
best estimate assumptions, which resulted in a decrease in DAC and an increase in DAC amortization and other related balances totaling $177.2 million pretax in the Individual Investments segment. During the fourth quarter of 2008, the Companys
recorded balance of individual variable annuity DAC fell outside the Companys preset parameters, which primarily was driven by continued unfavorable market performance compared to assumed net separate account returns. Management made a
determination that it was not reasonably possible to get back within the preset parameters during the remaining prescribed period. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a decrease in DAC
and an increase in DAC amortization and other related balances of $243.1 million pre-tax in the Individual Investments segment. The Company continues to use the reversion to the mean process with the anchor date that was reset during the second
quarter 2007 unlocking as described above. The Company evaluated the assumed separate account performance level over the next three years and determined that the assumptions inherent in the reversion period were reasonable. The annual net separate
account growth rate for the mean reversion period is 15%, the maximum rate under the Companys parameters. Accordingly, future periods may incur additional amortization of DAC if the Companys actual returns are less than assumed.

Traditional life insurance products

Generally, DAC related to traditional life insurance products is amortized with interest over the premium-paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium
revenue. Such anticipated premium revenue is estimated using the same assumptions as those used for computing liabilities for future policy benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to
traditional life insurance products, although evaluations of DAC for recoverability at the time of policy issuance and loss recognition testing at each reporting period are required.

Other-than-temporary Impairments

Management regularly reviews investments in its fixed
maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments.

For debt securities not subject to EITF 99-20, an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is no
longer probable that the Company will recover all contractual amounts when due. Furthermore, equity securities may experience other-than-temporary impairments based on prospects of recovery in a reasonable period of time. Many criteria are
considered during this process including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, managements intent and ability to hold the security until recovery,
current economic conditions that could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected
security. Other-than-temporary impairment losses result in a reduction to the cost basis of the underlying investment.

In addition to the
above, for certain beneficial interests in securitized financial assets with contractual cash flows, including ABSs, EITF 99-20 and FSP EITF 99-20-1 also require the Company to periodically update its best estimate of cash flows over the life of the
security. If the fair value of a securitized financial asset is not greater than or equal to its carrying value based on current information and events, and if there has been a probable adverse change in estimated cash flows since the last revised
estimate (considering both timing and amount), then the Company recognizes an other-than-temporary impairment and writes down the investment to fair value.

Impairment losses are recorded on investments in long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than
the assets carrying amounts.

A significant change in impairment losses reported in the consolidated financial statements may result
if one of the factors that management considers when evaluating investments for impairment changes significantly, such as the deterioration in the credit worthiness of individual issuers, market liquidity or performance of underlying collateral.



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##### Table of Contents

Valuation Allowances for Mortgage Loans on Real Estate

The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. Mortgage loans on real
estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When management determines that a loan
is impaired, a provision for loss is established equal to the difference between the carrying value and the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral, if
the loan is collateral dependent. In addition to the valuation allowance on specific loans, the Company maintains an unallocated allowance for probable losses inherent in the loan portfolio as of the balance sheet date, but not yet specifically
identified by loan. Changes in the valuation allowance are recorded in net realized investment gains and losses. Loans in foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included
in net investment income in the period received.

The valuation allowance account for mortgage loans on real estate is maintained at a
level believed adequate by management and reflects managements best estimate of probable credit losses, including losses incurred at the balance sheet date but not yet identified by specific loan. Managements periodic evaluation of the
adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of the underlying collateral,
composition of the loan portfolio, current economic conditions and other relevant factors.

Significant changes in the factors management
considers in determining the valuation allowance for mortgage loans on real estate could result in a significant change in the valuation allowance reported in the consolidated financial statements.

Derivative Instruments

Derivatives are
carried at fair value. On the date the derivative contract is entered into, the Company designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge); a hedge of a
forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); a foreign currency fair value or cash flow hedge (foreign currency hedge); or a non-hedge transaction. The
Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are
designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedges inception
and on an ongoing basis, whether the derivatives that are used for hedging transactions are expected to be and, for ongoing hedging relationships, have been highly effective in offsetting changes in fair values or cash flows of hedged items. When it
is determined that a derivative is not, or is not expected to be, highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

See Note 2(c) and Note 5 of the audited consolidated financial statements included in the F pages of this report, for additional information regarding
the Companys use of derivatives instruments to manage interest rate and equity market risk.

Future Policy Benefits and Claims

The process of calculating reserve amounts for a life insurance organization involves the use of a number of assumptions, including
those related to persistency, mortality, morbidity and interest rates.

The Company calculates its liability for future policy benefits and
claims for investment products in the accumulation phase and universal life and variable universal life insurance policies as the policy account balance, which represents participants net premiums and deposits plus investment performance and
interest credited less applicable contract charges.

The Companys liability for funding agreements to an unrelated third party trust
related to the Companys MTN program equals the balance that accrues to the benefit of the contractholder, including interest credited. The funding agreements constitute insurance obligations and are considered annuity contracts under Ohio
insurance laws.

The liability for future policy benefits and claims for traditional life insurance policies was determined using the net
level premium method using interest rates varying from 2.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals that were used or being experienced at the time the policies were issued.



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##### Table of Contents

The liability for future policy benefits for payout annuities was calculated using the present value of
future benefits and maintenance costs discounted using interest rates varying generally from 3.0% to 13.0%.

Federal Income Taxes

Management provides for federal income taxes based on amounts it believes it ultimately will owe. Inherent in the provision for federal income taxes
are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, management may be
required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated statements of (loss) income.

Management has established tax reservesin accordance with the requirements of FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). See Note 3 to the audited consolidated financial statements included in the F pages of this report for a summary of FIN 48.
These reserves are reviewed regularly and are adjusted as events occur that management believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations; conclusion of tax audits or substantial agreement on
the deductibility/nondeductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or rendering of a court decision affecting a particular tax issue. Management
believes its tax reserves reasonably provide for potential assessments that may result from Internal Revenue Service (IRS) examinations and other tax-related matters for all open tax years.



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##### Table of Contents

Results of Operations

2008 Compared to 2007

The following table summarizes the Companys consolidated results
of operations for the years ended December 31:



|                                                                                     |  |      |          |   |      |   |         |        |  |      
|------------------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | ------- | ------ |  | -----
|(dollars in millions)                                                                |  | 2008 |          |   | 2007 |   |         | Change
|Revenues:                                                                            |  |      |          |   |      |   |         |        |  |      
|Policy charges:                                                                      |  |      |          |   |      |   |         |        |  |      
|Asset fees                                                                           |  | $    | 658.1    |   |      | $ | 746.5   |        |  | (12)%
|Cost of insurance charges                                                            |  |      | 328.1    |   |      |   | 300.2   |        |  | 9 %  
|Administrative fees                                                                  |  |      | 125.1    |   |      |   | 100.9   |        |  | 24 % 
|Surrender fees                                                                       |  |      | 56.7     |   |      |   | 60.7    |        |  | (7)% 
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|Total policy charges                                                                 |  |      | 1,168.0  |   |      |   | 1,208.3 |        |  | (3)% 
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|Premiums                                                                             |  |      | 283.5    |   |      |   | 291.7   |        |  | (3)% 
|Net investment income                                                                |  |      | 1,687.0  |   |      |   | 1,975.8 |        |  | (15)%
|Net realized investment losses                                                       |  |      | (1,439.3 | ) |      |   | (166.2  | )      |  | NM   
|Other income                                                                         |  |      | 6.4      |   |      |   | 7.5     |        |  | (15)%
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|Total revenues                                                                       |  |      | 1,705.6  |   |      |   | 3,317.1 |        |  | (49)%
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|Benefits and expenses:                                                               |  |      |          |   |      |   |         |        |  |      
|Interest credited to policyholder accounts                                           |  |      | 1,130.6  |   |      |   | 1,262.6 |        |  | (10)%
|Benefits and claims                                                                  |  |      | 660.3    |   |      |   | 479.3   |        |  | 38 % 
|Policyholder dividends                                                               |  |      | 26.4     |   |      |   | 24.5    |        |  | 8 %  
|Amortization of DAC                                                                  |  |      | 674.5    |   |      |   | 368.5   |        |  | 83 % 
|Interest expense, primarily with NFS                                                 |  |      | 61.8     |   |      |   | 70.0    |        |  | (12)%
|Other operating expenses                                                             |  |      | 516.1    |   |      |   | 529.5   |        |  | (3)% 
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|Total benefits and expenses                                                          |  |      | 3,069.7  |   |      |   | 2,734.4 |        |  | 12 % 
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|(Loss) income from continuing operations before federal income tax (benefit) expense |  |      | (1,364.1 | ) |      |   | 582.7   |        |  | NM   
|Federal income tax (benefit) expense                                                 |  |      | (534.3   | ) |      |   | 128.5   |        |  | NM   
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|(Loss) income from continuing operations                                             |  |      | (829.8   | ) |      |   | 454.2   |        |  | NM   
|Cumulative effect of adoption of accounting principle, net of taxes                  |  |      |         |   |      |   | (6.0    | )      |  | NM   
|                                                                                     |  |      |          |   |      |   |         |        |  |      
|Net (loss) income                                                                    |  | $    | (829.8   | ) |      | $ | 448.2   |        |  | NM   
|                                                                                     |  |      |          |   |      |   |         |        |  |      

The Company recorded a net loss during 2008 compared to net income in the prior year primarily due
to lower income from continuing operations before federal income tax expense. The major drivers were increases in net realized investment losses and amortization of DAC. In addition, higher benefits and claims, lower interest spread income partially
and lower asset fees contributed to the overall decrease. Lastly, the Company recorded a federal income tax benefit for the current year compared to federal income tax expense in 2007 primarily due to the aforementioned declines in net income.

Net realized investment losses increased primarily due to a $935.0 million increase in impairment charges due to challenging conditions in
the credit markets. In addition, the Company recorded a $474.0 million increase in losses on living benefit embedded derivatives, net of economic hedging activity. Finally, the Company recorded $49.6 million in losses in its structured products
business related to impairments on mortgages and mortgage loan commitments. The overall decline was offset by higher realized gains of $215.8 million on derivatives associated with the Companys economic hedging program related to contracts
with death benefit guarantees.



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##### Table of Contents

Higher amortization of DAC was due to several factors. First, the aforementioned DAC unlocking in 2007
lowered amortization of DAC by $235.8 million in the prior year. Next, the previously discussed DAC unlockings in 2008 increased amortization of DAC by $426.7 million in the current year. However, the Company modified the features of its L.inc
product within the Individual Investments segment during 2007. This modification required the Company to extinguish existing DAC and other balances related to L.inc, resulting in a $124.0 million increase in amortization of DAC and increased annuity
benefits of $11.0 million in the prior year. In addition, net realized losses on embedded derivatives in annuity products offering living benefits decreased amortization of DAC by $93.1 million in 2008. Finally, lower gross profits in the current
year and a lower rate of DAC amortization due to the impact of 2007 unlocking further offset the increases described above by approximately $141.8 million.

Benefits and claims increased in the Individual Investments segment primarily due to higher exposure on GMDB contracts driven by unfavorable market conditions which increased benefits and claims by $134.3 million. In
addition, adverse mortality in the current year in the variable universal life and universal life insurance businesses in the Individual Protection segment contributed to the increase. The average net claim size and the number of claims in these
products increased over the prior year.

Interest spread income declined primarily within the Corporate and Other segment due to a $94.5
million decline in income from alternative investments, lower income from mortgage loan prepayments and bond call premiums, and reduced earnings from the MTN program. See Part II, Item 7  MD&A  Business Segmentsfor a
more detailed discussion of interest spread income.

The decrease in asset fees primarily was driven by lower average separate account
values in the Individual Investments segment due to unfavorable market performance, partially offset by a higher average variable asset fee rate as new business with living benefit riders and corresponding higher fee rates influenced the overall
average rate.



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##### Table of Contents

2007 Compared to 2006

The following table summarizes the Companys consolidated results of operations for the years ended December 31:



|                                                                    |  |      |         |   |      |   |         |  |       |  
|------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- |  | ----- | -
|(dollars in millions)                                               |  | 2007 |         |   | 2006 |   | Change  | 
|Revenues:                                                           |  |      |         |   |      |   |         |  |       |  
|Policy charges:                                                     |  |      |         |   |      |   |         |  |       |  
|Asset fees                                                          |  | $    | 746.5   |   |      | $ | 664.2   |  | 12 %  |  
|Cost of insurance charges                                           |  |      | 300.2   |   |      |   | 282.1   |  | 6 %   |  
|Administrative fees                                                 |  |      | 100.9   |   |      |   | 114.6   |  | (12)% |  
|Surrender fees                                                      |  |      | 60.7    |   |      |   | 71.7    |  | (15)% |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Total policy charges                                                |  |      | 1,208.3 |   |      |   | 1,132.6 |  | 7 %   |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Premiums                                                            |  |      | 291.7   |   |      |   | 308.3   |  | (5)%  |  
|Net investment income                                               |  |      | 1,975.8 |   |      |   | 2,058.5 |  | (4)%  |  
|Net realized investment (losses) gains                              |  |      | (166.2  | ) |      |   | 7.1     |  | NM    |  
|Other income                                                        |  |      | 7.5     |   |      |   | 0.2     |  | NM    |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Total revenues                                                      |  |      | 3,317.1 |   |      |   | 3,506.7 |  | (5)%  |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Benefits and expenses:                                              |  |      |         |   |      |   |         |  |       |  
|Interest credited to policyholder accounts                          |  |      | 1,262.6 |   |      |   | 1,330.1 |  | (5)%  |  
|Benefits and claims                                                 |  |      | 479.3   |   |      |   | 450.3   |  | 6 %   |  
|Policyholder dividends                                              |  |      | 24.5    |   |      |   | 25.6    |  | (4)%  |  
|Amortization of DAC                                                 |  |      | 368.5   |   |      |   | 450.3   |  | (18)% |  
|Interest expense, primarily with NFS                                |  |      | 70.0    |   |      |   | 65.5    |  | 7 %   |  
|Other operating expenses                                            |  |      | 529.5   |   |      |   | 536.8   |  | (1)%  |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Total benefits and expenses                                         |  |      | 2,734.4 |   |      |   | 2,858.6 |  | (4)%  |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Income from continuing operations before federal income tax expense |  |      | 582.7   |   |      |   | 648.1   |  | (10%  | )
|Federal income tax expense                                          |  |      | 128.5   |   |      |   | 28.7    |  | NM    |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Income from continuing operations                                   |  |      | 454.2   |   |      |   | 619.4   |  | (27)% |  
|Cumulative effect of adoption of accounting principle, net of taxes |  |      | (6.0    | ) |      |   |        |  | NM    |  
|                                                                    |  |      |         |   |      |   |         |  |       |  
|Net income                                                          |  | $    | 448.2   |   |      | $ | 619.4   |  | (28)% |  
|                                                                    |  |      |         |   |      |   |         |  |       |  

The decrease in net income primarily was driven by $110.9 million of tax reserves that were
released into earnings during the second quarter of 2006. In addition, the Company recorded lower income from continuing operations before federal income tax expense primarily due to net realized investment losses; increased amortization of DAC and
annuity benefits related to modifications of features in the Companys L.inc product; lower immediate annuity premiums; lower interest spread income; and lower administrative fees. Partially offsetting these declines were lower amortization of
DAC and related adjustments as discussed previously and below and higher asset fees.

Through June 2006, the Companys federal income
tax returns for tax years 2000-2002 were under IRS examination pursuant to a routine audit. In accordance with its regular practice, management established tax reserves representing its best estimate of additional amounts the Company could be
required to pay if certain positions it had taken were challenged and ultimately denied by the IRS with respect to these tax years. These reserves are reviewed regularly and are adjusted as events occur that management believes impacts the
Companys liability for additional taxes, such as lapsing of applicable statutes of limitations; conclusion of tax audits or substantial agreement on the deductibility/non-deductibility of uncertain items; additional exposure based on current
calculations; identification of new issues; release of administrative guidance; or rendering of a court decision affecting a particular tax issue. A significant component of the Companys tax reserve as of December 31, 2005 was related to
the separate account dividends received deduction (DRD).



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##### Table of Contents

In July 2006, the Company reached substantial agreement with the IRS on all open issues for tax years
2000-2002, including issues related to the DRD. Accordingly, the Company revised its estimate of amounts that may be due in connection with certain tax positions, including the DRD, for all open tax years. As a result of the revised estimate, $110.9
million of tax reserves were released into earnings during the second quarter of 2006. Therefore, the effective tax rates in 2007 and 2006 are not comparable.

The Company recorded net realized investment losses in 2007 compared to net gains in 2006 primarily due to a $99.3 million increase in impairment charges driven by challenging conditions in the credit markets. In
addition, the Company recorded higher losses on living benefit embedded derivatives, net of economic hedging activity, primarily as a result of increased volatility in market returns. See Part II, Item 7A  Quantitative and Qualitative
Disclosures About Market Risk  Equity Market Risk for a detailed discussion of products with living benefits.

Higher life
insurance and annuity benefits primarily were driven by increased annuity benefits of $12.5 million related to the unlocking of DAC and other related balances and the aforementioned increase in annuity benefits related to modification of L.inc
features of $11.0 million. The remaining increase was due to higher guaranteed benefit expenses related to growth in this business.

Interest spread income declined primarily in the Individual Investments segment. Most of the decrease was driven by lower general account assets driven by fixed annuity outflows.

Immediate annuity premiums declined due to lower interest rates relative to a year ago, which created a less favorable environment for immediate annuity product sales in the Individual
Investments segment.

Lower administrative fees primarily were attributable to the Retirement Plans segment due to an $18.6 million policy
adjustment in the second quarter of 2006 related to the surrender of a group fixed annuity contract.

Lower amortization of DAC primarily
was due to the unlocking of DAC during the second quarter of 2007, which lowered amortization of DAC by $235.8 million. In addition, during the second quarter of 2007, the Company modified the features of its L.inc product within the Individual
Investments segment. This modification resulted in a substantial change to the existing contracts and required the Company to extinguish existing DAC and certain other related balances related to this product, resulting in increased amortization of
DAC of $124.0 million and increased annuity benefits of $11.0 million.

Asset fees increased primarily due to higher average separate
account values driven by favorable market performance in the Individual Investments segment.



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##### Table of Contents

Sales

The Company regularly monitors and reports a production volume metric titled sales. Sales or similar measures are commonly used in the insurance industry as a measure of the volume of new and renewal
business generated in a period.

Sales are not derived from any specific GAAP income statement accounts or line items and should not be
viewed as a substitute for any financial measure determined in accordance with GAAP, including sales as it relates to non-insurance companies. Additionally, the Companys definition of sales may differ from that used by other companies. As used
in the insurance industry, sales, or similarly titled measures, generate customer funds managed and administered, which ultimately drive revenues.

As calculated and analyzed by management, statutory premiums and deposits on individual and group annuities and life insurance products calculated in accordance with accounting practices prescribed or permitted by regulatory authorities and
deposits on administration-only group retirement plans and the advisory services program are adjusted as described below to arrive at sales.

Life insurance premiums determined on a GAAP basis are significantly different than statutory premiums and deposits. Life insurance premiums determined on a GAAP basis are recognized as revenue when due, as calculated on an accrual basis in
proportion to the service provided and performance rendered under the contract. In addition, many life insurance and annuity products involve an initial deposit or a series of deposits from customers. These deposits are accounted for as such on a
GAAP basis and therefore are not reflected in the GAAP income statement. On a statutory basis, life insurance premiums collected (cash basis) and deposits received (cash basis) are aggregated and reported as statutory premiums and annuity
consideration revenues.

Sales, as reported by the Company, are stated net of internal replacements, which management believes provides a
more meaningful disclosure of production in a given period. In addition, the Companys definition of sales excludes funding agreements issued under the Companys MTN program; asset transfers associated with large case BOLI and large case
retirement plan acquisitions; and deposits into Nationwide employee and agent benefit plans. Although these products contribute to asset and earnings growth, their production flows potentially can mask trends in the underlying business and thus do
not provide meaningful comparisons and analyses.

Management believes that the presentation of sales as measured for management purposes
enhances the understanding of the Companys business and helps depict longer-term trends that may not be apparent in the results of operations due to differences between the timing of sales and revenue recognition.

The Companys flagship products are marketed under The BEST of AMERICA brand and include individual variable and group annuities, group private
sector retirement plans, and variable life insurance. The BEST of AMERICA products allow customers to choose from investment options managed by premier mutual fund managers. The Company has also developed private label variable and fixed annuity
products in conjunction with other financial services providers that allow those providers to sell products to their own customer bases under their own brand names.

The Company also markets group deferred compensation retirement plans to employees of state and local governments for use under IRC Section 457. The Company utilizes its endorsement by the National Association of
Counties, The United States Conference of Mayors and The International Association of Firefighters when marketing IRC Section 457 products.

See Part I, Item 1  Business  Overview for a description of the Companys sales distribution network.



32



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##### Table of Contents

2008 Compared to 2007

The following table summarizes sales by product and segment for the years ended December 31:



|                                     |  |      |         |      |   |          |  |      
|------------------------------------ |  | ---- | ------- | ---- | - | -------- |  | -----
|(dollars in millions)                |  | 2008 |         | 2007 |   | Change  
|Individual Investments               |  |      |         |      |   |          |  |      
|Individual variable annuities        |  | $    | 4,209.1 |      | $ | 5,603.6  |  | (25)%
|Individual fixed annuities           |  |      | 600.1   |      |   | 154.1    |  | 289 %
|Income products                      |  |      | 198.0   |      |   | 216.4    |  | (9)% 
|Advisory services program            |  |      | 54.0    |      |   | 147.2    |  | (63)%
|                                     |  |      |         |      |   |          |  |      
|Total Individual Investments         |  |      | 5,061.2 |      |   | 6,121.3  |  | (17)%
|                                     |  |      |         |      |   |          |  |      
|Retirement Plans                     |  |      |         |      |   |          |  |      
|Private sector:                      |  |      |         |      |   |          |  |      
|Group products                       |  |      | 974.1   |      |   | 1,147.4  |  | (15)%
|Public sector:                       |  |      |         |      |   |          |  |      
|IRC Section 457 annuities            |  |      | 1,771.8 |      |   | 1,548.5  |  | 14 % 
|                                     |  |      |         |      |   |          |  |      
|Total Retirement Plans               |  |      | 2,745.9 |      |   | 2,695.9  |  | 2 %  
|                                     |  |      |         |      |   |          |  |      
|Individual Protection                |  |      |         |      |   |          |  |      
|Corporate-owned life insurance       |  |      | 545.1   |      |   | 552.7    |  | (1)% 
|Traditional/universal life insurance |  |      | 454.7   |      |   | 395.8    |  | 15 % 
|Variable life insurance              |  |      | 392.1   |      |   | 448.9    |  | (13)%
|                                     |  |      |         |      |   |          |  |      
|Total Individual Protection          |  |      | 1,391.9 |      |   | 1,397.4  |  |     
|                                     |  |      |         |      |   |          |  |      
|Total sales                          |  | $    | 9,199.0 |      | $ | 10,214.6 |  | (10)%
|                                     |  |      |         |      |   |          |  |      

See Part II, Item 7 MD&A Business Segments for an analysis of
sales by product and segment.



33



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##### Table of Contents

The following table summarizes sales by distribution channel for the years ended
December 31:



|                             |  |      |         |      |   |          |  |      
|---------------------------- |  | ---- | ------- | ---- | - | -------- |  | -----
|(dollars in millions)        |  | 2008 |         | 2007 |   | Change  
|Non-affiliated:              |  |      |         |      |   |          |  |      
|Independent broker/dealers   |  | $    | 2,395.0 |      | $ | 2,884.6  |  | (17)%
|Financial institutions       |  |      | 1,845.0 |      |   | 1,993.3  |  | (7)% 
|Wirehouse and regional firms |  |      | 1,513.2 |      |   | 1,933.5  |  | (22)%
|Life insurance specialists   |  |      | 353.6   |      |   | 329.6    |  | 7 %  
|Pension plan administrators  |  |      | 275.5   |      |   | 307.3    |  | (10)%
|                             |  |      |         |      |   |          |  |      
|Total non-affiliated sales   |  |      | 6,382.3 |      |   | 7,448.3  |  | (14)%
|                             |  |      |         |      |   |          |  |      
|Affiliated:                  |  |      |         |      |   |          |  |      
|NRS                          |  |      | 1,796.3 |      |   | 1,573.8  |  | 14 % 
|NFN producers                |  |      | 828.9   |      |   | 969.3    |  | (14)%
|Mullin TBG                   |  |      | 191.5   |      |   | 223.2    |  | (14)%
|                             |  |      |         |      |   |          |  |      
|Total affiliated sales       |  |      | 2,816.7 |      |   | 2,766.3  |  | 2 %  
|                             |  |      |         |      |   |          |  |      
|Total sales                  |  | $    | 9,199.0 |      | $ | 10,214.6 |  | (10)%
|                             |  |      |         |      |   |          |  |      

The decrease in total sales primarily was due to declines in individual variable annuity sales in
the Individual Investments segment. The Company believes volatile market conditions and the current economic slowdown have negatively impacted variable product sales industry wide. In addition, private sector group product sales in the Retirement
Plans segment declined due to the continued movement of pension business to NFS trust product offerings. In recent years, an increasing amount of business in the Retirement Plans segment has been sold through NFS trust products rather than NLIC
group annuity contracts due to NFS significant investment in the development of trust product capabilities not prevalent elsewhere in the market. The decline in advisory services program sales was due to the Company exiting this business
during 2008. Strong sales of individual fixed annuities in the Individual Investments segment, public sector IRC Section 457 annuity plans in the Retirement Plans segment and the ULtimate universal life product in the Individual Protection
segment partially offset the overall decline.

Lower sales through the independent broker/dealers, wirehouse and regional firms, financial
institutions, NFN producers, and pension plan administrators channels reflect the declines in variable and group product sales mentioned above, partially mitigated by increased sales of individual fixed annuities, IRC Section 457 annuities and
universal life products.

Increased NRS sales were driven by increased contributions into the Companys fixed return products.



34



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##### Table of Contents

2007 Compared to 2006

The following table summarizes sales by product and segment for the years ended December 31:



|                                     |  |      |          |      |   |         |  |      
|------------------------------------ |  | ---- | -------- | ---- | - | ------- |  | -----
|(dollars in millions)                |  | 2007 |          | 2006 |   | Change 
|Individual Investments               |  |      |          |      |   |         |  |      
|Individual variable annuities        |  | $    | 5,603.6  |      | $ | 4,747.5 |  | 18 % 
|Individual fixed annuities           |  |      | 154.1    |      |   | 183.7   |  | (16)%
|Income products                      |  |      | 216.4    |      |   | 230.7   |  | (6)% 
|Advisory services program            |  |      | 147.2    |      |   | 222.8   |  | (34)%
|                                     |  |      |          |      |   |         |  |      
|Total Individual Investments         |  |      | 6,121.3  |      |   | 5,384.7 |  | 14 % 
|                                     |  |      |          |      |   |         |  |      
|Retirement Plans                     |  |      |          |      |   |         |  |      
|Private sector:                      |  |      |          |      |   |         |  |      
|Group products                       |  |      | 1,147.4  |      |   | 1,299.6 |  | (12)%
|Public sector:                       |  |      |          |      |   |         |  |      
|IRC Section 457 annuities            |  |      | 1,548.5  |      |   | 1,533.3 |  | 1 %  
|                                     |  |      |          |      |   |         |  |      
|Total Retirement Plans               |  |      | 2,695.9  |      |   | 2,832.9 |  | (5)% 
|                                     |  |      |          |      |   |         |  |      
|Individual Protection                |  |      |          |      |   |         |  |      
|Corporate-owned life insurance       |  |      | 552.7    |      |   | 805.9   |  | (31)%
|Variable life insurance              |  |      | 448.9    |      |   | 437.3   |  | 3 %  
|Traditional/universal life insurance |  |      | 395.8    |      |   | 356.7   |  | 11 % 
|                                     |  |      |          |      |   |         |  |      
|Total Individual Protection          |  |      | 1,397.4  |      |   | 1,599.9 |  | (13)%
|                                     |  |      |          |      |   |         |  |      
|Total sales                          |  | $    | 10,214.6 |      | $ | 9,817.5 |  | 4 %  
|                                     |  |      |          |      |   |         |  |      

See Part II, Item 7  MD&A  Business Segments for an analysis of sales
by product and segment.



35



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##### Table of Contents

The following table summarizes sales by distribution channel for the years ended December 31:



|                             |  |      |          |      |   |         |  |      
|---------------------------- |  | ---- | -------- | ---- | - | ------- |  | -----
|(dollars in millions)        |  | 2007 |          | 2006 |   | Change 
|Non-affiliated:              |  |      |          |      |   |         |  |      
|Independent broker/dealers   |  | $    | 2,884.6  |      | $ | 2,785.7 |  | 4 %  
|Financial institutions       |  |      | 1,993.3  |      |   | 1,790.6 |  | 11 % 
|Wirehouse and regional firms |  |      | 1,933.5  |      |   | 1,561.3 |  | 24 % 
|Life insurance specialists   |  |      | 329.6    |      |   | 580.6   |  | (43)%
|Pension plan administrators  |  |      | 307.3    |      |   | 344.9   |  | (11)%
|                             |  |      |          |      |   |         |  |      
|Total non-affiliated sales   |  |      | 7,448.3  |      |   | 7,063.1 |  | 5 %  
|                             |  |      |          |      |   |         |  |      
|Affiliated:                  |  |      |          |      |   |         |  |      
|NRS                          |  |      | 1,573.8  |      |   | 1,556.3 |  | 1 %  
|NFN producers                |  |      | 969.3    |      |   | 972.0   |  |     
|Mullin TBG                   |  |      | 223.2    |      |   | 226.1   |  | (1)% 
|                             |  |      |          |      |   |         |  |      
|Total affiliated sales       |  |      | 2,766.3  |      |   | 2,754.4 |  |     
|                             |  |      |          |      |   |         |  |      
|Total sales                  |  | $    | 10,214.6 |      | $ | 9,817.5 |  | 4 %  
|                             |  |      |          |      |   |         |  |      

Higher total sales were driven by improved individual variable annuity sales in the Individual
Investments segment due to continued market acceptance of the Companys products with living benefit riders. However, the overall increase was partially offset by lower COLI sales in the Individual Protection segment due to the addition of two
large cases during 2006 and lower Retirement Plans segment sales from the continued movement of pension business to NFS trust product offerings. In recent years, an increasing amount of business has been sold through NFS trust products rather than
NLIC group annuity contracts due to NFS significant investment in the development of trust product capabilities not prevalent elsewhere in the market.

Higher sales in the wirehouse and regional firms, financial institutions and independent broker/dealers channels were driven by variable annuity products, specifically products offering living benefit riders.

Sales decreased through the life insurance specialists channel due to the decline in COLI activity mentioned above.



36



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##### Table of Contents

Business Segments

Individual Investments

2008 Compared to 2007

The following table summarizes selected financial data for the Companys Individual Investments segment for the years ended December 31:



|                                                            |  |      |          |   |      |   |          |  |      
|----------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- |  | -----
|(dollars in millions)                                       |  | 2008 |          |   | 2007 |   | Change  
|Statements of (Loss) Income Data                            |  |      |          |   |      |   |          |  |      
|Revenues:                                                   |  |      |          |   |      |   |          |  |      
|Policy charges:                                             |  |      |          |   |      |   |          |  |      
|Asset fees                                                  |  | $    | 522.6    |   |      | $ | 583.1    |  | (10)%
|Administrative fees                                         |  |      | 33.4     |   |      |   | 26.8     |  | 25 % 
|Surrender fees                                              |  |      | 43.0     |   |      |   | 47.0     |  | (9)% 
|                                                            |  |      |          |   |      |   |          |  |      
|Total policy charges                                        |  |      | 599.0    |   |      |   | 656.9    |  | (9)% 
|Premiums                                                    |  |      | 119.5    |   |      |   | 133.1    |  | (10)%
|Net investment income                                       |  |      | 506.3    |   |      |   | 609.1    |  | (17)%
|Other income                                                |  |      | 109.5    |   |      |   | 3.1      |  | NM   
|                                                            |  |      |          |   |      |   |          |  |      
|Total revenues                                              |  |      | 1,334.3  |   |      |   | 1,402.2  |  | (5)% 
|                                                            |  |      |          |   |      |   |          |  |      
|Benefits and expenses:                                      |  |      |          |   |      |   |          |  |      
|Interest credited to policyholder accounts                  |  |      | 361.8    |   |      |   | 419.7    |  | (14)%
|Benefits and claims                                         |  |      | 377.0    |   |      |   | 234.2    |  | 61 % 
|Amortization of DAC                                         |  |      | 647.7    |   |      |   | 287.1    |  | 126 %
|Other operating expenses                                    |  |      | 188.1    |   |      |   | 191.6    |  | (2)% 
|                                                            |  |      |          |   |      |   |          |  |      
|Total benefits and expenses                                 |  |      | 1,574.6  |   |      |   | 1,132.6  |  | 39 % 
|                                                            |  |      |          |   |      |   |          |  |      
|Pre-tax operating (loss) earnings                           |  | $    | (240.3   | ) |      | $ | 269.6    |  | NM   
|                                                            |  |      |          |   |      |   |          |  |      
|Other Data                                                  |  |      |          |   |      |   |          |  |      
|Interest spread margin:                                     |  |      |          |   |      |   |          |  |      
|Net investment income                                       |  |      | 5.11%    |   |      |   | 5.70%    |  |      
|Interest credited                                           |  |      | 3.57%    |   |      |   | 3.75%    |  |      
|                                                            |  |      |          |   |      |   |          |  |      
|Interest spread on average general account values           |  |      | 1.54%    |   |      |   | 1.95%    |  |      
|                                                            |  |      |          |   |      |   |          |  |      
|Sales:                                                      |  |      |          |   |      |   |          |  |      
|Individual variable annuities                               |  | $    | 4,209.1  |   |      | $ | 5,603.6  |  | (25)%
|Individual fixed annuities                                  |  |      | 600.1    |   |      |   | 154.1    |  | 289 %
|Income products                                             |  |      | 198.0    |   |      |   | 216.4    |  | (9)% 
|Advisory services program                                   |  |      | 54.0     |   |      |   | 147.2    |  | (63)%
|                                                            |  |      |          |   |      |   |          |  |      
|Total sales                                                 |  | $    | 5,061.2  |   |      | $ | 6,121.3  |  | (17)%
|                                                            |  |      |          |   |      |   |          |  |      
|Average account values:                                     |  |      |          |   |      |   |          |  |      
|General account                                             |  | $    | 10,124.4 |   |      | $ | 11,198.7 |  | (10)%
|Separate account                                            |  |      | 36,013.0 |   |      |   | 41,040.7 |  | (12)%
|Advisory services program                                   |  |      | 443.4    |   |      |   | 634.9    |  | (30)%
|                                                            |  |      |          |   |      |   |          |  |      
|Total average account values                                |  | $    | 46,580.8 |   |      | $ | 52,874.3 |  | (12)%
|                                                            |  |      |          |   |      |   |          |  |      
|Account values as of year end:                              |  |      |          |   |      |   |          |  |      
|Individual variable annuities                               |  | $    | 32,794.6 |   |      | $ | 45,809.3 |  | (28)%
|Individual fixed annuities                                  |  |      | 4,050.4  |   |      |   | 4,261.8  |  | (5)% 
|Income products                                             |  |      | 2,074.7  |   |      |   | 2,064.8  |  |     
|Advisory services program                                   |  |      | 82.6     |   |      |   | 647.2    |  | (87)%
|                                                            |  |      |          |   |      |   |          |  |      
|Total account values                                        |  | $    | 39,002.3 |   |      | $ | 52,783.1 |  | (26)%
|                                                            |  |      |          |   |      |   |          |  |      
|Pre-tax operating (loss) earnings to average account values |  |      | (0.52)%  |   |      |   | 0.51%    |  |      
|                                                            |  |      |          |   |      |   |          |  |      



37



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##### Table of Contents

The Individual Investments segment recorded a pre-tax operating loss for 2008 compared to pre-tax
operating earnings in the prior year primarily due to higher amortization of DAC. In addition, lower interest spread income, asset fees and benefits and claims partially were offset by an increase in other income.

Higher amortization of DAC primarily was due to the aforementioned DAC unlocking in the second quarter of 2007, which lowered amortization of DAC by
$208.9 million in 2007. In addition, the aforementioned DAC unlockings in 2008 increased amortization of DAC by $421.6 million in the current year. However, the Company modified the features of its L.inc product within this segment during the second
quarter of 2007. This modification required the Company to extinguish existing DAC and other balances related to L.inc, resulting in a $124.0 million increase in amortization of DAC and increased annuity benefits of $11.0 million in 2007.
Additionally, lower gross profits in the current year period and a lower rate of DAC amortization due to the impact of 2007 unlocking lowered amortization of DAC by $110.5 million and $30.9 million, respectively, to further offset the increases
noted above.

Benefits and claims increased primarily due to higher exposure on GMDB contracts due to unfavorable market conditions which
increased benefits and claims by $134.3 million.

Interest spread income declined primarily due to lower general account assets caused by
variable and fixed annuity net outflows (average account values fell 10%), which reduced interest spread income by approximately $15.3 million. In addition, interest spread margins declined to 154 basis points in the current year compared to 195
basis points in 2007, reducing interest spread income by approximately $16.1 million. The current year margins included a $13.5 million decrease in income from mortgage loan prepayments and bond call premiums compared to a year ago, which
contributed 12 basis point to the margin decline discussed above.

The decrease in asset fees primarily was driven by lower average
separate account values driven by unfavorable market performance which decreased asset fees by $73.0 million. However, the average variable asset fee rate increased to 1.45% from 1.42% in the prior year as new business with living benefit riders and
corresponding higher fee rates influenced the overall average rate, increasing asset fees by $12.5 million.

Other income increased
primarily due to gains of $109.4 million on derivatives associated with the Companys economic hedging program for GMDB contracts.

Lower overall sales primarily were attributable to the individual variable annuity business due to volatile market conditions and the current economic slowdown, partially offset by improved fixed annuity sales. In addition, the decline in
advisory services program sales was due to the Company exiting this business during 2008.



38



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##### Table of Contents

The following table summarizes selected information about the Companys deferred individual fixed
annuities, including the fixed option of variable annuities, as of December 31, 2008:



|                                            |  |              |         |                              |       |                                       |   |                              |  |              |  |                              |         |              |       |                              |   |         |  |      
|------------------------------------------- |  | ------------ | ------- | ---------------------------- | ----- | ------------------------------------- | - | ---------------------------- |  | ------------ |  | ---------------------------- | ------- | ------------ | ----- | ---------------------------- | - | ------- |  | -----
|                                            |  | Ratchet      |         | Reset                        |       | Market valueadjustment (MVA)and other |   | Total                       
|(dollars in millions)                       |  | Accountvalue |         | Weightedaveragecreditingrate |       | Accountvalue                          |   | Weightedaveragecreditingrate |  | Accountvalue |  | Weightedaveragecreditingrate |         | Accountvalue |       | Weightedaveragecreditingrate
|Minimum interest rate of 3.50% or greater   |  | $            |        |                              | NA    |                                       | $ | 592.5                        |  | 3.54%        |  | $                            |        |              | NA    |                              | $ | 592.5   |  | 3.54%
|Minimum interest rate of 3.00% to 3.49%     |  |              | 1,071.8 |                              | 4.02% |                                       |   | 2,569.6                      |  | 3.11%        |  |                              |        |              | NA    |                              |   | 3,641.4 |  | 3.38%
|Minimum interest rate lower than 3.00%      |  |              | 936.0   |                              | 3.71% |                                       |   | 944.7                        |  | 3.83%        |  |                              | 181.3   |              | 1.25% |                              |   | 2,062.0 |  | 3.55%
|MVA with no minimum interest rate guarantee |  |              |        |                              | NA    |                                       |   |                             |  | NA           |  |                              | 3,166.6 |              | 2.60% |                              |   | 3,166.6 |  | 2.60%
|                                            |  |              |         |                              |       |                                       |   |                              |  |              |  |                              |         |              |       |                              |   |         |  |      
|Total deferred individual fixed annuities   |  | $            | 2,007.8 |                              | 3.88% |                                       | $ | 4,106.8                      |  | 3.34%        |  | $                            | 3,347.9 |              | 2.53% |                              | $ | 9,462.5 |  | 3.17%
|                                            |  |              |         |                              |       |                                       |   |                              |  |              |  |                              |         |              |       |                              |   |         |  |      

See Note 11 to the audited consolidated financial statements included in the F pages of this
report for further discussion of guarantee types offered on non-traditional variable annuity contacts offered by the Company, which are consistent with the fixed annuity descriptions above.



39



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##### Table of Contents

2007 Compared to 2006

The following table summarizes selected financial data for the Companys Individual Investments segment for the years ended December 31:



|                                                     |  |      |          |      |   |          |  |      
|---------------------------------------------------- |  | ---- | -------- | ---- | - | -------- |  | -----
|(dollars in millions)                                |  | 2007 |          | 2006 |   | Change  
|Statements of Income Data                            |  |      |          |      |   |          |  |      
|Revenues:                                            |  |      |          |      |   |          |  |      
|Policy charges:                                      |  |      |          |      |   |          |  |      
|Asset fees                                           |  | $    | 583.1    |      | $ | 506.0    |  | 15 % 
|Administrative fees                                  |  |      | 26.8     |      |   | 20.0     |  | 34 % 
|Surrender fees                                       |  |      | 47.0     |      |   | 55.7     |  | (16)%
|                                                     |  |      |          |      |   |          |  |      
|Total policy charges                                 |  |      | 656.9    |      |   | 581.7    |  | 13 % 
|Premiums                                             |  |      | 133.1    |      |   | 142.5    |  | (7)% 
|Net investment income                                |  |      | 609.1    |      |   | 739.5    |  | (18)%
|Other income                                         |  |      | 3.1      |      |   | 2.6      |  | 19 % 
|                                                     |  |      |          |      |   |          |  |      
|Total revenues                                       |  |      | 1,402.2  |      |   | 1,466.3  |  | (4)% 
|                                                     |  |      |          |      |   |          |  |      
|Benefits and expenses:                               |  |      |          |      |   |          |  |      
|Interest credited to policyholder accounts           |  |      | 419.7    |      |   | 501.7    |  | (16)%
|Benefits and claims                                  |  |      | 234.2    |      |   | 202.8    |  | 15 % 
|Amortization of DAC                                  |  |      | 287.1    |      |   | 352.7    |  | (19)%
|Other operating expenses                             |  |      | 191.6    |      |   | 206.3    |  | (7)% 
|                                                     |  |      |          |      |   |          |  |      
|Total benefits and expenses                          |  |      | 1,132.6  |      |   | 1,263.5  |  | (10)%
|                                                     |  |      |          |      |   |          |  |      
|Pre-tax operating earnings                           |  | $    | 269.6    |      | $ | 202.8    |  | 33 % 
|                                                     |  |      |          |      |   |          |  |      
|Other Data                                           |  |      |          |      |   |          |  |      
|Interest spread margin:                              |  |      |          |      |   |          |  |      
|Net investment income                                |  |      | 5.70%    |      |   | 5.76%    |  |      
|Interest credited                                    |  |      | 3.75%    |      |   | 3.78%    |  |      
|                                                     |  |      |          |      |   |          |  |      
|Interest spread on average general account values    |  |      | 1.95%    |      |   | 1.98%    |  |      
|                                                     |  |      |          |      |   |          |  |      
|Sales:                                               |  |      |          |      |   |          |  |      
|Individual variable annuities                        |  | $    | 5,603.6  |      | $ | 4,747.5  |  | 18 % 
|Individual fixed annuities                           |  |      | 154.1    |      |   | 183.7    |  | (16)%
|Income products                                      |  |      | 216.4    |      |   | 230.7    |  | (6)% 
|Advisory services program                            |  |      | 147.2    |      |   | 222.8    |  | (34)%
|                                                     |  |      |          |      |   |          |  |      
|Total sales                                          |  | $    | 6,121.3  |      | $ | 5,384.7  |  | 14 % 
|                                                     |  |      |          |      |   |          |  |      
|Average account values:                              |  |      |          |      |   |          |  |      
|General account                                      |  | $    | 11,198.7 |      | $ | 13,283.3 |  | (16)%
|Separate account                                     |  |      | 41,040.7 |      |   | 36,841.3 |  | 11 % 
|Advisory services program                            |  |      | 634.9    |      |   | 508.2    |  | 25 % 
|                                                     |  |      |          |      |   |          |  |      
|Total average account values                         |  | $    | 52,874.3 |      | $ | 50,632.8 |  | 4 %  
|                                                     |  |      |          |      |   |          |  |      
|Account values as of year end:                       |  |      |          |      |   |          |  |      
|Individual variable annuities                        |  | $    | 45,809.3 |      | $ | 43,434.8 |  | 5 %  
|Individual fixed annuities                           |  |      | 4,261.8  |      |   | 5,909.7  |  | (28)%
|Income products                                      |  |      | 2,064.8  |      |   | 1,984.6  |  | 4 %  
|Advisory services program                            |  |      | 647.2    |      |   | 597.1    |  | 8 %  
|                                                     |  |      |          |      |   |          |  |      
|Total account values                                 |  | $    | 52,783.1 |      | $ | 51,926.2 |  | 2 %  
|                                                     |  |      |          |      |   |          |  |      
|Pre-tax operating earnings to average account values |  |      | 0.51%    |      |   | 0.40%    |  |      
|                                                     |  |      |          |      |   |          |  |      



40



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##### Table of Contents

The increase in pre-tax operating earnings primarily was driven by higher asset fees and lower
amortization of DAC, partially offset by lower interest spread income and higher benefits and claims.

Asset fees are calculated daily and
charged as a percentage of separate account values. Higher average separate account values driven by favorable market performance increased asset fees by $59.7 million. In addition, the average variable asset fee rate increased to 1.42% from 1.37%
in the prior year as new business sold with living benefit riders and corresponding higher fee rates influenced the overall average rate, increasing asset fees by $17.4 million.

Lower amortization of DAC primarily was due to the aforementioned DAC unlocking, which lowered amortization of DAC by $208.9 million. In addition, the Company modified the features of its L.inc
product within this segment during 2007. This modification required the Company to extinguish existing DAC and other balances related to L.inc, resulting in a $124.0 million increase in amortization of DAC and increased annuity benefits of $11.0
million as explained below.

Interest spread income declined due to three factors. First, general account assets decreased due to fixed
annuity outflows, reducing income by $40.6 million. Second, interest spread margins declined during 2007 to 195 basis points compared to 198 basis points in 2006. Long-duration higher yielding investments rolling over into lower yielding assets
drove the margin compression and accounted for $4.9 million in reduced income. Third, the current year included only $17.4 million of income from mortgage loan prepayments and bond call premiums compared to $20.3 million in 2006.

Higher benefits and claims primarily were driven by increased annuity benefits of $12.5 million related to the unlocking of DAC and other related
balances in 2007 and the aforementioned increase in annuity benefits related to modification of L.inc features of $11.0 million. The remaining increase was due to higher guaranteed benefit expenses related to growth in this business.

Higher sales in the individual variable annuity business were driven by continued market acceptance of the Companys products with living benefit
riders, especially L.inc, and a more targeted sales process. Sales of products with the L.inc rider increased $867.8 million compared to 2006.

The following table summarizes selected information about the Companys deferred individual fixed annuities, including the fixed option of variable annuities, as of December 31, 2007:



|                                            |  |              |         |                              |       |                                       |   |                              |  |              |  |                              |         |              |       |                              |   |         |  |      
|------------------------------------------- |  | ------------ | ------- | ---------------------------- | ----- | ------------------------------------- | - | ---------------------------- |  | ------------ |  | ---------------------------- | ------- | ------------ | ----- | ---------------------------- | - | ------- |  | -----
|                                            |  | Ratchet      |         | Reset                        |       | Market valueadjustment (MVA) andother |   | Total                       
|(dollars in millions)                       |  | Accountvalue |         | Weightedaveragecreditingrate |       | Accountvalue                          |   | Weightedaveragecreditingrate |  | Accountvalue |  | Weightedaveragecreditingrate |         | Accountvalue |       | Weightedaveragecreditingrate
|Minimum interest rate of 3.50% or greater   |  | $            |        |                              | N/A   |                                       | $ | 639.9                        |  | 3.54%        |  | $                            |        |              | N/A   |                              | $ | 639.9   |  | 3.54%
|Minimum interest rate of 3.00% to 3.49%     |  |              | 1,289.3 |                              | 4.12% |                                       |   | 3,283.9                      |  | 3.07%        |  |                              |        |              | N/A   |                              |   | 4,573.2 |  | 3.37%
|Minimum interest rate lower than 3.00%      |  |              | 804.1   |                              | 3.38% |                                       |   | 433.5                        |  | 3.66%        |  |                              | 149.0   |              | 2.55% |                              |   | 1,386.6 |  | 3.38%
|MVA with no minimum interest rate guarantee |  |              |        |                              | N/A   |                                       |   |                             |  | N/A          |  |                              | 1,512.5 |              | 2.73% |                              |   | 1,512.5 |  | 2.73%
|                                            |  |              |         |                              |       |                                       |   |                              |  |              |  |                              |         |              |       |                              |   |         |  |      
|Total deferred individual fixed annuities   |  | $            | 2,093.4 |                              | 3.84% |                                       | $ | 4,357.3                      |  | 3.20%        |  | $                            | 1,661.5 |              | 2.72% |                              | $ | 8,112.2 |  | 3.27%
|                                            |  |              |         |                              |       |                                       |   |                              |  |              |  |                              |         |              |       |                              |   |         |  |      



41



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##### Table of Contents

Retirement Plans

2008 Compared to 2007

The following table summarizes selected financial data for the Companys Retirement Plans
segment for the years ended December 31:



|                                                     |  |      |          |      |   |          |  |      
|---------------------------------------------------- |  | ---- | -------- | ---- | - | -------- |  | -----
|(dollars in millions)                                |  | 2008 |          | 2007 |   | Change  
|Statements of Income Data                            |  |      |          |      |   |          |  |      
|Revenues:                                            |  |      |          |      |   |          |  |      
|Policy charges:                                      |  |      |          |      |   |          |  |      
|Asset fees                                           |  | $    | 99.4     |      | $ | 124.7    |  | (20)%
|Administrative fees                                  |  |      | 14.5     |      |   | 11.8     |  | 23 % 
|Surrender fees                                       |  |      | 1.7      |      |   | 3.0      |  | (43)%
|                                                     |  |      |          |      |   |          |  |      
|Total policy charges                                 |  |      | 115.6    |      |   | 139.5    |  | (17)%
|Net investment income                                |  |      | 638.2    |      |   | 639.4    |  |     
|Other income                                         |  |      | 0.9      |      |   |         |  | NM   
|                                                     |  |      |          |      |   |          |  |      
|Total revenues                                       |  |      | 754.7    |      |   | 778.9    |  | (3)% 
|                                                     |  |      |          |      |   |          |  |      
|Benefits and expenses:                               |  |      |          |      |   |          |  |      
|Interest credited to policyholder accounts           |  |      | 425.9    |      |   | 433.7    |  | (2)% 
|Amortization of DAC                                  |  |      | 39.7     |      |   | 26.7     |  | 49 % 
|Other operating expenses                             |  |      | 147.0    |      |   | 173.6    |  | (15)%
|                                                     |  |      |          |      |   |          |  |      
|Total benefits and expenses                          |  |      | 612.6    |      |   | 634.0    |  | (3)% 
|                                                     |  |      |          |      |   |          |  |      
|Pre-tax operating earnings                           |  | $    | 142.1    |      | $ | 144.9    |  | (2)% 
|                                                     |  |      |          |      |   |          |  |      
|Other Data                                           |  |      |          |      |   |          |  |      
|Interest spread margin:                              |  |      |          |      |   |          |  |      
|Net investment income                                |  |      | 5.83%    |      |   | 5.89%    |  |      
|Interest credited                                    |  |      | 3.89%    |      |   | 3.99%    |  |      
|                                                     |  |      |          |      |   |          |  |      
|Interest spread on average general account values    |  |      | 1.94%    |      |   | 1.90%    |  |      
|                                                     |  |      |          |      |   |          |  |      
|Sales:                                               |  |      |          |      |   |          |  |      
|Private sector                                       |  | $    | 974.1    |      | $ | 1,147.4  |  | (15)%
|Public sector                                        |  |      | 1,771.8  |      |   | 1,548.5  |  | 14 % 
|                                                     |  |      |          |      |   |          |  |      
|Total sales                                          |  | $    | 2,745.9  |      | $ | 2,695.9  |  | 2 %  
|                                                     |  |      |          |      |   |          |  |      
|Average account values:                              |  |      |          |      |   |          |  |      
|General account                                      |  | $    | 10,939.9 |      | $ | 10,848.6 |  | 1 %  
|Separate account                                     |  |      | 13,339.7 |      |   | 16,934.3 |  | (21)%
|                                                     |  |      |          |      |   |          |  |      
|Total average account values                         |  | $    | 24,279.6 |      | $ | 27,782.9 |  | (13)%
|                                                     |  |      |          |      |   |          |  |      
|Account values as of year end:                       |  |      |          |      |   |          |  |      
|Private sector                                       |  | $    | 6,947.9  |      | $ | 9,457.4  |  | (27)%
|Public sector                                        |  |      | 14,396.6 |      |   | 17,096.3 |  | (16)%
|                                                     |  |      |          |      |   |          |  |      
|Total account values                                 |  | $    | 21,344.5 |      | $ | 26,553.7 |  | (20)%
|                                                     |  |      |          |      |   |          |  |      
|Pre-tax operating earnings to average account values |  |      | 0.59%    |      |   | 0.52%    |  |      
|                                                     |  |      |          |      |   |          |  |      

The decrease in pre-tax operating earnings was driven by lower asset fees, higher amortization of
DAC and lower other income, partially offset by reduced other operating expenses and higher interest spread income.

Asset fees decreased
due to lower average separate account values driven by unfavorable market performance.



42



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##### Table of Contents

Higher amortization of DAC primarily was due to the aforementioned DAC unlocking in the second quarter of
2007, which lowered amortization of DAC in 2007 by $10.5 million. In addition, the aforementioned DAC unlocking in the second quarter of 2008 increased amortization of DAC by $2.3 million in the current year.

The decrease in other operating expenses primarily was due to the aforementioned movement of pension business to NFS trust product offerings and lower
employee incentives and benefits.

Interest spread income increased primarily due to lower crediting rates on both private and public
sector products.

Public sector sales drove the overall increase due to increased contributions into the Companys fixed return
products. Private sector sales declined primarily due to the shift in pension business to NFS.



43



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##### Table of Contents

2007 Compared to 2006

The following table summarizes selected financial data for the Companys Retirement Plans segment for the years ended December 31:



|                                                     |  |      |          |      |   |          |  |      
|---------------------------------------------------- |  | ---- | -------- | ---- | - | -------- |  | -----
|(dollars in millions)                                |  | 2007 |          | 2006 |   | Change  
|Statements of Income Data                            |  |      |          |      |   |          |  |      
|Revenues:                                            |  |      |          |      |   |          |  |      
|Policy charges:                                      |  |      |          |      |   |          |  |      
|Asset fees                                           |  | $    | 124.7    |      | $ | 125.4    |  | (1)% 
|Administrative fees                                  |  |      | 11.8     |      |   | 30.3     |  | (61)%
|Surrender fees                                       |  |      | 3.0      |      |   | 4.5      |  | (33)%
|                                                     |  |      |          |      |   |          |  |      
|Total policy charges                                 |  |      | 139.5    |      |   | 160.2    |  | (13)%
|Net investment income                                |  |      | 639.4    |      |   | 636.0    |  | 1 %  
|                                                     |  |      |          |      |   |          |  |      
|Total revenues                                       |  |      | 778.9    |      |   | 796.2    |  | (2)% 
|                                                     |  |      |          |      |   |          |  |      
|Benefits and expenses:                               |  |      |          |      |   |          |  |      
|Interest credited to policyholder accounts           |  |      | 433.7    |      |   | 440.5    |  | (2)% 
|Amortization of DAC                                  |  |      | 26.7     |      |   | 37.9     |  | (30)%
|Other operating expenses                             |  |      | 173.6    |      |   | 179.1    |  | (3)% 
|                                                     |  |      |          |      |   |          |  |      
|Total benefits and expenses                          |  |      | 634.0    |      |   | 657.5    |  | (4)% 
|                                                     |  |      |          |      |   |          |  |      
|Pre-tax operating earnings                           |  | $    | 144.9    |      | $ | 138.7    |  | 4 %  
|                                                     |  |      |          |      |   |          |  |      
|Other Data                                           |  |      |          |      |   |          |  |      
|Interest spread margin:                              |  |      |          |      |   |          |  |      
|Net investment income                                |  |      | 5.89%    |      |   | 5.91%    |  |      
|Interest credited                                    |  |      | 3.99%    |      |   | 4.09%    |  |      
|                                                     |  |      |          |      |   |          |  |      
|Interest spread on average general account values    |  |      | 1.90%    |      |   | 1.82%    |  |      
|                                                     |  |      |          |      |   |          |  |      
|Sales:                                               |  |      |          |      |   |          |  |      
|Private sector                                       |  | $    | 1,147.4  |      | $ | 1,299.6  |  | (12)%
|Public sector                                        |  |      | 1,548.5  |      |   | 1,533.3  |  | 1 %  
|                                                     |  |      |          |      |   |          |  |      
|Total sales                                          |  | $    | 2,695.9  |      | $ | 2,832.9  |  | (5)% 
|                                                     |  |      |          |      |   |          |  |      
|Average account values:                              |  |      |          |      |   |          |  |      
|General account                                      |  | $    | 10,848.6 |      | $ | 10,756.1 |  | 1 %  
|Separate account                                     |  |      | 16,934.3 |      |   | 17,544.3 |  | (3)% 
|                                                     |  |      |          |      |   |          |  |      
|Total average account values                         |  | $    | 27,782.9 |      | $ | 28,300.4 |  | (2)% 
|                                                     |  |      |          |      |   |          |  |      
|Account values as of year end:                       |  |      |          |      |   |          |  |      
|Private sector                                       |  | $    | 9,457.4  |      | $ | 12,542.9 |  | (25)%
|Public sector                                        |  |      | 17,096.3 |      |   | 15,979.5 |  | 7 %  
|                                                     |  |      |          |      |   |          |  |      
|Total account values                                 |  | $    | 26,553.7 |      | $ | 28,522.4 |  | (7)% 
|                                                     |  |      |          |      |   |          |  |      
|Pre-tax operating earnings to average account values |  |      | 0.52%    |      |   | 0.49%    |  |      
|                                                     |  |      |          |      |   |          |  |      

The increase in pre-tax operating earnings primarily was driven by lower amortization of DAC and
higher interest spread income, partially offset by lower administrative fees.

Lower amortization of DAC primarily was due to the
aforementioned DAC unlocking of the net separate account growth rate assumption for the three-year reversion period and adjusting the net separate account growth rate and related discount rate assumptions. These factors lowered amortization of DAC
by $10.5 million.



44



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##### Table of Contents

Interest spread income increased due to a lower average crediting rate as interest spread margins widened
to 190 basis points in 2007 compared to 182 basis points for 2006. Included in 2007 were 11 basis points, or $11.7 million, of income from mortgage loan prepayments and bond call premiums compared to 9 basis points, or $9.9 million, in 2006.

Lower administrative fees primarily were attributable to the surrender of a group fixed annuity contract during the second quarter of
2006, which resulted in an $18.6 million policy adjustment.

Private sector sales decreased due to the declining issuance of group annuity
contracts described earlier and the related decrease in recurring flows.



45



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##### Table of Contents

Individual Protection

2008 Compared to 2007

The following table summarizes selected financial data for the Companys Individual Protection
segment for the years ended December 31:



|                                           |  |      |           |      |   |          |  |      
|------------------------------------------ |  | ---- | --------- | ---- | - | -------- |  | -----
|(dollars in millions)                      |  | 2008 |           | 2007 |   | Change  
|Statements of Income Data                  |  |      |           |      |   |          |  |      
|Revenues:                                  |  |      |           |      |   |          |  |      
|Policy charges:                            |  |      |           |      |   |          |  |      
|Asset fees                                 |  | $    | 36.1      |      | $ | 38.7     |  | (7)% 
|Cost of insurance charges                  |  |      | 328.1     |      |   | 300.2    |  | 9 %  
|Administrative fees                        |  |      | 77.2      |      |   | 62.3     |  | 24 % 
|Surrender fees                             |  |      | 12.0      |      |   | 10.7     |  | 13 % 
|                                           |  |      |           |      |   |          |  |      
|Total policy charges                       |  |      | 453.4     |      |   | 411.9    |  | 10 % 
|Premiums                                   |  |      | 164.0     |      |   | 158.6    |  | 3 %  
|Net investment income                      |  |      | 343.9     |      |   | 330.2    |  | 4 %  
|                                           |  |      |           |      |   |          |  |      
|Total revenues                             |  |      | 961.3     |      |   | 900.7    |  | 7 %  
|                                           |  |      |           |      |   |          |  |      
|Benefits and expenses:                     |  |      |           |      |   |          |  |      
|Interest credited to policyholder accounts |  |      | 181.5     |      |   | 178.0    |  | 2 %  
|Benefits                                   |  |      | 295.0     |      |   | 245.1    |  | 20 % 
|Policyholder dividends                     |  |      | 26.4      |      |   | 24.5     |  | 8 %  
|Amortization of DAC                        |  |      | 113.5     |      |   | 80.2     |  | 41 % 
|Other operating expenses                   |  |      | 138.0     |      |   | 147.1    |  | (6)% 
|                                           |  |      |           |      |   |          |  |      
|Total benefits and expenses                |  |      | 754.4     |      |   | 674.9    |  | 12 % 
|                                           |  |      |           |      |   |          |  |      
|Pre-tax operating earnings                 |  | $    | 206.9     |      | $ | 225.8    |  | (8)% 
|                                           |  |      |           |      |   |          |  |      
|Other Data                                 |  |      |           |      |   |          |  |      
|Sales:                                     |  |      |           |      |   |          |  |      
|Corporate-owned life insurance             |  | $    | 545.1     |      | $ | 552.7    |  | (1)% 
|Traditional/universal life insurance       |  |      | 454.7     |      |   | 395.8    |  | 15 % 
|Variable life insurance                    |  |      | 392.1     |      |   | 448.9    |  | (13)%
|                                           |  |      |           |      |   |          |  |      
|Total sales                                |  | $    | 1,391.9   |      | $ | 1,397.4  |  |     
|                                           |  |      |           |      |   |          |  |      
|Policy reserves as of year end:            |  |      |           |      |   |          |  |      
|Individual investment life insurance       |  | $    | 2,800.2   |      | $ | 4,028.2  |  | (30)%
|Corporate investment life insurance        |  |      | 8,548.9   |      |   | 9,278.8  |  | (8)% 
|Traditional life insurance                 |  |      | 2,032.6   |      |   | 2,019.8  |  | 1 %  
|Universal life insurance                   |  |      | 1,342.7   |      |   | 1,218.7  |  | 10 % 
|                                           |  |      |           |      |   |          |  |      
|Total policy reserves                      |  | $    | 14,724.4  |      | $ | 16,545.5 |  | (11)%
|                                           |  |      |           |      |   |          |  |      
|Insurance in force as of year end:         |  |      |           |      |   |          |  |      
|Individual investment life insurance       |  | $    | 38,999.5  |      | $ | 39,780.6 |  | (2)% 
|Corporate investment life insurance        |  |      | 24,606.8  |      |   | 25,291.5 |  | (3)% 
|Traditional life insurance                 |  |      | 34,079.4  |      |   | 23,289.3 |  | 46 % 
|Universal life insurance                   |  |      | 11,182.7  |      |   | 10,013.3 |  | 12 % 
|                                           |  |      |           |      |   |          |  |      
|Total insurance in force                   |  | $    | 108,868.4 |      | $ | 98,374.7 |  | 11 % 
|                                           |  |      |           |      |   |          |  |      

The decrease in pre-tax operating earnings was driven by higher benefits and amortization of DAC,
partially offset by higher policy charges, reduced other operating expenses and higher interest spread income.



46



---

##### Table of Contents

Higher benefits primarily were due to adverse mortality in the current year in the variable life and
universal life insurance businesses. The average net claim size and the number of claims in these products increased 22% and 16%, respectively, over the prior year.

Amortization of DAC increased primarily due to the aforementioned DAC unlocking in the second quarter of 2007, which lowered amortization of DAC by $18.1 million in 2007. In addition, the aforementioned DAC unlocking
in the second quarter of 2008 increased amortization of DAC by $2.8 million in the current year. The remainder of the increase was due to higher gross profits in 2008.

Policy charges increased due to higher cost of insurance charges and administrative fees. Cost of insurance charges rose due to increased business in force combined with the aging of the individual life business
block. The aging of a block generally increases cost of insurance charges as the Companys related mortality risk also rises. Administrative fees were impacted by the aforementioned unlocking in the second quarter of 2008 and increased
universal life sales upon which part of these fees are derived.

Other operating expenses declined primarily due to lower agency marketing
costs ($6.8 million) and employee incentives ($5.4 million).

Interest spread income increased primarily due to growth in the universal
life business block driven by sales of the ULtimate product.

The decrease in sales primarily was due to lower renewals of variable life
products, partially offset by an increase in universal life sales primarily driven by the ULtimate product.



47



---

##### Table of Contents

2007 Compared to 2006

The following table summarizes selected financial data for the Companys Individual Protection segment for the years ended December 31:



|                                           |  |      |          |      |   |          |  |      
|------------------------------------------ |  | ---- | -------- | ---- | - | -------- |  | -----
|(dollars in millions)                      |  | 2007 |          | 2006 |   | Change  
|Statements of Income Data                  |  |      |          |      |   |          |  |      
|Revenues:                                  |  |      |          |      |   |          |  |      
|Policy charges:                            |  |      |          |      |   |          |  |      
|Asset fees                                 |  | $    | 38.7     |      | $ | 32.8     |  | 18 % 
|Cost of insurance charges                  |  |      | 300.2    |      |   | 282.1    |  | 6 %  
|Administrative fees                        |  |      | 62.3     |      |   | 64.3     |  | (3)% 
|Surrender fees                             |  |      | 10.7     |      |   | 11.5     |  | (7)% 
|                                           |  |      |          |      |   |          |  |      
|Total policy charges                       |  |      | 411.9    |      |   | 390.7    |  | 5 %  
|Premiums                                   |  |      | 158.6    |      |   | 165.8    |  | (4)% 
|Net investment income                      |  |      | 330.2    |      |   | 328.2    |  | 1 %  
|Other income                               |  |      |         |      |   | 0.3      |  | NM   
|                                           |  |      |          |      |   |          |  |      
|Total revenues                             |  |      | 900.7    |      |   | 885.0    |  | 2 %  
|                                           |  |      |          |      |   |          |  |      
|Benefits and expenses:                     |  |      |          |      |   |          |  |      
|Interest credited to policyholder accounts |  |      | 178.0    |      |   | 179.2    |  | (1)% 
|Benefits                                   |  |      | 245.1    |      |   | 247.5    |  | (1)% 
|Policyholder dividends                     |  |      | 24.5     |      |   | 25.6     |  | (5)% 
|Amortization of DAC                        |  |      | 80.2     |      |   | 69.6     |  | 15 % 
|Other operating expenses                   |  |      | 147.1    |      |   | 142.4    |  | 3 %  
|                                           |  |      |          |      |   |          |  |      
|Total benefits and expenses                |  |      | 674.9    |      |   | 664.3    |  | 2 %  
|                                           |  |      |          |      |   |          |  |      
|Pre-tax operating earnings                 |  | $    | 225.8    |      | $ | 220.7    |  | 2 %  
|                                           |  |      |          |      |   |          |  |      
|Other Data                                 |  |      |          |      |   |          |  |      
|Sales:                                     |  |      |          |      |   |          |  |      
|Corporate-owned life insurance             |  | $    | 552.7    |      | $ | 805.9    |  | (31)%
|Variable life insurance                    |  |      | 448.9    |      |   | 437.3    |  | 3 %  
|Traditional/universal life insurance       |  |      | 395.8    |      |   | 356.7    |  | 11 % 
|                                           |  |      |          |      |   |          |  |      
|Total sales                                |  | $    | 1,397.4  |      | $ | 1,599.9  |  | (13)%
|                                           |  |      |          |      |   |          |  |      
|Policy reserves as of year end:            |  |      |          |      |   |          |  |      
|Individual investment life insurance       |  | $    | 4,028.2  |      | $ | 3,676.4  |  | 10 % 
|Corporate investment life insurance        |  |      | 9,278.8  |      |   | 8,514.4  |  | 9 %  
|Traditional life insurance                 |  |      | 2,019.8  |      |   | 2,014.3  |  |     
|Universal life insurance                   |  |      | 1,218.7  |      |   | 1,128.9  |  | 8 %  
|                                           |  |      |          |      |   |          |  |      
|Total policy reserves                      |  | $    | 16,545.5 |      | $ | 15,334.0 |  | 8 %  
|                                           |  |      |          |      |   |          |  |      
|Insurance in force as of year end:         |  |      |          |      |   |          |  |      
|Individual investment life insurance       |  | $    | 39,780.6 |      | $ | 38,762.0 |  | 3 %  
|Corporate investment life insurance        |  |      | 25,291.5 |      |   | 24,764.4 |  | 2 %  
|Traditional life insurance                 |  |      | 23,289.3 |      |   | 19,800.9 |  | 18 % 
|Universal life insurance                   |  |      | 10,013.3 |      |   | 9,600.7  |  | 4 %  
|                                           |  |      |          |      |   |          |  |      
|Total insurance in force                   |  | $    | 98,374.7 |      | $ | 92,928.0 |  | 6 %  
|                                           |  |      |          |      |   |          |  |      

Pre-tax operating earnings increased primarily due to higher policy charges, partially offset by
higher amortization of DAC and lower premiums.



48



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##### Table of Contents

Policy charges increased due to higher cost of insurance charges and asset fees. The aging of the
individual life business block drove higher cost of insurance charges. Asset fees increased due to higher average separate account values.

Amortization of DAC increased primarily due to unlocking in 2006 related to mortality assumptions in fixed universal life and variable universal life that reduced amortization by $18.5 and $10.9 million, respectively. This increase was
offset by lower amortization of DAC due to the aforementioned DAC unlocking in 2007 of the net separate account growth rate assumption for the three-year reversion period, adjusting the net separate account growth rate and related discount rate
assumptions, and increasing estimated lapse rates for BOLI products. These factors lowered amortization of DAC by $19.0 million in 2007.

Premiums declined primarily due to higher premiums ceded on renewal products and a $3.7 million fixed life insurance premium refund in the prior year.

The decrease in sales primarily was due to the addition of two large COLI cases during 2006.

Corporate and Other

2008 Compared to 2007

The
following table summarizes selected financial data for the Companys Corporate and Other segment for the years ended December 31:



|                                                                                    |  |      |          |   |      |   |         |        |  |      
|----------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | ------ |  | -----
|(dollars in millions)                                                               |  | 2008 |          |   | 2007 |   |         | Change
|Statements of (Loss) Income Data                                                    |  |      |          |   |      |   |         |        |  |      
|Operating revenues:                                                                 |  |      |          |   |      |   |         |        |  |      
|Net investment income                                                               |  | $    | 198.6    |   |      | $ | 397.1   |        |  | (50)%
|Other income                                                                        |  |      | (65.1    | ) |      |   | (5.8    | )      |  | NM   
|                                                                                    |  |      |          |   |      |   |         |        |  |      
|Total operating revenues                                                            |  |      | 133.5    |   |      |   | 391.4   |        |  | (66)%
|                                                                                    |  |      |          |   |      |   |         |        |  |      
|Benefits and operating expenses:                                                    |  |      |          |   |      |   |         |        |  |      
|Interest credited to policyholder accounts                                          |  |      | 161.8    |   |      |   | 231.2   |        |  | (30)%
|Interest expense                                                                    |  |      | 61.8     |   |      |   | 70.0    |        |  | (12)%
|Other operating expenses                                                            |  |      | 43.0     |   |      |   | 17.2    |        |  | 150 %
|                                                                                    |  |      |          |   |      |   |         |        |  |      
|Total benefits and operating expenses                                               |  |      | 266.6    |   |      |   | 318.4   |        |  | (16)%
|                                                                                    |  |      |          |   |      |   |         |        |  |      
|Pre-tax operating (loss) earnings                                                   |  |      | (133.1   | ) |      |   | 73.0    |        |  | NM   
|Add: non-operating net realized investment losses1                                  |  |      | (1,478.2 | ) |      |   | (156.0  | )      |  | NM   
|Add: adjustment to amortization related to net realized investment gains and losses |  |      | 138.5    |   |      |   | 25.5    |        |  | NM   
|                                                                                    |  |      |          |   |      |   |         |        |  |      
|Loss from continuing operations before federal income tax benefit                   |  | $    | (1,472.8 | ) |      | $ | (57.5   | )      |  | NM   
|                                                                                    |  |      |          |   |      |   |         |        |  |      
|Other Data                                                                          |  |      |          |   |      |   |         |        |  |      
|Customer funds managed and administered as of year end:                             |  |      |          |   |      |   |         |        |  |      
|Funding agreements backing medium-term notes                                        |  | $    | 3,217.2  |   |      | $ | 4,525.7 |        |  | (29)%
|                                                                                    |  |      |          |   |      |   |         |        |  |      



|1 | Excluding periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting
treatment and net realized gains and losses related to hedges on GMDB contracts and securitizations.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company
recorded a pre-tax operating loss in 2008 compared to earnings in the prior year primarily due to lower interest spread income and other income.



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The decrease in interest spread income primarily was driven by lower income from hedge fund and private
equity investments ($94.5 million). Lower income from mortgage loan prepayments and bond call premiums ($12.4 million), reduced earnings from the MTN program ($9.0 million) primarily due to lower prepayment income, and approximately a 10% decline in
average asset levels further contributed to the shortfall.

Lower other income primarily was driven by losses in the Companys
structured products business related to impairments on mortgages and mortgage loan commitments.

Higher non-operating net realized
investment losses were driven by a $935.0 million increase in impairment charges compared to the prior year due to challenging conditions in the credit markets. In addition, the Company recorded a $474.0 million increase in losses on living benefit
embedded derivatives, net of economic hedging activity.

The increase in losses on living benefit embedded derivatives, net of economic
hedging activity, gave rise to the increase in the adjustment to amortization related to net realized investment gains and losses.

The
following table summarizes net realized investment losses from continuing operations by source for the years ended December 31:



|                                                                              |  |      |          |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------ | -
|(in millions)                                                                 |  | 2008 |          |   | 2007 |  
|Total realized gains on sales, net of hedging losses                          |  | $    | 1.9      |   |      | $ | 65.4   |  
|Total realized losses on sales, net of hedging gains                          |  |      | (93.1    | ) |      |   | (79.9  | )
|Total other-than-temporary and other investment impairments                   |  |      | (1,051.4 | ) |      |   | (116.4 | )
|Credit default swaps                                                          |  |      | (9.8     | ) |      |   | (7.5   | )
|Derivatives and embedded derivatives associated with living benefit contracts |  |      | (500.7   | ) |      |   | (26.7  | )
|Derivatives associated with death benefit contracts                           |  |      | 109.4    |   |      |   |       |  
|Other derivatives                                                             |  |      | 104.4    |   |      |   | (1.1   | )
|                                                                              |  |      |          |   |      |   |        |  
|Net realized investment losses                                                |  | $    | (1,439.3 | ) |      | $ | (166.2 | )
|                                                                              |  |      |          |   |      |   |        |  

The following table summarizes other-than-temporary and other investment impairments by asset type
for the years ended December 31:



|                                                            |  |      |         |      |   |      
|----------------------------------------------------------- |  | ---- | ------- | ---- | - | -----
|(in millions)                                               |  | 2008 |         | 2007
|Fixed maturity securities:                                  |  |      |         |      |   |      
|Corporate securities                                        |  |      |         |      |   |      
|Public                                                      |  | $    | 191.1   |      | $ | 10.5 
|Private                                                     |  |      | 77.0    |      |   | 62.7 
|Mortgage-backed securities                                  |  |      | 313.5   |      |   |     
|Asset-backed securities                                     |  |      | 392.4   |      |   | 35.1 
|                                                            |  |      |         |      |   |      
|Total fixed maturity securities                             |  |      | 974.0   |      |   | 108.3
|Equity securities                                           |  |      | 60.2    |      |   |     
|Other                                                       |  |      | 17.2    |      |   | 8.1  
|                                                            |  |      |         |      |   |      
|Total other-than-temporary and other investment impairments |  | $    | 1,051.4 |      | $ | 116.4
|                                                            |  |      |         |      |   |      

Of the $1.05 billion and $116.4 million of other-than-temporary and other investment impairments
recognized in the years ended December 31, 2008 and 2007, respectively, 79%, or $828.4 million, and 94%, or $109.4 million, were recognized due to adverse issuer or security specific credit events.

The Company has a comprehensive portfolio monitoring process for fixed maturity and equity securities to identify and evaluate the necessity of recording
impairment losses for other-than-temporary declines in the fair value of investments. See Part II, Item 7  MD&A  Critical Accounting Policies and Recently Issued Accounting Standards  Impairment Losses on
Investments for a complete discussion of this process.



50



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2007 Compared to 2006

The following table summarizes selected financial data for the Companys Corporate and Other segment for the years ended December 31:



|                                                                                     |  |      |         |      |   |         |  |     
|------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- |  | ----
|(dollars in millions)                                                                |  | 2007 |         | 2006 |   | Change 
|Statements of (Loss) Income Data                                                     |  |      |         |      |   |         |  |     
|Operating revenues:                                                                  |  |      |         |      |   |         |  |     
|Net investment income                                                                |  | $    | 397.1   |      | $ | 354.8   |  | 12 %
|Other income                                                                         |  |      | (5.8)   |      |   | 3.4     |  | NM  
|                                                                                     |  |      |         |      |   |         |  |     
|Total operating revenues                                                             |  |      | 391.3   |      |   | 358.2   |  | 9 % 
|                                                                                     |  |      |         |      |   |         |  |     
|Benefits and operating expenses:                                                     |  |      |         |      |   |         |  |     
|Interest credited to policyholder accounts                                           |  |      | 231.2   |      |   | 208.7   |  | 11 %
|Interest expense                                                                     |  |      | 70.0    |      |   | 65.5    |  | 7 % 
|Other operating expenses                                                             |  |      | 17.2    |      |   | 9.0     |  | 91 %
|                                                                                     |  |      |         |      |   |         |  |     
|Total benefits and operating expenses                                                |  |      | 318.4   |      |   | 283.2   |  | 12 %
|                                                                                     |  |      |         |      |   |         |  |     
|Pre-tax operating earnings                                                           |  |      | 72.9    |      |   | 75.0    |  | (3)%
|Add: non-operating net realized investment (losses) gains1                           |  |      | (156.0) |      |   | 1.0     |  | NM  
|Add: adjustment to amortization related to net realized investment gains and losses  |  |      | 25.5    |      |   | 9.9     |  | NM  
|                                                                                     |  |      |         |      |   |         |  |     
|(Loss) income from continuing operations before federal income tax (benefit) expense |  | $    | (57.6)  |      | $ | 85.9    |  | NM  
|                                                                                     |  |      |         |      |   |         |  |     
|Other Data                                                                           |  |      |         |      |   |         |  |     
|Customer funds managed and administered as of year end:                              |  |      |         |      |   |         |  |     
|Funding agreements backing medium-term notes                                         |  | $    | 4,525.7 |      | $ | 4,599.5 |  | (2)%
|                                                                                     |  |      |         |      |   |         |  |     



|1 | Excluding periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting
treatment, and net realized gains and losses related to securitizations.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pre-tax operating earnings increased primarily
due to higher interest spread income, partially offset by lower other income and higher other operating expenses.

Interest spread income
increased primarily due to higher average assets and slightly higher average investment returns.

Lower other income primarily was driven
by the structured products business due to an unfavorable environment for mortgage loan securitizations.

Other operating expenses
increased due to lower legal expenses in 2006 associated with several favorable case developments.

The increase in non-operating net
realized investment losses was driven by higher impairment charges in 2007 due to challenging conditions in the credit markets. In addition, the Company recorded higher losses on living benefit embedded derivatives, net of economic hedging activity,
primarily as a result of increased volatility in market returns.



51



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The following table summarizes net realized investment gains from continuing operations by source for the
years ended December 31:



|                                                                                                                                    |  |      |        |   |      |   |       |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|(in millions)                                                                                                                       |  | 2007 |        |   | 2006 |  
|Total realized gains on sales, net of hedging losses                                                                                |  | $    | 65.4   |   |      | $ | 88.8  |  
|Total realized losses on sales, net of hedging gains                                                                                |  |      | (79.9  | ) |      |   | (64.8 | )
|Total other-than-temporary and other investment impairments                                                                         |  |      | (116.4 | ) |      |   | (17.1 | )
|Credit default swaps                                                                                                                |  |      | (7.5   | ) |      |   | (1.1  | )
|Other derivatives                                                                                                                   |  |      | (27.8  | ) |      |   | 1.3   |  
|                                                                                                                                    |  |      |        |   |      |   |       |  
|Net realized investment (losses) gains                                                                                              |  | $    | (166.2 | ) |      | $ | 7.1   |  
|                                                                                                                                    |  |      |        |   |      |   |       |  
|                                                                                                                                   
|The following table summarizes other-than-temporary and other investment impairments by asset type for the years ended December 31: | 
|                                                                                                                                    |  |     
|(in millions)                                                                                                                       |  | 2007 |        |   | 2006 |  
|Fixed maturity securities:                                                                                                          |  |      |        |   |      |   |       |  
|Corporate securities                                                                                                                |  |      |        |   |      |   |       |  
|Public                                                                                                                              |  | $    | 10.5   |   |      | $ | 4.6   |  
|Private                                                                                                                             |  |      | 62.7   |   |      |   | 0.5   |  
|Asset-backed securities                                                                                                             |  |      | 35.1   |   |      |   | 2.1   |  
|                                                                                                                                    |  |      |        |   |      |   |       |  
|Total fixed maturity securities                                                                                                     |  |      | 108.3  |   |      |   | 7.2   |  
|Other                                                                                                                               |  |      | 8.1    |   |      |   | 9.9   |  
|                                                                                                                                    |  |      |        |   |      |   |       |  
|Total other-than-temporary and other investment impairments                                                                         |  | $    | 116.4  |   |      | $ | 17.1  |  
|                                                                                                                                    |  |      |        |   |      |   |       |  



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The following table summarizes for the year ended December 31, 2008 the Companys largest
aggregate losses on sales and write-downs by issuer, the related circumstances giving rise to the losses and the circumstances that may have affected other material investments held:



|                                                                                                                                                                                                                                                            |  |                             |   |                |           |                |                          |   |                   |   |  |   |      |  |   |    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | - | -------------- | --------- | -------------- | ------------------------ | - | ----------------- | - |  | - | ---- |  | - | ---
|                                                                                                                                                                                                                                                            |  | Fair valueat sale(proceeds) |   | YTDloss onsale |           | YTDwrite-downs |                          |   | December 31, 2008
|(in millions)                                                                                                                                                                                                                                               |  |                             |   |                | Holdings1 |                | Netunrealizedgain (loss)
|Ownership interest in a collateralized debt obligation with exposure to financial sector debtors. An impairment was recognized in the second quarter of 2008 due to a
depressed security price and thinning support in the CDO structure.                   |  | $                           |  |                | $         |               |                          | $ | (39.1             | ) |  | $ |     |  | $ |   
|                                                                                                                                                                                                                                                            |  |                             |   |                |          
|Ownership interest in a corporate debt facility. The Company decided not to hold to maturity due to uncertainty in debt recovery.                                                                                                                           |  |                             |  |                |           |               |                          |   | (33.5             | ) |  |   | 38.3 |  |   | 9.4
|                                                                                                                                                                                                                                                            |  |                             |   |                |          
|Ownership interest in a market value collateralized loan obligation. Impairments were recognized in the third and fourth quarters of 2008 due to deterioration in expected
yield.                                                                           |  |                             |  |                |           |               |                          |   | (29.1             | ) |  |   |     |  |   |   
|                                                                                                                                                                                                                                                            |  |                             |   |                |          
|Ownership interest in a corporate debt facility. An impairment was recognized in the fourth quarter of 2008 due to credit deterioration in the financial
sector.                                                                                            |  |                             |  |                |           |               |                          |   | (24.0             | ) |  |   | 16.0 |  |   |   
|                                                                                                                                                                                                                                                            |  |                             |   |                |          
|Ownership interest in a pooled trust preferred facility primarily consisting of bank collateral. An impairment was recognized in the fourth quarter of 2008 due to uncertainty
of collection of cash flows from collateral exposed to the financial sector. |  |                             |  |                |           |               |                          |   | (23.5             | ) |  |   | 5.7  |  |   | 0.2
|                                                                                                                                                                                                                                                            |  |                             |   |                |          
|Ownership interest in a corporate debt facility issued by a casino owner and operator. An impairment was recognized in the third quarter of 2008 due to declining consumer
demand and deteriorating cash flows.                                             |  |                             |  |                |           |               |                          |   | (23.4             | ) |  |   | 6.8  |  |   |   
|                                                                                                                                                                                                                                                            |  |                             |   |                |           |                |                          |   |                   |   |  |   |      |  |   |    
|Total                                                                                                                                                                                                                                                       |  | $                           |  |                | $         |               |                          | $ | (172.6            | ) |  | $ | 66.8 |  | $ | 9.6
|                                                                                                                                                                                                                                                            |  |                             |   |                |           |                |                          |   |                   |   |  |   |      |  |   |    



|1 | Holdings represent amortized cost of fixed maturity securities and cost of equity securities as of the date indicated
for issuer and issuer sponsored vehicles.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

No other issuer had aggregate losses on sales and write-downs greater than
2.0% of the Companys total gross losses on sales and write-downs on fixed maturity and equity securities.



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Contractual Obligations and Commitments

The following table summarizes the Companys contractual obligations and commitments as of December 31, 2008 expected to be paid in the periods
presented. Payment amounts reflect the Companys estimate of undiscounted cash flows related to these obligations and commitments. Balance sheet amounts were determined in accordance with GAAP and may differ from the summation of undiscounted
cash flows. The most significant difference relates to future policy benefits for life and health insurance, which include discounting.



|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|------------------------------------------------------- |  | ---------------------- | ------- | --------------------- | - | -------- |  | --------------- | ------- | ----- | - | -------- |  | - | -------- |  | - | --------
|                                                        |  | Payments due by period |         | Amountperbalancesheet
|(in millions)                                           |  | Lessthan 1year         |         | 1-3years              |   | 3-5years |  | Morethan 5years |         | Total |  
|Debt1:                                                  |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Short-term                                              |  | $                      | 254.2   |                       | $ |         |  | $               |        |       | $ |         |  | $ | 254.2    |  | $ | 249.7   
|Long-term, payable to NFS                               |  |                        | 53.7    |                       |   | 107.4    |  |                 | 107.4   |       |   | 1,692.3  |  |   | 1,960.8  |  |   | 700.0   
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Subtotal                                                |  |                        | 307.9   |                       |   | 107.4    |  |                 | 107.4   |       |   | 1,692.3  |  |   | 2,215.0  |  |   | 949.7   
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|License obligation                                      |  |                        | 12.1    |                       |   | 17.1     |  |                 | 0.7     |       |   |         |  |   | 29.9     |  |   |        
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Purchase and lending commitments:                       |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Fixed maturity securities2                              |  |                        | 7.9     |                       |   | 56.4     |  |                 | 6.6     |       |   |         |  |   | 70.9     |  |   |        
|Commercial mortgage loans2                              |  |                        | 24.9    |                       |   |         |  |                 |        |       |   |         |  |   | 24.9     |  |   |        
|Limited partnerships3                                   |  |                        | 147.1   |                       |   |         |  |                 |        |       |   |         |  |   | 147.1    |  |   |        
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Subtotal                                                |  |                        | 179.9   |                       |   | 56.4     |  |                 | 6.6     |       |   |         |  |   | 242.9    |  |   |        
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Future policy benefits and claims4:                     |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Fixed annuities and fixed option of variable annuities5 |  |                        | 1,652.6 |                       |   | 2,632.2  |  |                 | 1,875.6 |       |   | 3,902.9  |  |   | 10,063.3 |  |   | 10,038.3
|Life and health insurance5                              |  |                        | 400.4   |                       |   | 842.1    |  |                 | 911.9   |       |   | 12,131.5 |  |   | 14,285.9 |  |   | 5,941.2 
|Single premium immediate annuities6                     |  |                        | 262.3   |                       |   | 471.1    |  |                 | 404.1   |       |   | 2,442.2  |  |   | 3,579.7  |  |   | 1,988.1 
|Group pension deferred fixed annuities7                 |  |                        | 1,292.2 |                       |   | 2,561.2  |  |                 | 2,078.8 |       |   | 9,303.7  |  |   | 15,235.9 |  |   | 11,244.8
|Funding agreements backing MTNs2,8                      |  |                        | 1,424.4 |                       |   | 1,530.6  |  |                 | 465.8   |       |   | 121.7    |  |   | 3,542.5  |  |   | 3,323.9 
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Subtotal                                                |  |                        | 5,031.9 |                       |   | 8,037.2  |  |                 | 5,736.2 |       |   | 27,902.0 |  |   | 46,707.3 |  |   | 32,536.3
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Cash and securities collateral9:                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Cash collateral on securities lending                   |  |                        | 378.3   |                       |   |         |  |                 |        |       |   |         |  |   | 378.3    |  |   | 378.3   
|Cash collateral on derivative transactions              |  |                        | 1,022.5 |                       |   |         |  |                 |        |       |   |         |  |   | 1,022.5  |  |   | 1,022.5 
|Securities collateral on derivative transactions        |  |                        | 35.4    |                       |   |         |  |                 |        |       |   |         |  |   | 35.4     |  |   | 35.4    
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Subtotal                                                |  |                        | 1,436.2 |                       |   |         |  |                 |        |       |   |         |  |   | 1,436.2  |  |   | 1,436.2 
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         
|Total                                                   |  | $                      | 6,968.0 |                       | $ | 8,218.1  |  | $               | 5,850.9 |       | $ | 29,594.3 |  | $ | 50,631.3 |  | $ | 34,922.2
|                                                        |  |                        |         |                       |   |          |  |                 |         |       |   |          |  |   |          |  |   |         



54



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|1 | No contractual provisions exist that could create, increase or accelerate those obligations presented. The amount
presented includes contractual principal payments and interest based on rates in effect at December 31, 2008.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2 | No contractual provisions exist that could create, accelerate or materially increase those obligations presented.
|- | -----------------------------------------------------------------------------------------------------------------



|3 | Primarily related to investments in low-income-housing tax credit partnerships. Call dates for the obligations
presented are either date or event specific. For date specific obligations, the Company is required to fund a specified amount on a stated date provided there are no defaults under the agreement. For event specific obligations, the Company is
required to fund a specified amount of its capital commitment when properties in a fund become fully stabilized. For event specific obligations, the call date of these commitments may extend beyond one year but has been reflected in payments due in
less than one year due to the call features. The Companys capital typically is called within one to four years, depending on the timing of events.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4 | A significant portion of policy contract benefits and claims to be paid do not have stated contractual maturity dates
and may not result in any ultimate payment obligation. Amounts reported represent estimated undiscounted cash flows out of the Companys general account related to death, surrender, annuity and other benefit payments under policy contracts in
force at December 31, 2008. Separate account payments are not reflected due to the matched nature of these obligations and because the contract owners bear the investment risk of such deposits. Estimated payment amounts were developed based on
the Companys historical experience and related contractual provisions. Significant assumptions incorporated in the reported amounts include future policy lapse rates (including the impact of customer decisions to make future premium payments
to keep the related policies in force); coverage levels remaining unchanged from those provided under contracts in force at December 31, 2008; future interest crediting rates; and estimated timing of payments. Actual amounts will vary,
potentially by a significant amount, from the amounts indicated due to deviations between assumptions and actual results and the addition of new business in future periods.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5 | Contractual provisions exist which could adjust the amount and/or timing of those obligations reported. Key
assumptions related to payments due by period include customer lapse and withdrawal rates (including timing of death), exchanges to and from the fixed and separate accounts of the variable annuities, claim experience with respect to guarantees, and
future interest crediting level. Assumptions for future interest crediting levels were made based on processes consistent with the Companys past practices, which is at the discretion of the Company, subject to guaranteed minimum crediting
rates in many cases and/or subject to contractually obligated increases for specified time periods. Many of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of
deposits made and are assessed at declining rates during the first seven years after a deposit is made. Amounts disclosed include an estimate of those accelerated payments, net of applicable surrender charges. See Note 2(h) to the audited
consolidated financial statements included in the F pages of this report for a description of the Companys method for establishing life and annuity reserves in accordance with GAAP. Health reserves are immaterial and are reflected in the less
than one year column.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6 | Certain assumptions have been made about mortality experience and retirement patterns in the amounts reported. Actual
deaths and retirements may differ significantly from those projected, which could cause the timing of the obligations reported to vary significantly. In addition, contractual surrender provisions exist on an immaterial portion of these contracts
that could accelerate those obligations presented. Amounts disclosed do not include an estimate of those accelerated payments. Most of the contracts with potentially accelerated payments are subject to surrender charges, which are generally
calculated as a percentage of the commuted value of the remaining term certain benefit payments and are assessed at declining rates during the first seven policy years.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7 | Contractual provisions exist that could increase those obligations presented. The process for determining future
interest crediting rates as described in note 5 above was used to develop the estimates of payments due by period.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8 | See Part II, Item 7  MD&A  Off-Balance Sheet Transactions for a detailed discussion of
the Companys MTN program. Amounts presented include contractual principal and interest based on rates in effect at December 31, 2008.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9 | Since the timing of the return of collateral is uncertain, these obligations have been reflected in payments due in
less than one year.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Off-Balance Sheet Transactions

Under the MTN program, NLIC issues funding agreements to an unconsolidated third party trust to secure notes issued to investors by the trust. The funding agreements rank equal with all other
insurance claims of the issuing company in the event of liquidation and should be treated as annuities under applicable Ohio insurance law. Therefore, the funding agreement obligations are classified as a component of future policy
benefits and claims on the consolidated balance sheets. Because the Company is not the primary beneficiary of, and has no ownership interest in, or control over, the third party trust that issues the notes, the Company does not include the trust in
its consolidated financial statements. Since the notes issued by the trust have a secured interest in the funding agreements issued by the Company, Moodys and S&P assign the same ratings to the notes and the insurance financial strength of
the Company.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Financial Instruments

The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices. The following
discussion focuses on specific interest rate, foreign currency and equity market risks to which the Company is exposed and describes strategies used to attempt to manage these risks. This discussion is limited to financial instruments subject to
market risks and is not intended to be a complete discussion of all of the risks to which the Company is exposed.

Interest Rate Risk

Fluctuations in interest rates can impact the Companys earnings, cash flows and the fair value of its assets and liabilities.
In a declining interest rate environment, the Company may be required to reinvest the proceeds from maturing and prepaying investments at rates lower than the overall portfolio yield, which could reduce future interest spread income. In addition,
minimum guaranteed crediting rates (ranging from 1.0% to 3.5% for a majority of the individual annuity contracts in force) on certain individual annuity contracts could prevent the Company from lowering its interest crediting rates to levels
commensurate with prevailing market interest rates, resulting in a reduction to the Companys interest spread income. The average crediting rate for fixed annuity products during 2008 was 3.57% and 3.89% for the Individual Investments and
Retirement Plans segments, respectively (compared to 3.75% and 3.99%, respectively, during 2007), well in excess of guaranteed rates.

The
Company attempts to mitigate this risk by managing the maturity and interest-rate sensitivities of assets to be consistent with those of liabilities. In recent years, management has taken actions to address low interest rate environments and the
resulting impact on interest spread margins, including reducing commissions on fixed annuity sales, launching new products with new guaranteed rates, discontinuing the sale of its leading annual reset fixed annuities and invoking contractual
provisions that limit the amount of variable annuity deposits allocated to the guaranteed fixed option. In addition, the Company adheres to a strict discipline of setting interest crediting rates on new business at levels adequate to provide returns
consistent with management expectations.

Conversely, a rising interest rate environment could result in a reduction of interest spread
income or an increase in policyholder surrenders. Existing general account investments supporting annuity liabilities had a weighted average maturity of approximately 5.9 years as of December 31, 2008. Therefore, a change in portfolio yield
will lag changes in market interest rates. This lag increases if the rate of prepayments of securities slows. To the extent the Company sets renewal rates based on current market rates, this will result in reduced interest spreads. Alternatively, if
the Company sets renewal crediting rates while attempting to maintain a desired spread from the portfolio yield, the rates offered by the Company may be less than new money rates offered by competitors. This difference could result in an increase in
surrender activity by policyholders. If unable to fund surrenders with cash flow from operations, the Company might need to sell assets, which likely would have declined in value due to the increase in interest rates. The Company attempts to
mitigate this risk by offering products that assess surrender charges and/or market value adjustments at the time of surrender, and by managing the maturity and interest-rate sensitivities of assets to approximate those of liabilities.



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Asset/Liability Management Strategies to Manage Interest Rate Risk

The Company employs an asset/liability management approach tailored to the specific requirements of each of its products. Each line of business has an
investment policy based on its specific characteristics. The policy establishes asset maturity and duration, quality and other relevant guidelines.

An underlying pool or pools of investments, including combinations of dedicated and common asset pools, support each general account line of business. Dedicated pools of assets have been created for certain liabilities or groups of
liabilities within most lines and represent the majority of the pools. These pools consist of whole assets purchased specifically for the underlying line of business. In general, assets placed in any given portfolio remain there until they mature
(or are called), but active management of specific securities, sectors and several top-down risks may result in portfolio turnover or transfers among the various portfolios. The common asset pools are generally maintained on the basis of the desired
maturity characteristics of the assets used (e.g., 4 to 7 years weighted average life). The various lines of business are given ownership percentages of assets acquired by the pools depending on their contribution to the amounts
purchased in the pools, in a manner analogous to investment year allocations. This methodology is sometimes referred to as synthetic segmentation.

Investment strategies are executed by dedicated investment professionals based on the guidance established for the various pools. To assist them in this regard, they receive periodic projections of investment needs from each lines
management team. Line of business management teams, investment portfolio managers and finance professionals periodically evaluate how well assets purchased and the underlying portfolio match the underlying liabilities for each line.

Using this information, in conjunction with each lines investment strategy, actual asset purchases or commitments are made. In addition, plans for
future asset purchases are formulated when appropriate. This process is repeated frequently so that invested assets for each line match its investment needs as closely as possible. The primary objectives are to ensure that each lines
liabilities are invested in accordance with its investment strategy and that over or under investment is minimized.

As part of this
process, the investment portfolio managers provide each lines actuaries with forecasts of anticipated rates that the lines future investments are expected to produce. This information, in combination with yields attributable to the
lines current investments and its investment rollovers, gives the line actuaries data to use in computing and declaring interest crediting rates for their lines of business in conjunction with management approval.

There are two approaches to developing investment policies:



| |  |  | For liabilities where cash flows are not interest sensitive and the credited rate is fixed (e.g., immediate annuities), the Company attempts to manage risk with
a combination cash matching/duration matching strategy. Duration is a measure of the sensitivity of price to changes in interest rates. For a rate movement of 100 basis points the fair value of liabilities with a duration of 5 years would change by
approximately 5%. For this type of liability, the Company generally targets an asset/liability duration mismatch of -0.25 to +0.50 years. In addition, the Company attempts to minimize asset and liability cash flow mismatches, especially over
the first five years. However, the desired degree of cash matching is balanced against the cost of cash matching.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For liabilities where the Company has the right to modify the credited rate and policyholders also have options, the Companys risk management process
includes modeling both the assets and liabilities over multiple stochastic scenarios. The Company considers a range of potential policyholder behavior as well as the specific liability crediting strategy. This analysis, combined with appropriate
risk tolerances, drives the Companys investment policy.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Use of Derivatives to Manage Interest Rate Risk

The Company periodically purchases fixed rate investments to back variable rate liabilities. As a result, the Company can be exposed to interest rate
risk due to the mismatch between variable rate liabilities and fixed rate assets. In an effort to mitigate the risk from this mismatch, the Company enters into various types of derivative instruments, with fluctuations in the fair values of the
derivatives offsetting changes in the fair values of the investments resulting from changes in interest rates. The Company principally uses pay fixed/receive variable interest rate swaps to manage this risk.

Under these interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments. The fixed interest paid on the swap
offsets the fixed interest received on the investment, resulting in the Company receiving the variable interest payments on the swap, generally 3-month U.S. London Interbank Offered Rate (LIBOR), and the credit spread on the investment. The net
receipt of a variable rate will then more closely match the variable rate paid on the liability.



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As a result of entering into commercial mortgage loan and private placement commitments, the Company is
exposed to changes in the fair value of such commitments due to changes in interest rates during the commitment period prior to funding of the loans. In an effort to manage this risk, the Company enters into short U.S. Treasury futures and/or pay
fixed interest rate swaps during the commitment period. With short U.S. Treasury futures or pay fixed interest rate swaps, if interest rates rise/fall, the gains/losses on the futures will offset the change in fair value of the commitment
attributable to the change in interest rates.

The Company periodically purchases variable rate investments such as commercial mortgage
loans and corporate bonds. As a result, the Company can be exposed to variability in cash flows and investment income due to changes in interest rates. Such variability poses risks to the Company when the assets are funded with fixed rate
liabilities. In an effort to manage this risk, the Company may enter into receive fixed/pay variable interest rate swaps.

In using these
interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments. The variable interest paid on the swap offsets the variable interest received on the investment, resulting in the Company receiving the fixed
interest payments on the swap and the credit spread on the investment. The net receipt of a fixed rate will then more closely match the fixed rate paid on the liability.

The Company manages interest rate risk at the segment level. Different segments may simultaneously hedge interest rate risks associated with owning fixed and variable rate investments considering the risk relevant to
a particular segment.



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Characteristics of Interest Rate Sensitive Financial Instruments

The tables below provide information about the Companys financial instruments as of December 31, 2008 that are sensitive to changes in interest
rates. Insurance contracts that subject the Company to significant mortality risk, including life insurance contracts and life-contingent immediate annuities, do not meet the definition of a financial instrument and are not included in the table.



|                                             |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|-------------------------------------------- |  | --------------------------------------- | ------- | ------------- | - | ------------- |  | ---- | ------- | ---- | - | ----------- |  | ----- | ------- |  | - | ------- |  | - | -------- |  | - | -------- |  | - | --------
|                                             |  | Estimated year of maturities/repayments |         | 2008FairValue |   | 2007FairValue
|(in millions)                                |  | 2009                                    |         | 2010          |   | 2011          |  | 2012 |         | 2013 |   | There-after |  | Total |         | 
|Assets                                       |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Fixed maturity securities:                   |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Corporate bonds:                             |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 1,151.5 |               | $ | 1,532.2       |  | $    | 1,505.4 |      | $ | 1,501.8     |  | $     | 1,542.7 |  | $ | 5,398.2 |  | $ | 12,631.8 |  | $ | 11,356.5 |  | $ | 13,773.9
|Weighted average interest rate               |  |                                         | 6.71%   |               |   | 6.29%         |  |      | 6.25%   |      |   | 6.01%       |  |       | 6.03%   |  |   | 7.06%   |  |   | 6.61%    |  |   |          |  |   |         
|Mortgage and other asset- backed securities: |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 2,017.5 |               | $ | 3,350.0       |  | $    | 966.3   |      | $ | 548.0       |  | $     | 337.1   |  | $ | 1,251.3 |  | $ | 8,470.2  |  | $ | 7,063.4  |  | $ | 9,280.9 
|Weighted average interest rate               |  |                                         | 5.65%   |               |   | 5.49%         |  |      | 5.67%   |      |   | 5.41%       |  |       | 5.82%   |  |   | 6.02%   |  |   | 5.63%    |  |   |          |  |   |         
|Other fixed maturity securities:             |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 48.2    |               | $ | 38.8          |  | $    | 43.2    |      | $ | 76.1        |  | $     | 63.2    |  | $ | 449.3   |  | $ | 718.8    |  | $ | 827.3    |  | $ | 878.6   
|Weighted average interest rate               |  |                                         | 5.69%   |               |   | 5.53%         |  |      | 5.71%   |      |   | 5.68%       |  |       | 5.68%   |  |   | 6.51%   |  |   | 6.23%    |  |   |          |  |   |         
|Mortgage loans on real estate:               |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 383.8   |               | $ | 532.1         |  | $    | 985.0   |      | $ | 683.9       |  | $     | 718.9   |  | $ | 3,944.2 |  | $ | 7,247.9  |  | $ | 6,459.8  |  | $ | 7,659.9 
|Weighted average interest rate               |  |                                         | 5.83%   |               |   | 6.13%         |  |      | 6.23%   |      |   | 6.19%       |  |       | 6.13%   |  |   | 6.02%   |  |   | 6.07%    |  |   |          |  |   |         
|                                             |  |                                         |         |               |   |               |  |      |        
|Liabilities                                  |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Individual deferred fixed annuities:         |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 1,838.2 |               | $ | 1,589.1       |  | $    | 1,307.4 |      | $ | 1,127.9     |  | $     | 923.9   |  | $ | 3,159.2 |  | $ | 9,945.7  |  | $ | 4,635.9  |  | $ | 7,231.0 
|Weighted average crediting rate              |  |                                         | 3.24%   |               |   | 3.38%         |  |      | 3.37%   |      |   | 3.24%       |  |       | 3.12%   |  |   | 3.06%   |  |   |          |  |   |          |  |   |         
|Group pension deferred fixed annuities:      |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 1,375.8 |               | $ | 1,375.1       |  | $    | 1,153.9 |      | $ | 986.5       |  | $     | 849.4   |  | $ | 5,504.1 |  | $ | 11,244.8 |  | $ | 10,801.0 |  | $ | 10,863.2
|Weighted average crediting rate              |  |                                         | 3.76%   |               |   | 3.80%         |  |      | 3.96%   |      |   | 3.89%       |  |       | 3.77%   |  |   | 3.59%   |  |   |          |  |   |          |  |   |         
|Funding agreements backing MTNs:             |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 1,796.4 |               | $ | 1,006.3       |  | $    | 333.5   |      | $ | 109.9       |  | $     |        |  | $ |        |  | $ | 3,246.1  |  | $ | 3,019.5  |  | $ | 4,537.5 
|Weighted average crediting rate              |  |                                         | 3.00%   |               |   | 3.87%         |  |      | 4.32%   |      |   | 3.68%       |  |       |        |  |   |        |  |   |          |  |   |          |  |   |         
|Immediate annuities:                         |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 281.1   |               | $ | 242.6         |  | $    | 209.9   |      | $ | 180.1       |  | $     | 153.7   |  | $ | 920.7   |  | $ | 1,988.1  |  | $ | 449.0    |  | $ | 453.0   
|Weighted average crediting rate              |  |                                         | 6.53%   |               |   | 6.57%         |  |      | 6.62%   |      |   | 6.67%       |  |       | 6.73%   |  |   | 6.79%   |  |   |          |  |   |          |  |   |         
|Short-term debt:                             |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       | 249.7   |               | $ |              |  | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 249.7    |  | $ | 249.7    |  | $ | 285.3   
|Weighted average interest rate               |  |                                         | 1.42%   |               |   |              |  |      |        |      |   |            |  |       |        |  |   |        |  |   | 1.42%    |  |   |          |  |   |         
|Long-term debt:                              |  |                                         |         |               |   |               |  |      |         |      |   |             |  |       |         |  |   |         |  |   |          |  |   |          |  |   |         
|Principal                                    |  | $                                       |        |               | $ |              |  | $    |        |      | $ |            |  | $     |        |  | $ | 700.0   |  | $ | 700.0    |  | $ | 568.7    |  | $ | 751.3   
|Weighted average interest rate               |  |                                         |        |               |   |              |  |      |        |      |   |            |  |       |        |  |   | 7.67%   |  |   | 7.67%    |  |   |          |  |   |         



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|                                              |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|--------------------------------------------- |  | --------------------------------------- | ------- | ------------- | - | ------- | ------------- | ---- | ------- | ---- | - | ----------- |  | ----- | ------- |  | - | ------- |  | - | ------- |  | - | -------- | - |  | - | ------ | -
|                                              |  | Estimated year of maturities/repayments |         | 2008FairValue |   |         | 2007FairValue |     
|(in millions, except settlement prices)       |  | 2009                                    |         | 2010          |   | 2011    |               | 2012 |         | 2013 |   | There-after |  | Total |         | 
|Derivative Financial Instruments              |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Interest rate swaps:                          |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Pay fixed/receive variable:                   |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       | 305.8   |               | $ | 721.7   |               | $    | 996.4   |      | $ | 308.5       |  | $     | 282.2   |  | $ | 867.7   |  | $ | 3,482.3 |  | $ | (315.3   | ) |  | $ | (163.6 | )
|Weighted average pay rate                     |  |                                         | 4.91%   |               |   | 3.78%   |               |      | 4.80%   |      |   | 5.17%       |  |       | 4.30%   |  |   | 4.36%   |  |   | 4.48%   |  |   |          |   |  |   |        |  
|Weighted average receive rate1                |  |                                         | 2.54%   |               |   | 2.55%   |               |      | 2.19%   |      |   | 2.58%       |  |       | 2.56%   |  |   | 2.47%   |  |   | 2.43%   |  |   |          |   |  |   |        |  
|Pay fixed/receive variable, forward starting: |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       |        |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ |        |  | $ |         |   |  | $ | (3.7   | )
|Pay variable/receive fixed:                   |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       |        |               | $ | 261.7   |               | $    | 1,092.2 |      | $ | 289.8       |  | $     | 692.1   |  | $ | 2,721.9 |  | $ | 5,057.7 |  | $ | 687.5    |   |  | $ | 246.6  |  
|Weighted average pay rate1                    |  |                                         |        |               |   | 3.06%   |               |      | 2.03%   |      |   | 2.70%       |  |       | 3.07%   |  |   | 2.76%   |  |   | 2.66%   |  |   |          |   |  |   |        |  
|Weighted average receive rate                 |  |                                         |        |               |   | 3.00%   |               |      | 4.50%   |      |   | 3.94%       |  |       | 3.66%   |  |   | 4.14%   |  |   | 4.08%   |  |   |          |   |  |   |        |  
|Pay variable/receive variable:                |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       | 200.0   |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 200.0   |  | $ | (1.1     | ) |  | $ |       |  
|Weighted average pay rate1                    |  |                                         | 0.39%   |               |   |        |               |      |        |      |   |            |  |       |        |  |   |        |  |   | 0.39%   |  |   |          |   |  |   |        |  
|Weighted average receive rate1                |  |                                         | 0.39%   |               |   |        |               |      |        |      |   |            |  |       |        |  |   |        |  |   | 0.39%   |  |   |          |   |  |   |        |  
|Pay fixed/receive fixed:                      |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       | 64.1    |               | $ | 46.8    |               | $    | 23.5    |      | $ | 11.4        |  | $     | 22.2    |  | $ | 92.0    |  | $ | 260.0   |  | $ | (24.0    | ) |  | $ | (24.4  | )
|Weighted average pay rate                     |  |                                         | 5.73%   |               |   | 3.78%   |               |      | 6.69%   |      |   | 4.70%       |  |       | 4.54%   |  |   | 5.13%   |  |   | 5.11%   |  |   |          |   |  |   |        |  
|Weighted average receive rate                 |  |                                         | 4.16%   |               |   | 4.74%   |               |      | 5.12%   |      |   | 6.10%       |  |       | 5.86%   |  |   | 6.22%   |  |   | 5.31%   |  |   |          |   |  |   |        |  
|Credit default swaps sold:                    |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       | 14.5    |               | $ | 50.0    |               | $    | 6.0     |      | $ | 8.0         |  | $     | 150.9   |  | $ |        |  | $ | 229.4   |  | $ | (11.2    | ) |  | $ | (8.5   | )
|Weighted average receive rate                 |  |                                         | 0.66%   |               |   | 0.33%   |               |      | 3.55%   |      |   | 3.00%       |  |       | 1.00%   |  |   |        |  |   | 0.97%   |  |   |          |   |  |   |        |  
|Credit default swaps purchased:               |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       | 0.8     |               | $ | 1.5     |               | $    | 0.5     |      | $ |            |  | $     | 37.0    |  | $ | 2.0     |  | $ | 41.8    |  | $ | 1.2      |   |  | $ | 3.2    |  
|Weighted average pay rate                     |  |                                         | 5.00%   |               |   | 2.15%   |               |      | 5.00%   |      |   |            |  |       | 1.03%   |  |   | 2.10%   |  |   | 1.24%   |  |   |          |   |  |   |        |  
|Total return swaps2:                          |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       | 411.0   |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 411.0   |  | $ | (14.6    | ) |  | $ | (3.3   | )
|Embedded derivatives:                         |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       |        |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ | 20.0    |  | $ | 20.0    |  | $ | (1,731.7 | ) |  | $ | (122.0 | )
|Mortgage loan commitments held for sale:      |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Notional value                                |  | $                                       |        |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ |        |  | $ |         |   |  | $ | (0.8   | )
|Treasury futures:                             |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Short positions:                              |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Contract amount/notional value                |  | $                                       | 3.1     |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 3.1     |  | $ | (0.1     | ) |  | $ |       |  
|Weighted average settlement price             |  |                                         | 120.5   |               |   |        |               |      |        |      |   |            |  |       |        |  |   |        |  |   | 120.5   |  |   |          |   |  |   |        |  
|Long positions:                               |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Contract amount/notional value                |  | $                                       | 278.0   |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 278.0   |  | $ | 20.2     |   |  | $ | 0.9    |  
|Weighted average settlement price             |  |                                         | 121.7   |               |   |        |               |      |        |      |   |            |  |       |        |  |   |        |  |   | 121.7   |  |   |          |   |  |   |        |  
|Equity futures:                               |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Short positions:                              |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Contract amount/notional value                |  | $                                       | 1,923.5 |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 1,923.5 |  | $ | (26.1    | ) |  | $ | 4.5    |  
|Weighted average settlement price             |  |                                         | 887.9   |               |   |        |               |      |        |      |   |            |  |       |        |  |   |        |  |   | 887.9   |  |   |          |   |  |   |        |  
|Long positions:                               |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Contract amount/notional value                |  | $                                       | 3.8     |               | $ |        |               | $    |        |      | $ |            |  | $     |        |  | $ |        |  | $ | 3.8     |  | $ |         |   |  | $ |       |  
|Weighted average settlement price             |  |                                         | 890.4   |               |   |        |               |      |        |      |   |            |  |       |        |  |   |        |  |   | 890.4   |  |   |          |   |  |   |        |  
|Option contracts                              |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Long positions:                               |  |                                         |         |               |   |         |               |      |         |      |   |             |  |       |         |  |   |         |  |   |         |  |   |          |   |  |   |        |  
|Contract amount/notional value                |  | $                                       | 139.2   |               | $ | 64.0    |               | $    | 414.0   |      | $ | 261.3       |  | $     | 268.0   |  | $ | 601.5   |  | $ | 1,748.0 |  | $ | 585.5    |   |  | $ | 147.4  |  
|Weighted average settlement price             |  |                                         | 1,213.2 |               |   | 1,106.8 |               |      | 1,214.5 |      |   | 1,306.1     |  |       | 1,333.9 |  |   | 1,305.0 |  |   | 1,273.6 |  |   |          |   |  |   |        |  



|1 | Variable rates are generally based on 1, 3 or 6-month U.S. LIBOR and reflect the effective rate as of
December 31, 2008.
|- | ------------------------------------------------------------------------------------------------------------------------



|2 | Total return swaps are based on the EAFE Index.
|- | -----------------------------------------------



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Additional information about the characteristics of the financial instruments and assumptions underlying
the data presented in the table on the proceeding page are as follows:

MBSs and other ABSs: The year of maturity is determined based
on the terms of the securities and the current rate of prepayment of the underlying pools of mortgages or assets. The Company limits its exposure to prepayments by purchasing less volatile types of MBS and ABS investments.

Corporate bonds and other fixed maturity securities and mortgage loans on real estate: The maturity year is that of the security or loan.

Individual deferred fixed annuities:The maturity year is based on the expected date of policyholder withdrawal, taking into
account actual experience, current interest rates and contract terms. Individual deferred fixed annuities are certain individual annuity contracts, which are also subject to surrender charges calculated as a percentage of the deposits made and
assessed at declining rates during the first seven years after a deposit is made. Also included in deferred fixed annuities were $732.1 million of participating group annuity contracts in 2008 ($885.7 million in 2007). As of December 31, 2008,
individual annuity general account liabilities totaling $3.86 billion ($3.95 billion in 2007) were in contracts where the crediting rate is reset periodically with portions resetting in each calendar quarter, and $519.6 million that reset annually
compared to $656.6 million in 2007. Individual fixed annuity policy reserves of $1.42 billion in 2008 ($1.47 billion in 2007) were in contracts that adjust the crediting rate every five years. Individual fixed annuity policy reserves of $587.2
million in 2008 were in contracts that adjust the crediting rate every three years compared to $620.3 million in 2007. The average crediting rate is calculated as the difference between the projected yield of the assets backing the liabilities and a
targeted interest spread. However, for certain individual annuities the crediting rate is also adjusted to partially reflect current new money rates.

Group pension deferred fixed annuities: The maturity year is based on the expected date of policyholder withdrawal, taking into account actual experience, current interest rates and contract terms. Included
were group annuity contracts representing $11.24 billion and $10.69 billion of general account liabilities as of December 31, 2008 and 2007, respectively, which are generally subject to market value adjustment upon surrender and which also may
be subject to surrender charges. Of the total group annuity liabilities, $10.24 billion ($9.70 billion in 2007) were in contracts where the crediting rate is reset quarterly, $529.9 million ($518.0 million in 2007) were in contracts that adjust the
crediting rate on an annual basis with portions resetting in each calendar quarter, and $475.4 million ($468.6 million in 2007) were in contracts where the crediting rate is reset annually on January 1.

Funding agreements backing MTNs: As of December 31, 2008 and 2007, fixed annuity policy reserves of $3.22 billion and $4.53 billion,
respectively, relate to funding agreements issued in conjunction with the Companys MTN program where the crediting rate either is fixed for the term of the contract or is variable based on an underlying index.

Immediate annuities: Non-life contingent contracts in payout status where the Company has guaranteed periodic payments, typically monthly, are
included. The maturity year is based on the term of the contract.

Short-term debt and long-term debt: The maturity year is the
stated maturity date of the obligation.

Derivative financial instruments:The maturity year is based on the term of the related
contract. Interest rate swaps include cross-currency interest rate swaps, which are used to reduce the Companys existing asset and liability foreign currency exposure. Cross-currency interest rate swaps in place against each foreign currency
obligation hedge the Company against adverse currency movements with respect to both period interest payments and principal repayment. Underlying details by currency therefore have been omitted. Variable swap rates and settlement prices reflect
rates and prices in effect as of December 31, 2008.

Foreign Currency Risk Management

In conjunction with the Companys MTN program, the Company periodically issues both fixed and variable rate liabilities denominated in foreign
currencies. As a result, the Company is exposed to changes in the fair value of liabilities due to changes in foreign currency exchange rates and related interest rates. In an effort to manage these risks, the Company enters into cross-currency
interest rate swaps.



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The Company is exposed to changes in the fair value of fixed rate investments denominated in a foreign
currency due to changes in foreign currency exchange rates and related interest rates. In an effort to manage this risk, the Company uses cross-currency interest rate hedges to swap these asset characteristics to variable U.S. dollar rate
instruments. Cross-currency interest rate swaps on assets are structured to pay a fixed rate, in a foreign currency, and receive a variable U.S. dollar rate, generally 3-month U.S. LIBOR. These derivative instruments are designated as a fair value
hedge of a fixed rate foreign denominated asset.

Cross-currency interest rate swaps on variable rate investments are structured to pay a
variable rate, in a foreign currency, and receive a fixed U.S. dollar rate. The terms of the foreign currency paid on the swap will exactly match the terms of the foreign currency received on the asset, thus eliminating currency risk. These
derivative instruments are designated as a cash flow hedge.

Equity Market Risk

Asset fees calculated as a percentage of separate account assets are a significant source of revenue to the Company. As of December 31, 2008, approximately 71% of separate account assets
were invested in equity mutual funds (approximately 82% as of December 31, 2007). Gains and losses in the equity markets result in corresponding increases and decreases in the Companys separate account assets and asset fee revenue. In
addition, a decrease in separate account assets may decrease the Companys expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in guaranteed contract claims, which also may require the Company to
accelerate amortization of DAC.

The Companys long-term assumption for net separate account returns is 7% annual growth. This
analysis assumes no other factors change and that an unlocking of DAC assumptions would not be required. However, as it does each quarter, the Company would evaluate its DAC balance and underlying assumptions to determine the need for unlocking. The
Company can provide no assurance that the experience of flat equity market returns would not result in changes to other factors affecting profitability, including the possibility of unlocking of DAC assumptions.

Many of the Companys individual variable annuity contracts offer guaranteed minimum death benefit (GMDB) features. A GMDB generally provides a
benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract
value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract
value. This could result in additional GMDB claims.

In an effort to mitigate this risk, the Company implemented a GMDB economic hedging
program for certain new and existing business. Prior to implementation of the GMDB hedging program in 2000, the Company managed this risk primarily by entering into reinsurance arrangements. The GMDB economic hedging program is designed to offset
changes in the economic value of the designated GMDB. Currently the program shorts S&P 500 Index futures, which provides an offset to changes in the value of the designated obligation. The futures are not designated as hedges and, therefore,
hedge accounting is not applied. The Companys economic and accounting hedges are not perfectly offset. Therefore, the hedging activity is likely to lead to earnings volatility. As of December 31, 2008 and 2007, the Companys net
amount at risk was $8,718.7 million and $519.9 million before reinsurance, respectively, and $7,329.9 million and $317.2 million net of reinsurance, respectively. As of December 31, 2008 and 2007, the Companys reserve for GMDB claims was
$247.9 million and $38.9 million, respectively.

The Company also offers certain variable annuity products with guaranteed minimum
accumulation benefit (GMAB), guaranteed lifetime withdrawal benefit (GLWB) and hybrid GMAB/GLWB riders (collectively referred to as living benefits). A GMAB provides the contractholder with a guaranteed return of premium, adjusted proportionately
for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the time of issuance of a variable annuity contract. In some cases, the contractholder also has the option, after a specified time, to drop the rider
and continue the variable annuity contract without the GMAB. The design of the GMAB rider limits the risk to the Company in a variety of ways including asset allocation requirements, which serve to reduce the Companys potential exposure to
underlying fund performance risks. Specifically, the terms in the GMAB rider limit policyholder asset allocation by either (1) requiring partial allocation of assets to a guaranteed term option (a fixed rate investment option) and excluding
certain funds that are highly volatile or difficult to hedge or (2) requiring all assets be allocated to one of the approved asset allocation funds or models defined by the Company.



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Beginning in March 2005, the Company began offering a hybrid GMAB/GLWB through its CPPLI contract rider.
This living benefit combines a GMAB feature in its first 5-10 years with a lifetime withdrawal benefit election at the end of the GMAB feature. Upon maturity of the GMAB, the contractholder can elect the lifetime withdrawal benefit, which would
continue for the duration of the insureds life; elect a new CPPLI rider; or drop the rider completely and continue the variable annuity contract without any rider. If the lifetime withdrawal benefit is elected and the insureds contract
value is exhausted through such withdrawals and market conditions, the Company will continue to fund future withdrawals at a pre-defined level until the insureds death. In some cases, the contractholder has the right to periodically reset the
guaranteed withdrawal basis to a higher level. This benefit requires a minimum allocation to guaranteed term options or adherence to limitations required by an approved asset allocation strategy as previously described above.

In March 2006, the Company added L.inc, a stand-alone GLWB, to complement CPPLI in its product offerings. This rider is very similar to the hybrid
benefit discussed above in that L.inc and CPPLI both have guaranteed withdrawal rates that increase based on the age at which the contractholder begins taking income. The withdrawal rates are applied to a benefit base to determine the guaranteed
lifetime income amount available to a contractholder. The benefit base is equal to the variable annuity premium at contract issuance and may increase as a result of a ratchet feature that is driven by account performance and a roll-up feature that
is driven by policy duration. Generally, the longer the contractholder waits before commencing withdrawals, the greater the guaranteed lifetime income. One key difference between L.inc and CPPLI is that the charge associated with L.inc is assessed
against the benefit base. This is a risk mitigation feature as it alleviates much of the uncertainty around account performance and customer withdrawal patterns, both of which can lead to lower than expected revenue streams if the charge were
assessed on account value. In June 2007, the Company added a feature to L.inc to allow for a lump settlement in lieu of lifetime withdrawals in certain situations.

The Companys living benefit riders represent an embedded derivative in a variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity contract. The embedded
derivatives are carried at fair value. Subsequent changes in the fair value of the embedded derivatives are recognized in earnings as a component of net realized investment gains and losses. The fair value of the embedded derivatives is calculated
based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the valuation of the embedded derivative incorporate numerous assumptions including, but not limited to, expectations of contractholder
persistency, contractholder withdrawal patterns, risk neutral market returns, correlations of market returns and market return volatility. As of December 31, 2008 and 2007, the net balance of the embedded derivatives for living benefits was a
liability of $1.70 billion and $91.9 million, respectively. The Company does not expect any meaningful level of claims under the living benefit features for several years and believes any such claims would be mitigated by its economic hedging
program.

Similar to the Companys economic hedging for GMDBs, the living benefits features are also being economically hedged. The
primary risks being hedged are the exposures associated with declining equity market returns and downward interest rate movements. The Company employs a variety of instruments to mitigate this exposure including S&P 500 Index futures, U.S.
Treasury futures, interest rate swaps and long-dated over-the-counter put options. The positions used in the economic hedging program are not designated as hedges and, therefore, hedge accounting is not applied. The living benefits hedging program
is designed to offset changes in the economic value of the living benefits obligation to contractholders. Changes in the fair value of the embedded derivatives are likely to create volatility in earnings. The hedging activity associated with changes
in the economic value of the living benefits obligations will likely mitigate a portion of this earnings volatility.

Inflation

The rate of inflation did not have a material effect on the revenues or operating results of the Company during 2008, 2007 or 2006.



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ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV, Item 15  Exhibits, Financial Statement Schedules for an index to the Companys audited consolidated financial
statements included in the F pages of this report.

Semi-annual and annual reports are sent to contract owners of the variable annuity and
life insurance contracts issued through registered separate accounts of the Company.

ITEM 9 CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

The Companys President and Chief Operating Officer (its Principal Executive Officer) and Chief Financial Officer
have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on such evaluation, such officers have concluded that the
Companys disclosure controls and procedures are effective as of the end of the period covered by this Annual Report.

Management Report on
Internal Control Over Financial Reporting

The Companys management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Companys internal control system was designed to provide reasonable assurance to management and its Board of
Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to the preparation and presentation of financial statements.

The Companys management assessed
the effectiveness of NLICs internal control over financial reporting as of December 31, 2008. In making this assessment, the Companys management used the criteria set forth in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on those criteria, the Companys management concluded that NLICs internal control over financial reporting was effective as of December 31, 2008.

The Companys independent registered public accounting firm, KPMG LLP, issued an attestation report on the effectiveness of
managements internal control over financial reporting. This report appears on page F-2.

Changes in Internal Control Over Financial Reporting

There have been no changes during the Companys fourth fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.

ITEM 9B OTHER INFORMATION

None.



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##### Table of Contents

PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Omitted due to reduced disclosure format.

ITEM 11 EXECUTIVE COMPENSATION

Omitted due to reduced disclosure format.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Omitted due to reduced
disclosure format.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Omitted due to reduced disclosure format.



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ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES

The table below presents fees for services rendered by KPMG LLP, the Companys independent registered public accounting firm, for the years ended
December 31 for the following: (1) the audits of the audited consolidated financial statements for NFS and its subsidiaries, including consolidated or individual financial statement audits of other NFS subsidiaries, where appropriate, for
each of the years ended December 31, 2008 and 2007; (2) the reviews of the consolidated financial statements included in the Quarterly Reports on Form 10-Q for NFS and NLIC filed during each year indicated; and (3) fees billed for
other services rendered by KPMG LLP.



|                    |  |      |           |      |   |          
|------------------- |  | ---- | --------- | ---- | - | ---------
|                    |  | 2008 |           | 2007
|Audit fees          |  | $    | 7,621,330 |      | $ | 7,390,160
|Audit related fees1 |  |      | 1,007,000 |      |   | 1,521,500
|Tax fees2           |  |      | 197,200   |      |   | 140,000  
|                    |  |      |           |      |   |          
|Total fees          |  | $    | 8,825,530 |      | $ | 9,051,660
|                    |  |      |           |      |   |          



|1 | Audit related fees were principally for reports on internal controls per Statement on Auditing Standards No. 70,
Service Organizations; financial statement audits of employee benefit plans; consultations with management regarding the accounting treatment of transactions or potential impact of rulings prescribed by the Securities and Exchange Commission,
the Financial Accounting Standards Board or other accounting standard-setting bodies; and other audit-related agreed-upon procedures reports.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2 | Tax fees were for tax consultation regarding federal tax issues resulting from Internal Revenue Service examinations,
assistance with Internal Revenue Service or other taxing authority audits, and activities such as tax planning and preparing tax returns to be filed with various taxing authorities.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

None of the above fees fall under the de minimis exception to the pre-approval rules.

The NLIC Audit Committee (on behalf of the Company and its subsidiaries) has adopted pre-approval policies and procedures for services provided by the independent registered public accounting
firm. The Audit Committee approves four categories of services: audit, audit related, tax and non-audit services. Each year the independent registered public accounting firm submits to the Audit Committee a list of services, and a fee is estimated
and presented to the Audit Committee for approval. The Audit Committee pre-approves both the services and the related fees. Requests for the independent registered public accounting firm to provide any additional services or to increase the budget
for approved services during the course of the year also must be pre-approved by the Audit Committee. Such specific pre-approval may be provided at a meeting of the Audit Committee or between meetings, as necessary, by the Chairman of the Audit
Committee to whom pre-approval has been delegated. The Chairman is directed to update the full Audit Committee at the next Audit Committee meeting for any interim approvals granted. The Audit Committee periodically monitors the services rendered by
and actual fees paid to the independent registered public accounting firm to ensure that such services are within the parameters it pre-approved.



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PART IV

ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES



|                                                                                                                        |  |     
|----------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                        |  | Page
|Consolidated Financial Statements                                                                                       |  |     
|                                                                                                                        | 
|Management Report on Internal Control Over Financial Reporting                                                          |  | F-1 
|                                                                                                                        | 
|Report of Independent Registered Public Accounting Firm                                                                 |  | F-2 
|                                                                                                                        | 
|Consolidated Statements of (Loss) Income for the years ended December 31, 2008, 2007 and 2006                           |  | F-3 
|                                                                                                                        | 
|Consolidated Balance Sheets as of December 31, 2008 and 2007                                                            |  | F-4 
|                                                                                                                        | 
|Consolidated Statements of Changes in Shareholders Equity for the years ended December 
31, 2008, 2007 and 2006        |  | F-5 
|                                                                                                                        | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006                              |  | F-6 
|                                                                                                                        | 
|Notes to Consolidated Financial Statements                                                                              |  | F-7 
|                                                                                                                        | 
|Financial Statement Schedules                                                                                           |  |     
|                                                                                                                        | 
|Schedule I  Consolidated Summary of Investments  Other Than Investments in Related Parties as of December 31,
 2008   |  | F-68
|                                                                                                                        | 
|Schedule III  Supplementary Insurance Information as of December 
31, 2008, 2007 and 2006 and for the years then ended |  | F-69
|                                                                                                                        | 
|Schedule IV  Reinsurance as of December 31, 2008, 2007 and 2006 and for the years then
ended                           |  | F-70
|                                                                                                                        | 
|Schedule V  Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007 and
2006                     |  | F-71
|                                                                                                                        | 
|Exhibits                                                                                                                |  | F-73

All other schedules are omitted because they are not applicable or not required, or because the
required information has been included in the audited consolidated financial statements or notes thereto.



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Management Report on Internal Control Over Financial Reporting

The management of Nationwide Life Insurance Company and subsidiaries (the Company) is responsible for the preparation and integrity of
the consolidated financial statements and other financial information contained in this Annual Report on Form 10-K. The consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, and where
necessary, include amounts that are based on the best estimates and judgment of management. Management believes the consolidated financial statements present fairly the Companys financial position and results of operations and that other
financial data contained in the Annual Report on Form 10-K has been compiled in a manner consistent with the consolidated financial statements.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control system was designed
to provide reasonable assurance to management and our Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements.

Our management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth in
Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on those criteria, our management concluded that the Companys internal control over financial reporting
was effective as of December 31, 2008.

Our independent registered public accounting firm, KPMG LLP, performed audits of the
Companys consolidated financial statements. Management has made available to KPMG LLP all of the Companys financial records and related data.

Management also recognizes its responsibility for fostering a strong ethical business environment that ensures the Companys affairs are conducted according to the highest standards of professional conduct,
honesty and integrity. The Companys Code of Conduct and Business Practices (Code), which is posted on the Companys web site, reflects this responsibility. The Code addresses the necessity of ensuring open communication within the
Company; potential conflicts of interest; marketing practices; compliance with all laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The Companys Office of Ethics and Business Practices
is responsible for raising employee awareness of the Companys Code and serves as a confidential resource for inquiries and reporting.

During 2008, the Audit Committee of the Board of Directors of the Company, which was composed of independent directors pursuant to the New York Stock Exchange listing standards and rules of the Securities and Exchange Commission, met
periodically with the external and internal auditors, jointly and separately, to evaluate the effectiveness of work performed by them in discharging their respective responsibilities and to assure their independence and free access to the Audit
Committee.



|                     |  |                                      
|-------------------- |  | -------------------------------------
|/s/ Mark R. Thresher
|Name:                |  | Mark R. Thresher                     
|Title:               |  | President and Chief Operating Officer

March 2, 2009



F-1



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder

Nationwide Life Insurance Company:

We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance
Company and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of (loss) income, changes in shareholders equity and cash flows for each of the years in the three-year period ended
December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

As discussed in Note 3 to the consolidated financial
statements, the Company adopted the American Institute of Certified Public Accountants Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance
Contracts, in 2007.



|              
|--------------
|/s/ KPMG LLP  
|Columbus, Ohio
|March 2, 2009 



F-2



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Consolidated Statements of (Loss) Income

(in millions)



|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|------------------------------------------------------------------------------------ |  | ------------------------ | -------- | - | ---- | - | ------- | ---- |  | - | -------
|                                                                                     |  | Years ended December 31,
|                                                                                     |  | 2008                     |          |   | 2007 |   |         | 2006
|Revenues:                                                                            |  |                          |          |   |      |   |         |      |  |   |        
|Policy charges                                                                       |  | $                        | 1,168.0  |   |      | $ | 1,208.3 |      |  | $ | 1,132.6
|Premiums                                                                             |  |                          | 283.5    |   |      |   | 291.7   |      |  |   | 308.3  
|Net investment income                                                                |  |                          | 1,687.0  |   |      |   | 1,975.8 |      |  |   | 2,058.5
|Net realized investment (losses) gains                                               |  |                          | (1,439.3 | ) |      |   | (166.2  | )    |  |   | 7.1    
|Other income                                                                         |  |                          | 6.4      |   |      |   | 7.5     |      |  |   | 0.2    
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|Total revenues                                                                       |  |                          | 1,705.6  |   |      |   | 3,317.1 |      |  |   | 3,506.7
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|Benefits and expenses:                                                               |  |                          |          |   |      |   |         |      |  |   |        
|Interest credited to policyholder accounts                                           |  |                          | 1,130.6  |   |      |   | 1,262.6 |      |  |   | 1,330.1
|Benefits and claims                                                                  |  |                          | 660.3    |   |      |   | 479.3   |      |  |   | 450.3  
|Policyholder dividends                                                               |  |                          | 26.4     |   |      |   | 24.5    |      |  |   | 25.6   
|Amortization of deferred policy acquisition costs                                    |  |                          | 674.5    |   |      |   | 368.5   |      |  |   | 450.3  
|Interest expense, primarily with Nationwide Financial Services, Inc. (NFS)           |  |                          | 61.8     |   |      |   | 70.0    |      |  |   | 65.5   
|Other operating expenses                                                             |  |                          | 516.1    |   |      |   | 529.5   |      |  |   | 536.8  
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|Total benefits and expenses                                                          |  |                          | 3,069.7  |   |      |   | 2,734.4 |      |  |   | 2,858.6
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|(Loss) income from continuing operations before federal income tax (benefit) expense |  |                          | (1,364.1 | ) |      |   | 582.7   |      |  |   | 648.1  
|Federal income tax (benefit) expense                                                 |  |                          | (534.3   | ) |      |   | 128.5   |      |  |   | 28.7   
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|(Loss) income from continuing operations                                             |  |                          | (829.8   | ) |      |   | 454.2   |      |  |   | 619.4  
|Cumulative effect of adoption of accounting principle, net of taxes                  |  |                          |         |   |      |   | (6.0    | )    |  |   |       
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        
|Net (loss) income                                                                    |  | $                        | (829.8   | ) |      | $ | 448.2   |      |  | $ | 619.4  
|                                                                                     |  |                          |          |   |      |   |         |      |  |   |        

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Consolidated Balance Sheets

(in millions, except per share amounts)



|                                                                                          |  |              |          |   |      |   |           |  
|----------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | --------- | -
|                                                                                          |  | December 31, |         
|                                                                                          |  | 2008         |          |   | 2007 |  
|Assets                                                                                    |  |              |          |   |      |   |           |  
|Investments:                                                                              |  |              |          |   |      |   |           |  
|Securities available-for-sale, at fair value:                                             |  |              |          |   |      |   |           |  
|Fixed maturity securities (amortized cost $21,820.9 and $24,021.2)                        |  | $            | 19,247.2 |   |      | $ | 23,933.4  |  
|Equity securities (amortized cost $30.9 and $69.6)                                        |  |              | 26.5     |   |      |   | 72.9      |  
|Mortgage loans on real estate, net                                                        |  |              | 7,189.9  |   |      |   | 7,615.4   |  
|Short-term investments, including amounts managed by a related party                      |  |              | 2,780.9  |   |      |   | 959.1     |  
|Other investments                                                                         |  |              | 1,305.5  |   |      |   | 1,330.8   |  
|                                                                                          |  |              |          |   |      |   |           |  
|Total investments                                                                         |  |              | 30,550.0 |   |      |   | 33,911.6  |  
|                                                                                          |  |             
|Cash                                                                                      |  |              | 36.7     |   |      |   | 1.3       |  
|Accrued investment income                                                                 |  |              | 300.9    |   |      |   | 314.3     |  
|Deferred policy acquisition costs                                                         |  |              | 4,423.9  |   |      |   | 3,997.4   |  
|Other assets                                                                              |  |              | 2,564.0  |   |      |   | 1,638.9   |  
|Separate account assets                                                                   |  |              | 46,936.9 |   |      |   | 69,676.5  |  
|                                                                                          |  |              |          |   |      |   |           |  
|Total assets                                                                              |  | $            | 84,812.4 |   |      | $ | 109,540.0 |  
|                                                                                          |  |              |          |   |      |   |           |  
|Liabilities and Shareholders Equity                                                      |  |              |          |   |      |   |           |  
|Liabilities:                                                                              |  |              |          |   |      |   |           |  
|Future policy benefits and claims                                                         |  | $            | 32,536.3 |   |      | $ | 31,998.4  |  
|Short-term debt                                                                           |  |              | 249.7    |   |      |   | 285.3     |  
|Long-term debt, payable to NFS                                                            |  |              | 700.0    |   |      |   | 700.0     |  
|Other liabilities                                                                         |  |              | 2,110.5  |   |      |   | 2,642.6   |  
|Separate account liabilities                                                              |  |              | 46,936.9 |   |      |   | 69,676.5  |  
|                                                                                          |  |              |          |   |      |   |           |  
|Total liabilities                                                                         |  |              | 82,533.4 |   |      |   | 105,302.8 |  
|                                                                                          |  |              |          |   |      |   |           |  
|Shareholders equity:                                                                     |  |              |          |   |      |   |           |  
|Common stock ($1 par value; authorized - 5.0 shares; issued and outstanding - 3.8 shares) |  |              | 3.8      |   |      |   | 3.8       |  
|Additional paid-in capital                                                                |  |              | 613.2    |   |      |   | 274.4     |  
|Retained earnings                                                                         |  |              | 2,973.2  |   |      |   | 4,049.5   |  
|Accumulated other comprehensive loss                                                      |  |              | (1,311.2 | ) |      |   | (90.5     | )
|                                                                                          |  |              |          |   |      |   |           |  
|Total shareholders equity                                                                |  |              | 2,279.0  |   |      |   | 4,237.2   |  
|                                                                                          |  |              |          |   |      |   |           |  
|Total liabilities and shareholders equity                                                |  | $            | 84,812.4 |   |      | $ | 109,540.0 |  
|                                                                                          |  |              |          |   |      |   |           |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Consolidated Statements of Changes in Shareholders Equity

(in millions)



|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|-------------------------------------- |  | ------------- | --- | ------------------------ | - | ---------------- |  | - | ----------------------------------------- | - |  | ------------------------ | -------- | - |  | - | -------- | -
|                                       |  | Capitalshares |     | Additionalpaid-incapital |   | Retainedearnings |  |   | Accumlatedothercomprehensiveincome (loss) |   |  | Totalshareholdersequity |         
|Balance as of December 31, 2005        |  |               | 3.8 |                          |   | 274.4            |  |   | 3,894.4                                   |   |  |                          | 93.6     |   |  |   | 4,266.2  |  
|                                       |  |               |     |                          |  
|Dividends to NFS                       |  |               |    |                          |   |                 |  |   | (375.0                                    | ) |  |                          |         |   |  |   | (375.0   | )
|                                       |  |               |     |                          |  
|Comprehensive income:                  |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Net income                             |  |               |    |                          |   |                 |  |   | 619.4                                     |   |  |                          |         |   |  |   | 619.4    |  
|Other comprehensive loss, net of taxes |  |               |    |                          |   |                 |  |   |                                          |   |  |                          | (64.9    | ) |  |   | (64.9    | )
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Total comprehensive income             |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   | 554.5    |  
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Balance as of December 31, 2006        |  |               | 3.8 |                          |   | 274.4            |  |   | 4,138.8                                   |   |  |                          | 28.7     |   |  |   | 4,445.7  |  
|                                       |  |               |     |                          |  
|Dividends to NFS                       |  |               |    |                          |   |                 |  |   | (537.5                                    | ) |  |                          |         |   |  |   | (537.5   | )
|                                       |  |               |     |                          |  
|Comprehensive income:                  |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Net income                             |  |               |    |                          |   |                 |  |   | 448.2                                     |   |  |                          |         |   |  |   | 448.2    |  
|Other comprehensive loss, net of taxes |  |               |    |                          |   |                 |  |   |                                          |   |  |                          | (119.2   | ) |  |   | (119.2   | )
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Total comprehensive income             |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   | 329.0    |  
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Balance as of December 31, 2007        |  | $             | 3.8 |                          | $ | 274.4            |  | $ | 4,049.5                                   |   |  | $                        | (90.5    | ) |  | $ | 4,237.2  |  
|                                       |  |               |     |                          |  
|Dividends to NFS                       |  |               |     |                          |   |                  |  |   | (246.5                                    | ) |  |                          |          |   |  |   | (246.5   | )
|Capital contributed by NFS             |  |               |     |                          |   | 338.8            |  |   |                                           |   |  |                          |          |   |  |   | 338.8    |  
|                                       |  |               |     |                          |  
|Comprehensive income:                  |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Net loss                               |  |               |     |                          |   |                  |  |   | (829.8                                    | ) |  |                          |          |   |  |   | (829.8   | )
|Other comprehensive loss, net of taxes |  |               |     |                          |   |                  |  |   |                                           |   |  |                          | (1,220.7 | ) |  |   | (1,220.7 | )
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Total comprehensive loss               |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   | (2,050.5 | )
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  
|Balance as of December 31, 2008        |  | $             | 3.8 |                          | $ | 613.2            |  | $ | 2,973.2                                   |   |  | $                        | (1,311.2 | ) |  | $ | 2,279.0  |  
|                                       |  |               |     |                          |   |                  |  |   |                                           |   |  |                          |          |   |  |   |          |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Consolidated Statements of Cash Flows

(in millions)



|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                         |  | Years ended December 31, |         
|                                                                                         |  | 2008                     |          |   | 2007 |   |          | 2006 | 
|Cash flows from operating activities:                                                    |  |                          |          |   |      |   |          |      |  |   |          |  
|Net (loss) income                                                                        |  | $                        | (829.8   | ) |      | $ | 448.2    |      |  | $ | 619.4    |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                          |          |   |      |   |          |      |  |   |          |  
|Net realized investment losses (gains)                                                   |  |                          | 1,439.3  |   |      |   | 166.2    |      |  |   | (7.1     | )
|Interest credited to policyholder accounts                                               |  |                          | 1,130.6  |   |      |   | 1,262.6  |      |  |   | 1,330.1  |  
|Capitalization of deferred policy acquisition costs                                      |  |                          | (572.2   | ) |      |   | (612.6   | )    |  |   | (569.6   | )
|Amortization of deferred policy acquisition costs                                        |  |                          | 674.5    |   |      |   | 368.5    |      |  |   | 450.3    |  
|Amortization and depreciation                                                            |  |                          | 6.7      |   |      |   | 22.3     |      |  |   | 46.6     |  
|Decrease (increase) in other assets                                                      |  |                          | 64.5     |   |      |   | 557.4    |      |  |   | (336.2   | )
|(Decrease) increase in policy and other liabilities                                      |  |                          | (226.1   | ) |      |   | (331.8   | )    |  |   | 54.1     |  
|(Increase) decrease in derivative assets                                                 |  |                          | (1,030.7 | ) |      |   | (146.9   | )    |  |   | 38.2     |  
|Increase in derivative liabilities                                                       |  |                          | 153.9    |   |      |   | 101.5    |      |  |   | 174.7    |  
|Other, net                                                                               |  |                          | 3.7      |   |      |   | 8.5      |      |  |   | 0.1      |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                          | 814.4    |   |      |   | 1,843.9  |      |  |   | 1,800.6  |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities:                                                    |  |                          |          |   |      |   |          |      |  |   |          |  
|Proceeds from maturity of securities available-for-sale                                  |  |                          | 3,935.6  |   |      |   | 4,379.8  |      |  |   | 5,128.6  |  
|Proceeds from sale of securities available-for-sale                                      |  |                          | 4,185.2  |   |      |   | 4,657.5  |      |  |   | 2,267.3  |  
|Proceeds from repayments or sales of mortgage loans on real estate                       |  |                          | 763.1    |   |      |   | 2,467.7  |      |  |   | 2,430.8  |  
|Cost of securities available-for-sale acquired                                           |  |                          | (6,831.8 | ) |      |   | (8,008.3 | )    |  |   | (5,658.9 | )
|Cost of mortgage loans on real estate originated or acquired                             |  |                          | (358.7   | ) |      |   | (1,887.0 | )    |  |   | (2,180.4 | )
|Net decrease (increase) in short-term investments                                        |  |                          | (1,827.0 | ) |      |   | 762.9    |      |  |   | (125.4   | )
|Collateral received (paid), net                                                          |  |                          | 603.4    |   |      |   | (175.6   | )    |  |   | (332.6   | )
|Other, net                                                                               |  |                          | (34.0    | ) |      |   | (68.6    | )    |  |   | 52.1     |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by investing activities                                                |  |                          | 435.8    |   |      |   | 2,128.4  |      |  |   | 1,581.5  |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash flows from financing activities:                                                    |  |                          |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in short-term debt                                               |  |                          | (35.6    | ) |      |   | 210.1    |      |  |   | (167.1   | )
|Capital contributed by NFS                                                               |  |                          | 153.4    |   |      |   |         |      |  |   |         |  
|Cash dividends paid to NFS                                                               |  |                          | (181.8   | ) |      |   | (537.5   | )    |  |   | (375.0   | )
|Investment and universal life insurance product deposits and other additions             |  |                          | 3,511.1  |   |      |   | 3,586.1  |      |  |   | 3,400.8  |  
|Investment and universal life insurance product withdrawals and other deductions         |  |                          | (4,795.9 | ) |      |   | (7,230.2 | )    |  |   | (6,241.2 | )
|Other, net                                                                               |  |                          | 134.0    |   |      |   |         |      |  |   |         |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash used in financing activities                                                    |  |                          | (1,214.8 | ) |      |   | (3,971.5 | )    |  |   | (3,382.5 | )
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash                                                          |  |                          | 35.4     |   |      |   | 0.8      |      |  |   | (0.4     | )
|Cash, beginning of period                                                                |  |                          | 1.3      |   |      |   | 0.5      |      |  |   | 0.9      |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash, end of period                                                                      |  | $                        | 36.7     |   |      | $ | 1.3      |      |  | $ | 0.5      |  
|                                                                                         |  |                          |          |   |      |   |          |      |  |   |          |  
|Supplemental Non-cash Disclosure:                                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Dividends paid to NFS                                                                    |  | $                        | (64.6    | ) |      | $ |         |      |  | $ |         |  
|Capital contributed by NFS                                                               |  |                          | 185.4    |   |      |   |         |      |  |   |         |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements

December 31, 2008, 2007 and 2006



|(1) | Nature of Operations
|--- | --------------------

Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) was incorporated in 1929 and is an Ohio stock legal reserve life insurance company. The Company is a member of the
Nationwide group of companies (Nationwide), which is comprised of Nationwide Mutual Insurance Company (NMIC) and all of its subsidiaries and affiliates.

All of the outstanding shares of NLICs common stock are owned by NFS, a holding company formed by Nationwide Corporation (Nationwide Corp.), a majority-owned subsidiary of NMIC.

On August 6, 2008, NFS entered into a definitive agreement for NMIC, and Nationwide Corporation (Nationwide Corp.)., to acquire all
of the outstanding publicly held Class A common shares of NFS for $52.25 per share in cash. The transaction closed on January 1, 2009 and NFS became a privately held subsidiary of Nationwide Corp.

Wholly-owned subsidiaries of NLIC as of December 31, 2008 include Nationwide Life and Annuity Insurance Company (NLAIC) and
Nationwide Investment Services Corporation (NISC). NLAIC offers universal life insurance, variable universal life insurance, corporate-owned life insurance (COLI) and individual annuity contracts on a non-participating basis. NISC is a registered
broker/dealer.

The Company is a leading provider of long-term savings and retirement products in the United States of
America (U.S.). The Company develops and sells a diverse range of products including individual annuities, private and public sector group retirement plans, other investment products sold to institutions, life insurance and advisory services.

The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Companys
products to their own customer bases include independent broker/dealers, financial institutions, wirehouse and regional firms, pension plan administrators, and life insurance specialists. Representatives of affiliates who market products directly to
a customer base include Nationwide Retirement Solutions, Inc. (NRS), and Nationwide Financial Network (NFN) producers. The Company also distributes products through the agency distribution force of its ultimate parent company, NMIC.

As of December 31, 2008 and 2007, the Company did not have a significant concentration of financial instruments in a single investee,
industry or geographic region of the U.S. Also, the Company did not have a concentration of business transactions with a particular customer, lender, distribution source, market or geographic region of the U.S. in which business is conducted that
makes it overly vulnerable to a single event which could cause a severe impact to the Companys financial position.



|(2) | Summary of Significant Accounting Policies
|--- | ------------------------------------------

The Companys significant accounting policies that materially affect financial reporting are summarized below. The accompanying consolidated financial statements were prepared in accordance with United States
generally accepted accounting principles (GAAP).

The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ significantly from those estimates.

The Companys most significant estimates include those used to determine the following: the balance, recoverability and amortization of deferred policy acquisition costs (DAC); whether an
available-for-sale security is other-than-temporarily impaired, valuation allowances for mortgage loans on real estate; valuation of derivatives; the liability for future policy benefits and claims, including the valuation of embedded derivative
resulting from living benefit contracts; and federal income tax provision. Although some variability is inherent in these estimates, recorded amounts reflect managements best estimates based on facts and circumstances as of the balance sheet
date. Management believes the amounts provided are appropriate.



F-7



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The Company determined that certain cash flows related to future policy benefits and
claims totaling $111.9 million for the three months ended March 31, 2008, which were included as cash flows provided by operating activities on the condensed consolidated statements of cash flows in the applicable Quarterly Report on Form 10-Q,
should have been presented as financing activities. The net cash provided by operating activities for the three months ended March 31, 2008 as originally filed and revised was $351.1 million and $239.2 million, respectively. The net cash used
in financing activities for the three months ended March 31, 2008 as originally filed and revised was $368.9 million and $257.0 million, respectively. They will be presented in that manner on a comparative basis in the 2009 filings. The
consolidated statement of cash flows for 2008 included in this filing reflects the revised presentation described above.

Certain items in the 2007 and 2006 consolidated financial statements and related notes have been reclassified to conform to the current presentation.

(a) Consolidation Policy

The consolidated financial statements
include the accounts of NLIC and companies in which NLIC directly or indirectly has a controlling financial interest. Minority interest expense is included in other operating expenses in the consolidated statements of (loss) income, and the minority
interest liability is included in other liabilities on the consolidated balance sheets. All significant intercompany balances and transactions were eliminated in consolidation.

(b) Valuation of Investments, Investment Income and Related Gains and Losses

The Company is required to classify its fixed maturity securities and marketable equity securities as held-to-maturity, available-for-sale or trading. All fixed maturity and marketable equity securities are classified
as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of adjustments to DAC, future policy benefits and claims, and deferred federal income taxes reported as a separate component of
accumulated other comprehensive (loss) income (AOCI) in shareholders equity. The adjustment to DAC represents the changes in amortization of DAC that would have been required as a charge or credit to operations had such unrealized amounts been
realized and allocated to the product lines. The adjustment to future policy benefits and claims represents the increase in policy reserves from using a discount rate that would have been required had such unrealized amounts been realized and the
proceeds reinvested at then current market interest rates, which were lower than the then current effective portfolio rate.

For fixed maturity and marketable equity securities for which market quotations generally are available, the Company generally uses independent pricing services to assist in determining the fair value measurement. For certain fixed maturity
securities not priced by independent services (generally private placement securities without quoted market prices), an internally developed pricing model or corporate pricing matrix is most often used. The corporate pricing matrix is
developed by obtaining private spreads versus the U.S. Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using
the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the U.S. Treasury yield to create an estimated market yield for that bond. The estimated market yield and other relevant
factors are then used to estimate the fair value of the particular fixed maturity security. The Company also utilized broker quotes in pricing securities or to validate modeled prices.

For mortgage-backed securities (MBSs), the Company recognizes income using a constant effective yield method based on prepayment
assumptions and the estimated economic life of the securities. When estimated prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. Any
resulting adjustment is included in net investment income. All other investment income is recorded using the interest method without anticipating the impact of prepayments.

Management regularly reviews each investment in its fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in
the fair value of investments.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



For debt securities not subject to Emerging Issues Task Force Issue (EITF)
No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets, as amended by Financial Accounting Standards Board (FASB) Staff Position (FSP) EITF 99-20-1 (EITF
99-20), as well as debt securities subject to EITF 99-20, an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is probable that the
Company will not recover all contractual amounts when due. Furthermore, equity securities may experience other-than-temporary impairments based on prospects of recovery in a reasonable period of time. Many criteria are considered during this process
including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, managements intent and ability to hold the security until recovery, current economic conditions that
could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected security. Other-than-temporary
impairment losses result in a permanent reduction to the cost basis of the underlying investment.

In addition to the above,
for certain beneficial interests in securitized financial assets with contractual cash flows, including asset-backed securities (ABSs), EITF 99-20 also requires the Company to periodically update its best estimate of cash flows over the life of the
security. If the fair value of a securitized financial asset is not greater than or equal to its carrying value based on current information and events, and if there has been , or if it is probable that, an adverse change in estimated cash flows
since the last revised estimate (considering both timing and amount), then the Company recognizes an other-than-temporary impairment and writes down the investment to fair value.

The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers.
Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When management
determines that a loan is impaired, a provision for loss is established equal to either the difference between the carrying value and the present value of expected future cash flows discounted at the loans effective interest rate or the fair
value of the collateral if the loan is collateral dependent. In addition to the valuation allowance on specific loans, the Company maintains an allowance not yet specifically identified by loan for probable losses inherent in the loan portfolio as
of the balance sheet date. The valuation allowance account for mortgage loans on real estate reflects managements best estimate of probable credit losses, including losses incurred at the balance sheet date but not yet identified by specific
loan. Managements periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the
estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Changes in the valuation allowance are recorded in net realized investment gains and losses. Loans in
foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received.

Real estate to be held and used is carried at cost less accumulated depreciation. Real estate designated as held for disposal is not depreciated and is carried at the lower of the carrying value
at the time of such designation or fair value less cost to sell. Other long-term investments are carried on the equity method of accounting.

Impairment losses are recorded on investments in long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than
the assets carrying amounts.

Realized gains and losses on the sale of investments are determined on the basis of
specific security identification. Changes in the Companys mortgage loan valuation allowance and recognition of impairment losses for other-than-temporary declines in the fair values of applicable investments are included in net realized
investment gains and losses.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



(c) Derivative Instruments

Derivatives are carried at fair value. On the date the derivative contract is entered into, the Company designates the derivative as a
hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge); a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or
liability (cash flow hedge); a foreign currency fair value or cash flow hedge (foreign currency hedge); or a non-hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used for hedging transactions are expected to
be and, for ongoing hedging relationships, have been highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not, or is not expected to be, highly effective as a hedge or that
it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

The Company enters
into interest rate swaps, cross-currency swaps or Euro futures to hedge the fair value of existing fixed rate assets and liabilities. In addition, the Company uses short U.S. Treasury future positions to hedge the fair value of bond and mortgage
loan commitments. Typically, the Company is hedging the risk of changes in fair value attributable to changes in benchmark interest rates. Derivative instruments classified as fair value hedges are carried at fair value, with changes in fair value
recorded in net realized investment gains and losses. Changes in the fair value of the hedged item that are attributable to the risk being hedged are also recorded in net realized investment gains and losses.

The Company enters into interest rate swaps to hedge the variability in cash flows and investment income due to changes in the benchmark
interest rates on variable rate assets and liabilities. The Company also enters into cross-currency interest rate swaps to eliminate the currency risk on variable rate and fixed rate foreign denominated assets. Derivative instruments classified as
cash flow hedges are carried at fair value, with the effective portion of changes in fair value recorded in other comprehensive income and the ineffective portion recorded in net realized investment gains and losses.

Accrued interest receivable or payable under interest rate and foreign currency swaps are recognized as an adjustment to net investment
income or interest credited to policyholder accounts consistent with the nature of the hedged item, except for interest rate swaps hedging the anticipated sale of investments where amounts receivable or payable under the swaps are recorded as net
realized investment gains and losses, and except for interest rate swaps hedging the anticipated purchase of investments where amounts receivable or payable under the swaps are initially recorded in AOCI to the extent the hedging relationship is
effective.

The Company periodically may enter into a derivative transaction that will not qualify for hedge accounting. The
Company does not enter into speculative positions. Although these transactions do not qualify for hedge accounting, or have not been designated in hedging relationships by the Company, they are part of its overall risk management strategy. For
example, the Company may sell credit default protection through a credit default swap. Although the credit default swap is not effective in hedging specific investments, the income stream allows the Company to manage overall investment yields while
exposing the Company to acceptable credit risk. The Company may enter into a cross-currency basis swap (pay a variable U.S. rate and receive a variable foreign-denominated rate) to eliminate the foreign currency exposure of a variable rate
foreign-denominated liability. Although basis swaps may qualify for hedge accounting, the Company has chosen not to designate these derivatives as hedging instruments due to the difficulty in assessing and monitoring effectiveness for both sides of
the basis swap. Derivative instruments that do not qualify for hedge accounting or are not designated as hedging instruments are carried at fair value, with changes in fair value recorded in net realized investment gains and losses.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



(d) Revenues and Benefits

Investment and Universal Life Insurance Products: Investment products consist primarily of individual and group variable and fixed
deferred annuities. Universal life insurance products include universal life insurance, variable universal life insurance, corporate-owned life insurance (COLI), bank-owned life insurance (BOLI) and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance charges, administrative fees and surrender charges that have been earned and assessed against policy account
balances during the period. The timing of revenue recognition as it relates to fees assessed on investment contracts and universal life contracts is determined based on the nature of such fees. Asset fees, cost of insurance charges and
administrative fees are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and
recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract in accordance with contractual terms. Policy benefits and claims that are charged to expense include interest credited to policyholder
accounts and benefits and claims incurred in the period in excess of related policyholder accounts.

Traditional Life
Insurance Products: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits, and primarily consist of whole life insurance, limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contract. This
association is accomplished through the provision for future policy benefits and the deferral and amortization of policy acquisition costs.

(e) Cash and Cash Equivalents

Cash and cash equivalents consist of short-term highly
liquid investments with original maturities of less than three months at the time of purchase. The Company carries cash and cash equivalents at cost, which approximates fair value.

(f) Deferred Policy Acquisition Costs

Investment and universal life insurance products. The Company has deferred certain costs of acquiring investment and universal life insurance products business, principally commissions,
certain expenses of the policy issue and underwriting department, and certain variable sales expenses that relate to and vary with the production of new and renewal business. In addition, the Company defers sales inducements, such as interest credit
bonuses and jumbo deposit bonuses. Investment products primarily consist of individual and group variable and fixed deferred annuities in the Individual Investments and Retirement Plans segments. Universal life insurance products include universal
life insurance, variable universal life insurance, COLI, BOLI and other interest-sensitive life insurance policies in the Individual Protection segment. DAC is subject to recoverability testing in the year of policy issuance and loss recognition
testing at the end of each reporting period.

For investment and universal life insurance products, the Company amortizes
DAC with interest over the lives of the policies in relation to the present value of estimated gross profits from projected interest margins, asset fees, cost of insurance charges, administrative fees, surrender charges, and net realized investment
gains and losses less policy benefits and policy maintenance expenses. The Company adjusts the DAC asset related to investment and universal life insurance products to reflect the impact of unrealized gains and losses on fixed maturity securities
available-for-sale, as described in Note 2(b).



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The assumptions used in the estimation of future gross profits are based on the
Companys current best estimates of future events and are reviewed as part of an annual process during the second quarter. During the annual process, the Company performs a comprehensive study of assumptions, including mortality and persistency
studies, maintenance expense studies, and an evaluation of projected general and separate account investment returns. The most significant assumptions that are involved in the estimation of future gross profits include future net separate account
investment performance, surrender/lapse rates, interest margins and mortality. Currently, the Companys long-term assumption for net separate account investment performance is approximately 7% growth per year and varies by product. The Company
reviews this assumption, like others, as part of its annual process. If this assumption were unlocked, the date of the unlocking could become the anchor date used in the reversion to the mean process (defined below). Variances from the long-term
assumption are expected since the majority of the investments in the underlying separate accounts are in equity securities, which strongly correlate in the aggregate with the Standard & Poors (S&P) 500 Index. The Company bases its
reversion to the mean process on actual net separate account investment performance from the anchor date to the valuation date. The Company then assumes different performance levels over the next three years such that the separate account mean
return measured from the anchor date to the end of the life of the product equals the long-term assumption. The assumed net separate account investment performance used in the DAC models is intended to reflect what is anticipated. However, based on
historical returns of the S&P 500 Index, and as part of its pre-set parameters, the Companys reversion to the mean process generally limits net separate account investment performance to 0-15% during the three-year reversion period. See
below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

Changes in
assumptions can have a significant impact on the amount of DAC reported for investment and universal life insurance products and their related amortization patterns. In the event actual experience differs from assumptions or future assumptions are
revised, the Company is required to record an increase or decrease in DAC amortization expense, which could be significant. In general, increases in the estimated long-term general and separate account returns result in increased expected future
profitability and may lower the rate of DAC amortization, while increases in long-term lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization.

In addition to the comprehensive annual study of assumptions, management evaluates the appropriateness of the individual
variable annuity DAC balance quarterly within pre-set parameters. These parameters are designed to appropriately reflect the Companys long-term expectations with respect to individual variable annuity contracts while also evaluating the
potential impact of short-term experience on the Companys recorded individual variable annuity DAC balance. If the recorded balance of individual variable annuity DAC falls outside of these parameters for a prescribed period, or if the
recorded balance falls outside of these parameters and management determines it is not reasonably possible to get back within the parameters during a given period, assumptions are required to be unlocked, and DAC is recalculated using revised best
estimate assumptions. When DAC assumptions are unlocked and revised, the Company continues to use the reversion to the mean process. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

During the second quarter of 2007, the Company conducted its annual comprehensive review of model assumptions used to
project DAC and other related balances, including sales inducement assets, unearned revenue reserves, and guaranteed minimum death and income benefit reserves. This review included all assumptions, including expected separate account investment
returns during the three-year reversion period, lapse rates, mortality and expenses. The Company determined as part of this annual review that the overall separate account returns were expected to exceed previous estimates due to favorable financial
market trends. Additionally, while the Company estimated that the overall profitability of its variable products had improved, it expected the long-term net growth in separate account investment performance to moderate.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Accordingly, the second quarter 2007 unlocking process included changes in several
assumptions, including assumptions affecting net separate account investment performance. This unlocking resulted in a net increase in DAC and a benefit to DAC amortization and other related balances totaling $221.6 million pre-tax, which was
reported in the following segments in the pre-tax amounts indicated: Individual Investments - $196.4 million; Retirement Plans - $10.5 million; and Individual Protection - $14.7 million. First, the Company reset the anchor date for its reversion to
the mean calculations, which increased the annual net separate account growth rate to 7% during the first three years of the projection period from 0% (which was the rate of return for the three-year reversion period required from the previous
anchor date). Second, as a result of its current analysis, including its evaluation of ongoing trends and expectations regarding financial market performance, the Company unlocked and reset its long-term assumption for net separate account growth
rates to 7% from 8%. This decreased the net separate account growth rate by 1% to 7% for all years subsequent to the three-year reversion period. The combination of resetting these two factors resulted in a $167.0 million increase in DAC and benefit
to DAC amortization and other related balances. The impact of changing the annual net separate account growth rate from 0% to 7% during the three-year reversion period had a much larger effect on the DAC balance when compared to the 1% incremental
change in the long-term assumption for net separate account investment performance. The remainder of the increase in DAC and benefit to DAC amortization and other related balances resulting from the DAC unlocking process primarily was related to the
recorded balance of individual variable annuity DAC falling outside the Companys preset parameters for the prescribed period, which was driven by favorable market performance in excess of the assumed net separate account returns. Accordingly,
the Company recalculated DAC using revised best estimate assumptions, which resulted in a $78.8 million increase in DAC and benefit to DAC amortization and other related balances. This was partially offset by a $24.2 million decrease in DAC and
increase in DAC amortization and other related balances due to increasing estimated lapse rates for fixed annuity and BOLI products.

During the second quarter of 2007, the Company added a new feature to its existing guaranteed minimum withdrawal benefit rider, Lifetime Income (L.inc). This new feature resulted in a substantial change in the existing contracts and,
therefore, an extinguishment of the DAC associated with those contracts pursuant to the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred
Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1). As a result, the Company eliminated existing DAC and other related balances resulting in a $135.0 million pre-tax charge.

At the end of the second quarter of 2008, the Company determined as part of its comprehensive annual study of assumptions that certain
assumptions should be unlocked. The unlocked assumptions primarily related to lapse and spread assumptions in the Individual Investments segment, the assumed growth rate on deposits per contract in the Retirement Plans segment, and mortality and
lapse assumptions in the Individual Protection segment. Therefore, in the second quarter of 2008, the Company recorded the following pre-tax adjustments: 1) a decrease in DAC and additional DAC amortization of $13.4 million; 2) a decrease in other
assets and additional benefits and claims of $0.6 million; and 3) a decrease in unearned revenue liability and additional administrative fees of $3.1 million. The net impact of this activity was a $10.9 million unfavorable pre-tax adjustment to net
income in the second quarter of 2008, which was reported in the following segments in the pre-tax amounts indicated: Individual Investments - $9.4 million unfavorable; Retirement Plans - $2.3 million unfavorable; and Individual Protection - $0.8
million favorable.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



During the third quarter of 2008, the Companys recorded balance of individual
variable annuity DAC fell outside the Companys preset parameters for the prescribed period, which primarily was driven by unfavorable market performance compared to the assumed net separate account returns. Accordingly, the Company
recalculated DAC using revised best estimate assumptions, which resulted in a decrease in DAC and an increase in DAC amortization and other related balances totaling $177.2 million pre-tax in the Individual Investments segment. During the fourth
quarter of 2008, the Companys recorded balance of individual variable annuity DAC fell outside the Companys preset parameters, which primarily was driven by continued unfavorable market performance compared to assumed net separate
account returns. Management made a determination that it was not reasonably possible to get back within the preset parameters during the remaining prescribed period. Accordingly, the Company recalculated DAC using revised best estimate assumptions,
which resulted in a decrease in DAC and an increase in DAC amortization and other related balances of $243.1 million pre-tax in the Individual Investments segment. The Company continues to use the reversion to the mean process with the anchor date
that was reset during the second quarter 2007 unlocking as described above. The Company evaluated the assumed separate account performance level over the next three years and determined that the assumptions inherent in the reversion period were
reasonable. The annual net separate account growth rate for the mean reversion period is 15%, the maximum rate under the Companys parameters. Accordingly, future periods may incur additional amortization of DAC if the Companys actual
returns are less than assumed.

Traditional life insurance products.Generally, DAC related to traditional life
insurance products is amortized with interest over the premium-paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue is estimated
using the same assumptions as those used for computing liabilities for future policy benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to traditional life insurance products, although evaluations
of DAC for recoverability at the time of policy issuance and loss recognition testing at each reporting period are required.

(g) Separate Accounts

Separate account assets and liabilities represent contractholders funds that
have been legally segregated into accounts with specific investment objectives. Separate account assets are recorded at fair value primarily based on market quotations of the underlying securities. Investment income and realized investment gains or
losses of these accounts accrue directly to the contractholders. The activity of the separate accounts is not reflected in the consolidated statements of (loss) income except for (1) the fees the Company receives, which are assessed on a daily
or monthly basis and recognized as revenue when assessed and earned, and (2) the activity related to contract guarantees, which are riders to existing variable annuity contracts.

(h) Future Policy Benefits and Claims

The process of calculating reserve amounts for a life insurance organization involves the use of a number of assumptions, including those related to persistency (how long a contract stays with a
company), mortality (the relative incidence of death in a given time), morbidity (the relative incidence of disability resulting from disease or physical impairment) and interest rates (the rates expected to be paid or received on financial
instruments, including insurance or investment contracts).

The Company calculates its liability for future policy benefits
and claims for investment products in the accumulation phase and universal life and variable universal life insurance policies as the policy account balance, which represents participants net premiums and deposits plus investment performance
and interest credited less applicable contract charges.

The Companys liability for funding agreements to an unrelated
third party trust related to the Companys medium-term note (MTN) program equals the balance that accrues to the benefit of the contractholder, including interest credited. The funding agreements constitute insurance obligations and are
considered annuity contracts under Ohio insurance laws.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The liability for future policy benefits and claims for traditional life insurance
policies was determined using the net level premium method using interest rates varying from 2.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals that were used or being experienced at the time the policies were
issued.

The liability for future policy benefits for payout annuities was calculated using the present value of future
benefits and maintenance costs discounted using interest rates varying generally from 3.0% to 13.0%.

(i) Participating
Business

Participating business, which refers to policies that participate in profits through policyholder dividends,
represented approximately 5% of the Companys life insurance in force in 2008 (6% in 2007 and 8% in 2006), 44% of the number of life insurance policies in force in 2008 (48% in 2007 and 50% in 2006) and 7% of life insurance statutory premiums
in 2008 (7% in 2007 and 5% in 2006). The provision for policyholder dividends was based on the current dividend scales and has been included in future policy benefits and claims in the consolidated balance sheets.

(j) Federal Income Taxes

The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items
and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to significantly change the provision for federal
income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated statements of (loss) income. Management has established reserves in accordance with FIN 48 based on
current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Management evaluates the appropriateness of such reserves quarterly based on any new developments specific to their fact
patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums and other rulings issued by the Internal Revenue Service (IRS) or the tax courts.

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax asset will not be fully
realized.

(k) Reinsurance Ceded

Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance
ceded generally are reported in the consolidated balance sheets on a gross basis, separately from the related future policy benefits and claims of the Company. The ceding of risk does not discharge the original insurer from its primary obligation to
the policyholder.

(l) Change in Accounting Principle

Historically, the Company accrued for legal costs associated with litigation defense and regulatory investigations by estimating the
ultimate costs of such activity. Beginning April 1, 2007, the Companys accrual for such legal expenses includes only the amount for services that have been provided but not yet paid. The Company believes the newly adopted accounting
principle is preferable because it more accurately reflects expenses in the periods in which they are incurred. The Company continues to estimate and accrue the ultimate amounts expected to be paid for litigation and regulatory investigation loss
contingencies. The Company has presented its consolidated financial statements and accompanying notes as applicable for all periods presented to retroactively apply the adoption of this change in accounting principle.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes the impact of the change in accounting principle
described above for the years ended December 31:



(in millions)

2007


2006Other operating expenses

$
2.8


$
5.0Net income


(1.9
)


(3.1
)


The cumulative effect of the change on retained earnings as of
January 1, 2006 was an $11.0 million increase.



|(3) | Recently Issued Accounting Standards
|--- | ------------------------------------

In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue
No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of
whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and will be applied prospectively. Retrospective application to a prior interim or
annual reporting period is not permitted. The Company will adopt FSP EITF 99-20-1 effective December 31, 2008 and will apply the standard prospectively, as is required.

In December 2008, the FASB issued FSP FAS 132R-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132R-1). FSP FAS 132R-1 amends FASB Statement No. 132
revised 2003, Employers Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan. The portion of FSP
FAS 132R-1 related to the disclosures about plan assets is effective for fiscal years ending after December 15, 2009. FSP FAS 132R-1 will have no impact on the Companys disclosures.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities, (FSP FAS 140-4 and FIN 46R-8). FSP FAS 140-4 and FIN 46R-8 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to require
public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. This FSP will be effective for the first reporting period
(interim or annual) ending after December 15, 2008. The Company adopted FSP FAS 140-4 and FIN 46R-8 effective December 31, 2008. See Note 17 for the required disclosures.

In November 2008, the FASB Board ratified the Emerging Issues Task Forces consensus EITF 08-7, Accounting for Defensive
Intangible Assets(EITF 08-7). EITF 08-7 requires defensive intangible assets acquired in a business combination or asset acquisition to be accounted for as a separate unit of accounting. In doing so, the asset should not be included as part of
the cost of an entitys existing intangible asset(s) because the defensive intangible asset is separately identifiable. EITF 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. EITF 08-7 is not expected to have a material impact on the Companys financial position or results of operations upon adoption. The Company will adopt EITF 08-7 effective January 1, 2009 and
will apply it prospectively for intangible assets acquired on or after that date.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



In November 2008, the FASB Board ratified the Emerging Issues Task Forces
consensus EITF 08-6, Equity Method Investment Accounting Considerations (EITF 08-6). EITF 08-6 clarifies how to account for certain transactions and impairment considerations involving equity method investments. Specifically, EITF 08-6 notes:
1) an entity shall measure its equity method investment initially at cost 2) an equity method investor is required to recognize other-than-temporary impairments of an equity method investment in accordance with paragraph 19(h) of Opinion 18 and an
equity method investor shall not separately test an investees underlying indefinite-lived intangible asset(s) for impairment 3) an equity method investor shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment and any gain or loss to the investor resulting from an investees share issuance shall be recognized in earnings. This Issue shall be is effective on a prospective basis in fiscal years beginning on or
after December 15, 2008, and interim periods within those fiscal years. The Company will adopt EITF 08-6 effective January 1, 2009 and will apply the standard prospectively, as is required.

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active(FSP FAS 157-3). FSP FAS 157-3 clarifies the application of SFAS No. 157, Fair Value Measurements(SFAS 157), in a market that is not active and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 was effective upon issuance and was adopted by the Company effective September 30, 2008. The adoption of FSP FAS 157-3 did not have a material
impact on the Companys financial position or results of operations.

In September 2008, the FASB issued FSP FAS 133-1
and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161(FSP FAS 133-1
and FIN 45-4). FSP FAS 133-1 and FIN 45-4 requires additional disclosure about credit derivatives including their nature, potential amount of future payments, fair value, recourse provisions and current status of the payment/performance risk. FSP
FAS 133-1 and FIN 45-4 also requires the disclosure of the current status of the payment/performance risk of a guarantee subject to FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others  an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. FSP FAS 133-1 and FIN 45-4 is effective for reporting periods ending
after November 15, 2008. The Company adopted FSP FAS 133-1 and FIN 45-4 effective for the December 31, 2008 reporting period. See Note 5 for the required disclosures

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP (the GAAP hierarchy). SFAS 162 will be effective 60 days following the approval
by the United States Securities and Exchange Commission (SEC) of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The
adoption of SFAS 162 did not the C result in a change in its current practices.

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133(SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users
of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about
derivative instrument fair values and related gains and losses, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company currently is evaluating the new disclosures required under SFAS 161 and will adopt it March 31, 2009.



F-17



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement
No. 157 (FSP FAS 157-2). This FSP delays the effective date of SFAS 157 for nonfinancial assets and liabilities until fiscal years and interim periods beginning after November 15, 2008. FSP FAS 157-2 applies to nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in the Companys financial statements on a recurring basis (at least annually), and is effective upon issuance. The Company has not yet applied the provisions of SFAS
157 to the nonfinancial assets and liabilities within the scope of FSP FAS 157-2. However, the Company does not expect such application to have a material impact on its financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS 141R), which replaces SFAS
No. 141, Business Combinations(SFAS 141). The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about
a business combination and its effects. Accordingly, SFAS 141R establishes principles and requirements for how the acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS 141R applies to all transactions or other events in which an entity obtains control of one or more businesses and retains the fundamental requirements in SFAS 141 that the
acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R is applicable prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier application is prohibited. The Company will adopt SFAS 141R effective January 1, 2009 and will apply it to any business combination on or after that date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB
No. 51(SFAS 160). The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also amends certain consolidation procedures prescribed by Accounting Research Bulletin No. 51,
Consolidated Financial Statements, for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is
prohibited. The Company will adopt SFAS 160 effective January 1, 2009 and will apply it to any acquisitions or dispositions of noncontrolling interests on or after that date.

In June 2007, the Accounting Standards Executive Committee (AcSEC) of the AICPA issued SOP 07-1, Clarification of the Scope of the
Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (SOP 07-1). SOP 07-1 provides guidance for determining whether an entity is within the scope
of the AICPA Audit and Accounting Guide Investment Companies (the Guide). For those entities that are investment companies under SOP 07-1, this SOP also addresses whether the specialized industry accounting principles of the Guide (i.e., fair value
accounting) should be retained by a parent company in consolidation or by an investor that has the ability to exercise significant influence over the investment company and applies the equity method of accounting to its investment in the entity
(referred to as an equity method investor). In addition, SOP 07-1 includes certain disclosure requirements for parent companies and equity method investors in investment companies that retain investment company accounting in the parent
companys consolidated financial statements or the financial statements of an equity method investor. The provisions of SOP 07-1 were to be effective for fiscal years beginning on or after December 15, 2007. On February 14, 2008, the
FASB issued FSP SOP 07-1-1, which delays indefinitely the effective date of SOP 07-1. The Company will monitor the FASB and AICPA deliberations regarding this standard.



F-18



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



In April 2007, the FASB issued FSP FIN 39-1, An Amendment of FASB Interpretation
No. 39(FSP FIN 39-1). FSP FIN 39-1 addresses whether a reporting entity that is party to a master netting arrangement can offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to
return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement in accordance with paragraph 10 of Interpretation 39. FSP FIN 39-1 is effective for
fiscal years beginning after November 15, 2007, with early application permitted. The Company adopted FSP FIN 39-1 effective January 1, 2008. The Company elected to present the fair value of cash collateral received separate from the
obligation to return the collateral. The adoption of FSP FIN 39-1 did not impact the Companys financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurement, which is
consistent with the FASBs long-term measurement objectives for accounting for financial instruments. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. In addition, SFAS 159 does not establish
requirements for recognizing and measuring dividend income, interest income or interest expense, nor does it eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value
measurements included in SFAS No. 157, Fair Value Measurements (SFAS 157), and SFAS No. 107, Disclosures about Fair Value of Financial Instruments. SFAS 159 is effective as of the beginning of an entitys first fiscal
year beginning after November 15, 2007. The Company adopted SFAS 159 for commercial mortgage loans held for sale effective January 1, 2008, which did not have a material impact on the Companys financial position or results of
operations. The Company will assess the fair value election for new financial assets or liabilities on a prospective basis. See Note 4 for disclosures required by SFAS 159.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87,
88, 106, and 132(R) (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability on its balance sheet and to
recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet, with limited
exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employers fiscal year-end balance sheet is effective for fiscal years ending after December 15, 2008. The Company adopted SFAS
158 effective December 31, 2006. The adoption of SFAS 158 did not have a material impact on the Companys financial position or results of operations.

In September 2006, the FASB issued SFAS 157. SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities and requires new disclosures about fair value measurements.
SFAS 157 also provides guidance regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. For assets and liabilities that
are measured at fair value on a recurring basis in periods subsequent to initial recognition, the reporting entity shall disclose information that enables financial statement users to assess the inputs used to develop those measurements. For
recurring fair value measurements using significant unobservable inputs, the reporting entity shall disclose the effect of the measurements on earnings for the period. SFAS 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early
adoption permitted. The Company adopted SFAS 157 effective January 1, 2008. The adoption of SFAS 157 did not have a material impact on the Companys financial position or results of operations. See Note 4 for disclosures required by SFAS
157.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 (SAB
108). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance
sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the SECs previous guidance in SAB
No. 99 on evaluating the materiality of misstatements. The Company adopted SAB 108 effective December 31, 2006. SAB 108 did not have a material impact on the Companys financial position or results of operations upon adoption.

In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB
Statement No. 109, Accounting for Income Taxes(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement No. 109, Accounting
for Income Taxes.FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 effective January 1, 2007.
FIN 48 did not have a material impact on the Companys financial position or results of operations upon adoption.

In
March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets(SFAS 156).SFAS 156 amends SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (SFAS 140). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS 156 permits, but does not require, the subsequent measurement of
separately recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative
instruments at fair value. Under SFAS 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. By electing that option, an entity may simplify its accounting
because SFAS 156 permits income statement recognition of the potential offsetting changes in fair value of those servicing assets and servicing liabilities and derivative instruments in the same accounting period. SFAS 156 is effective for fiscal
years beginning after September 15, 2006. The Company adopted SFAS 156 effective January 1, 2007. SFAS 156 did not have a material impact on the Companys financial position or results of operations upon adoption.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155). SFAS 155
amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and SFAS 140. SFAS 155 also resolves issues addressed in SFAS 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets. In summary, SFAS 155: (1) permits an entity to make an irrevocable election to measure any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation
at fair value in its entirety, with changes in fair value recognized in earnings; (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; (3) establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (4) clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives; and (5) amends SFAS 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. Provisions of SFAS 155
may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. The Company adopted SFAS 155 effective January 1, 2006. On the date of adoption, there was no impact to the Companys
financial position or results of operations.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



In September 2005, AcSEC issued SOP 05-1. SOP 05-1 provides guidance on accounting by
insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97,Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, issued by the FASB. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights or coverages that occurs as a result of
the exchange of a contract for a new contract, or by amendment, endorsement or rider to a contract, or by the election of a new feature or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006. Retrospective application of SOP 05-1 to previously issued financial statements is not permitted. Initial application of SOP 05-1 is required as of the beginning of an entitys fiscal year. The Company
adopted SOP 05-1 effective January 1, 2007, which resulted in a $6.0 million charge, net of taxes, as the cumulative effect of adoption of this accounting principle.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections(SFAS 154), which replaces Accounting Principles Board Opinion No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier adoption permitted. The
Company adopted SFAS 154 effective January 1, 2006. SFAS 154 did not have any impact on the Companys financial position or results of operations upon adoption.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(4) | Fair Value Measurements
|--- | -----------------------

Fair Value Option

As described in Note 3, the Company adopted SFAS 159 effective
January 1, 2008 and elected SFAS 159 fair value treatment for commercial mortgage loans held for sale. Accordingly, the Company now records in earnings all market fluctuations associated with this portfolio. The Company previously recorded such
loans at the lower of cost or market value. Balances for these loans will be measured at fair value prospectively with unrealized gains and losses included as a component of net realized investment gains and losses. The Company will assess the fair
value option election for new financial assets or liabilities on a prospective basis.

Fair Value Hierarchy

As described in Note 3, the Company adopted SFAS 157 effective January 1, 2008.SFAS 157 defines fair value as
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and
cost approaches. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

In accordance with SFAS 157, the Company categorized its financial instruments into a three level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category
level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

The Company categorizes financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows:



| |  |  | Level 1  Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets and
liabilities utilizing Level 1 valuations include U.S. Treasury and agency securities, equity securities listed in active markets, investments in publicly traded mutual funds with quoted market prices, and listed derivatives.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Unadjusted quoted prices for similar assets or liabilities in active markets or inputs (other than quoted prices) that are observable or
that are derived principally from or corroborated by observable market data through correlation or other means. The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities not backed by the full
faith of the government, municipal bonds, structured notes and certain MBSs and ABSs, certain corporate debt, certain private placement investments, and certain derivatives, including basis swaps and commodity total return swaps.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs
reflect managements best estimate about the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation
inputs. Generally, the types of assets and liabilities utilizing Level 3 valuations are certain MBSs and ABSs, certain corporate debt, certain private placement investments, certain mutual fund holdings, and certain derivatives, including embedded
derivatives associated with living benefit contracts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-22



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes assets and liabilities measured at fair value on a
recurring basis as of December 31, 2008:



(in millions)

Level 1


Level 2


Level 3


TotalAssetsInvestments:Securities available-for-sale:Fixed maturity securities:U.S. Treasury securities and obligations of U.S. Government corporations and agencies

$
561.3


$
10.0


$



$
571.3Obligations of states and political subdivisions






217.1







217.1Debt securities issued by foreign governments






38.9







38.9Corporate securities






10,135.7



1,220.8



11,356.5Mortgage-backed securities


520.8



1,936.4



2,219.6



4,676.8Asset-backed securities






1,218.4



1,168.2



2,386.6Total fixed maturity securities


1,082.1



13,556.5



4,608.6



19,247.2Equity securities


1.4



15.2



9.9



26.5Total securities available-for-sale


1,083.5



13,571.7



4,618.5



19,273.7Mortgage loans held for sale1










124.5



124.5Short-term investments


36.2



2,744.7







2,780.9Total investments


1,119.7



16,316.4



4,743.0



22,179.1Cash


36.7











36.7Derivative assets2






708.5



597.6



1,306.1Separate account assets3.5


9,530.3



35,270.0



2,136.6



46,936.9Total assets

$
10,686.7


$
52,294.9


$
7,477.2


$
70,458.8LiabilitiesFuture policy benefits and claims4

$



$



$
(1,739.7
)

$
(1,739.7
)Derivative liabilities2


(6.0
)


(385.9
)


(4.2
)


(396.1
)Total liabilities

$
(6.0
)

$
(385.9
)

$
(1,743.9
)

$
(2,135.8
)


| | 
| | 

| | 1 | Carried at fair value as elected under SFAS 159.
| | - | ------------------------------------------------

| | 2 | Comprised of interest rate swaps, cross-currency interest rate swaps, credit default swaps, other non-hedging
instruments, equity option contracts and interest rate futures contracts.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | Comprised of public, privately registered and non-registered mutual funds and investments in securities.
| | - | --------------------------------------------------------------------------------------------------------

| | 4 | Related to embedded derivatives associated with living benefit contracts. The Companys guaranteed minimum
accumulation benefits (GMABs), guaranteed lifetime withdrawal benefits (GLWBs) and hybrid GMABs/GLWBs are considered embedded derivatives under current accounting guidance, resulting in the related liabilities being separated from the host insurance
product and recognized at fair value, with changes in fair value reported in earnings. This balance also includes embedded derivatives associated with fixed equity-indexed annuities (EIA) that provide for interest earnings that are linked to the
performance of specified equity market indices.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5 | The value of separate account liabilities is set to equal the fair value of separate account assets
| | - | ---------------------------------------------------------------------------------------------------



F-23



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes financial instruments for which the Company used
significant unobservable inputs (Level 3) to determine fair value measurements for the year ended December 31, 2008:



Net investmentgains (losses)













Change inunrealizedgains (losses)in
earningsdue to assetsstill held(in millions)

Balanceas ofDecember 31,2007


In earnings(realizedandunrealized)1


In OCI(unrealized)2


Purchases,issuances,sales andsettlements


Transfersin toLevel 3

Transfersout ofLevel 3


Balanceas ofDecember 31,2008AssetsInvestments:Securities available-for-sale3:Fixed maturity securitiesCorporate securities

$
1,429.5


$
(179.4
)

$
(230.7
)

$
(360.3
)

$
816.6

$
(254.9
)

$
1,220.8


$
Mortgage-backed securities


176.6



(283.4
)


(556.9
)


(139.8
)


3,029.4


(6.3
)


2,219.6



Asset-backed securities


754.4



(382.4
)


(539.0
)


11.3



1,469.8


(145.9
)


1,168.2



Total fixed maturity securities


2,360.5



(845.2
)


(1,326.6
)


(488.8
)


5,315.8


(407.1
)


4,608.6



Equity securities


1.4



(54.9
)


(5.7
)


28.7



40.4






9.9



Total securities available-for-sale


2,361.9



(900.1
)


(1,332.3
)


(460.1
)


5,356.2


(407.1
)


4,618.5



Mortgage loans held for sale


86.1



(49.3
)






87.7










124.5



(49.3
)Short-term investments


371.9


















(371.9
)






Total investments


2,819.9



(949.4
)


(1,332.3
)


(372.4
)


5,356.2


(779.0
)


4,743.0



(49.3
)Derivative assets


166.6



405.4



4.4



21.2










597.6



394.0Separate account assets4.6


2,258.3



310.1







509.4



16.8


(958.0
)


2,136.6



333.9Total assets

$
5,244.8


$
(233.9
)

$
(1,327.9
)

$
158.2


$
5,373.0

$
(1,737.0
)

$
7,477.2


$
678.6LiabilitiesFuture policy benefits and claims5

$
(128.9
)

$
(1,602.1
)

$



$
(8.7
)

$


$



$
(1,739.7
)

$
1,602.1Derivative liabilities


(16.3
)


3.9







8.2










(4.2
)


(12.0
)Total liabilities

$
(145.2
)

$
(1,598.2
)

$



$
(0.5
)

$


$



$
(1,743.9
)

$
1,590.1


| | 
| | 

| | 1 | Includes gains and losses on sales of financial instruments, changes in market value of certain instruments and
other-than-temporary impairments.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | Includes changes in market value of certain instruments.
| | - | --------------------------------------------------------

| | 3 | Includes non-investment grade collateralized mortgage obligations, MBSs and ABSs, ABS trust preferred notes, certain
counterparty or internally priced securities, and securities that are at or near default based on designations assigned by the National Association of Insurance Commissioners (NAIC) (see Note 5 for a discussion of NAIC Designations). Equity
securities represent holdings in non-registered mutual funds with significant unobservable inputs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4 | Comprised of non-registered mutual funds with significant unobservable and/or liquidity restrictions. The net
unrealized investment loss on these non-registered mutual funds is attributable to contractholders and, therefore, is not included in the Companys earnings.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5 | Relates to GMAB, GMWB and EIA embedded derivatives associated with contracts with living benefit riders. Related
derivatives are internally valued. The valuation of guaranteed minimum benefit embedded derivatives is based on capital market and actuarial risk assumptions, including risk margin considerations reflecting policyholder behavior. The Company uses
observable inputs, such as published swap rates, in its capital market assumptions. Actuarial assumptions, including lapse behavior and mortality rates, are based on actual experience.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6 | The value of separate account liabilities is set to equal the fair value of separate account assets
| | - | ---------------------------------------------------------------------------------------------------



F-24



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Transfers

The Company will review its fair value hierarchy classifications quarterly. Changes in observability of significant valuation inputs
identified during these reviews may trigger reclassification of fair value hierarchy levels of financial assets and liabilities. These reclassifications will be reported as transfers in/out of Level 3 in the beginning of the period in which the
change occurs. During 2008, certain of the Companys investments in corporate securities, MBSs and ABSs were considered to be in inactive markets, due to concerns in the securities markets and resulting lack of liquidity. As a result, there
have been significant changes in certain inputs which led to transfers into Level 3. During 2008, additional observable inputs were obtained on assets previously considered Level 3, which led to transfers out of that category.

Fair Value on a Nonrecurring Basis

The Company did not have any material assets or liabilities reported at fair value on a nonrecurring basis required to be disclosed under SFAS 157.

Financial Instruments Not Carried at Fair Value

SFAS No. 107, Disclosures about Fair Value of Financial Instruments(SFAS 107) requires additional disclosures of fair value information of financial instruments. The following
include disclosures for the other financial instruments not carried at fair value and not included in the above SFAS 157 disclosure.

In estimating fair value for its SFAS 107 disclosures, the Company used the following methods and assumptions:

Mortgage loans on real estate, net: The fair values of mortgage loans on real estate are estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Estimated fair value is based on the present value of expected future cash flows discounted at the loans effective market interest rate. In the
current year, mortgage loans held for sale are included in the above SFAS 157 disclosure, as the Company elected to carry these assets at fair value under SFAS 159 (effective January 1, 2008).

Policy loans: The carrying amount reported in the consolidated balance sheets approximates fair value.

Investment contracts: The fair values of the Companys liabilities under investment type contracts are based on one of two
methods. For investment contracts without defined maturities, fair value is the amount payable on demand, net of certain surrender charges. For investment contracts with known or determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued.

Short-term debt: The carrying amount reported in the consolidated balance sheets approximates fair value.

Long-term debt: The fair values for senior notes are based on quoted market prices. The fair values of the junior subordinated debentures issued to a related party are based on quoted
market prices of the capital securities of Nationwide Financial Services Capital Trust I (Trust I), which approximate the fair value of this obligation.



F-25



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes the carrying values and estimated fair values of
financial instruments subject to disclosure requirements as of December 31:



2008


2007(in millions)

Carryingvalue


Estimatedfair value


Carryingvalue


Estimatedfair valueAssetsInvestments:Mortgage loans on real estate, net

$
7,065.4


$
6,335.3


$
7,615.4


$
7,659.9Policy loans


767.4



767.4



687.9



687.9LiabilitiesInvestment contracts


(24,978.2
)


(18,905.4
)


(24,671.0
)


(23,084.7
)Short-term debt


(249.7
)


(249.7
)


(285.3
)


(285.3
)Long-term debt, payable to NFS


(700.0
)


(568.7
)


(700.0
)


(751.3
)




|(5) | Derivative Financial Instruments
|--- | --------------------------------

Qualitative Disclosure

Interest Rate Risk Management

The Company periodically purchases fixed rate investments to back variable rate liabilities. As a result, the Company can be exposed to
interest rate risk due to the mismatch between variable rate liabilities and fixed rate assets. In an effort to mitigate the risk from this mismatch, the Company enters into various types of derivative instruments, with fluctuations in the fair
values of the derivatives offsetting changes in the fair values of the investments resulting from changes in interest rates. The Company principally uses pay fixed/receive variable interest rate swaps to manage this risk.

Under these interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments. The fixed interest
paid on the swap offsets the fixed interest received on the investment, resulting in the Company receiving the variable interest payments on the swap, generally 3-month U.S. London Interbank Offered Rate (LIBOR), and the credit spread on the
investment. The net receipt of a variable rate will then more closely match the variable rate paid on the liability.

As a
result of entering into fixed rate commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of such commitments due to changes in interest rates during the commitment period prior to funding of
the loans. In an effort to manage this risk, the Company enters into short U.S. Treasury futures and/or pay fixed interest rate swaps during the commitment period. With short U.S. Treasury futures or pay fixed interest rate swaps, if interest rates
rise/fall, the gains/losses on the futures will offset the change in fair value of the commitment attributable to the change in interest rates.



F-26



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The Company periodically purchases variable rate investments such as commercial
mortgage loans and corporate bonds. As a result, the Company can be exposed to variability in cash flows and investment income due to changes in interest rates. Such variability poses risks to the Company when the assets are funded with fixed rate
liabilities. In an effort to manage this risk, the Company may enter into receive fixed/pay variable interest rate swaps. In using these interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments. The
variable interest paid on the swap offsets the variable interest received on the investment, resulting in the Company receiving the fixed interest payments on the swap and the credit spread on the investment. The net receipt of a fixed rate will
then more closely match the fixed rate paid on the liability.

The Company manages interest rate risk at the segment level.
Different segments may simultaneously hedge interest rate risks associated with owning fixed and variable rate investments considering the risk relevant to a particular segment.

Foreign Currency Risk Management

In conjunction with the Companys MTN program, the Company periodically issues both fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in the
fair value of liabilities due to changes in foreign currency exchange rates and related interest rates. In an effort to manage these risks, the Company enters into cross-currency interest rate swaps.

The Company is exposed to changes in the fair value of fixed rate investments denominated in a foreign currency due to changes in foreign
currency exchange rates and related interest rates. In an effort to manage this risk, the Company uses cross-currency interest rate hedges to swap these asset characteristics to variable U.S. dollar rate instruments. Cross-currency interest rate
swaps on assets are structured to pay a fixed rate, in a foreign currency, and receive a variable U.S. dollar rate, generally 3-month U.S. LIBOR. These derivative instruments are designated as a fair value hedge of a fixed rate foreign denominated
asset.

Cross-currency interest rate swaps on variable rate investments are structured to pay a variable rate, in a foreign
currency, and receive a fixed U.S. dollar rate. The terms of the foreign currency paid on the swap will exactly match the terms of the foreign currency received on the asset, thus eliminating currency risk. These derivative instruments are
designated as a cash flow hedge.

Equity Market Risk Management

Asset fees calculated as a percentage of separate account assets are a significant source of revenue to the Company. As of
December 31, 2008, approximately 71% of separate account assets were invested in equity mutual funds (approximately 82% as of December 31, 2007). Gains and losses in the equity markets result in corresponding increases and decreases in the
Companys separate account assets and asset fee revenue. In addition, a decrease in separate account assets may decrease the Companys expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in
guaranteed contract claims, which also may require the Company to accelerate amortization of DAC.

The Companys
long-term assumption for net separate account returns is 7% annual growth. If equity markets were unchanged throughout a given year, the Company estimates that its net earnings per diluted share, calculated using current weighted average diluted
shares outstanding, would be approximately $0.05 to $0.10 less than if the Companys long-term assumption for net separate account returns were realized. This analysis assumes no other factors change and that an unlocking of DAC assumptions
would not be required. However, as it does each quarter, the Company would evaluate its DAC balance and underlying assumptions to determine the need for unlocking. The Company can provide no assurance that the experience of flat equity market
returns would not result in changes to other factors affecting profitability, including the possibility of unlocking of DAC assumptions.



F-27



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Many of the Companys individual variable annuity contracts offer GMDB features.
A GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock
market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the
GMDB in excess of the contract value. This could result in additional GMDB claims.

In an effort to mitigate this risk, the
Company implemented a GMDB economic hedging program for certain new and existing business. Prior to implementation of the GMDB hedging program in 2000, the Company managed this risk primarily by entering into reinsurance arrangements. The GMDB
economic hedging program is designed to offset changes in the economic value of the designated GMDB obligation. Currently the program shorts S&P 500 Index futures, which provides an offset to changes in the value of the designated obligation.
The futures are not designated as hedges and, therefore, hedge accounting is not applied. The Companys economic and accounting hedges are not perfectly offset. Therefore, the economic hedging activity is likely to lead to earnings volatility.
As of December 31, 2008 and 2007, the Companys net amount at risk was $8,718.7 million and $519.9 million before reinsurance, respectively, and $7,329.9 million and $317.2 million net of reinsurance, respectively. As of December 31,
2008 and 2007, the Companys reserve for GMDB claims was $247.9 million and $38.9 million, respectively.

The Company
also offers certain variable annuity products with guaranteed minimum accumulation benefit (GMAB), guaranteed lifetime withdrawal benefit (GLWB) and hybrid GMAB/GLWB riders (collectively referred to as living benefits). A GMAB provides the
contractholder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the time of issuance of a variable annuity contract. In some cases, the
contractholder also has the option, after a specified time, to drop the rider and continue the variable annuity contract without the GMAB. The design of the GMAB rider limits the risk to the Company in a variety of ways including asset allocation
requirements, which serve to reduce the Companys potential exposure to underlying fund performance risks. Specifically, the terms in the GMAB rider limit policyholder asset allocation by either (1) requiring partial allocation of assets
to a guaranteed term option (a fixed rate investment option) and excluding certain funds that are highly volatile or difficult to hedge or (2) requiring all assets be allocated to one of the approved asset allocation funds or models defined by
the Company.

Beginning in March 2005, the Company began offering a hybrid GMAB/GLWB through its Capital Preservation Plus
Lifetime Income (CPPLI) contract rider. This living benefit combines a GMAB feature in its first 5-10 years with a lifetime withdrawal benefit election at the end of the GMAB feature. Upon maturity of the GMAB, the contractholder can elect the
lifetime withdrawal benefit, which would continue for the duration of the insureds life; elect a new CPPLI rider; or drop the rider completely and continue the variable annuity contract without any rider. If the lifetime withdrawal benefit is
elected and the insureds contract value is exhausted through such withdrawals and market conditions, the Company will continue to fund future withdrawals at a pre-defined level until the insureds death. In some cases, the contractholder
has the right to drop the GLWB portion of this rider or periodically reset the guaranteed withdrawal basis to a higher level. This benefit requires a minimum allocation to guaranteed term options or adherence to limitations required by an approved
asset allocation strategy as previously described above.

In March 2006, the Company added Lifetime Income (L.inc), a
stand-alone GLWB, to complement CPPLI in its product offerings. This rider is very similar to the hybrid benefit discussed above in that L.inc and CPPLI both have guaranteed withdrawal rates that increase based on the age at which the contractholder
begins taking income. The withdrawal rates are applied to a benefit base to determine the guaranteed lifetime income amount available to a contractholder. The benefit base is equal to the variable annuity premium at contract issuance and may
increase as a result of a ratchet feature that is driven by account performance and a roll-up feature that is driven by policy duration. Generally, the longer the contractholder waits before commencing withdrawals, the greater the guaranteed
lifetime income. One key difference between L.inc and CPPLI is that the charge associated with L.inc is assessed against the benefit base. This is a risk mitigation feature as it alleviates much of the uncertainty around account performance and
customer withdrawal patterns, both of which can lead to lower than expected revenue streams if the charge were assessed on account value. In June 2007, the Company added a feature to L.inc to allow for a lump settlement in lieu of lifetime
withdrawals in certain situations.



F-28



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The Companys living benefit riders represent an embedded derivative in a
variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity contract. The embedded derivatives are carried at fair value. Subsequent changes in the fair value of the embedded derivatives are
recognized in earnings as a component of net realized investment gains and losses. The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the
valuation of the embedded derivative incorporate numerous assumptions including, but not limited to, expectations of contractholder persistency, contractholder withdrawal patterns, risk neutral market returns, correlations of market returns and
market return volatility. As of December 31, 2008 and 2007, the net balance of the embedded derivatives for living benefits was a liability of $1.70 billion and $91.9 million, respectively. The Company does not expect any meaningful level of
claims under the living benefit features for several years and believes any such claims would be mitigated by its economic hedging program.

Similar to the Companys economic hedging for GMDBs, the living benefits features are also being economically hedged. The primary risks being hedged are the exposures associated with declining equity market
returns and downward interest rate movements. The Company employs a variety of instruments to mitigate this exposure including S&P 500 Index futures, U.S. Treasury futures, interest rate swaps and long-dated over-the-counter put options. The
positions used in the economic hedging program are not designated as hedges and, therefore, hedge accounting is not applied. The living benefits hedging program is designed to offset changes in the economic value of the living benefits obligation to
contractholders. Changes in the fair value of the embedded derivatives are likely to create volatility in earnings. The hedging activity associated with changes in the economic value of the living benefits obligations will likely mitigate a portion
of this earnings volatility.

Other Non-Hedging Derivatives

The Company periodically enters into basis swaps (receive one variable rate, pay another variable rate) to better match the cash flows
received from the specific variable-rate investments with the variable rate paid on a group of liabilities. While the pay-side terms of the basis swap will be consistent with the terms of the asset, the Company is not able to match the receive-side
terms of the derivative to a specific liability. Therefore, basis swaps do not receive hedge accounting treatment.

The
Company sells credit default protection on selected debt instruments and combines the credit default swap with selected assets the Company owns to replicate a higher yielding bond. These selected assets may have sufficient duration for the related
liability, but do not earn a sufficient credit spread. The combined credit default swap and investments provide cash flows with the duration and credit spread targeted by the Company. The credit default swaps do not qualify for hedge accounting
treatment.

The Company also has purchased credit default protection on selected debt instruments exposed to short-term
credit concerns, or because the combination of the corporate bond and purchased default protection provides sufficient spread and duration targeted by the Company. The purchased credit default protection is not designated for hedge accounting
treatment.

Quantitative Disclosure

Fair Value Hedges

During the years ended December 31,
2008, 2007 and 2006, a net gain of $8.3 million, a net loss of $2.4 million and a net gain of $2.9 million, respectively, were recognized in net realized investment gains and losses related to the ineffective portion of fair value hedging
relationships. There were no gains or losses attributable to the portion of the derivative instruments changes in fair value excluded from the assessment of hedge effectiveness. There were also no gains or losses recognized in earnings as a
result of hedged firm commitments no longer qualifying as fair value hedges.

Cash Flow Hedges

For the years ended December 31, 2008, 2007 and 2006, the ineffective portion of cash flow hedges was a net gain of $3.1 million, a
net loss of $1.4 million and a net loss of $1.5 million, respectively. There were no net gains or losses attributable to the portion of the derivative instruments changes in fair value excluded from the assessment of hedge effectiveness.



F-29



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



In general, the maximum length of time over which the Company is hedging its exposure
to the variability in future cash flows associated with forecasted transactions, other than those relating to variable interest on existing financial instruments, is twelve months or less. However, in 2003 the Company entered into a hedge of a
forecasted purchase of shares of a mutual fund tied to the S&P 500 Index where delivery of the shares will occur in 2033.

During 2008, the Company did not discontinue any cash flow hedges because the original forecasted transaction was no longer probable. Additionally, no amounts were reclassified from AOCI into earnings due to the probability that a
forecasted transaction would not occur.

Other Derivative Instruments, Including Embedded Derivatives

Net realized investment gains and losses for the years ended December 31, 2008, 2007 and 2006 included a net gain of $58.2 million, a
net loss of $12.4 million and a net loss of $0.5 million, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships. In addition, variable annuity contracts resulted in net losses
of $442.5 million, $51.8 million, $11.4 million for the years ended December 31, 2008, 2007, and 2006, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships.

For the years ended December 31, 2008, 2007 and 2006, net losses of $3.6 million, $0.5 million and $10.6 million,
respectively, were recorded in net realized investment gains and losses reflecting the change in fair value of cross-currency interest rate swaps hedging variable rate MTNs denominated in foreign currencies. No additional net gains were recorded to
reflect the change in spot rates of foreign currency denominated obligations during the year ended December 31, 2008 compared to none for the year ended December 31, 2007, and a net gain of $14.1 million for the year ended
December 31, 2006.

The following table summarizes the notional amount of derivative financial instruments outstanding
as of December 31:



|                                                             |  |      |          |      |   |        
|------------------------------------------------------------ |  | ---- | -------- | ---- | - | -------
|(in millions)                                                |  | 2008 |          | 2007
|Interest rate swaps:                                         |  |      |          |      |   |        
|Pay fixed/receive variable rate swaps hedging investments    |  | $    | 1,218.4  |      | $ | 1,692.9
|Pay variable/receive fixed rate swaps hedging investments    |  |      | 924.5    |      |   | 21.0   
|Pay variable/receive variable rate swaps hedging liabilities |  |      | 200.0    |      |   |       
|Pay fixed/receive variable rate swaps hedging liabilities    |  |      | 1,993.7  |      |   | 1,120.7
|Pay variable/receive fixed rate swaps hedging liabilities    |  |      | 3,856.3  |      |   | 343.1  
|Cross-currency interest rate swaps:                          |  |      |          |      |   |        
|Hedging foreign currency denominated investments             |  |      | 343.7    |      |   | 375.5  
|Hedging foreign currency denominated liabilities             |  |      | 463.4    |      |   | 1,144.1
|Credit default swaps                                         |  |      | 271.2    |      |   | 300.3  
|Other non-hedging instruments                                |  |      | 431.0    |      |   | 518.1  
|Equity option/futures contracts                              |  |      | 3,675.3  |      |   | 2,361.8
|Interest rate futures contracts                              |  |      | 281.1    |      |   | 371.3  
|                                                             |  |      |          |      |   |        
|Total                                                        |  | $    | 13,658.6 |      | $ | 8,248.8
|                                                             |  |      |          |      |   |        

The notional value is the amount upon which exchanges of interest are based.
Exposure to a counterparty arises if the net expected cash flows are positive, as calculated based on forward interest rate curves and notional contract values.



F-30



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Credit Derivatives

The Company enters into two distinct types of credit derivative contracts (or credit default swaps) which allows the Company to either
sell or buy credit protection on a specific creditor or credit index. When the Company sells credit protection against a specific creditor or credit index to a counterparty, it receives periodic premium payments similar to the risk premium received
on an equivalent maturity bond from the same creditor. In return, the Company agrees to provide for losses if a credit event occurs during the lifetime of the contract, by buying a pre-determined cash bond from the counterparty at face value. In
such a contract, a credit event will be defined in the trade settlement documentation and may include, but not be limited to, creditor bankruptcy or restructuring. There are no recourse provisions associated with these contracts.

The Company had exposure to credit protection contracts for the years ended December 31, 2008, 2007 and 2006 and experienced losses
of $18.8 million in 2008 and no losses in 2007 or 2006, on such contracts. The following table presents the Companys outstanding exposure to credit protection contracts, all of which are related to corporate debt instruments, as of
December 31, 2008 by contract maturity and industry exposure:



Less than or equalto one year

Oneto three years


Threeto five years


Total(in millions)

Maximumpotentialrisk

Estimatedfair value

Maximumpotentialrisk

Estimatedfair value


Maximumpotentialrisk

Estimatedfair value


Maximumpotentialrisk

Estimatedfair valueSingle sector exposure:Consumer goods

$


$


$
6.0

$
(0.8
)

$


$



$
6.0

$
(0.8
)Financial








35.0


(5.8
)


13.0


(0.5
)


48.0


(6.3
)Oil & gas pipelines


10.0





15.0


(0.8
)









25.0


(0.8
)Services















35.0


(3.0
)


35.0


(3.0
)Utilities


4.5



















4.5


Total single sector exposure


14.5





56.0


(7.4
)


48.0


(3.5
)


118.5


(10.9
)Index exposure:Corporate bonds















110.9


(0.3
)


110.9


(0.3
)Total index exposure















110.9


(0.3
)


110.9


(0.3
)Total

$
14.5

$


$
56.0

$
(7.4
)

$
158.9

$
(3.8
)

$
229.4

$
(11.2
)




F-31



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(6) | Investments
|--- | -----------

The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale as of the dates indicated:



(in millions)

Amortizedcost

Grossunrealizedgains

Grossunrealizedlosses

Estimatedfair valueDecember 31, 2008:Fixed maturity securities:U.S. Treasury securities and obligations of U.S. Government corporations

$
77.3

$
20.1

$


$
97.4U. S. Government agencies1


384.6


89.3





473.9Obligations of states and political subdivisions


223.0


1.5


7.4


217.1Debt securities issued by foreign governments


33.9


5.0





38.9Corporate securitiesPublic


8,042.9


85.4


1,040.3


7,088.0Private


4,589.0


49.5


370.0


4,268.5Mortgage-backed securities


5,248.2


68.2


639.6


4,676.8Asset-backed securities


3,222.0


19.7


855.1


2,386.6Total fixed maturity securities


21,820.9


338.7


2,912.4


19,247.2Equity securities


30.9


0.7


5.1


26.5Total securities available-for-sale

$
21,851.8

$
339.4

$
2,917.5

$
19,273.7December 31, 2007:Fixed maturity securities:U.S. Treasury securities and obligations of U.S. Government corporations

$
110.8

$
14.3

$
0.4

$
124.7U. S. Government agencies


406.1


61.2





467.3Obligations of states and political subdivisions


245.3


1.6


2.7


244.2Debt securities issued by foreign governments


40.0


2.5


0.1


42.4Corporate securitiesPublic


8,253.8


133.4


161.6


8,225.6Private


5,474.2


131.7


57.6


5,548.3Mortgage-backed securities


5,855.9


31.3


98.4


5,788.8Asset-backed securities


3,635.1


31.2


174.2


3,492.1Total fixed maturity securities


24,021.2


407.2


495.0


23,933.4Equity securities


69.6


4.8


1.5


72.9Total securities available-for-sale

$
24,090.8

$
412.0

$
496.5

$
24,006.3


| | 
| | 

| | 1 | Includes $134.7 million of securities explicitly backed by the full faith and credit of the U.S. Government.
| | - | ------------------------------------------------------------------------------------------------------------

The market value of the Companys general account investments may fluctuate significantly in
response to changes in interest rates, investment quality ratings and credit spreads. While the Company has the ability and intent to hold available-for-sale debt securities in unrealized loss positions that are not other-than-temporarily impaired
until recovery, it may experience realized investment losses to the extent its liquidity needs require the disposition of general account fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments.



F-32



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Debt securities accounted for under EITF 99-20 may experience other-than-temporary
impairment in future periods in the event an adverse change in cash flows is anticipated or probable. Furthermore, equity securities may experience other-than-temporary impairment in the future based on the prospects for recovery in value in a
reasonable period. In addition, debt securities may experience other-than-temporary impairment in the future based on the probability that that Company may not be able to receive all contractual payments when due.

The Company held securities issued by institutions in the financial sector with equity-type features, classified as fixed maturity, with
estimated fair values of $634.2 million and $674.4 million, and gross unrealized losses of $366.6 million and $28.3 million, as of December 31, 2008 and December 31, 2007, respectively. Of these securities in an unrealized loss position as
of December 31, 2008, $104.7 million, or 18%, were in an unrealized loss position for more than one year compared to $149.3 million, or 39%, as of December 31, 2007. As of December 31, 2008, the Company evaluates such securities for
other-than-temporary impairment using the criteria of either a debt or an equity security depending on the facts and circumstances of the individual issuer.

The table below summarizes the amortized cost and estimated fair value of fixed maturity securities available-for-sale, by maturity, as of December 31, 2008. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



(in millions)

Amortizedcost

Estimatedfair valueFixed maturity securities available-for-sale:Due in one year or less

$
1,086.7

$
1,081.9Due after one year through five years


6,697.6


6,173.1Due after five years through ten years


2,704.5


2,537.5Due after ten years


2,861.9


2,391.4Subtotal


13,350.7


12,183.9Mortgage-backed securities


5,248.2


4,676.7Asset-backed securities


3,222.0


2,386.6Total

$
21,820.9

$
19,247.2


The following table presents the components of net unrealized losses on
securities available-for-sale as of December 31:



(in millions)

2008


2007Net unrealized losses, before adjustments and taxes

$
(2,578.1
)

$
(84.5
)Change in fair value attributable to fixed maturity securities designated in fair value hedging relationships


(57.8
)


Total net unrealized losses, before adjustments and taxes


(2,635.9
)


(84.5
)Adjustment to deferred policy acquisition costs


615.9



87.1Adjustment to future policy benefits and claims


43.8



(77.7
)Deferred federal income tax benefit


691.7



26.1Net unrealized losses

$
(1,284.5
)

$
(49.0
)




F-33



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table presents an analysis of the net increase in net unrealized
(losses) gains on securities available-for-sale before adjustments and taxes for the years ended December 31:



(in millions)

2008


2007


2006Fixed maturity securities

$
(2,485.9
)

$
(166.0
)

$
(161.0
)Equity securities


(7.7
)


(2.6
)


(1.1
)Net increase

$
(2,493.6
)

$
(168.6
)

$
(162.1
)




F-34



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



For securities available-for-sale as of the dates indicated, the following table
summarizes the Companys gross unrealized losses based on the amount of time each type of security has been in an unrealized loss position:



Less than or equalto one year

Morethan one year

Total(in millions)

Estimatedfair value

Grossunrealizedlosses

Estimatedfair value

Grossunrealizedlosses

Estimatedfair value

GrossunrealizedlossesDecember 31, 2008:Fixed maturity securities:Obligations of states and political subdivisions

$
94.9

$
3.5

$
29.3

$
3.9

$
124.2

$
7.4Corporate securitiesPublic


3,678.8


700.8


1,233.6


339.5


4,912.4


1,040.3Private


2,108.1


262.1


838.6


107.9


2,946.7


370.0Mortgage-backed securities


592.1


149.1


1,694.3


490.6


2,286.4


639.7Asset-backed securities


1,026.9


248.6


1,171.4


606.4


2,198.3


855.0Total fixed maturity securities


7,500.8


1,364.1


4,967.2


1,548.3


12,468.0


2,912.4Equity securities


11.2


4.9


3.4


0.2


14.6


5.1Total

$
7,512.0

$
1,369.0

$
4,970.6

$
1,548.5

$
12,482.6

$
2,917.5% of total gross unrealized losses





47%





53%December 31, 2007:Fixed maturity securities:U.S. Treasury securities and obligations of U.S. Government corporations

$
16.4

$
0.4

$
2.6

$


$
19.0

$
0.4U.S. Government agencies








13.9





13.9


Obligations of states and political subdivisions


15.4


0.1


149.6


2.6


165.0


2.7Debt securities issued by foreign governments


11.5


0.1








11.5


0.1Corporate securitiesPublic


2,354.0


95.2


1,966.8


66.4


4,320.8


161.6Private


680.6


17.1


1,814.7


40.5


2,495.3


57.6Mortgage-backed securities


1,227.8


23.7


2,466.4


74.7


3,694.2


98.4Asset-backed securities


1,453.8


127.1


1,078.1


47.1


2,531.9


174.2Total fixed maturity securities


5,759.5


263.7


7,492.1


231.3


13,251.6


495.0Equity securities


17.1


1.5


0.1





17.2


1.5Total

$
5,776.6

$
265.2

$
7,492.2

$
231.3

$
13,268.8

$
496.5% of total gross unrealized losses





53%





47%




F-35



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The Company has fixed maturity securities that have been in an unrealized loss
position for more than one year that are not other-than-temporarily impaired. The Company reviews assets in unrealized loss positions and evaluates whether or not the losses are other-than-temporary. Many criteria are considered during this process
including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, managements intent and ability to hold the security until recovery, current economic conditions that
could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected security.

As of December 31, 2008, fixed maturity securities that have been in an unrealized loss position for more than one year totaled $1.55
billion, or 53% of the Companys total unrealized losses on fixed maturity securities. Of this total, $1.31 billion, or 85%, were classified as investment grade securities, as defined by the National Association of Insurance Commissioners
(NAIC).

As of December 31, 2008, 1,913, or 65%, of the Companys investments in fixed maturity securities were in
an unrealized loss position, in comparison to 1,725, or 53%, as of December 31, 2007.

The majority of the increases in
the Companys unrealized losses from December 31, 2007 to 2008 were attributable to corporate securities, MBSs and ABSs. These increased unrealized loss positions primarily were driven by the combined impact of volatility in investment
quality ratings and credit spreads, illiquid markets, and interest rate movements. In particular, exposure to the financial sector, including through structured securities such as trust preferred, collateralized loan obligations and collateralized
debt obligations, have been significantly affected by negative circumstances in those sectors. It is reasonably possible that further declines in estimated fair values of such investments, or changes in assumptions or estimates of anticipated
recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.



F-36



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



For fixed maturity securities available-for-sale, the following tables summarize as
of the dates indicated the Companys gross unrealized loss position categorized as investment grade vs. non-investment grade, as defined by the NAIC, for the period of time indicated, and based on the ratio of estimated fair value to amortized
cost (in millions):



Period of time for which unrealized loss has existed as of December 31, 2008Investment Grade

Non-Investment Grade

TotalRatio of estimated fair value to amortized
cost

Lessthan orequal toone year

Morethanoneyear

Total

Lessthan orequal toone year

Morethanoneyear

Total

Lessthan orequal toone year

Morethanoneyear

TotalCorporate securities - public and private99.9% - 95.0%

$
50.0

$
16.4

$
66.4

$
1.7

$
0.1

$
1.8

$
51.7

$
16.5

$
68.294.9% - 90.0%


94.0


28.3


122.3


5.2


6.2


11.4


99.2


34.5


133.789.9% - 85.0%


82.8


32.2


115.0


7.9


7.3


15.2


90.7


39.5


130.284.9% - 80.0%


94.1


27.2


121.3


14.5


7.1


21.6


108.6


34.3


142.9Below 80.0%


453.1


150.5


603.6


159.6


172.1


331.7


612.7


322.6


935.3Total


774.0


254.6


1,028.6


188.9


192.8


381.7


962.9


447.4


1,410.3Mortgage-backed securities99.9% - 95.0%


1.1


2.9


4.0











1.1


2.9


4.094.9% - 90.0%


5.7


14.4


20.1


0.1





0.1


5.8


14.4


20.289.9% - 85.0%


13.8


23.9


37.7


5.7





5.7


19.5


23.9


43.484.9% - 80.0%


14.0


40.0


54.0


17.1


10.0


27.1


31.1


50.0


81.1Below 80.0%


91.5


377.4


468.9





22.0


22.0


91.5


399.4


490.9Total


126.1


458.6


584.7


22.9


32.0


54.9


149.0


490.6


639.6Asset-backed securities99.9% - 95.0%


4.9


2.0


6.9


0.4





0.4


5.3


2.0


7.394.9% - 90.0%


15.5


18.6


34.1


1.0





1.0


16.5


18.6


35.189.9% - 85.0%


23.3


27.5


50.8


0.3


0.8


1.1


23.6


28.3


51.984.9% - 80.0%


15.3


33.7


49.0


0.1


1.0


1.1


15.4


34.7


50.1Below 80.0%


171.0


513.0


684.0


16.9


9.8


26.7


187.9


522.8


710.7Total


230.0


594.8


824.8


18.7


11.6


30.3


248.7


606.4


855.1Other fixed maturity securities199.9% - 95.0%


1.3





1.3











1.3





1.394.9% - 90.0%


2.2





2.2











2.2





2.289.9% - 85.0%





3.9


3.9














3.9


3.984.9% - 80.0%


























Below 80.0%


























Total


3.5


3.9


7.4











3.5


3.9


7.4Total fixed maturity securities available-for-sale99.9% - 95.0%


57.3


21.3


78.6


2.1


0.1


2.2


59.4


21.4


80.894.9% - 90.0%


117.4


61.3


178.7


6.3


6.2


12.5


123.7


67.5


191.289.9% - 85.0%


119.9


87.5


207.4


13.9


8.1


22.0


133.8


95.6


229.484.9% - 80.0%


123.4


100.9


224.3


31.7


18.1


49.8


155.1


119.0


274.1Below 80.0%


715.6


1,040.9


1,756.5


176.5


203.9


380.4


892.1


1,244.8


2,136.9Total

$
1,133.6

$
1,311.9

$
2,445.5

$
230.5

$
236.4

$
466.9

$
1,364.1

$
1,548.3

$
2,912.41Includes U.S. Treasury securities,
obligations of U.S. Government corporations, U.S. Government agency securities, obligations of state and political subdivisions, and debt issued by foreign governments.




F-37



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Period of time for which unrealized loss has existed as of December 31, 2007Investment Grade

Non-Investment Grade

TotalRatio of estimated fair value to amortized
cost

Lessthan orequal toone year

Morethanoneyear

Total

Lessthan orequal toone year

Morethanoneyear

Total

Lessthan orequal toone year

Morethanoneyear

TotalCorporate securities - public and private99.9% - 95.0%

$
21.2

$
43.6

$
64.8

$
12.9

$
5.2

$
18.1

$
34.1

$
48.8

$
82.994.9% - 90.0%


18.0


30.3


48.3


13.3


4.5


17.8


31.3


34.8


66.189.9% - 85.0%


16.5


10.7


27.2


3.1


6.3


9.4


19.6


17.0


36.684.9% - 80.0%


2.1


0.4


2.5


3.0


0.2


3.2


5.1


0.6


5.7Below 80.0%


7.5





7.5


14.7


5.7


20.4


22.2


5.7


27.9Total


65.3


85.0


150.3


47.0


21.9


68.9


112.3


106.9


219.2Mortgage-backed securities99.9% - 95.0%


18.6


35.3


53.9











18.6


35.3


53.994.9% - 90.0%


5.1


39.4


44.5











5.1


39.4


44.589.9% - 85.0%


























84.9% - 80.0%


























Below 80.0%


























Total


23.7


74.7


98.4











23.7


74.7


98.4Asset-backed securities99.9% - 95.0%


14.7


13.2


27.9


0.2





0.2


14.9


13.2


28.194.9% - 90.0%


26.9


13.7


40.6











26.9


13.7


40.689.9% - 85.0%


18.0


8.6


26.6











18.0


8.6


26.684.9% - 80.0%


14.2


5.8


20.0











14.2


5.8


20.0Below 80.0%


53.0


5.8


58.8


0.1





0.1


53.1


5.8


58.9Total


126.8


47.1


173.9


0.3





0.3


127.1


47.1


174.2Other fixed maturity securities199.9% - 95.0%


0.6


1.4


2.0











0.6


1.4


2.094.9% - 90.0%





1.2


1.2














1.2


1.289.9% - 85.0%


























84.9% - 80.0%


























Below 80.0%


























Total


0.6


2.6


3.2











0.6


2.6


3.2Total fixed maturity securities available-for-sale99.9% - 95.0%


55.1


93.5


148.6


13.1


5.2


18.3


68.2


98.7


166.994.9% - 90.0%


50.0


84.6


134.6


13.3


4.5


17.8


63.3


89.1


152.489.9% - 85.0%


34.5


19.3


53.8


3.1


6.3


9.4


37.6


25.6


63.284.9% - 80.0%


16.3


6.2


22.5


3.0


0.2


3.2


19.3


6.4


25.7Below 80.0%


60.5


5.8


66.3


14.8


5.7


20.5


75.3


11.5


86.8Total

$
216.4

$
209.4

$
425.8

$
47.3

$
21.9

$
69.2

$
263.7

$
231.3

$
495.01Includes U.S. Treasury securities,
obligations of U.S. Government corporations, U.S. Government agency securities, obligations of state and political subdivisions, and debt issued by foreign governments.




F-38



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



As of December 31, 2008, 27% of the Companys investments in an unrealized
loss position had ratios of estimated fair value to amortized cost of at least 80%. In addition, 84% of the Companys investments in an unrealized loss position were classified as investment grade, as defined by the NAIC. Of the Companys
investments in unrealized loss positions classified as non-investment grade, 49% have been in an unrealized loss position for less than one year.

The NAIC assigns securities quality ratings and uniform valuations (called NAIC Designations), which are used by insurers when preparing their annual statements. For most securities, NAIC ratings are derived from
ratings received from nationally recognized rating agencies. The NAIC also assigns ratings to securities that do not receive public ratings. The designations assigned by the NAIC range from class 1 (highest quality) to class 6 (lowest quality). Of
the Companys general account fixed maturity securities, 92% and 94% were in the two highest NAIC Designations as of December 31, 2008 and 2007, respectively.

The following table shows the equivalent ratings between the NAIC and nationally recognized rating agencies and summarizes the credit quality, as determined by NAIC Designation, of the
Companys general account fixed maturity securities portfolio as of December 31:



(in millions)



2008

2007NAICdesignation1

Rating agency equivalent designation2

Amortizedcost

Estimatedfair value

Amortizedcost

Estimatedfair value1

Aaa/Aa/A

$
13,870.1

$
12,497.7

$
16,765.5

$
16,662.72

Baa


5,961.0


5,210.2


5,730.3


5,784.33

Ba


1,192.9


953.8


1,101.6


1,078.34

B


529.7


366.5


325.0


316.85

Caa and lower


166.9


128.9


60.2


52.76

In or near default


100.3


90.1


38.6


38.6Total

$
21,820.9

$
19,247.2

$
24,021.2

$
23,933.41NAIC Designations are assigned at least
annually. Some designations for securities shown have been assigned to securities not yet assigned an NAIC Designation in a manner approximating equivalent public rating categories.  2Comparisons between NAIC and Moodys designations are published by the NAIC. If no Moodys rating is
available, the Company assigns internal ratings corresponding to public ratings.


Recent conditions in the securities markets, including changes in investment
quality ratings, liquidity, credit spreads and interest rates, have resulted in declines in the values of investment securities, including corporate debt securities, MBSs and ABSs. When evaluating whether these securities are other-than-temporarily
impaired, the Company considers characteristics of the underlying collateral, such as delinquency and default rates, the quality of the underlying borrower, the type of collateral in the pool, the vintage year of the collateral, subordination levels
within the structure of the collateral pool, expected future cash flows, and the Companys ability and intent to hold the security to recovery. These and other factors also affect the estimated fair value of these securities.



F-39



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The Companys investments in MBSs and ABSs include securities that are supported
by Alt-A and Sub-prime collateral. The Company considers Alt-A collateral to be mortgages whose underwriting standards do not qualify the mortgage for regular conforming or jumbo loan programs. Typical underwriting characteristics that cause a
mortgage to fall into the Alt-A classification may include, but are not limited to, inadequate loan documentation of a borrowers financial information, debt-to-income ratios above normal lending limits, loan-to-value ratios above normal
lending limits that do not have primary mortgage insurance, a borrower who is a temporary resident, and loans securing non-conforming types of real estate. Alt-A mortgages are generally issued to borrowers having higher Fair Isaac Credit
Organization (FICO) scores, and the lender typically issues a slightly higher interest rate for such mortgages. The Company considers Sub-prime collateral to be mortgages that are first-lien mortgage loans issued to Sub-prime borrowers, as
demonstrated by recent delinquent rent or housing payments or substandard FICO scores. Second-lien mortgage loans are also considered Sub-prime. The amortized cost and estimated fair value of the Companys investments in securities containing
Alt-A collateral totaled $1,718.7 million and $1,335.8 million, respectively, and the amortized cost and estimated fair value of the Companys investments in securities containing Sub-prime collateral totaled $612.7 million and $480.2 million,
respectively. As of December 31, 2008, 75% and 84% of securities containing Alt-A and Sub-prime collateral, respectively, were rated AA or better. In addition, 68% and 76% of Alt-A and Sub-prime collateral, respectively, was originated in 2005
or earlier.

In addition, recent market activity has negatively impacted the Companys investments in commercial
mortgage-backed securities (CMBS). These investments in CMBS are generally characterized by securities that are collateralized by static, heterogeneous pools of mortgages on commercial real estate properties. Deals are generally diversified across
property types, geography, borrowers, tenants, loan size, coupon and vintages. As of December 31, 2008, the amortized cost and estimated fair value of the Companys investments in CMBS totaled $1.26 billion and $853.0 million,
respectively, while the December 31, 2007 amortized cost was $1.10 billion and estimated fair value was $1.08 billion.

Proceeds from the sale of securities available-for-sale during 2008, 2007 and 2006 were $4.19 billion, $4.65 billion and $2.27 billion, respectively. During 2008, gross gains of $32.9 million ($70.0 million and $61.6 million in 2007 and
2006, respectively) and gross losses of $23.9 million ($70.2 million and $64.1 million in 2007 and 2006, respectively) were realized on those sales.

Real estate held for use was $9.8 million and $17.8 million as of December 31, 2008 and 2007, respectively. These assets are carried at cost less accumulated depreciation, which was $2.1 million and $3.6 million
as of December 31, 2008 and 2007, respectively. The carrying value of real estate held for sale was $6.8 million as of December 31, 2008 (compared to no real estate held for sale as of December 31, 2007.)

The Company grants mainly commercial mortgage loans on real estate to customers throughout the U.S. As of December 31, 2008, the
Companys largest exposure to any single borrower, region and property type was 2%, 23% and 34%, respectively, of the Companys general account mortgage loan portfolio, compared to 2%, 24% and 33%, respectively, as of December 31,
2007.

As of December 31, 2008 and 2007, the carrying value of commercial mortgage loans on real estate considered
specifically impaired was $35.4 million and $7.4 million, respectively, for which a $13.6 million and $3.0 million valuation allowance had been established, respectively. No valuation allowance exists for collateral dependent commercial mortgage
loans for which the fair value of the collateral is estimated to be greater than the carrying value.



F-40



---

##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes activity in the valuation allowance account for
mortgage loans on real estate for the years ended December 31:



(in millions)

2008

2007


2006Allowance, beginning of period

$
23.1

$
34.3


$
31.1Net change in allowance


16.4


(11.2
)


3.2Allowance, end of period

$
39.5

$
23.1


$
34.3


The Company has securitized commercial mortgage loans on real estate to third
parties. The Company, as the transferor, has continuing involvement in these loans which consists of receiving servicing fees on loans which the Company has transferred.

The Company did not participate in any securitization arrangements during 2008. During 2008, the Company received $0.6 million in servicing fees related to financial assets where there is a
continuing involvement from the securitization of commercial mortgage loans on real estate. During 2007, the Company received proceeds of $928.0 million from the securitization of commercial mortgage loans on real estate to third parties,
experienced realized losses of $7.3 million on these loans, and received $0.7 million in servicing fees related to loans securitized in 2007 and before. During 2006, the Company received proceeds of $545.0 million from the securitization of
commercial mortgage loans on real estate to third parties, experienced realized gains of $5.3 million on these loans, and received $0.4 million in servicing fees related to loans securitized in 2006 and before.

The Company provides a representations and warranties letter to the transferee for each securitization arrangement. If it is found that
the Company has made a misrepresentation, it could be required to provide financial support to the transferee or its beneficial interest holders. In 2008 and 2007, the Company was not required to provide any financial or other support that it was
not previously contractually required to provide to the transferee or its beneficial interest holders.

The following table
summarizes net realized investment (losses) gains from continuing operations by source for the years ended December 31:



(in millions)

2008


2007


2006Total realized gains on sales, net of hedging losses

$
1.9


$
65.4


$
88.8Total realized losses on sales, net of hedging gains


(93.1
)


(79.9
)


(64.8
)Total other-than-temporary and other investment impairments


(1,051.4
)


(116.4
)


(17.1
)Credit default swaps


(9.8
)


(7.5
)


(1.1
)Derivatives and embedded derivatives associated with living benefit contracts


(500.7
)


(26.7
)


Derivatives associated with death benefits contracts


109.4







Other derivatives


104.4



(1.1
)


1.3Net realized investment (losses) gains

$
(1,439.3
)

$
(166.2
)

$
7.1




F-41



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes other-than-temporary and other investment impairments
by asset type for the years ended December 31:



(in millions)

2008

2007

2006Fixed maturity securities:Corporate securitiesPublic

$
191.1

$
10.5

$
4.6Private


77.0


62.7


0.5Mortgage-backed securities


313.5





Asset-backed securities


392.4


35.1


2.1Total fixed maturity securities


974.0


108.3


7.2Equity securities


60.2





Other


17.2


8.1


9.9Total other-than-temporary and other investment impairments

$
1,051.4

$
116.4

$
17.1


The following table summarizes net investment income from continuing
operations by investment type for the years ended December 31:



(in millions)

2008


2007

2006Securities available-for-sale:Fixed maturity securities

$
1,334.5


$
1,370.5

$
1,419.2Equity securities


4.9



4.0


2.6Mortgage loans on real estate


459.3



512.6


535.4Short-term investments


16.1



28.7


47.3Other


(74.3
)


124.3


120.9Gross investment income


1,740.5



2,040.1


2,125.4Less investment expenses


53.5



64.3


66.9Net investment income

$
1,687.0


$
1,975.8

$
2,058.5


Fixed maturity securities with an amortized cost of $15.0 million and $8.3
million as of December 31, 2008 and 2007, respectively, were on deposit with various regulatory agencies as required by law.

The Company, through an agent, lends certain portfolio holdings and in turn receives cash collateral with the objective of increasing the yield on its investments. The cash collateral is invested in high-quality, short-term and long-term
investments. The Companys policy requires the maintenance of collateral of a minimum of 102% of the fair value of the securities loaned. Net returns on the investments, after payment of a rebate to the borrower, are shared between the Company
and its agent. Both the borrower and the Company can request or return the loaned securities at any time. The Company maintains ownership of the loaned securities at all times and is entitled to receive from the borrower any payments for interest or
dividends received on such securities during the loan term. In 2008, the Company recognized loaned securities as part of its investments available-for-sale. The Company also recognizes the short-term and other long-term investments acquired with the
cash collateral and its obligation to return such collateral to the borrower in short-term and other long-term investments and other liabilities, respectively.



F-42



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



As of December 31, 2008 and 2007, the Company had received $378.3 million and
$551.9 million, respectively, of cash collateral on securities lending. The Company had not received any non-cash collateral on securities lending as of December 31, 2008 and 2007. As of December 31, 2008 and 2007, the Company had loaned
securities with a fair value of $367.2 million and $541.2 million, respectively.

As of December 31, 2008 and 2007, the
Company had received $1,022.5 million and $245.4 million, respectively, of cash for derivative collateral, which is in turn invested in short-term investments. The Company also held $35.4 million and $18.5 million of securities as off-balance sheet
collateral on derivative transactions as of December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company had pledged fixed maturity securities with a fair value of $24.5 million as collateral to various derivative
counterparties compared to $18.8 million as of December 31, 2007.



|(7) | Deferred Policy Acquisition Costs
|--- | ---------------------------------

The following table presents a reconciliation of DAC for the years ended December 31:



(in millions)

2008


2007Balance at beginning of period

$
3,997.4


$
3,758.0Capitalization of DAC


572.2



612.5Amortization of DAC


(674.5
)


(368.5
)Adjustments to unrealized gains and losses on securities available-for-sale and other


528.8



4.4Cumulative effect of adoption of accounting principle






(9.0
)Balance at end of period

$
4,423.9


$
3,997.4


See Note 2(f) for information on the Companys DAC policies.



F-43



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(8) | Variable Annuity Contracts
|--- | --------------------------

The Company issues traditional variable annuity contracts through its separate accounts, for which investment income and gains and losses on investments accrue directly to, and investment risk is borne by, the
contractholder. The Company also issues non-traditional variable annuity contracts in which the Company provides various forms of guarantees to benefit the related contractholders. The Company provides five primary guarantee types under
non-traditional variable annuity contracts: (1) GMDB; (2) GMAB; (3) guaranteed minimum income benefits (GMIB); (4) GLWB; and (5) a hybrid guarantee with GMAB and GLWB.

The GMDB provides a specified minimum return upon death. Many of these death benefits are spousal, whereby a death benefit will be paid
upon death of the first spouse. The survivor has the option to terminate the contract or continue it and have the death benefit paid into the contract and a second death benefit paid upon the survivors death. The Company has offered six
primary GMDB types:



| |  |  | Return of premium  provides the greater of account value or total deposits made to the contract less any partial withdrawals and assessments, which
is referred to as net premiums. There are two variations of this benefit. In general, there is no lock in age for this benefit. However, for some contracts the GMDB reverts to the account value at a specified age, typically age 75.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reset  provides the greater of a return of premium death benefit or the most recent five-year anniversary (prior to lock-in age) account value
adjusted for withdrawals. For most contracts, this GMDB locks in at age 86 or 90, and for others the GMDB reverts to the account value at age 75, 85, 86 or 90.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ratchet  provides the greater of a return of premium death benefit or the highest specified anniversary account value (prior to age 86)
adjusted for withdrawals. Currently, there are three versions of ratchet, with the difference based on the definition of anniversary: monthaversary  evaluated monthly; annual  evaluated annually; and five-year  evaluated every
fifth year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rollup  provides the greater of a return of premium death benefit or premiums adjusted for withdrawals accumulated at generally 5% simple interest
up to the earlier of age 86 or 200% of adjusted premiums. There are two variations of this benefit. For certain contracts, this GMDB locks in at age 86, and for others the GMDB reverts to the account value at age 75.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Combo  provides the greater of annual ratchet death benefit or rollup death benefit. This benefit locks in at either age 81 or 86.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Earnings enhancement  provides an enhancement to the death benefit that is a specified percentage of the adjusted earnings accumulated on the
contract at the date of death. There are two versions of this benefit: (1) the benefit expires at age 86, and a credit of 4% of account value is deposited into the contract; and (2) the benefit does not have an end age, but has a cap on
the payout and is paid upon the first death in a spousal situation. Both benefits have age limitations. This benefit is paid in addition to any other death benefits paid under the contract.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The GMAB, offered in the Companys Capital Preservation Plus contract rider, is a living benefit that provides the contractholder
with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the issuance of the variable annuity contract. In some cases, the contractholder also
has the option, after a specified time period, to drop the rider and continue the variable annuity contract without the GMAB. In general, the GMAB requires a minimum allocation to guaranteed term options or adherence to limitations required by an
approved asset allocation strategy.

The GMIB is a living benefit that provides the contractholder with a guaranteed
annuitization value. The GMIB types are:



| |  |  | Ratchet  provides an annuitization value equal to the greater of account value, net premiums or the highest one-year anniversary account value
(prior to age 86) adjusted for withdrawals.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rollup  provides an annuitization value equal to the greater of account value and premiums adjusted for withdrawals accumulated at 5% compound
interest up to the earlier of age 86 or 200% of adjusted premiums.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Combo  provides an annuitization value equal to the greater of account value, ratchet GMIB benefit or rollup GMIB benefit.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



F-44



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



See Note 5 for a complete description of the Companys hybrid GMAB/GLWB offered
through its CPPLI contract rider. All GMAB contracts with the hybrid GMAB/GLWB rider are included with GMAB contracts in the following tables.

The following table summarizes the account values and net amount at risk, net of reinsurance, for variable annuity contracts with guarantees invested in both general and separate accounts as of December 31:



2008

2007(in millions)

Accountvalue

Net amountat risk1

Wtd. avg.attained age

Accountvalue

Net amountat risk1

Wtd. avg.attained ageGMDB:Return of premium

$
5,991.9

$
440.6

60

$
9,082.6

$
18.7

59Reset


12,468.7


2,468.0

64


17,915.0


61.1

63Ratchet


12,352.3


3,767.2

67


15,789.2


132.2

66Rollup


277.1


25.7

72


467.0


8.4

71Combo


1,704.1


621.2

69


2,555.5


47.0

68Subtotal


32,794.1


7,322.7

65


45,809.3


267.4

64Earnings enhancement


333.5


7.2

63


519.2


49.8

62Total - GMDB

$
33,127.6

$
7,329.9

65

$
46,328.5

$
317.2

64GMAB2:5 Year

$
2,867.6

$
499.0

N/A

$
2,985.6

$
4.6

N/A7 Year


2,265.9


482.9

N/A


2,644.1


6.2

N/A10 Year


677.9


132.2

N/A


927.3


1.3

N/ATotal - GMAB

$
5,811.4

$
1,114.1

N/A

$
6,557.0

$
12.1

N/AGMIB3:Ratchet

$
244.7

$
5.6

N/A

$
425.2

$


N/ARollup


659.5


1.3

N/A


1,119.9




N/ACombo


0.1




N/A


0.3




N/ATotal - GMIB

$
904.3

$
6.9

N/A

$
1,545.4

$


N/AGLWB:L.inc

$
3,320.8

$
571.5

N/A

$
2,865.8

$


N/A


| | 
| | 

| | 1 | Net amount at risk is calculated on a seriatum basis and equals the respective guaranteed benefit less the account
value (or zero if the account value exceeds the guaranteed benefit). As it relates to GMIB, net amount at risk is calculated as if all policies were eligible to annuitize immediately, although all GMIB options have a waiting period of at least 7
years from issuance.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | GMAB contracts with the hybrid GMAB/GLWB rider had account values of $4.59 billion and $4.77 billion as of
December 31, 2008 and 2007, respectively.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | The weighted average period remaining until expected annuitization is not meaningful and has not been presented
because there is currently no material GMIB exposure.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net amount at risk is highly sensitive to changes
in financial market movements. The increase in net amount at risk during 2008 is primarily due to declines in the financial markets. See Note 5 Equity Market Risk Management for a discussion of the Companys risk management
practices with respect to declining financial market exposure and related reserve balances.



F-45



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following table summarizes account balances of variable annuity contracts that
were invested in separate accounts as of December 31:



(in millions)

2008

2007Mutual funds:Bond

$
4,350.2

$
5,143.6Domestic equity


18,572.8


31,217.7International equity


2,412.7


3,987.3Total mutual funds


25,335.7


40,348.6Money market funds


2,132.6


1,728.2Total

$
27,468.3

$
42,076.8


The Companys GMDB claim reserves are determined by estimating the
expected value of death benefits on contracts that trigger a policy benefit and recognizing the excess ratably over the accumulation period based on total expected assessments. GMIB claim reserves are determined each period by estimating the
expected value of annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total assessments. The Company regularly evaluates its GMDB and
GMIB claim reserve estimates and adjusts the additional liability balances as appropriate, with a related charge or credit to other benefits and claims in the period of evaluation if actual experience or other evidence suggests that earlier
assumptions should be revised. The assumptions used in calculating GMIB claim reserves are consistent with those used for calculating GMDB claim reserves. In addition, the calculation of GMIB claim reserves assumes benefit utilization ranges from a
low of 3% when the contractholders annuitization value is at least 10% in the money to 100% utilization when the contractholder is 90% or more in the money.

The Companys living benefit riders represent an embedded derivative in a variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity
contract. The embedded derivatives are carried at fair value. Subsequent changes in the fair value of the embedded derivatives are recognized in earnings as a component of net realized investment gains and losses. The fair value of the embedded
derivatives is calculated based on a combination of capital market and actuarial assumptions.

The following assumptions and
methodology were used to determine the GMDB claim reserves as of December 31, 2008 and 2007:



| |  |  | Data used was based on a combination of historical numbers and future projections generally involving 50 probabilistically generated economic scenarios
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mean gross equity performance  8.1%
| | - |  | ------------------------------------



| |  |  | Equity volatility  18.7%
| | - |  | -------------------------



| |  |  | Mortality  100% of Annuity 2000 table
| | - |  | --------------------------------------



| |  |  | Asset fees  equivalent to mutual fund and product loads
| | - |  | --------------------------------------------------------



| |  |  | Discount rate  approximately 7.0%
| | - |  | ----------------------------------

Lapse rate assumptions vary by duration as shown below:



Duration (years)

1

2

3

4

5

6

7

8

9

10+Minimum

1.00%

2.00%

2.00%

3.00%

4.50%

6.00%

7.00%

7.00%

11.50%

11.50%Maximum

1.50%

2.50%

4.00%

4.50%

40.00%

41.50%

21.50%

35.00%

35.00%

18.50%




F-46



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(9) | Short-Term Debt
|--- | ---------------

The following table summarizes short-term debt as of December 31:



(in millions)

2008

2007$800.0 million commercial paper program

$
149.9

$
199.7$350.0 million securities lending program facility


99.8


85.6Total short-term debt

$
249.7

$
285.3


The Company has available as a source of funds a $1.00 billion revolving
variable rate credit facility entered into by NFS, NLIC and NMIC with a group of national financial institutions. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility provides
covenants, including, but not limited to, requirements that the Companys debt not exceed 40% of tangible net worth, as defined, and that NLIC maintain statutory surplus, as defined, in excess of $1.67 billion. As of December 31, 2008, the
Company and NLIC were in compliance with all covenants. NLIC and NMIC had no amounts outstanding under this agreement as of December 31, 2008 and 2007. NLIC also has an $800.0 million commercial paper program and is required to maintain an
available credit facility equal to 50% of any amounts outstanding under the commercial paper program. Therefore, borrowing capacity under the aggregate $1.00 billion revolving credit facility is reduced by 50% of any amounts outstanding under the
commercial paper program. NLIC had $149.9 million of commercial paper outstanding at December 31, 2008 at a weighted average interest rate of 2.07% and $199.7 million at a weighted average interest rate of 4.39% at December 31, 2007.

NLIC has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in
connection with its securities lending program. This is an uncommitted facility contingent on the liquidity of the securities lending program. The borrowing facility was established to fund commercial mortgage loans that were originated with the
intent of sale through securitization. The maximum amount available under the agreement is $350.0 million. The borrowing rate on this program is equal to one-month U.S. LIBOR (0.44% and 4.60% as of December 31, 2008 and 2007, respectively).
NLIC had $99.8 million and $85.6 million outstanding under this agreement as of December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company had not provided any guarantees on such borrowings, either directly or
indirectly.

The Company paid interest on short-term debt totaling $8.3 million, $15.0 million and $11.7 million in 2008,
2007 and 2006, respectively.



|(10) | Long-Term Debt
|---- | --------------

The following table summarizes surplus notes payable to NFS as of December 31:



(in millions)

2008

20078.15% surplus note, due June 27, 2032

$
300.0

$
300.07.50% surplus note, due December 17, 2031


300.0


300.06.75% surplus note, due December 23, 2033


100.0


100.0Total long-term debt

$
700.0

$
700.0


The Company made interest payments to NFS on surplus notes totaling $53.7
million in 2008, 2007 and 2006. Payments of interest and principal under the notes require the prior approval of the Ohio Department of Insurance (ODI).



F-47



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(11) | Federal Income Taxes
|---- | --------------------

In 2008, NFS will file a life/non-life federal income tax return with all of its eligible downstream subsidiaries. Effective January 1, 2009, pursuant to the merger agreement dated August 6, 2008 whereby
NMIC and its affiliates purchased all of the NFS common stock they did not already own, Nationwide Corp. will own more than 80% of the value of NFS, meeting the requirements for NFS to join the NMIC consolidated federal income tax return. However,
the life insurance company subsidiaries will not be eligible to join the NMIC consolidated federal income tax return until 2014. The members of the NFS consolidated federal income tax return group participate in a tax sharing arrangement, which uses
a consolidated approach in allocating the amount of current and deferred expense to the separate financial statements of a subsidiary. This approach provides for a current tax benefit to the subsidary for losses that are utilized in the consoldiated
tax return.

The following table summarizes the tax effects of temporary differences that give rise to significant
components of the net deferred tax (asset) liability as of December 31:



(in millions)

2008


2007Deferred tax assets:Future policy benefits and claims

$
881.0


$
622.0Securities available-for-sale


737.4



83.8Derivatives


229.7



Other


238.3



129.4Gross deferred tax assets


2,086.4



835.2Less valuation allowance


(7.0
)


(7.0
)Deferred tax assets, net of valuation allowance


2,079.4



828.2Deferred tax liabilities:Deferred policy acquisition costs


1,249.4



1,112.6Derivatives






15.6Other


188.4



115.2Gross deferred tax liabilities


1,437.8



1,243.4Net deferred tax (asset) liability

$
(641.6
)

$
415.2


In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Future taxable amounts or recovery of federal income taxes paid within the statutory carryback period can offset nearly all future
deductible amounts. The valuation allowance was unchanged during 2008, 2007 and 2006. No additional valuation allowances are required to be recognized as the Company has prudent and feasible tax planning strategies that would, if necessary, be
implemented to utilize deferred tax assets.

The Companys current federal income tax asset was $127.2 million and
$12.7 million as of December 31, 2008 and 2007, respectively.

Total federal income taxes (refunded) paid were $(46.1)
million, $99.1 million and $(4.3) million during the years ended December 31, 2008, 2007 and 2006, respectively.

As of
December 31, 2008, the Company has $38.9 million of capital loss carryforwards that can carry forward for five tax years and are expected to be fully utilized. In addition, the Company has $41.9 million in low income housing credit
carryforwards which can be carried forward for twenty years. The Company expects that they will be fully utilized. The Company has $56.5 million in Alternative Minimum Tax (AMT) credit carryforwards, which can be carried forward until utilized. The
Company expects to fully realize the AMT credits in the future.



F-48



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



During the third quarter of 2008, the Company refined its separate account dividends
received deduction (DRD) calculation and estimation process. As a result, the Company reduced its third quarter separate account DRD projection from a federal income tax benefit of $14.3 million to a $4.4 million benefit. This reduction in estimate
primarily was driven by the assumptions used in the estimation process regarding future dividend income within the separate accounts. The assumptions used in the separate account DRD calculation are based on the Companys best estimate of
future events.

In addition, during 2008, the Company recorded $12.7 million of net federal income tax expense adjustments
primarily related to differences between the 2007 estimated tax liability and the amounts expected to be reported on the Companys 2007 tax returns when filed. These changes in estimates primarily were driven by the Companys separate
account DRD.

During the second quarter of 2007, the Company recorded $6.8 million of net federal income tax expense
adjustments primarily related to differences between the 2006 estimated tax liability and the amounts the Company reported on its 2006 tax returns. The Company recorded an additional $1.5 million and $0.2 million of such adjustments during the third
and fourth quarters of 2007, respectively.

Through June 2006, the Companys federal income tax returns for tax years
2000-2002 were under IRS examination pursuant to a routine audit. In accordance with its regular practice, management established tax reserves based on the current facts and circumstances regarding each tax exposure item for which the ultimate
deductibility is open to interpretation. These reserves are reviewed regularly and are adjusted as events occur that management believes impacts the Companys liability for additional taxes, such as lapsing of applicable statutes of
limitations; conclusion of tax audits or substantial agreement on the deductibility/non-deductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or
rendering of a court decision affecting a particular tax issue. A significant component of the Companys tax reserve as of December 31, 2005 was related to the separate account dividends received deduction (DRD). See Tax
Matters in Note 15 for more information regarding DRD.

In July 2006, the Company reached substantial agreement with
the IRS on all open issues for tax years 2000-2002, including issues related to the DRD. Accordingly, the Company revised its estimate of amounts that may be due in connection with certain tax positions, including the DRD, for all open tax years. As
a result of the revised estimate, $110.9 million of tax reserves were released into earnings during the second quarter of 2006.

During the third quarter of 2006, the Company recorded $7.8 million of net federal income tax expense adjustments primarily related to differences between the 2005 estimated tax liability and the amounts reported on the Companys 2005
tax returns.

The following table summarizes federal income tax (benefit) expense attributable to (loss) income from
continuing operations for the years ended December 31:



(in millions)

2008


2007

2006Current

$
(135.5
)

$
106.5

$
(61.8
)Deferred


(398.8
)


22.0


90.5Federal income tax (benefit) expense

$
(534.3
)

$
128.5

$
28.7




F-49



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Total federal income tax (benefit) expense differs from the amount computed by
applying the U.S. federal income tax rate to (loss) income from continuing operations before federal income tax (benefit) expense as follows for the years ended December 31:



2008

2007


2006(dollars in millions)

Amount


%

Amount


%


Amount


%Computed tax (benefit) expense

$
(477.4
)

35.0

$
204.0


35.0


$
226.8


35.0DRD


(36.7
)

2.7


(61.0
)

(10.5
)


(67.5
)

(10.4
)Reserve release















(110.9
)

(17.1
)Other, net


(20.2
)

1.5


(14.5
)

(2.4
)


(19.7
)

(3.1
)Total

$
(534.3
)

39.2

$
128.5


22.1


$
28.7


4.4


As noted previously, the Company adopted the provisions of FIN 48 on
January 1, 2007. There was no impact to the Companys retained earnings on adoption of FIN 48. A rollforward of the beginning and ending uncertain tax positions, including permanent and temporary differences, but excluding interest and
penalties, is as follows:



(in millions)

2008


2007Balance at beginning of period

$
8.6


$
4.6Additions for current year tax positions


37.4



4.0Additions for prior years tax positions


0.3



Reductions for prior years tax positions


(2.6
)


Balance at end of period

$
43.7


$
8.6


The total amount of unrecognized tax benefits that, if recognized, would
impact the effective tax rate on December 31, 2008, is $37.4 million.

The Company has included tax on permanent
uncertain tax positions and interest and penalties on all uncertain tax positions in determining the potential impact on the effective tax rate above. An uncertain tax timing position may result in the acceleration of cash payments to the IRS, but
will not impact the effective tax rate.

During the years ended December 31, 2008, and 2007, the Company incurred $1.0
million and $0.8 million in interest and penalties, respectively. The Company accrued $2.2 million and $1.2 million for the payment of interest and penalties at December 31, 2008 and 2007, respectively. Interest expense and any associated
penalties are shown as income tax expense.

Management is not aware of any reasonable possibility of a significant increase
or decrease to the total of the uncertain tax positions within the next 12 months.

The Company files income tax returns in
the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years through 2002. The IRS commenced an examination
of the Companys U.S. income tax returns for 2003 through 2005 in the first quarter of 2007. As of December 31, 2008, the IRS has proposed adjustments which would not result in a material change to the Companys financial position.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(12) | Shareholders Equity, Regulatory Risk-Based Capital, Statutory Results and Dividend Restrictions
|---- | ------------------------------------------------------------------------------------------------

Regulatory Risk-Based Capital

The State of Ohio, where NLIC and NLAIC are domiciled, imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various
weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital, as defined by the NAIC, to authorized control
level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and NLAIC each exceeded the minimum risk-based capital
requirements for all periods presented herein.

Statutory Results

The Company and its subsidiary are required to prepare statutory financial statements in conformity with the NAICs Accounting
Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable state department of insurance. Statutory accounting practices focus on insurer solvency and differ from GAAP materially. The principal differences
include charging policy acquisition and certain sales inducement costs to expense as incurred, establishing future policy benefits and claims reserves using different actuarial assumptions, excluding certain assets from statutory admitted assets,
and valuing investments and establishing deferred taxes on a different basis. The following tables summarize the statutory net (loss) income and statutory capital and surplus for the Company and its insurance subsidiary for the years ended
December 31:



(in millions)

20081


2007


2006Statutory net (loss) incomeNLIC

$
(898.3
)

$
309.0


$
537.5NLAIC


(87.9
)


(13.4
)


(45.6
)Statutory capital and surplusNLIC

$
2,261.5


$
2,501.1


$
2,682.3NLAIC


81.7



173.3



158.6


| | 
| | 

| | 1 | Unaudited as of the date of this report.
| | - | ----------------------------------------

The Company has received approval from the Ohio Department of Insurance (ODI) regarding the use of a permitted practice related to the
statutory accounting provision for the admissibility of deferred tax assets as of December 31, 2008. The permitted practice modifies the practice prescribed by the NAIC by increasing the threshold for admissibility of deferred tax assets from
10% to 15% of statutory capital and surplus. The permitted practice resulted in an increase of the Companys estimated statutory surplus of $68.9 million (unaudited) as of December 31, 2008. The permitted practice had no impact on the
Companys statutory net income. The benefits of this permitted practice may not be considered by the Company when determining capital and surplus available for dividends. NLAIC did not qualify for the permitted practice.

Dividend Restrictions

The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio, its domiciliary state. The State of Ohio insurance laws require Ohio-domiciled life
insurance companies to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding 12 months, exceeds the
greater of (1) 10% of statutory-basis policyholders surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer for the prior year. During the year ended December 31, 2008, NLIC paid dividends
of $246.5 million to NFS after providing prior notice to the ODI. The dividend included $181.9 million in cash and $64.6 million in securities. As of January 1, 2009, NLIC could not pay dividends to NFS without obtaining prior approval.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The State of Ohio insurance laws also require insurers to seek prior regulatory
approval for any dividend paid from other than earned surplus. Earned surplus is defined under the State of Ohio insurance laws as the amount equal to the Companys unassigned funds as set forth in its most recent statutory financial
statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurers policyholder surplus must be reasonable in relation to the insurers outstanding liabilities and
adequate for its financial needs. The payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on NLICs participating policies
(measured before dividends to policyholders) available for the benefit of the Company and its shareholder.

The Company
currently does not expect such regulatory requirements to impair its ability to pay future operating expenses, interest and shareholder dividends.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Comprehensive Loss

The Companys comprehensive loss includes net income and certain items that are reported directly within separate components of
shareholders equity that are not recorded in net income (other comprehensive income or loss).

The following table
summarizes the Companys other comprehensive loss, before and after federal income tax benefit, for the years ended December 31:



(in millions)

2008


2007


2006Net unrealized losses on securities available-for-sale arising during the period:Net unrealized losses before adjustments

$
(3,576.6
)

$
(276.3
)

$
(171.3
)Net adjustment to deferred policy acquisition costs


528.8



3.8



40.9Net adjustment to future policy benefits and claims


121.5



5.4



21.5Related federal income tax benefit


1,024.4



93.3



38.1Net unrealized losses


(1,901.9
)


(173.8
)


(70.8
)Reclassification adjustment for net realized losses on securities available-for-sale realized during the period:Net unrealized losses


1,025.2



107.7



9.2Related federal income tax benefit


(358.8
)


(37.7
)


(3.2
)Net reclassification adjustment


666.4



70.0



6.0Other comprehensive loss on securities available-for-sale


(1,235.5
)


(103.8
)


(64.8
)Accumulated net holding gains (losses) on cash flow hedges:Unrealized holding gains (losses)


16.5



(17.2
)


(0.2
)Related federal income tax (expense) benefit


(5.8
)


6.0



0.1Other comprehensive income (loss) on cash flow hedges


10.7



(11.2
)


(0.1
)Other unrealized gains (losses):Net unrealized gains (losses)


6.4



(6.4
)


Related federal income tax (expense) benefit


(2.3
)


2.2



Other net unrealized gains (losses)


4.1



(4.2
)


Total other comprehensive loss

$
(1,220.7
)

$
(119.2
)

$
(64.9
)


Adjustments for net realized gains and losses on the ineffective portion of
cash flow hedges were immaterial during the years ended December 31, 2008, 2007 and 2006.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(13) | Employee Benefit Plans
|---- | ----------------------

Defined Benefit Plans

The Company and certain affiliated companies participate in a
qualified defined benefit pension plan sponsored by NMIC. This plan covers all employees of participating companies who have completed at least one year of service. Plan contributions are invested in a group annuity contract issued by NLIC, and a
trust with Bank of New York as the custodian and trustee. All participants are eligible for benefits based on an account balance feature. Participants last hired before 2002 are eligible for benefits based on the highest average annual salary of a
specified number of consecutive years of the last ten years of service, if such benefits are of greater value than the account balance feature. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued
for employees of affiliates whose work benefits the Company. A separate non-qualified defined benefit pension plan sponsored by NMIC covers certain executives with at least one year of service. The Companys portion of expense relating to these
plans was $12.0 million, $13.5 million and $19.9 million for the years ended December 31, 2008, 2007 and 2006, respectively.

In addition to the NMIC pension plan, the Company and certain affiliated companies participate in life and health care defined benefit plans sponsored by NMIC for qualifying retirees. Postretirement life and health care benefits are
contributory. The level of contribution required by a qualified retiree depends on the retirees years of service and date of hire. In general, postretirement benefits are available to full-time employees who are credited with 120 months of
retiree life and health service. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Companys portion of the
per-participant cost of the postretirement health care benefits. The Companys policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in a group annuity
contract issued by NLIC, and a trust with Bank of New York as the custodian and trustee. All participants are eligible for benefits based on an account balance feature. The Companys portion of expense relating to these plans was immaterial for
the years ended December 31, 2008, 2007 and 2006.

Defined Contribution Plans

NMIC sponsors a defined contribution retirement savings plan covering substantially all employees of the Company. Employees may make
salary deferral contributions of up to 80%. Salary deferrals of up to 6% are subject to a 50% Company match. The Companys expense for contributions to these plans was $5.6 million, $7.3 million and $6.6 million for the years ended
December 31, 2008, 2007 and 2006, respectively.



|(14) | Related Party Transactions
|---- | --------------------------

The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations. These include annuity and life insurance contracts,
office space leases, and agreements related to reinsurance, cost sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. Measures used to allocate expenses among
companies include individual employee estimates of time spent, special cost studies, the number of full-time employees, commission expense and other methods agreed to by the participating companies.

In addition, Nationwide Services Company, LLC (NSC), a subsidiary of NMIC, provides data processing, systems development, hardware and
software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed.. For the years ended December 31, 2008, 2007 and 2006, the Company made payments to NMIC and NSC totaling $280.8
million, $285.6 million and $261.7 million, respectively.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The Company has issued group annuity and life insurance contracts and performs
administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $2.85 billion and $2.90 billion as of December 31, 2008 and 2007, respectively. Total revenues from
these contracts were $137.7 million, $130.8 million and $133.4 million for the years ended December 31, 2008, 2007 and 2006, respectively, and include policy charges, net investment income from investments backing the contracts and
administrative fees. Total interest credited to the account balances was $115.4 million, $109.7 million and $110.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. The terms of these contracts are consistent in all
material respects with what the Company offers to unaffiliated parties.

The Company leases office space from NMIC. For the
years ended December 31, 2008, 2007 and 2006, the Company made lease payments to NMIC of $22.9 million, $23.0 million and $19.3 million, respectively.

NLIC has a reinsurance agreement with NMIC whereby all of NLICs accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the
agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets, and investment earnings are paid to the reinsurer. Under the terms of NLICs agreements, the
investment risk associated with changes in interest rates is borne by the reinsurer. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified
coinsurance agreements are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Revenues ceded to NMIC for the years ended December 31, 2008, 2007 and 2006 were $202.3 million, $317.6 million
and $430.8 million, respectively, while benefits, claims and expenses ceded during these years were $218.9 million, $348.1 million and $470.4 million, respectively.

Funds of Nationwide Funds Group (NFG), an affiliate, are offered to the Companys customers as investment options in certain of the Companys products. As of December 31, 2008 and
2007, customer allocations to NFG funds totaled $17.48 billion and $21.41 billion, respectively. For the years ended December 31, 2008, 2007 and 2006, NFG paid the Company $74.4 million, $76.9 million and $64.4 million, respectively, for the
distribution and servicing of these funds.

Under a marketing agreement with NMIC, NLIC makes payments to cover a portion of
the agent marketing allowance that is paid to Nationwide agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $8.3 million, $20.1 million and $28.3 million for
the years ended December 31, 2008, 2007 and 2006, respectively. The last payment under this agreement was made in 2008.

The Company also participates in intercompany repurchase agreements with affiliates whereby the seller transfers securities to the buyer at a stated value. Upon demand or after a stated period, the seller repurchases the securities at the
original sales price plus interest. As of December 31, 2008 and 2007, the Company had no outstanding borrowings from affiliated entities under such agreements. During 2008, 2007 and 2006, the most the Company had outstanding at any given time
was $151.6 million, $178.2 million and $191.5 million, respectively, and the amounts the Company incurred for interest expense on intercompany repurchase agreements during these years were immaterial.

The Company and various affiliates have agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC acts as
a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC for the benefit of the Company were $2.57 billion and $368.2 million as of December 31, 2008
and 2007, respectively, and are included in short-term investments on the consolidated balance sheets.

Certain annuity
products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the years ended December 31, 2008, 2007 and 2006 were $52.7 million, $59.5 million and $58.1 million,
respectively.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



An affiliate of the Company is currently developing a browser-based policy
administration and online brokerage software application for defined benefit plans. In connection with the development of this application, the Company made net payments, which were expensed, to that affiliate related to development totaling $11.0
million, $9.4 million and $6.9 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company
entered into a note purchase agreement with an affiliate on November 17, 2006 to purchase $25.0 million of the affiliates 5.6% senior notes due November 16, 2016. The notes are secured by certain pledged mortgage servicing rights.
The note is payable in seven equal principal installments of $3.8 million, which begin November 6, 2010. Interest is payable semi-annually on each May 16 and November 16.

Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as discussed in more detail in Note
11. Effective October 1, 2002, NLIC began filing a consolidated federal income tax return with NLAIC. Total payments from NMIC were $22.5 million and $15.3 million during the years ended December 31, 2008 and 2006, respectively. These
payments related to tax years prior to deconsolidation. There were no payments during 2007.

During 2008, NLIC received a
$338.8 million capital contribution from NFS. The capital contribution included $157.1 million in securities, $153.4 million in cash and $28.3 million in mortgage loans.

In 2008, 2007 and 2006, NLIC paid dividends to NFS totaling $246.5 million, $537.5 million and $375.0 million, respectively.



|(15) | Contingencies
|---- | -------------

Legal Matters

The Company is a party to litigation and arbitration proceedings in the ordinary course of
its business. It is often not possible to determine the ultimate outcome of the pending investigations and legal proceedings or to provide reasonable ranges of potential losses with any degree of certainty. Some matters, including certain of those
referred to below, are in very preliminary stages, and the Company does not have sufficient information to make an assessment of the plaintiffs claims for liability or damages. In some of the cases seeking to be certified as class actions, the
court has not yet decided whether a class will be certified or (in the event of certification) the size of the class and class period. In many of the cases, the plaintiffs are seeking undefined amounts of damages or other relief, including punitive
damages and equitable remedies, which are difficult to quantify and cannot be defined based on the information currently available. The Company does not believe, based on information currently known by management, that the outcomes of such pending
investigations and legal proceedings are likely to have a material adverse effect on the Companys consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and inherent
unpredictability of litigation, it is possible that an adverse outcome in certain matters could have a material adverse effect on the Companys consolidated financial results in a particular quarterly or annual period.

In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits relating to life
insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements against life insurers other than the Company.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The financial services industry, including mutual fund, variable annuity, retirement
plan, life insurance and distribution companies, has also been the subject of increasing scrutiny by regulators, legislators and the media over the past few years. Numerous regulatory agencies, including the SEC, the Financial Industry Regulatory
Authority and the New York State Attorney General, have commenced industry-wide investigations regarding late trading and market timing in connection with mutual funds and variable insurance contracts, and have commenced enforcement actions against
some mutual fund and life insurance companies on those issues. The Company has been contacted by or received subpoenas from the SEC and the New York State Attorney General, who are investigating market timing in certain mutual funds offered in
insurance products sponsored by the Company. The Company has cooperated with these investigations. Information requests from the New York State Attorney General and the SEC with respect to investigations into late trading and market timing were last
responded to by the Company and its affiliates in December 2003 and June 2005, respectively, and no further information requests have been received with respect to these matters.

In addition, state and federal regulators and other governmental bodies have commenced investigations, proceedings or inquiries relating
to compensation and bidding arrangements and possible anti-competitive activities between insurance producers and brokers and issuers of insurance products, and unsuitable sales and replacements by producers on behalf of the issuer. Also under
investigation are compensation and revenue sharing arrangements between the issuers of variable insurance contracts and mutual funds or their affiliates, fee arrangements in retirement plans, the use of side agreements and finite reinsurance
agreements, funding agreements issued to back MTN programs, recordkeeping and retention compliance by broker/dealers, and supervision of former registered representatives. Related investigations, proceedings or inquiries may be commenced in the
future. The Company and/or its affiliates have been contacted by or received subpoenas from state and federal regulatory agencies and other governmental bodies, state securities law regulators and state attorneys general for information relating to
certain of these investigations, including those relating to compensation, revenue sharing and bidding arrangements, anti-competitive activities, unsuitable sales or replacement practices, fee arrangements in retirement plans, the use of side
agreements and finite reinsurance agreements, and funding agreements backing the NLIC MTN program. The Company is cooperating with regulators in connection with these inquiries and will cooperate with NMIC in responding to these inquiries to the
extent that any inquiries encompass NMICs operations.

A promotional and marketing arrangement associated with the
Companys offering of a retirement plan product and related services in Alabama is under investigation by the Alabama Securities Commission. The Company currently expects that any damages paid to settle this matter will not have a material
adverse impact on its consolidated financial position. It is not possible to predict what effect, if any, the outcome of this investigation may have on the Companys retirement plan operations with respect to promotional and marketing
arrangements in general in the future.

These proceedings are expected to continue in the future and could result in legal
precedents and new industry-wide legislation, rules and regulations that could significantly affect the financial services industry, including mutual fund, retirement plan, life insurance and annuity companies. These proceedings also could affect
the outcome of one or more of the Companys litigation matters. There can be no assurance that any litigation or regulatory actions will not have a material adverse effect on the Company in the future.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



On November 20, 2007, NRS and NLIC were named in a lawsuit filed in the Circuit
Court of Jefferson County, Alabama entitled Ruth A. Gwin and Sandra H. Turner, and a class of similarly situated individuals v Nationwide Life Insurance Company, Nationwide Retirement Solutions, Inc., Alabama State Employees Association, PEBCO,
Inc. and Fictitious Defendants A to Z.On December 2, 2008, the plaintiffs filed an amended complaint. The plaintiffs claim to represent a class of all participants in the Alabama State Employees Association (ASEA) Plan, excluding members
of the Deferred Compensation Committee, members of the Board of Control, ASEAs directors, officers and board members, and PEBCOs directors, officers and board members. The class period is from November 20, 2001, to the date of
trial. In the amended class action complaint, the plaintiffs allege breach of fiduciary duty, wantonness and breach of contract. The amended class action complaint seeks a declaratory judgment, an injunction, an appointment of an independent
fiduciary to protect Plan participants, disgorgement of amounts paid, reformation of Plan documents, compensatory damages and punitive damages, plus interest, attorneys fees and costs and such other equitable and legal relief to which
plaintiffs and class members may be entitled. Also, on December 2, 2008, the plaintiffs filed a motion for preliminary injunction seeking an order requiring periodic payments made by NRS and/or NLIC to ASEA or PEBCO to be held in a trust
account for the benefit of Plan participants. On December 4, 2008, the Alabama State Personnel Board and the State of Alabama by, and through the State Personnel Board, filed a motion to intervene and a complaint in intervention. On
December 16, 2008, the Companies filed their Answer. On February 4, 2009, the court provisionally agreed to add the State of Alabama, by and through the State Personnel Board as a party. NRS and NLIC continue to defend this case
vigorously.

On July 11, 2007, NLIC was named in a lawsuit filed in the United States District Court for the Western
District of Washington at Tacoma entitled Jerre Daniels-Hall and David Hamblen, Individually and on behalf of All Others Similarly Situated v. National Education Association, NEA Member Benefits Corporation, Nationwide Life Insurance Company,
Security Benefit Life Insurance Company, Security Benefit Group, Inc., Security Distributors, Inc., et. al. The plaintiffs seek to represent a class of all current or former National Education Association (NEA) members who participated in the
NEA Valuebuilder 403(b) program at any time between January 1, 1991 and the present (and their heirs and/or beneficiaries). The plaintiffs allege that the defendants violated the Employee Retirement Income Security Act of 1974, as amended
(ERISA) by failing to prudently and loyally manage plan assets, by failing to provide complete and accurate information, by engaging in prohibited transactions, and by breaching their fiduciary duties when they failed to prevent other fiduciaries
from breaching their fiduciary duties. The complaint seeks to have the defendants restore all losses to the plan, restoration of plan assets and profits to participants, disgorgement of endorsement fees, disgorgement of service fee payments,
disgorgement of excessive fees charged to plan participants, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys fees. On May 23, 2008, the Court granted the defendants motion to dismiss. On
June 19, 2008, the plaintiffs filed a notice of appeal. On October 17, 2008, the plaintiffs filed their opening brief. On December 19, 2008, the defendants filed their briefs. On January 26, 2009, the plaintiffs filed
Appellants Reply Brief. NLIC continues to defend this lawsuit vigorously.

On November 15, 2006, NFS, NLIC and
NRS were named in a lawsuit filed in the United States District Court for the Southern District of Ohio entitled Kevin Beary, Sheriff of Orange County, Florida, In His Official Capacity, Individually and On Behalf of All Others Similarly Situated
v. Nationwide Life Insurance Co., Nationwide Retirement Solutions, Inc. and Nationwide Financial Services, Inc. The plaintiff seeks to represent a class of all sponsors of 457(b) deferred compensation plans in the United States that had variable
annuity contracts with the defendants at any time during the class period, or in the alternative, all sponsors of 457(b) deferred compensation plans in Florida that had variable annuity contracts with the defendants during the class period. The
class period is from January 1, 1996 until the class notice is provided. The plaintiff alleges that the defendants breached their fiduciary duties by arranging for and retaining service payments from certain mutual funds. The complaint seeks an
accounting, a declaratory judgment, a permanent injunction and disgorgement or restitution of the service fee payments allegedly received by the defendants, including interest. On January 25, 2007, NFS, NLIC and NRS filed a motion to dismiss.
On September 17, 2007, the Court granted the motion to dismiss. On October 1, 2007, the plaintiff filed a motion to vacate judgment and for leave to file an amended complaint. On September 15, 2008, the Court denied the
plaintiffs motion to vacate judgment and for leave to file an amended complaint. On October 15, 2008, the plaintiffs filed a notice of appeal. NFS, NLIC and NRS continue to defend this lawsuit vigorously.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



On February 11, 2005, NLIC was named in a class action lawsuit filed in Common Pleas
Court, Franklin County, Ohio entitled Michael Carr v. Nationwide Life Insurance Company. The complaint seeks recovery for breach of contract, fraud by omission, violation of the Ohio Deceptive Trade Practices Act and unjust enrichment. The complaint
also seeks unspecified compensatory damages, disgorgement of all amounts in excess of the guaranteed maximum premium and attorneys fees. On February 2, 2006, the court granted the plaintiffs motion for class certification on the breach
of contract and unjust enrichment claims. The court certified a class consisting of all residents of the United States and the Virgin Islands who, during the class period, paid premiums on a modal basis to NLIC for term life insurance policies
issued by NLIC during the class period that provide for guaranteed maximum premiums, excluding certain specified products. Excluded from the class are NLIC; any parent, subsidiary or affiliate of NLIC; all employees, officers and directors of NLIC;
and any justice, judge or magistrate judge of the State of Ohio who may hear the case. The class period is from February 10, 1990 through February 2, 2006, the date the class was certified. On January 26, 2007, the plaintiff filed a motion for
summary judgment. On April 30, 2007, NLIC filed a motion for summary judgment. On February 4, 2008, the Court granted the classs motion for summary judgment on the breach of contract claims arising from the term policies in 43 of 51
jurisdictions. The Court granted NLICs motion for summary judgment on the breach of contract claims on all decreasing term policies. On November 7, 2008, the case was settled.

On April 13, 2004, NLIC was named in a class action lawsuit filed in Circuit Court, Third Judicial Circuit, Madison County, Illinois,
entitled Woodbury v. Nationwide Life Insurance Company. NLIC removed this case to the United States District Court for the Southern District of Illinois on June 1, 2004. On December 27, 2004, the case was transferred to the United
States District Court for the District of Maryland and included in the multi-district proceeding entitled In Re Mutual Funds Investment Litigation. In response, on May 13, 2005, the plaintiff filed the first amended complaint
purporting to represent, with certain exceptions, a class of all persons who held (through their ownership of an NLIC annuity or insurance product) units of any NLIC sub-account invested in mutual funds that included foreign securities in their
portfolios and that experienced market timing or stale price trading activity. The first amended complaint purports to disclaim, with respect to market timing or stale price trading in NLICs annuities sub-accounts, any allegation based on
NLICs untrue statement, failure to disclose any material fact, or usage of any manipulative or deceptive device or contrivance in connection with any class members purchases or sales of NLIC annuities or units in annuities sub-accounts.
The plaintiff claims, in the alternative, that if NLIC is found with respect to market timing or stale price trading in its annuities sub-accounts, to have made any untrue statement, to have failed to disclose any material fact or to have used or
employed any manipulative or deceptive device or contrivance, then the plaintiff purports to represent a class, with certain exceptions, of all persons who, prior to NLICs untrue statement, omission of material fact, use or employment of any
manipulative or deceptive device or contrivance, held (through their ownership of an NLIC annuity or insurance product) units of any NLIC sub-account invested in mutual funds that included foreign securities in their portfolios and that experienced
market timing activity. The first amended complaint alleges common law negligence and seeks to recover damages not to exceed $75,000 per plaintiff or class member, including all compensatory damages and costs. On June 1, 2006, the District
Court granted NLICs motion to dismiss the plaintiffs complaint. On January 30, 2009, the United States Court of Appeals for the Fourth Circuit affirmed that dismissal. NLIC continues to defend this lawsuit vigorously.



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NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



On August 15, 2001, NFS and NLIC were named in a lawsuit filed in the United
States District Court for the District of Connecticut entitled Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance
Company. Currently, the plaintiffs fifth amended complaint, filed March 21, 2006, purports to represent a class of qualified retirement plans under ERISA that purchased variable annuities from NLIC. The plaintiffs allege that they
invested ERISA plan assets in their variable annuity contracts and that NLIC and NFS breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds. The complaint seeks disgorgement of some or all of the payments
allegedly received by NFS and NLIC, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys fees. To date, the District Court has rejected the plaintiffs request for certification of the alleged class.
On September 25, 2007, NFS and NLICs motion to dismiss the plaintiffs fifth amended complaint was denied. On October 12, 2007, NFS and NLIC filed their answer to the plaintiffs fifth amended complaint and amended
counterclaims. On November 1, 2007, the plaintiffs filed a motion to dismiss NFS and NLICs amended counterclaims. On November 15, 2007, the plaintiffs filed a motion for class certification. On February 8, 2008, the Court
denied the plaintiffs motion to dismiss the amended counterclaim, with the exception that it was tentatively granting the plaintiffs motion to dismiss with respect to NFS and NLICs claim that it could recover any
disgorgement remedy from plan sponsors. On April 25, 2008, NFS and NLIC filed their opposition to the plaintiffs motion for class certification. On September 29, 2008, the plaintiffs filed their reply to NFS and
NLICs opposition to class certification. The Court has set a hearing on the class certification motion for February 27, 2009. NFS and NLIC continue to defend this lawsuit vigorously.

Tax Matters

Management has established tax reservesin accordance with current accounting guidance, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. These reserves are reviewed regularly and are adjusted as events occur that management believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations;
conclusion of tax audits or substantial agreement on the deductibility/nondeductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or rendering of a court
decision affecting a particular tax issue. Management believes its tax reserves reasonably provide for potential assessments that may result from IRS examinations and other tax-related matters for all open tax years.

The separate account DRD is a significant component of the Companys federal income tax provision. On August 16, 2007, the IRS
issued Revenue Ruling 2007-54. This ruling took a position with respect to the DRD that could have significantly reduced the Companys DRD. The Company believes that the position taken by the IRS in the ruling was contrary to existing law and
the relevant legislative history.

In Revenue Ruling 2007-61, released September 25, 2007, the IRS and the U.S.
Department of the Treasury suspended Revenue Ruling 2007-54 and informed taxpayers of their intention to address certain issues in connection with the DRD in future tax regulations. Final tax regulations could impact the Companys DRD in
periods subsequent to their effective date.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(16) | Guarantees
|---- | ----------

Since 2002, the Company has sold $677.4 million of credit enhanced equity interests in Low-Income-Housing Tax Credit Funds (LIHTC Funds) to unrelated third parties. The Company has guaranteed cumulative after-tax yields to the third party
investors ranging from 3.75% to 5.25% over periods ending between 2002 and 2022. As of December 31, 2008 and 2007, the Company held guarantee reserves totaling $5.1 million and $6.0 million, respectively, on these transactions. These guarantees
are in effect for periods of approximately 15 years each. The LIHTC Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. If the tax benefits are not sufficient to provide these cumulative
after-tax yields, then the Company must fund any shortfall, which is mitigated by stabilization collateral set aside by the Company at the inception of the transactions. The maximum amount of undiscounted future payments that the Company could be
required to pay the investors under the terms of the guarantees is $1.10 billion. The Company does not anticipate making any material payments related to these guarantees.

As of December 31, 2008, the Company held stabilization reserves of $0.8 million as collateral for certain properties owned by the LIHTC Funds that had not met all of the criteria necessary
to generate tax credits. Such criteria include completion of construction and the leasing of each unit to a qualified tenant, among others. Properties meeting the necessary criteria are considered to have stabilized. The properties are
evaluated regularly, and the collateral is released when stabilized. In 2008, $0.8 million of the stabilization reserve was released into income. In 2007, the stabilization reserve was increased by $2.4 million and $3.1 million was released into
income.

To the extent there are cash deficits in any specific property owned by the LIHTC Funds, property reserves,
property operating guarantees and reserves held by the LIHTC Funds are exhausted before the Company is required to perform under its guarantees. To the extent the Company is ever required to perform under its guarantees, it may recover any such
funding out of the cash flow distributed from the sale of the underlying properties of the LIHTC Funds. This cash flow distribution would be paid to the Company prior to any cash flow distributions to unrelated third party investors.



|(17) | Variable Interest Entities
|---- | --------------------------

In the normal course of business, the Company has relationships with variable interest entities (VIEs). The Companys VIEs are conduits that assist the Company in structured products transactions involving the
sale of low-income-housing tax credit funds (LIHTC Funds) to third party investors, other structured product issuances, and private equity investments.

The Company considers many factors when determining whether it is (or is not) the primary beneficiary of a VIE. There is a review of the entitys contract and other deal related information, such as 1) the
entitys equity investment at risk, decision-making abilities, obligations to absorb economic risks and right to receive economic rewards of the entity, 2) whether the contractual or ownership interest in the entity changes with the change in
fair value of the entity, and 3) through the variable interest, if the Company shares in the entitys expected losses and residual returns.

The Company was not required to provide financial or other support outside previous contractual requirements to any VIE.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



LIHTC Funds

The Company provides guarantees to limited partners related to the amount of tax credits that will be generated by the funds (see Note
16). The results of operations and financial position of each VIE of which the Company is the primary beneficiary are consolidated along with corresponding minority interest liabilities in the accompanying consolidated financial statements.

The Company had relationships with 19 LIHTC Funds that are considered VIEs as of December 31, 2008 and
December 31, 2007, where the company was the primary beneficiary. Net assets of these consolidated VIEs were $416.1 million and $465.7 million as of December 31, 2008 and December 31, 2007, respectively. The following table summarizes
the components of net assets as of December 31:



(in millions)

2008


2007Other long-term investments

$
371.1


$
434.1Short-term investments


20.9



31.9Other assets


41.6



38.1Other liabilities


(17.5
)


(38.4
)


The Companys total loss exposure from consolidated VIEs was immaterial
as of December 31, 2008 and December 31, 2007 (except for the impact of guarantees disclosed in Note 16). Creditors (or beneficial interest holders) of the consolidated VIEs have no recourse to the general credit of the Company.

These LIHTC Funds are financed through the sale of these funds into the secondary market. The proceeds from these sales are
used to participate in low-income housing projects that provide tax benefits to the investors.

In addition to the
consolidated VIEs described above, the Company holds variable interests, in the form of LIHTC Funds that qualify as VIEs but of which the Company is not the primary beneficiary. The carrying amount on these unconsolidated VIEs was $78.9 million and
$79.3 million as of December 31, 2008 and December 31, 2007, respectively. The total exposure to loss on these unconsolidated VIEs was $93.4 million and $108.5 million as of December 31, 2008 and December 31, 2007, respectively.
The total exposure to loss is determined by adding any unfunded commitments to the carrying amount of the VIEs.

Structured Products

The Company had relationships with one structured product investment that is considered
a VIE as of December 31, 2008 and December 31, 2007, where the Company was the primary beneficiary. Net assets of this consolidated VIE were $8.9 million and $20.1 million as of December 31, 2008 and December 31, 2007,
respectively. Creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the Company. There are no arrangements that would require the Company to provide financial support to the VIE.

As of both December 31, 2008 and December 31, 2007, the Company was invested in 11 structured product investments that are
considered VIEs but that the Company is not the primary beneficiary. These structured products are in the form of synthetic collateralized debt obligations and collateralized lease obligations. The carrying amount on these unconsolidated VIEs was
$13.7 million and $84.0 million as of December 31, 2008 and December 31, 2007, respectively. The total exposure to loss on these unconsolidated VIEs is determined to be the carrying amount of the VIEs.



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NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



Private Equity Investments

The Company had relationships with one private equity investment that is considered a VIE as of December 31, 2008 and
December 31, 2007, where the Company was the primary beneficiary. Net assets of this consolidated VIE were $18.6 million and $5.0 million as of December 31, 2008 and December 31, 2007, respectively. Creditors (or beneficial interest
holders) of the consolidated VIE have no recourse to the general credit of the Company. There are no arrangements that would require the Company to provide financial support to the VIE.

As of December 31, 2008 and December 31, 2007, the Company does not have any private equity investments considered to be a VIE
where the Company is not the primary beneficiary.



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NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



|(18) | Segment Information
|---- | -------------------

Management views the Companys business primarily based on its underlying products and uses this basis to define its four reportable segments: Individual Investments, Retirement Plans, Individual Protection, and Corporate and Other.

The primary segment profitability measure that management uses is pre-tax operating earnings, which is calculated by
adjusting income from continuing operations before federal income taxes to exclude (1) net realized investment gains and losses, except for periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting
treatment, net realized gains and losses related to hedges on GMDB contracts and net realized gains and losses related to securitizations and (2) the adjustment to amortization of DAC related to net realized investment gains and losses.

Individual Investments

The Individual Investments segment consists of individual The BEST of AMERICA® and private label deferred variable annuity products, deferred fixed annuity products, income products and advisory services. Individual deferred annuity contracts provide the customer with
tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, individual variable annuity contracts provide the customer with access to a wide range of
investment options and asset protection features, while individual fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods.

Retirement Plans

The Retirement Plans segment is comprised of the Companys private and public sector retirement plans business. The private sector primarily includes IRC Section 401 business, and the public sector primarily
includes IRC Section 457 and Section 401(a) business, both in the form of full-service arrangements that provide plan administration and fixed and variable group annuities as well as administration-only business.

Individual Protection

The Individual Protection segment consists of investment life insurance products, including individual variable, COLI and BOLI products; traditional life insurance products; and universal life insurance products. Life
insurance products provide a death benefit and generally allow the customer to build cash value on a tax-advantaged basis.

Corporate and Other

The Corporate and Other segment includes the MTN program; structured products business;
non-operating realized gains and losses, including mark-to-market adjustments on embedded derivatives, net of economic hedges, related to products with living benefits included in the Individual Investments segment; and other revenues and expenses
not allocated to other segments.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



The following tables summarize the Companys business segment operating results
for the years ended December 31:



(in millions)

IndividualInvestments


RetirementPlans

IndividualProtection

Corporateand Other


Total2008Revenues:Policy charges

$
599.0


$
115.6

$
453.4

$



$
1,168.0Premiums


119.5






164.0






283.5Net investment income


506.3



638.2


343.9


198.6



1,687.0Non-operating net realized investment losses1












(1,478.2
)


(1,478.2
)Other income


109.5



0.9





(65.1
)


45.3Total revenues


1,334.3



754.7


961.3


(1,344.7
)


1,705.6Benefits and expenses:Interest credited to policyholder accounts


361.8



425.9


181.5


161.4



1,130.6Benefits and claims


377.0






295.0


(11.7
)


660.3Policyholder dividends









26.4






26.4Amortization of DAC


647.7



39.7


113.5


(126.4
)


674.5Interest expense












61.8



61.8Other operating expenses


188.1



147.0


138.0


43.0



516.1Total benefits and expenses


1,574.6



612.6


754.4


128.1



3,069.7Income (loss) from continuing operations before federal income tax expense


(240.3
)


142.1


206.9


(1,472.8
)

$
(1,364.1
)Less: non-operating net realized investment losses1












1,478.2Less: adjustment to amortization related to net realized investment gains and losses












(138.5
)Pre-tax operating (loss) earnings

$
(240.3
)

$
142.1

$
206.9

$
(133.1
)Assets as of year end

$
41,902.1


$
21,671.1

$
16,563.2

$
4,676.0


$
84,812.4


| | 
| | 

| | 1 | Excluding periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting
treatment and net realized gains and losses related to hedges on GMDB contracts and securitizations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



(in millions)

IndividualInvestments

RetirementPlans

IndividualProtection

Corporateand Other


Total2007Revenues:Policy charges

$
656.9

$
139.5

$
411.9

$



$
1,208.3Premiums


133.1





158.6






291.7Net investment income


609.1


639.4


330.2


397.1



1,975.8Non-operating net realized investment losses1











(156.0
)


(156.0
)Other income


3.1








(5.8
)


(2.7
)Total revenues


1,402.2


778.9


900.7


235.3



3,317.1Benefits and expenses:Interest credited to policyholder accounts


419.7


433.7


178.0


231.2



1,262.6Benefits and claims


234.2





245.1






479.3Policyholder dividends








24.5






24.5Amortization of DAC


287.1


26.7


80.2


(25.5
)


368.5Interest expense











70.0



70.0Other operating expenses


191.6


173.6


147.1


17.2



529.5Total benefits and expenses


1,132.6


634.0


674.9


292.9



2,734.4Income (loss) from continuing operations before federal income tax expense


269.6


144.9


225.8


(57.6
)

$
582.7Less: non-operating net realized investment losses1











156.0Less: adjustment to amortization related to net realized investment gains and losses











(25.5
)Pre-tax operating earnings

$
269.6

$
144.9

$
225.8

$
72.9Assets as of year end

$
55,692.9

$
26,912.6

$
18,251.1

$
8,683.4


$
109,540.0


| | 
| | 

| | 1 | Excluding periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting
treatment and net realized gains and losses related to securitizations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006



(in millions)

IndividualInvestments

RetirementPlans

IndividualProtection

Corporateand Other


Total2006Revenues:Policy charges

$
581.7

$
160.2

$
390.7

$



$
1,132.6Premiums


142.5





165.8






308.3Net investment income


739.5


636.0


328.2


354.8



2,058.5Non-operating net realized investment gains1











1.0



1.0Other income


2.6





0.3


3.4



6.3Total revenues


1,466.3


796.2


885.0


359.2



3,506.7Benefits and expenses:Interest credited to policyholder accounts


501.7


440.5


179.2


208.7



1,330.1Benefits and claims


202.8





247.5






450.3Policyholder dividends








25.6






25.6Amortization of DAC


352.7


37.9


69.6


(9.9
)


450.3Interest expense











65.5



65.5Other operating expenses


206.3


179.1


142.4


9.0



536.8Total benefits and expenses


1,263.5


657.5


664.3


273.3



2,858.6Income from continuing operations before federal income tax expense


202.8


138.7


220.7


85.9


$
648.1Less: non-operating net realized investment gains1











(1.0
)Less: adjustment to amortization related to net realized investment gains and losses











(9.9
)Pre-tax operating earnings

$
202.8

$
138.7

$
220.7

$
75.0Assets as of year end

$
55,404.6

$
28,817.2

$
16,948.8

$
8,791.8


$
109,962.4


| | 
| | 

| | 1 | Excluding periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting
treatment and net realized gains and losses related to securitizations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule I         Consolidated Summary of Investments  Other Than Investments in Related Parties

As of December 31, 2008 (in millions)



|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|------------------------------------------------------------------------ |  | -------- | -------- | ----------- | - | --------------------------------------------------- |  | - | -------- | -
|Column A                                                                 |  | Column B |          | Column C    |   | Column D                                            | 
|Type of investment                                                       |  | Cost     |          | Marketvalue |   | Amount atwhich shownin theconsolidatedbalance sheet | 
|Fixed maturity securities available-for-sale:                            |  |          |          |             |   |                                                     |  |   |          |  
|Bonds:                                                                   |  |          |          |             |   |                                                     |  |   |          |  
|U.S. Treasury securities and obligations of U.S. Government corporations |  | $        | 77.3     |             | $ | 97.4                                                |  | $ | 97.4     |  
|Agencies not backed by the full faith and credit of the U.S. Government  |  |          | 384.6    |             |   | 473.9                                               |  |   | 473.9    |  
|Obligations of states and political subdivisions                         |  |          | 223.0    |             |   | 217.1                                               |  |   | 217.1    |  
|Foreign governments                                                      |  |          | 33.9     |             |   | 38.9                                                |  |   | 38.9     |  
|Public utilities                                                         |  |          | 1,667.7  |             |   | 1,578.5                                             |  |   | 1,578.5  |  
|All other corporate                                                      |  |          | 19,434.4 |             |   | 16,841.4                                            |  |   | 16,841.4 |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Total fixed maturity securities available-for-sale                       |  |          | 21,820.9 |             |   | 19,247.2                                            |  |   | 19,247.2 |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Equity securities available-for-sale:                                    |  |          |          |             |   |                                                     |  |   |          |  
|Common stocks:                                                           |  |          |          |             |   |                                                     |  |   |          |  
|Banks, trusts and insurance companies                                    |  |          | 14.3     |             |   | 9.5                                                 |  |   | 9.5      |  
|Industrial, miscellaneous and all other                                  |  |          |         |             |   | 0.1                                                 |  |   | 0.1      |  
|Nonredeemable preferred stocks                                           |  |          | 16.6     |             |   | 16.9                                                |  |   | 16.9     |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Total equity securities available-for-sale                               |  |          | 30.9     |             |   | 26.5                                                |  |   | 26.5     |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Mortgage loans on real estate, net                                       |  |          | 7,249.7  |             |   |                                                     |  |   | 7,189.9  | 1
|Real estate, net:                                                        |  |          |          |             |   |                                                     |  |   |          |  
|Investment properties                                                    |  |          | 11.0     |             |   |                                                     |  |   | 8.5      | 2
|Acquired in satisfaction of debt                                         |  |          | 9.8      |             |   |                                                     |  |   | 8.0      | 2
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Total real estate, net                                                   |  |          | 20.8     |             |   |                                                     |  |   | 16.5     |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Policy loans                                                             |  |          | 767.4    |             |   |                                                     |  |   | 767.4    |  
|Other long-term investments                                              |  |          | 521.6    |             |   |                                                     |  |   | 521.6    |  
|Short-term investments, including amounts managed by a related party     |  |          | 2,780.9  |             |   |                                                     |  |   | 2,780.9  |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  
|Total investments                                                        |  | $        | 33,192.2 |             |   |                                                     |  | $ | 30,550.0 |  
|                                                                         |  |          |          |             |   |                                                     |  |   |          |  



| | 1 | Difference from Column B primarily is attributable to valuation allowances due to impairments on mortgage loans on
real estate (see Note 6 to the audited consolidated financial statements), hedges and commitment hedges on mortgage loans on real estate.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | Difference from Column B primarily results from adjustments for accumulated depreciation.
| | - | -----------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule III        Supplementary Insurance Information

As of
December 31, 2008, 2007 and 2006 and for each of the years then ended (in millions)



|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|---------------------- |  | ------------------------------ | ------- | ----------------------------------------------------- | - | ----------------------------------------------- |  | - | --------------------------------------- | - | --------------- | - | ----- |  | - | -----
|Column A               |  | Column B                       |         | Column C                                              |   | Column D                                        |  |   | Column E                                |   | Column F       
|Year: Segment          |  | Deferredpolicyacquisitioncosts |         | Future policybenefits, losses,claims andloss expenses |   | Unearnedpremiums 1                              |  |   | Other policyclaims andbenefits payable1 |   | Premiumrevenue 
|2008                   |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Individual Investments |  | $                              | 1,883.0 |                                                       | $ | 12,026.3                                        |  |   |                                         |   |                 |   |       |  | $ | 119.5
|Retirement Plans       |  |                                | 284.3   |                                                       |   | 11,244.8                                        |  |   |                                         |   |                 |   |       |  |   |     
|Individual Protection  |  |                                | 1,640.7 |                                                       |   | 5,941.2                                         |  |   |                                         |   |                 |   |       |  |   | 164.0
|Corporate and Other    |  |                                | 615.9   |                                                       |   | 3,324.0                                         |  |   |                                         |   |                 |   |       |  |   |     
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Total                  |  | $                              | 4,423.9 |                                                       | $ | 32,536.3                                        |  |   |                                         |   |                 |   |       |  | $ | 283.5
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|2007                   |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Individual Investments |  | $                              | 2,078.1 |                                                       | $ | 10,748.6                                        |  |   |                                         |   |                 |   |       |  | $ | 133.1
|Retirement Plans       |  |                                | 289.7   |                                                       |   | 10,693.7                                        |  |   |                                         |   |                 |   |       |  |   |     
|Individual Protection  |  |                                | 1,542.5 |                                                       |   | 5,635.9                                         |  |   |                                         |   |                 |   |       |  |   | 158.6
|Corporate and Other    |  |                                | 87.1    |                                                       |   | 4,920.2                                         |  |   |                                         |   |                 |   |       |  |   |     
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Total                  |  | $                              | 3,997.4 |                                                       | $ | 31,998.4                                        |  |   |                                         |   |                 |   |       |  | $ | 291.7
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|2006                   |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Individual Investments |  | $                              | 1,945.0 |                                                       | $ | 13,004.4                                        |  |   |                                         |   |                 |   |       |  | $ | 142.5
|Retirement Plans       |  |                                | 288.6   |                                                       |   | 10,839.0                                        |  |   |                                         |   |                 |   |       |  |   |     
|Individual Protection  |  |                                | 1,441.0 |                                                       |   | 5,574.1                                         |  |   |                                         |   |                 |   |       |  |   | 165.8
|Corporate and Other    |  |                                | 83.4    |                                                       |   | 4,991.9                                         |  |   |                                         |   |                 |   |       |  |   |     
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Total                  |  | $                              | 3,758.0 |                                                       | $ | 34,409.4                                        |  |   |                                         |   |                 |   |       |  | $ | 308.3
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|                       |  |                                |         |                                                       |  
|Column A               |  | Column G                       |         | Column H                                              |   | Column I                                        |  |   | Column J                                |   | ColumnK        
|Year: Segment          |  | Netinvestmentincome2           |         | Benefits, claims,losses andsettlement expenses        |   | Amortizationof deferred policyacquisition costs |  |   | Other operatingexpenses 2               |   | Premiumswritten
|2008                   |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Individual Investments |  | $                              | 506.3   |                                                       | $ | 738.8                                           |  | $ | 647.7                                   |   |                 | $ | 188.1 |  |   |      
|Retirement Plans       |  |                                | 638.2   |                                                       |   | 425.9                                           |  |   | 39.7                                    |   |                 |   | 147.0 |  |   |      
|Individual Protection  |  |                                | 343.9   |                                                       |   | 502.9                                           |  |   | 113.5                                   |   |                 |   | 138.0 |  |   |      
|Corporate and Other    |  |                                | 198.6   |                                                       |   | 149.7                                           |  |   | (126.4                                  | ) |                 |   | 104.8 |  |   |      
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Total                  |  | $                              | 1,687.0 |                                                       | $ | 1,817.3                                         |  | $ | 674.5                                   |   |                 | $ | 577.9 |  |   |      
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|2007                   |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Individual Investments |  | $                              | 609.1   |                                                       | $ | 653.9                                           |  | $ | 287.1                                   |   |                 | $ | 191.6 |  |   |      
|Retirement Plans       |  |                                | 639.4   |                                                       |   | 433.7                                           |  |   | 26.7                                    |   |                 |   | 173.6 |  |   |      
|Individual Protection  |  |                                | 330.2   |                                                       |   | 447.6                                           |  |   | 80.2                                    |   |                 |   | 147.1 |  |   |      
|Corporate and Other    |  |                                | 397.1   |                                                       |   | 231.2                                           |  |   | (25.5                                   | ) |                 |   | 87.1  |  |   |      
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Total                  |  | $                              | 1,975.8 |                                                       | $ | 1,766.4                                         |  | $ | 368.5                                   |   |                 | $ | 599.4 |  |   |      
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|2006                   |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Individual Investments |  | $                              | 739.5   |                                                       | $ | 704.5                                           |  | $ | 352.7                                   |   |                 | $ | 206.3 |  |   |      
|Retirement Plans       |  |                                | 636.0   |                                                       |   | 440.5                                           |  |   | 37.9                                    |   |                 |   | 179.1 |  |   |      
|Individual Protection  |  |                                | 328.2   |                                                       |   | 452.3                                           |  |   | 69.6                                    |   |                 |   | 142.4 |  |   |      
|Corporate and Other    |  |                                | 354.8   |                                                       |   | 208.7                                           |  |   | (9.9                                    | ) |                 |   | 74.5  |  |   |      
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      
|Total                  |  | $                              | 2,058.5 |                                                       | $ | 1,806.0                                         |  | $ | 450.3                                   |   |                 | $ | 602.3 |  |   |      
|                       |  |                                |         |                                                       |   |                                                 |  |   |                                         |   |                 |   |       |  |   |      



|1 | Unearned premiums and other policy claims and benefits payable are included in Column C amounts.
|- | ------------------------------------------------------------------------------------------------

|2 | Allocations of net investment income and certain operating expenses are based on numerous assumptions and estimates,
and reported segment operating results would change if different methods were applied.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to
consolidated financial statements and report of independent registered public accounting firm.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule IV        Reinsurance

As of December 31, 2008, 2007 and
2006 and for each of the years then ended (dollars in millions)



|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|----------------------------- |  | ----------- | --------- | ---------------------- | - | -------------------------- |  | --------- | ---- | -------------------------------- | - | --------- |  | ----
|Column A                      |  | Column B    |           | Column C               |   | Column D                   |  | Column E  |      | Column F                        
|                              |  | Grossamount |           | Ceded toothercompanies |   | Assumedfrom othercompanies |  | Netamount |      | Percentageof amountassumedto net
|2008                          |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Life insurance in force       |  | $           | 167,715.4 |                        | $ | 58,850.8                   |  | $         | 3.8  |                                  | $ | 108,868.4 |  | 0.0%
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Premiums:                     |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Life insurance1               |  | $           | 348.2     |                        | $ | 64.8                       |  | $         | 0.1  |                                  | $ | 283.5     |  | 0.0%
|Accident and health insurance |  |             | 182.9     |                        |   | 209.3                      |  |           | 26.4 |                                  |   |          |  | NM  
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Total                         |  | $           | 531.1     |                        | $ | 274.1                      |  | $         | 26.5 |                                  | $ | 283.5     |  | 9.3%
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|2007                          |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Life insurance in force       |  | $           | 156,899.3 |                        | $ | 58,529.0                   |  | $         | 4.4  |                                  | $ | 98,374.7  |  | 0.0%
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Premiums:                     |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Life insurance1               |  | $           | 364.2     |                        | $ | 72.7                       |  | $         | 0.2  |                                  | $ | 291.7     |  | 0.0%
|Accident and health insurance |  |             | 289.2     |                        |   | 316.8                      |  |           | 27.6 |                                  |   |          |  | NM  
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Total                         |  | $           | 653.4     |                        | $ | 389.5                      |  | $         | 27.8 |                                  | $ | 291.7     |  | 9.5%
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|2006                          |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Life insurance in force       |  | $           | 151,109.9 |                        | $ | 58,189.8                   |  | $         | 7.9  |                                  | $ | 92,928.0  |  | 0.0%
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Premiums:                     |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Life insurance1               |  | $           | 336.4     |                        | $ | 28.4                       |  | $         | 0.3  |                                  | $ | 308.3     |  | 0.1%
|Accident and health insurance |  |             | 388.9     |                        |   | 417.4                      |  |           | 28.5 |                                  |   |          |  | NM  
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     
|Total                         |  | $           | 725.3     |                        | $ | 445.8                      |  | $         | 28.8 |                                  | $ | 308.3     |  | 9.3%
|                              |  |             |           |                        |   |                            |  |           |      |                                  |   |           |  |     



|1 | Primarily represents premiums from traditional life insurance and life-contingent immediate annuities and excludes
deposits on investment and universal life insurance products.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements
and report of independent registered public accounting firm.



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##### Table of Contents

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule V        Valuation and Qualifying Accounts

Years ended
December 31, 2008, 2007 and 2006 (in millions)



|                                                     |  |                              |      |                                       |   |                         |  |             |   |                        |   |      |  |   |     
|---------------------------------------------------- |  | ---------------------------- | ---- | ------------------------------------- | - | ----------------------- |  | ----------- | - | ---------------------- | - | ---- |  | - | ----
|Column A                                             |  | Column B                     |      | Column C                              |   | Column D                |  | Column E   
|Description                                          |  | Balance atbeginningof period |      | Charged(credited) tocosts andexpenses |   | Charged tootheraccounts |  | Deductions1 |   | Balance atend ofperiod
|2008                                                 |  |                              |      |                                       |   |                         |  |             |   |                        |   |      |  |   |     
|Valuation allowances - mortgage loans on real estate |  | $                            | 23.1 |                                       | $ | 19.6                    |  | $           |  |                        | $ | 3.2  |  | $ | 39.5
|                                                     |  |                              |      |                                       |  
|2007                                                 |  |                              |      |                                       |   |                         |  |             |   |                        |   |      |  |   |     
|Valuation allowances - mortgage loans on real estate |  | $                            | 34.3 |                                       | $ | 1.1                     |  | $           |  |                        | $ | 12.3 |  | $ | 23.1
|                                                     |  |                              |      |                                       |  
|2006                                                 |  |                              |      |                                       |   |                         |  |             |   |                        |   |      |  |   |     
|Valuation allowances - mortgage loans on real estate |  | $                            | 31.1 |                                       | $ | 6.0                     |  | $           |  |                        | $ | 2.8  |  | $ | 34.3



|1 | Amounts represent transfers to real estate owned and recoveries.
|- | ----------------------------------------------------------------

See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                    |  |                                   |  |                                                
|------------------- |  | --------------------------------- |  | -----------------------------------------------
|                    | 
|                    |  | NATIONWIDE LIFE INSURANCE COMPANY
|                    |  | (Registrant)                     
|                    |  |                                  
|Date: March 2, 2009 |  | By                                |  | /s/ Mark R. Thresher                           
|                    |  |                                   |  | Mark R. Thresher, President and Chief Operating
|                    |  |                                   |  | Officer (Principal Executive Officer)          

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                                                                   |  |  |  |               |  |  |  |                                                                                    |  |  |  |              
|-------------------------------------------------------------------------------------------------- |  |  |  | ------------- |  |  |  | ---------------------------------------------------------------------------------- |  |  |  | -------------
|                                                                                                   |  |  |  |               |  | 
|/s/ Mark R. Thresher                                                                               |  |  |  | March 2, 2009 |  |  |  | /s/ Timothy G. Frommeyer                                                           |  |  |  | March 2, 2009
|                                                                                                   |  |  |  |               |  | 
|Mark R. Thresher, President and Chief Operating Officer
and Director (Principal Executive Officer) |  |  |  | Date          |  |  |  | Timothy G. Frommeyer, Senior Vice President  Chief
Financial Officer and Director |  |  |  | Date         
|                                                                                                   |  |  |  |               |  | 
|/s/ Peter A. Golato                                                                                |  |  |  | March 2, 2009 |  |  |  | /s/ Lawrence A. Hilsheimer                                                         |  |  |  | March 2, 2009
|                                                                                                   |  |  |  |               |  | 
|Peter A. Golato, Director                                                                          |  |  |  | Date          |  |  |  | Lawrence A. Hilsheimer, Director                                                   |  |  |  | Date         
|                                                                                                   |  |  |  |               |  | 
|/s/ Stephen S. Rasmussen                                                                           |  |  |  | March 2, 2009 |  |  |  |                                                                                    |  |  |  |              
|                                                                                                   |  |  |  |               |  | 
|Stephen S. Rasmussen, Director                                                                     |  |  |  | Date          |  |  |  |                                                                                    |  |  |  |              

See accompanying notes to consolidated financial statements and report of independent registered
public accounting firm.



F-72



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##### Table of Contents

Exhibit Index



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3.1     |  | Amended Articles of Incorporation of Nationwide Life Insurance Company, dated February 3, 2000 (previously filed as Exhibit 3.1 to Form 10-K, Commission File Number
2-64559, filed March 24, 2003, and incorporated herein by reference)                                                                                                                                                                                                                         
|        | 
|3.2     |  | Amended and Restated Code of Regulations of Nationwide Life Insurance Company (previously filed as Exhibit 3.2 to Form 10-K, Commission File Number 2-64559, filed March 1,
2007, and incorporated herein by reference)                                                                                                                                                                                                                                           
|        | 
|10.1    |  | Tax Sharing Agreement effective as of January 1, 2008 among Nationwide Financial Services, Inc. and any company that in the future becomes a subsidiary of Nationwide
Financial Services, Inc. if eligible under the Internal Revenue Code (previously filed as Exhibit 99.1 to Form 8-K, Commission File Number 1-12785, filed January 29, 2008, and incorporated herein by reference)                                                                           
|        | 
|10.2    |  | Form of Tax Sharing Agreement dated as of October 1, 2002 among Nationwide Life Insurance Company and any corporation that may hereafter be a subsidiary of Nationwide Life
Insurance Company (previously filed as Exhibit 10.4 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)                                                                                                                         
|        | 
|10.3    |  | Form of Amended and Restated Cost Sharing Agreement among parties named therein (previously filed as Exhibit 10.3 to Form 10-K, Commission File Number 1-12785, filed March
14, 2003, and incorporated herein by reference)                                                                                                                                                                                                                                       
|        | 
|10.4    |  | Amended and Restated Five-Year Credit Agreement, dated December 31, 2007, among Nationwide Financial Services, Inc., Nationwide Life Insurance Company, Nationwide Mutual
Insurance Company, the banks party thereto and Wachovia Bank, National Association, as syndication agent, and Citicorp USA, Inc. as agent (previously filed as Exhibit 10.7 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008, and
incorporated herein by reference)
|        | 
|10.5    |  | Form of Lease Agreement between Nationwide Mutual Insurance Company, Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company and Nationwide
Financial Services, Inc. (previously filed as Exhibit 10.7 to Form S-1/A, Registration Number 333-18531, filed February 25, 1997, and incorporated herein by reference)                                                                                                                      
|        | 
|10.6*   |  | General Description of Nationwide Performance Incentive Plan (previously filed as Exhibit 10.9 to Form 10-K, Commission File Number 333-18527, filed March 29, 2001, and
incorporated herein by reference)                                                                                                                                                                                                                                                        
|        | 
|10.7*   |  | Form of Amended and Restated Nationwide Office of Investments Incentive Plan dated as of October 7, 2003 (previously filed as Exhibit 10.13 to Form 10-K, Commission File
Number 1-12785, filed March 1, 2005, and incorporated herein by reference)                                                                                                                                                                                                              
|        | 
|10.8*   |  | Nationwide Excess Benefit Plan effective as of January 1, 2000 (previously filed as Exhibit 10.14 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and
incorporated herein by reference)                                                                                                                                                                                                                                                        
|        | 
|10.9*   |  | Nationwide Supplemental Retirement Plan As Amended and Restated effective January 1, 2000 (previously filed as Exhibit 10.1 to Form 10-K, Commission File Number 1-12785,
filed March 1, 2005, and incorporated herein by reference)                                                                                                                                                                                                                              
|        | 
|10.10*  |  | Nationwide Severance Pay Plan effective as of March 1, 2003 (previously filed as Exhibit 10.16 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and
incorporated herein by reference)                                                                                                                                                                                                                                                           

See accompanying notes to consolidated financial statements and report of independent registered
public accounting firm.



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|       |  |                                                                                                                                                                                                                                                                                                                                                            
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.11* |  | Nationwide Supplemental Defined Contribution Plan effective as of January 1, 2005 (previously filed as Exhibit 10.17 to Form 10-K, Commission File Number 1-12785,
filed March 1, 2005, and incorporated herein by reference)                                                                                                                              
|       | 
|10.12* |  | Nationwide Individual Deferred Compensation Plan, as Amended and Restated, effective as of January 1, 2005 (previously filed as Exhibit 10.18 to Form 10-K, Commission File
Number 1-12785, filed March 1, 2005, and incorporated herein by reference)                                                                                                     
|       | 
|10.13* |  | Nationwide Board of Directors Deferred Compensation Plan, as Amended and Restated, effective as of January 1, 2005 (previously filed as Exhibit 10.19 to Form 10-K, Commission
File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)                                                                                             
|       | 
|10.14  |  | Investment Agency Cost Allocation Agreement dated October 30, 2002 between Nationwide Life Insurance Company and Nationwide Cash Management Company (previously filed as
Exhibit 10.22 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)                                                           
|       | 
|10.15  |  | Master Repurchase Agreement between Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company, and Nationwide Mutual Insurance Company and certain of
its Subsidiaries and affiliates (previously filed as Exhibit 10.20 to Form 10-K, Commission File Number 333-18527, filed March 29, 2000, and incorporated herein by reference)
|       | 
|10.16* |  | Employment letter agreement between Nationwide Financial Services, Inc. and John Carter dated October 27, 2005 (previously filed as Exhibit 10.1 Form 10-Q, Commission File
Number 1-12785, filed November 3, 2005, and incorporated herein by reference)                                                                                                  
|       | 
|10.17* |  | Summary of terms of employment of Timothy G. Frommeyer (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2005, and
incorporated herein by reference)                                                                                                                                                       
|       | 
|10.18  |  | Form of Employee Leasing Agreement, dated July 1, 2000, between Nationwide Mutual Insurance Company and Nationwide Financial Services, Inc. (previously filed as Exhibit 10.35
to Form 10-Q, Commission File Number 1-12785, filed May 11, 2001, and incorporated herein by reference)                                                                     
|       | 
|10.19  |  | Form of Surplus Note, dated December 17, 2001, between Nationwide Financial Services, Inc. and Nationwide Life Insurance Company (previously filed as Exhibit 10.32 to Form
10-K, Commission File Number 2-64559, filed March 23, 2003, and incorporated herein by reference)                                                                              
|       | 
|10.20  |  | Form of Surplus Note, dated June 26, 2002, between Nationwide Financial Services, Inc. and Nationwide Life Insurance Company (previously filed as Exhibit 10.33 to Form 10-K,
Commission File Number 2-64559, filed March 23, 2003, and incorporated herein by reference)                                                                                  
|       | 
|10.21  |  | Form of Surplus Note, dated December 23, 2003, between Nationwide Financial Services, Inc. and Nationwide Life Insurance Company (previously filed as Exhibit 10.34 to Form
10-K, Commission File Number 2-64559, filed March 11, 2004, and incorporated herein by reference)                                                                              
|       | 
|10.22* |  | Employment Offer Letter Agreement between Nationwide Financial Services, Inc. and Gail Snyder dated November 28, 2005 (previously filed as Exhibit 10.49 to Form 10-K,
Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)                                                                                          
|       | 
|10.23* |  | Offer Letter for Anne L. Arvia, dated June 30, 2006 (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed August 3, 2006, and incorporated
herein by reference)                                                                                                                                                            
|       | 
|10.24* |  | Offer Letter for William Jackson, dated August 21, 2006 (previously filed as Exhibit 10.1 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2006, and
incorporated herein by reference)                                                                                                                                                      

See accompanying notes to consolidated financial statements and report of independent registered
public accounting firm.



F-74



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|       |  |                                                                                                                                                                                                                                                                                                                                                   
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.25* |  | Offer Letter for James Lyski, dated August 30, 2006 (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2006, and
incorporated herein by reference)                                                                                                                                                 
|       | 
|10.26* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Larry Hilsheimer (previously filed as Exhibit 10.49 to Form 10-K,
Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                            
|       | 
|10.27* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Terri L. Hill (previously filed as Exhibit 10.50 to Form 10-K,
Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                               
|       | 
|10.28* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and James Lyski (previously filed as Exhibit 10.51 to Form 10-K, Commission
File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                                 
|       | 
|10.29* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Michael C. Keller (previously filed as Exhibit 10.52 to Form 10-K,
Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                           
|       | 
|10.30* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Patricia R. Hatler (previously filed as Exhibit 10.53 to Form 10-K,
Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                          
|       | 
|10.31* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Financial Services, Inc. and Mark R. Thresher (previously filed as Exhibit 99.1 to Form 8-K,
Commission File Number 1-12785, filed February 19, 2008, and incorporated herein by reference)                                                                              
|       | 
|10.32* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Stephen S. Rasmussen (previously filed as Exhibit 10.55 to Form 10-K,
Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                        
|       | 
|10.33* |  | Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and W.G. Jurgensen (previously filed as Exhibit 99.2 to Form 8-K, Commission
File Number 1-12785, filed February 19, 2008, and incorporated herein by reference)                                                                                
|       | 
|10.34* |  | First Amendment to the Nationwide Individual Deferred Compensation Plan, as amended and restated, effective as of January 1, 2005 (previously filed as Exhibit 10.58 to Form
10-K, Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                 
|       | 
|10.35* |  | Second Amendment to the Nationwide Individual Deferred Compensation Plan, as amended and restated, effective as of January 1, 2005 (previously filed as Exhibit 10.59 to Form
10-K, Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)                                                                
|       | 
|10.36* |  | Third Amendment to the Nationwide Individual Deferred Compensation Plan, as amended and restated (now known as the Nationwide Officer Deferred Compensation Plan), effective
as of January 1, 2005 (previously filed as Exhibit 10.60 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)
|       | 
|18.1   |  | Letter regarding change in accounting principle from KPMG LLP related to annual goodwill impairment testing (previously filed as Exhibit 18 to Form 10-Q, Commission File
Number 1-12785, filed November 12, 2003, and incorporated herein by reference)                                                                                          

See accompanying notes to consolidated financial statements and report of independent registered
public accounting firm.



F-75



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##### Table of Contents

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|18.2 |  | Letter regarding change in accounting principle from KPMG LLP related to accrued legal expenses (previously filed as Exhibit 18.1 to Form 10-Q, Commission File Number
1-12785, filed August 2, 2007, and incorporated herein by reference)                                                                                                                                                                                                                                                                           
|     | 
|31.1 |  | Certification of Mark R. Thresher pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                            
|     | 
|31.2 |  | Certification of Timothy G. Frommeyer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                        
|     | 
|32.1 |  | Certification of Mark R. Thresher pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (this exhibit is intended to be
furnished in accordance with Regulation S-K, Item 601(b)(32)(ii) and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities
Act of 1933, except as shall be expressly set forth by specific reference to such filing)     
|     | 
|32.2 |  | Certification of Timothy G. Frommeyer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (this exhibit is intended to be
furnished in accordance with Regulation S-K, Item 601(b)(32)(ii) and shall note be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities
Act of 1933, except as shall be expressly set forth by specific reference to such filing)



|* | Management Compensatory Plan
|- | ----------------------------

All
other exhibits referenced by Item 601 of Regulation S-K are not required under the related instructions or are inapplicable and therefore have been omitted.

See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.



F-76