NATIONAL WESTERN LIFE GROUP, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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

Management's discussion and analysis of the financial condition and results of
operations ("MD&A") of National Western Life Group, Inc. ("NWLGI") for the three
and nine months ended September 30, 2021 follows. Where appropriate, discussion
specific to the insurance operations of National Western Life Insurance Company
is denoted by "National Western" or "NWLIC". This discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
related notes beginning on page 3 of this report and with the 2020 Annual Report
filed on Form 10-K with the SEC.

Overview

National Western provides life insurance products for the savings and protection
needs of policyholders and annuity contracts for the asset accumulation and
retirement needs of contract holders. The Company accepts funds from
policyholders or contract holders and establishes a liability representing
future obligations to pay the policy or contract holders and their
beneficiaries. To ensure the Company will be able to pay these future
commitments, the funds received as premium payments and deposits are invested in
high quality investments, primarily fixed income securities. National Western
maintains its home office in Austin, Texas where substantially all of its 269
employees at September 30, 2021 are located.

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

? the level of sales and premium revenues collected

? the volume of life insurance and annuity business in force

? persistency of policies and contracts

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

? expenses

return on investments sufficient to produce acceptable spread margins over interest

? crediting rates

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

? levels of policy benefits and costs to acquire business

? the ability to manage the level of operating expenses

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

? liability matching

? maintaining adequate levels of capital and surplus

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

? and accounting

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

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

deferred sales inducements

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

pertaining to fixed-index life and annuity products

pricing and availability of adequate counterparties for reinsurance and index option

? contracts

       litigation subject to unfavorable judicial development, including the time and
   ?   expense of litigation



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The Company monitors these factors continually as key business indicators. The
discussion that follows in this Item 2 includes these indicators and presents
information useful to an overall understanding of the Company's business
performance for the three and nine months ended September 30, 2021,
incorporating required disclosures in accordance with the rules and regulations
of the SEC.

Insurance Operations - Domestic

National Western is currently licensed to do business in all states, except New
York, and the District of Columbia. Products marketed are annuities, universal
life insurance, fixed-index universal life, and traditional life insurance,
which include both term and whole life products. Domestic sales in terms of
premium levels have historically been more heavily weighted toward annuities.
Most of these annuities can be sold either as tax qualified or non-qualified
products. More recently, a greater proportion of sales activity has been derived
from single premium life insurance products, predominantly those with an
equity-index crediting mechanism. Presently, nearly all of National Western's
domestic life premium sales come from single premium life products. At
September 30, 2021, National Western maintained approximately 107,710 annuity
contracts in force and 46,260 domestic life insurance policies in force
representing $3.6 billion in face amount of coverage.

National Western markets and distributes its domestic products primarily through
independent national marketing organizations ("NMOs"). These NMOs assist the
Company in recruiting, contracting, and managing independent agents. National
Western's agents are independent contractors who are compensated on a commission
basis. It currently has approximately 29,900 domestic independent agent
contracts.

Effective January 31, 2019, the Company completed its previously announced
acquisition of Ozark National Life Insurance Company ("Ozark National") and
N.I.S. Financial Services, Inc. ("NIS"). All of the outstanding stock of Ozark
National is owned by National Western while NIS is wholly owned by NWLGI.
Although reported separately for segment disclosure purposes, domestic insurance
operations include the activities of Ozark National. Ozark National is a
Missouri domiciled, stock life insurance company currently licensed to conduct
business in thirty states. Organized and incorporated in 1964, its largest
markets by state are Missouri, Iowa, Minnesota, Nebraska, and Kansas. Ozark
National utilizes a unique distribution system to market its flagship Balanced
Program which consists of a coordinated sale of a non-participating whole life
insurance product with a mutual fund investment product offered through NIS, its
affiliated broker-dealer. Due to Ozark National's coordinated sale, their agents
hold a securities license in addition to an insurance license. At September 30,
2021, Ozark National maintained approximately 176,220 life insurance policies in
force representing $5.9 billion in face amount of coverage. It maintains its
home office facility in Kansas City, Missouri along with NIS where most of their
combined employees are located.

Insurance Operations - International

National Western's international operations consists of a closed block of in
force policies. The Company had progressively discontinued accepting
applications from various countries ultimately ceasing applications for new
policies from all remaining countries in 2018. At September 30, 2021, National
Western had approximately 42,190 international life insurance policies in force
representing nearly $11.6 billion in face amount of coverage. The Company did
not conduct business or maintain offices or employees in any other country, but
historically did accept applications at its home office in Austin, Texas, and
issued policies from there to foreign nationals in upper socioeconomic classes
of other countries. Insurance products, issued primarily to residents of
countries in South America, consisted almost entirely of universal life and
traditional life insurance products not available in the local markets.

Issuing universal life and traditional life insurance policies to residents of
countries in different regions provided diversification that helped to minimize
large fluctuations that could arise due to various economic, political, and
competitive pressures occurring from one country to another. These policies also
provided diversification of earnings relative to the Company's domestic life
insurance segment. Although there were some inherent risks of accepting
international applications not present within the domestic market, they were
reduced substantially by the Company in several ways. Most notably National
Western's customer profile consisted of foreign nationals of other countries in
upper socioeconomic classes who had substantial financial resources. This,
coupled with National Western's conservative underwriting practices, has
historically resulted in claims experience, due to natural causes, similar to
that in the United States. Foreign currency risks were minimized by requiring
payment of premiums and claims in United States dollars. In addition, the
Company adopted an extensive anti-money laundering compliance program in order
to fully comply with all applicable U.S. monitoring and reporting requirements
pertaining to money laundering and other illegal activities. All of the above
served to minimize risks.

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SALES

Life Insurance

The following table sets forth information regarding life insurance sales
activity as measured by total premium for single premium life insurance products
and annualized first year premiums for all other universal life and traditional
life insurance products. While the figures shown below are in accordance with
industry practice and represent the amount of new business sold during the
periods indicated, they are considered a non-GAAP financial measure. The Company
believes sales are a measure of distribution productivity and are an indicator
of future revenue trends. However, revenues are driven by sales in prior periods
as well as in the current period and therefore, a reconciliation of sales to
revenues is not meaningful or determinable.

                              Three Months Ended                     Nine Months Ended
                                 September 30,                         September 30,
                              2021                2020           2021                  2020

                                                   (In thousands)

Single premium life   $            52,578        56,610       157,024               141,557
Traditional life                      922           798         2,855                 2,139
Universal life                          -             -             -                     6

Totals                $            53,500        57,408       159,879               143,702



Life insurance sales, as measured by total and annualized first year premiums,
decreased (7)% in the third quarter of 2021 as compared to the third quarter of
2020 reflecting a pullback in consumer spending in the current period. Sales for
the three months ended September 30, 2021, included $0.9 million from Ozark
National, exceeding the $0.8 million reported in the third quarter of 2020,
representing their traditional life sales activity. Ozark National's business
model, which is heavily dependent upon in person contact for agent recruiting
and obtaining applications for coverage from prospective policyholders, has been
steadily recovering from the disruption of the pandemic effects upon its
business. For the nine months ended September 30, 2021, total life insurance
sales increased 11% from the level in 2020. Included in these nine-month amounts
were $2.9 million and $2.1 million in sales from Ozark National for 2021 and
2020, respectively.

National Western's life insurance product portfolio includes single premium
universal life ("SPUL") and equity-index universal life ("EIUL") products as
well as hybrids of the EIUL and SPUL products, combining features of these core
products. Equity-index universal life products have been the predominant product
sold in the domestic life market for a number of years. Most of these sales are
single premium mode products (one year, five year, or ten year) designed for
transferring accumulated wealth tax efficiently into life insurance policies
with limited underwriting due to lesser net insurance amounts at risk (face
amount of the insurance policy less cash premium contributed). These products
were designed and implemented years ago targeting the accumulated savings of the
segment of the population entering their retirement years. The wealth transfer
life products have been valuable offerings for the Company's distributors as
evidenced by their comprising over 98% of total life sales in the first nine
months of 2021.
The average new policy face amounts, excluding insurance riders, since 2017 are
as shown in the following table.

                                                                                   Average New Policy Face Amount
                                                        NWLIC Domestic                   Ozark National                  NWLIC International

Year ended December 31, 2017                                148,100                                 -                          299,300
Year ended December 31, 2018                                162,600                                 -                          290,900
Year ended December 31, 2019                                179,900                            45,200                                -
Year ended December 31, 2020                                209,900                            46,230                                -
Nine Months Ended September 30, 2021                        191,100                            47,620                                -



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Contracts issued to international residents historically had larger face amounts
of life insurance coverage per policy compared to those issued to domestic
policyholders as National Western's efforts were directed toward accepting
applications from upper socioeconomic residents of international countries. The
average face amount of insurance coverage per policy for domestic life insurance
contracts reflects the sales of single premium life products, primarily
fixed-index, as part of its wealth transfer strategy for domestic life sales.

The table below sets forth information regarding life insurance in force for
each date presented.

                                                      Insurance In Force as of
                                                 September 30,             December 31,
                                                      2021                     2020

                                                          ($ in thousands)

 National Western

 Universal life:
 Number of policies                                          29,200           31,150
 Face amounts                              $              4,048,080        4,354,530

 Traditional life:
 Number of policies                                          24,890           26,260
 Face amounts                              $              2,295,840        2,409,110

 Fixed-index life:
 Number of policies                                          34,360           35,060
 Face amounts                              $              8,838,800        9,157,010

 Total life insurance:
 Number of policies                        $                 88,450           92,470
 Face amounts                              $             15,182,720       15,920,650

 Ozark National

Total life insurance (all traditional):

 Number of policies                                         176,220          179,000
 Face amounts                              $              5,918,770        6,033,510



At September 30, 2021, National Western's face amount of life insurance in force
was comprised of $11.6 billion from the international line of business and $3.6
billion from the domestic line of business. At December 31, 2020, these amounts
were $12.4 billion and $3.5 billion for the international and domestic lines of
business, respectively.

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Annuities

The following table sets forth information regarding the Company's annuity sales
activity as measured by single and annualized first year premiums. Similar to
life insurance sales, these figures are considered a non-GAAP financial measure
but are shown in accordance with industry practice and depict the Company's
sales productivity.

                                              Three Months Ended September 30,                       Nine Months Ended September 30,
                                                2021                    2020                      2021                                2020

                                                                                      (In thousands)

Fixed-index annuities                     $      102,322                 76,255                   333,146                              221,992
Other deferred annuities                           1,008                  1,875                     2,965                                5,475
Immediate annuities                                5,380                  2,270                    19,460                               10,991

Totals                                    $      108,710                 80,400                   355,571                              238,458



Annuity sales increased 35% in the third quarter of 2021 compared to 2020 and
were 49% higher in the nine months ended September 30, 2021 relative to the
comparable period in 2020. Sales activity in 2020 was dampened by the onset of
the COVID-19 pandemic at that time, while 2021 sales activity reflects expansion
of sales and marketing initiatives in this line of business as well as an
overall increase in market demand.

The Company's mix of annuity sales has historically shifted with interest rate
levels and the relative performance of the equity market. With the decline in
interest rates subsequent to the subprime crisis, fixed-index products have
comprised the majority of annuity sales, generally accounting for 90% or more of
all annuity sales over this span. During the first nine months of 2021, this
percentage approximated 94% reflecting both the historically low levels in
interest rates and the overall continuing upward trend in equities. For all
fixed-index products, the Company purchases over the counter call options to
hedge the equity return feature. The options are purchased relative to the
issuance of the annuity contracts in such a manner to minimize timing risk.
Generally, the index return during the indexing period (if the underlying index
increases) becomes a component in a formula (set forth in the annuity), the
result of which is credited as interest to contract holders electing the index
formula crediting method at the beginning of the indexing period. The formula
result can never be less than zero with these products. The Company does not
deliberately mismatch or under hedge for the equity feature of the products.
Fixed-index products also provide the contract holder the alternative to elect a
fixed interest rate crediting option.

While National Western does not subsidize its interest crediting rates on new
policies in order to obtain market share, similar to some other annuity product
providers, the Company has faced a scenario of declining yields on its
investment portfolio as securities backing annuity policies and their credited
rates were subsequently reinvested at substantially lower yields in depressed
interest rate environments. The compression on interest rate margins resulted in
decrements to fixed interest rate renewal rates provided to annuity
contractholders often to the minimum interest rate guarantee levels prescribed
by state insurance regulators under non-forfeiture laws.

As a result of the foregoing, the Company entered into a coinsurance funds
withheld reinsurance arrangement at December 31, 2020 under which 100% of the
policyholder obligations associated with its fixed rate and payout annuity block
of policies at that time were reinsured with a third party. With the transfer of
the risk of these policies experiencing compression on interest rate margins,
the Company has redirected its attention on rebuilding sales momentum in its
annuity sales by developing products targeting new channels of distribution to
supplement its current partnerships with national marketing organizations and
focusing its offerings away from fixed interest rate products.


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The following table sets forth information regarding annuities in force for each
date presented. These amounts include the policies and reserves associated with
the funds withheld reinsurance transaction discussed above.

                                              Annuities In Force as of
                                          September 30,             December 31,
                                              2021                      2020

                                                  ($ in thousands)

        Fixed-index annuities
        Number of policies                            65,680          68,020
        GAAP annuity reserves      $               5,184,069      

5,254,089

Other deferred annuities

        Number of policies                            30,850          33,250
        GAAP annuity reserves      $               1,152,083       1,264,042

        Immediate annuities
        Number of policies                            11,180          11,650
        GAAP annuity reserves      $                 372,837         363,983

        Total annuities
        Number of policies         $                 107,710         112,920
        GAAP annuity reserves      $               6,708,989       6,882,114

Impact of Recent Business Environment

The Company's business is generally aided by an economic environment
experiencing growth, whether moderate or vibrant, characterized by improving
employment data and increases in personal income. Important metrics indicating
sustained economic growth over the longer term principally revolve around
employment and confidence, both consumer and business sentiment.

While the morbidity exposure of COVID-19 to the life insurance industry is
uncertain at this point, it is not expected to result in significant excess
mortality claims. During the first nine months of 2021, the Company (National
Western and Ozark National) incurred approximately $26.4 million in net death
claims, after reinsurance, for which COVID-19 was identified as the cause of
death. Additional risk to life insurance companies has been the decline in value
of invested assets due to downgrades in credit market securities, derivative
investments experiencing fair value declines resulting in unrealized losses,
impairment-related losses or sizable additions being made to the allowance for
current credit expected losses in financial statements. Consequently, there have
been instances of balance sheet asset deterioration, charges to capital, and
lower reported earnings.

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



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With regard to the credit market, although not probable in the current
environment, industry analysts and observers generally agree that a sudden jump
in interest rate levels would be harmful to life insurers with
interest-sensitive products as it could provide an impetus for abnormal levels
of product surrenders and withdrawals at the same time fixed debt securities
held by insurers declined in market value. Ultimately, a mix of monetary policy
adjustments, fiscal policy, and economic fundamentals will determine the future
direction of interest rate movements and the speed of such shifts. It is
uncertain at what pace interest rate movements may occur in the future and what
impact, if any, such movements would have on the Company's business, results of
operations, cash flows, or financial condition.

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


RESULTS OF OPERATIONS

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