Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2015

Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables set forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of the date indicated:



	June 30, 2015
	Total		Level 1	Level 2	Level 3
	(In thousands)

Debt securities, available for sale	$	2,823,553	—	2,823,553	—
Equity securities, available for sale	17,036		16,533	503	—
Derivatives, index options	72,527		—	—	72,527

Total assets	$	2,913,116	16,533	2,824,056	72,527

Policyholder account balances (a)	$	88,109	—	—	88,109
Other liabilities (b)	7,259		—	—	7,259

Total liabilities	$	95,368	—	—	95,368

During the three and six months ended June 30, 2015, the Company had no transfers into or out of Levels 1, 2 or 3.



	December 31, 2014
	Total		Level 1	Level 2	Level 3
	(In thousands)

Debt securities, available for sale	$	2,711,377	—	2,711,377	—
Equity securities, available for sale	17,303		16,862	441	—
Derivatives, index options	114,287		—	—	114,287

Total assets	$	2,842,967	16,862	2,711,818	114,287

Policyholder account balances (a)	$	133,236	—	—	133,236
Other liabilities (b)	9,256		—	—	9,256

Total liabilities	$	142,492	—	—	142,492

(a) Represents the fair value of certain product-related embedded derivatives that were recorded at fair value.

(b) Represents the liability for share-based compensation.

Schedule of Assets by Pricing Source and Fair Value Hierarchy Measured on Recurring Basis

The following tables present, by pricing source and fair value hierarchy level, the Company’s assets that are measured at fair value on a recurring basis:



	June 30, 2015
	Total			Level 1		Level 2		Level 3
	(In thousands)

Debt securities, available for sale:
Priced by third-party vendors	$	2,823,553		—		2,823,553		—
Priced internally	—			—		—		—
Subtotal	2,823,553			—		2,823,553		—

Equity securities, available for sale:
Priced by third-party vendors	17,036			16,533		503		—
Priced internally	—			—		—		—
Subtotal	17,036			16,533		503		—

Derivatives, index options:
Priced by third-party vendors	72,527			—		—		72,527
Priced internally	—			—		—		—
Subtotal	72,527			—		—		72,527

Total	$	2,913,116		16,533		2,824,056		72,527

Percent of total	100.0		%	0.6	%	96.9	%	2.5	%



	December 31, 2014
	Total			Level 1		Level 2		Level 3
	(In thousands)

Debt securities, available for sale:
Priced by third-party vendors	$	2,711,377		—		2,711,377		—
Priced internally	—			—		—		—
Subtotal	2,711,377			—		2,711,377		—

Equity securities, available for sale:
Priced by third-party vendors	17,303			16,862		441		—
Priced internally	—			—		—		—
Subtotal	17,303			16,862		441		—

Derivatives, index options:
Priced by third-party vendors	114,287			—		—		114,287
Priced internally	—			—		—		—
Subtotal	114,287			—		—		114,287

Total	$	2,842,967		16,862		2,711,818		114,287

Percent of total	100.0		%	0.6	%	95.4	%	4.0	%

Schedule of Significant Unobservable Inputs for Fair Value Measurements

The following tables provide additional information about fair value measurements for which significant unobservable (Level 3) inputs were utilized to determine fair value.



	For the Three Months Ended June 30, 2015
	Debt Securities, Available for Sale		Equity Securities, Available for Sale	Derivatives, Index Options		Total Assets		Other Liabilities
	(In thousands)

Balance at April 1, 2015	$	—	—	95,987		95,987		119,987
Total realized and unrealized gains (losses):
Included in net income	—		—	(8,782	)	(8,782	)	(9,653	)
Included in other comprehensive income	—		—	—		—		—
Purchases, sales, issuances and settlements, net:
Purchases	—		—	21,473		21,473		21,473
Sales	—		—	—		—		—
Issuances	—		—	—		—		—
Settlements	—		—	(36,151	)	(36,151	)	(36,439	)
Transfers into (out of) Level 3	—		—	—		—		—

Balance at end of period	$	—	—	72,527		72,527		95,368

Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:
Net investment income	$	—	—	(11,922	)	(11,922	)	—
Benefits and expenses	—		—	—		—		(813	)

Total	$	—	—	(11,922	)	(11,922	)	(813	)



	For the Three Months ended June 30, 2014
	Debt Securities, Available for Sale		Equity Securities, Available for Sale	Derivatives, Index Options		Total Assets		Other Liabilities
	(In thousands)

Balance at April 1, 2014	$	—	—	134,916		134,916		160,536
Total realized and unrealized gains (losses):
Included in net income	—		—	45,251		45,251		44,779
Included in other comprehensive income	—		—	—		—		—
Purchases, sales, issuances and settlements, net:
Purchases	—		—	18,232		18,232		18,232
Sales	—		—	—		—		—
Issuances	—		—	—		—		—
Settlements	—		—	(51,885	)	(51,885	)	(52,119	)
Transfers into (out of) Level 3	—		—	—		—		—

Balance at end of period	$	—	—	146,514		146,514		171,428

Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:
Net investment income	$	—	—	43,313		43,313		—
Benefits and expenses	—		—	—		—		1,006

Total	$	—	—	43,313		43,313		1,006



	Six Months Ended June 30, 2015
	Debt Securities, Available for Sale		Equity Securities, Available for Sale	Derivatives, Index Options		Total Assets		Other Liabilities
	(In thousands)

Beginning balance, January 1, 2015	$	—	—	114,287		114,287		142,492
Total realized and unrealized gains (losses):
Included in net income	—		—	(17,069	)	(17,069	)	(22,036	)
Included in other comprehensive income	—		—	—		—		—
Purchases, sales, issuances and settlements, net:
Purchases	—		—	39,929		39,929		39,929
Sales	—		—	—		—		—
Issuances	—		—	—		—		—
Settlements	—		—	(64,620	)	(64,620	)	(65,017	)
Transfers into (out of) Level 3	—		—	—		—		—

Balance at end of period	$	—	—	72,527		72,527		95,368

Amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to assets still held at end of period:
Net investment income	$	—	—	(17,830	)	(17,830	)	—
Other operating expenses	—		—	—		—		(1,600	)

Total	$	—	—	(17,830	)	(17,830	)	(1,600	)



	Six Months Ended June 30, 2014
	Debt Securities, Available for Sale		Equity Securities, Available for Sale	Derivatives, Index Options		Total Assets		Other Liabilities
	(In thousands)

Beginning balance, January 1, 2014	$	—	—	169,314		169,314		193,338
Total realized and unrealized gains (losses):
Included in net income	—		—	45,799		45,799		47,430
Included in other comprehensive income	—		—	—		—
Purchases, sales, issuances and settlements, net:
Purchases	—		—	33,569		33,569		33,569
Sales	—		—	—		—		—
Issuances	—		—	—		—		—
Settlements	—		—	(102,168	)	(102,168	)	(102,909	)
Transfers into (out of) Level 3	—		—	—		—		—

Balance at end of period	$	—	—	146,514		146,514		171,428

Change in unrealized gains or losses for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period:
Net investment income	$	—	—	44,200		44,200		—
Other operating expenses	—		—	—		—		3,091

Total	$	—	—	44,200		44,200		3,091

Schedule of quantitative information of Level 3 liabilities

The following tables show the quantitative information about the Company's level 3 assets and liabilities.



	June 30, 2015
	Fair Value		Valuation Technique	Unobservable Input
	(In thousands)

Derivatives, index options	$	72,527	Broker prices	Implied volatility
				Inputs from broker proprietary models

Total assets	$	72,527

Policyholder account balances	$	88,109	Deterministic cash flow model	Projected option cost
Other liabilities	7,259		Black-Scholes model	Expected term
				Forfeiture assumptions

Total liabilities	$	95,368



	December 31, 2014
	Fair Value		Valuation Technique	Unobservable Input
	(In thousands)

Derivatives, index options	$	114,287	Broker prices	Implied volatility
				Inputs from broker proprietary models

Total assets	$	114,287

Policyholder account balances	$	133,236	Deterministic cash flow model	Projected option cost
Other liabilities	9,256		Black-Scholes model	Expected term
				Forfeiture assumptions

Total liabilities	$	142,492

Schedule of quantitative information of Level 3 assets

he following tables show the quantitative information about the Company's level 3 assets and liabilities.



	June 30, 2015
	Fair Value		Valuation Technique	Unobservable Input
	(In thousands)

Derivatives, index options	$	72,527	Broker prices	Implied volatility
				Inputs from broker proprietary models

Total assets	$	72,527

Policyholder account balances	$	88,109	Deterministic cash flow model	Projected option cost
Other liabilities	7,259		Black-Scholes model	Expected term
				Forfeiture assumptions

Total liabilities	$	95,368



	December 31, 2014
	Fair Value		Valuation Technique	Unobservable Input
	(In thousands)

Derivatives, index options	$	114,287	Broker prices	Implied volatility
				Inputs from broker proprietary models

Total assets	$	114,287

Policyholder account balances	$	133,236	Deterministic cash flow model	Projected option cost
Other liabilities	9,256		Black-Scholes model	Expected term
				Forfeiture assumptions

Total liabilities	$	142,492

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of the Company's financial instruments are as follows:



	June 30, 2015
				Fair Value Hierarchy Level
	Carrying Values		Fair Values	Level 1	Level 2	Level 3
	(In thousands)
ASSETS
Investments in debt and equity securities:
Securities held to maturity	$	7,121,439	7,370,596	—	7,370,596	—
Securities available for sale	2,840,589		2,840,589	16,533	2,824,056	—

Cash and cash equivalents	71,710		71,710	71,710	—	—
Mortgage loans	132,261		137,917	—	—	137,917
Policy loans	61,933		107,914	—	—	107,914
Other loans	2,598		2,773	—	—	2,773
Derivatives, index options	72,527		72,527	—	—	72,527
Short-term investments	—		—	—	—	—
Life interest in Trust	—		12,775	—	—	12,775

LIABILITIES
Deferred annuity contracts	$	7,597,966	7,215,118	—	—	7,215,118
Immediate annuity and supplemental contracts	439,889		467,034	—	—	467,034



	December 31, 2014
				Fair Value Hierarchy Level
	Carrying Values		Fair Values	Level 1	Level 2	Level 3
	(In thousands)
ASSETS
Investments in debt and equity securities:
Securities held to maturity	$	6,841,543	7,175,443	—	7,175,443	—
Securities available for sale	2,728,680		2,728,680	16,862	2,711,818	—

Cash and cash equivalents	277,078		277,078	277,078	—	—
Mortgage loans	149,503		156,548	—	—	156,548
Policy loans	63,645		111,040	—	—	111,040
Other loans	2,171		2,300	—	—	2,300
Derivatives, index options	114,287		114,287	—	—	114,287
Life interest in Trust	—		12,775	—	—	12,775

LIABILITIES
Deferred annuity contracts	$	7,546,504	7,178,535	—	—	7,178,535
Immediate annuity and supplemental contracts	446,458		474,843	—	—	474,843

NATIONAL WESTERN LIFE INSURANCE CO 10-Q