For purposes of this discussion, Nationwide Life Insurance Company and its wholly owned insurance subsidiaries, Nationwide Life and Annuity Insurance Company, West Coast Life Insurance Company, Employers Life Insurance Company of Wausau and National Casualty Company, are referred to as "the Company."
Also during 1993, the Company sold substantially all of its equity securities to Nationwide Mutual Insurance Company, the majority owner of Nationwide Life Insurance Company's parent, Nationwide Corporation. The Company realized a $123 million gain ($80 million after tax) on the transaction.
For a discussion of Federal income tax expense, see note 7 to the consolidated financial statements.
The long-term savings segment includes both qualified and non-qualified annuity contracts issued to individuals and groups. Products are sold through Nationwide Insurance Enterprise career agents, brokers, financial institutions, pension plan administrators and three affiliated sales companies as described in note 13 to the consolidated financial statements.
Operating earnings for 1994 were up 99% over 1993. The increase is primarily attributable to growth in assets under management. During 1994, asset fees and interest margins increased 42% and 18%, respectively, from 1993. Management's efforts to control expenses resulted in operating costs and expenses increasing 12% despite greater growth in assets under management and premiums and deposits.
Operating earnings in 1995 were $63 million, up 37% from 1994 due to an increase in life insurance in-force and offset by minimal increases in operating expenses. At the end of 1995, life insurance in-force was $52.4 billion, an increase of $5.3 billion from 1994. Total premiums and deposits in 1995 were $471 million, a $52 million increase over 1994. A significant portion of this increase is attributable to sales of variable universal life policies. The minimal increase in expenses (4%) during 1995 reflects the Company's commitment to increasing operating efficiencies.
Outlook: Although life insurance is a more mature business segment than long-term savings, management anticipates growth in the life insurance segment, particularly with the variable universal life products. Increasing operating efficiencies and controlling expenses will continue to be a focus.
The accident and health insurance segment reported an operating loss of $13 million in 1995 compared to operating earnings of $13 million in 1994. The loss is attributable to higher claims costs on group business and operating expenses. The 1995 results include Employers Life Insurance Company of Wausau. Employers Life Insurance Company of Wausau reported 1995 accident and health insurance revenues of $198 million, including $151 million of premiums assumed from Employers Insurance of Wausau A Mutual Company, an affiliate.
Operating earnings for 1994 of $13 million were down from $15 million in 1993, primarily due to higher claims costs which were partially offset by a decrease in operating expenses.
The realized gains in 1993 are principally related to the sale of substantially all equity securities to Nationwide Mutual Insurance Company. In 1994, the corporate segment benefited from the earnings on a $200 million capital contribution Nationwide Life Insurance Company received in February, 1994.
Mortgage Loans on Real Estate: The Company's mortgage loans on real estate portfolio consists of first mortgages on existing income-producing properties. The Company does not make second mortgages, construction loans, participating or convertible mortgages and land development loans.
Capital Resources and Liquidity ------------------------------- Capital Resources: Total consolidated shareholder's equity increased to $2,669 million as of December 31, 1995 from $1,908 million as of December 31, 1994 ($1,651 million as of December 31, 1993).
During 1994, the Company adopted SFAS No. 115 - Accounting for Certain Investments in Debt and Equity Securities, which resulted in certain debt securities being recorded at fair value with unrealized gains or losses, net of certain adjustments to deferred policy acquisition costs and deferred Federal income taxes, reported as a component of consolidated shareholder's equity. As permitted by the Financial Accounting Standards Board's (FASB) Special Report - A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities, issued in November 1995, the Company transferred all of its fixed maturity securities previously classified as held-to-maturity to available-for-sale. The transfer resulted in a gross unrealized gain of $172 million. While classifying all fixed maturity securities as available-for-sale will result in greater fluctuations in total consolidated shareholder's equity, such classification does allow the Company maximum flexibility for asset and liability management. See notes 2(b), 3 and 5 to the consolidated financial statements for additional disclosures regarding SFAS No. 115.
Excluding unrealized investment gains and losses, consolidated shareholder's equity increased $256 million (13%) to $2,284 million as of December 31, 1995, from $2,028 million as of December 31, 1994 ($1,644 million as of December 31, 1993).
Effective December 31, 1994, the Company purchased all of the outstanding shares of Employers Life Insurance Company of Wausau from Wausau Service Corporation for $155 million. Wausau Service Corporation is a wholly-owned subsidiary of Employers Insurance of Wausau A Mutual Company, which is affiliated with Nationwide Mutual Insurance Company. Nationwide Life Insurance Company transferred fixed maturity securities and cash with a fair value of $155 million to Wausau Service Corporation, which resulted in a realized loss of $19.2 million on the disposition of the securities. The purchase price approximated both the historical cost basis and fair value of net assets of Employers Life Insurance Company of Wausau.
Liquidity: The Company's operations have historically provided substantial positive cash flow. The significant growth in premiums and deposits and the resulting increase in investments have provided the Company with sufficient cash resources to meet all current obligations for policyholder benefits, withdrawals, surrenders, policy loans and operating expenses.
As a member of the Nationwide Insurance Enterprise, the Company also has access to available capital infusions and borrowings from affiliates in the event of extreme unexpected withdrawals. The Company also participates in intercompany repurchase agreements with affiliates to satisfy short-term cash needs. Transactions under the agreements were not material in 1995 and 1994.
The Company purchases investments with durations to match the expected durations of the liabilities they support. To the extent liabilities become due more quickly than anticipated, the Company may need to borrow funds or sell investments prior to maturity and potentially recognize a gain or loss.
Consolidated Financial Statements and Supplementary Data. --------------------------------------------------------- The consolidated financial statements of Nationwide Life Insurance Company and subsidiaries are submitted in a separate section of this report which is indexed in Item 14.
Semi-annual and annual reports are sent to contract owners of the variable contracts issued through registered Separate Accounts of the Company.