1933 Act File No. 333-275629
United States Securities and Exchange Commission
The Securities Act of 1933
Pre-Effective Amendment No. 2
Nationwide Life Insurance Company
(Exact name of registrant as specified in its charter)
|
|
|
(State or other jurisdiction of incorporation or
organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer Identification
Number) |
One
Nationwide Plaza, Columbus, Ohio 43215
(Address, including zip code, and telephone number, including
area code,
of registrant's principal executive offices)
Denise L. Skingle
Senior Vice President and Secretary
One Nationwide Plaza
Columbus, Ohio 43215
Telephone: (614) 249-7111
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.☒
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange
Act.☐
Large accelerated filer
☐
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
☐
Emerging growth company
☐
Persons who are to respond to the
collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Nationwide
Defined Protection® Annuity
2.0
Individual Single Purchase Payment
Deferred Annuity Contract with Index-Linked Strategies
NATIONWIDE LIFE INSURANCE COMPANY
Prospectus Dated May 6, 2024
This prospectus describes the Nationwide Defined Protection® Annuity 2.0 Contract (the "Contract"), including all material rights and obligations under the Contract, including material
state variations and financial intermediary variations. Please read this
prospectus carefully and keep it for future reference. Special terms used throughout this prospectus are
defined under "Defined Terms."
The Contract is issued by Nationwide Life Insurance Company. Only one Purchase Payment is allowed under the
Contract. The
Contract is intended to be a long-term investment vehicle to assist investors in saving for and living in retirement. If the Contract is purchased as a Qualified Plan, IRA, Roth
IRA, SEP IRA, or Simple IRA, the Contract will not provide any additional tax deferral
benefits.
Nationwide has designed the Contract to offer features, pricing, and investment options that encourage long-term
ownership.
The Contract exists in two separate phases: accumulation (savings) and annuitization
(income). During the accumulation phase, the Contract offers as investment options a Fixed Strategy providing principal protection and a guaranteed fixed rate of interest, and Index Strategies that may be selected. At the end of a one-year or three-year Strategy Term, Index
Strategy earnings can be positive, negative, or equal to zero and are based in part on the performance of a specified market index over that Strategy Term, subject to a level of protection against loss. At any time after the first two years of
the Contract, the contract owner may elect to enter the annuitization phase, during which the investment options are no longer available, and Nationwide makes periodic income payments to the Annuitant.
Currently, each Index Strategy is linked to one of the following
indexes:
BlackRock Select Factor Index |
J.P. Morgan Mozaic IISM
Index |
|
|
|
S&P 500® Average Daily
Risk Control 10% USD Price
Return Index* |
|
|
*This is a price return index.
Nationwide reserves the right to add or remove the Index Strategies offered, change the Indexes, and limit the number of offered Index Strategies to only one. If all but one Index Strategy is terminated, the Contract Owner will be limited to investing in Strategies with terms that may not be acceptable to the Contract Owner.
An investment in an Index Strategy does not represent an investment in the linked index or
any securities or other assets included in the linked index.
Each Strategy has a start and end date, and the duration between those two dates is referred
to as the "Strategy Term." At the end of a Strategy Term, a contract owner may allocate funds to the same Strategy, if available, or transfer funds to another Strategy available for investment. Index Strategies available for a new Strategy Term may have different Crediting
Factors. If Nationwide does not receive instructions, the Contract Value will be allocated to the same Strategy for another Strategy Term, but with the Crediting Factors that Nationwide declares for the upcoming Strategy Term. If the same Strategy
is no longer available for investment, the Contract Value allocated to the maturing Strategy will be transferred to the Fixed Strategy for the upcoming Strategy Term. Transfers
between Strategies are not permitted until the end of a Strategy Term unless a contract owner exercises the "Performance Lock" feature, which allows a one-time transfer from an
Index Strategy to the Fixed Strategy during a Strategy Term if that Index Strategy's performance is above the floor provided by the Protection Level. The Daily ISE Percentage is used to calculate Index Strategy Earnings during a Strategy
Term, and, if negative when amounts are transferred under the Performance Lock feature, may result in a loss subject to the floor provided by the Index Strategy’s Protection Level.
Your Contract will gain or lose value based on the performance of your Strategies. Your gains and losses depend on the
application of important factors that make up the Strategy. In addition to the linked index and the length of the Strategy Term, these factors include a "Protection Level", a "Participation Rate" and "Strategy Spread."
•
The Protection Level is the amount of downside protection on negative Index Strategy Earnings for a given Strategy Term. The Protection Level is presented as a percentage and a higher Protection Level percentage provides more protection against loss than a lower Protection Level percentage. If you select a Strategy with a 90% Protection Level, your Index Strategy Earnings cannot be lower than -10%. If you select a Strategy with a 95% Protection Level, your Index Strategy Earnings cannot be lower than -5%. If you select a Strategy with a 100% Protection level, your Index Strategy Earnings cannot be lower than 0%. At the Contract’s minimum Protection Level of 75% (guaranteed for the life of
the Contract), Index Strategy Earnings cannot be lower than -25% for any Strategy Term.
•
The Participation Rate acts as a multiplier because it has the effect of multiplying the performance of the Index, positive or negative. If the Participation Rate is greater than 100%, it increases upside potential while also increasing risk of loss. Conversely, if the Participation Rate is lower than 100%, it decreases upside potential while also decreasing risk of loss. While Participation Rates may be set above 100%, %, the Minimum Participation Rate guaranteed for the life of the Contract is 5%. A low Participation Rate would cause a Strategy to participate in the performance of the
linked index to only a small extent. Application of the Participation Rate will not cause an Index Strategy Earnings to drop below the floor protection provided by the Protection Level.
•
The Strategy Spread is an annualized percentage used as a deduction in the
calculation of gains and losses. The Strategy Spread operates to negatively impact the performance of the Strategy. This means it will reduce gains and potentially increase losses. The Strategy Spread can result in losses under a Strategy even if the linked Index has increased in value; however, application of the Strategy Spread will not cause the performance of an Index Strategy to drop below the floor protection provided by the Protection Level. For each Index Strategy, the maximum Strategy Spread guaranteed for the
life of the Contract, is the initial Strategy Spread when that Strategy was first made available to that Contract plus 2%. The maximum total Strategy Spread guaranteed for any Index Strategy we may offer under the Contract at any time is 9%.
•
The Participation Rate and the Strategy Spread may both be applied when
calculating gains and losses for each Index Strategy. When a Strategy has both a Participation Rate less than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to reduce gains when Index Performance is positive. Additionally, when a Strategy has both a Participation Rate greater than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to increase losses when Index Performance is negative. Application of the Participation Rate and Strategy Spread will not cause the Index Strategy Earnings to drop below the floor protection provided by the Protection Level.
*The stated Strategy Spread is for a one-year period. For a Strategy with a
3-year Strategy Term, the Strategy Spread will be multiplied by 3 before being applied at the end of the Strategy Term.
Gains or losses related to the performance of a Strategy are referred to as "Index Strategy
Earnings." Index Strategy Earnings may be positive, negative, or equal to
zero. For examples of how the Protection Level, Participation Rate and Strategy Spread operate to impact Index
Strategy Earnings at the end of a Strategy Term, please see the "How are earnings calculated for an Index Strategy at the end of a Strategy Term?" section of the Summary portion of
this prospectus.
For Index Strategies with a Protection Level less than 100%, the value of an Index Strategy may be less than what the value
was on the first day of the Strategy Term even if the value of the index has increased since the beginning of the Strategy Term.
While the Contract offers varying levels of protection against loss, there
is a risk of substantial loss of your principal investment. The risk of loss may be greater in the case of a partial withdrawal (including systematic withdrawals and required minimum
distributions), a transfer under the Performance Lock feature, full surrender, Annuitization and Death Benefit payments, which could significantly reduce the
values under the Contract, including the Death Benefit and the amount of Index Strategy Earnings credited at the end of a Strategy Term, due to the use of the Daily ISE Percentage, proportionate withdrawal calculations, and any CDSC, MVA, income taxes and tax penalties applicable to these transactions. A prospective purchaser should
not buy the Contract if they are not willing to assume the risks associated with the Contract. See "Risk Factors" beginning on page 18.
•
When taking a withdrawal, the combined applicable CDSC, MVA, Daily ISE Percentage,
proportionate withdrawal calculations, income taxes and tax penalties may reduce Strategy Value by more than the net withdrawal amount and to less than the floor provided by the Protection Level of the Index Strategy(ies).
•
A Market Value Adjustment and Contingent Deferred Sales Charges of up to 8% may apply to
amounts withdrawn from the Contract during the first six Contract years. A negative MVA could
result in a loss beyond the floor of the Protection Level and, under extreme circumstances, could result in a total loss of
Contract
Value. For Index Strategies with a 100% Protection Level and the Fixed Strategy, a negative MVA is limited to a
value that would result in a full surrender value which is no less than the applicable minimum nonforfeiture value.
•
The Daily ISE Percentage is used to calculate Index Strategy if amounts are locked in,
withdrawn, or otherwise deducted from an Index Strategy before the end of its Strategy Term. The maximum potential loss from a negative Daily ISE Percentage is limited to the floor provided by the Protection Level. For example, a
maximum loss of up to 25% in Index Strategy Value could occur if you are invested in an Index Strategy with a 75% Protection Level.
•
The Contract may not be appropriate if an investor intends to take ongoing withdrawals, such
as systematic withdrawals or required minimum distributions, particularly during an Index Strategy Term.
•
Withdrawals taken before the end of a Strategy Term will reduce the strategy value proportionately, perhaps by substantially
more than the amount withdrawn. All withdrawals will reduce the death benefit, perhaps by more than the amount withdrawn. All or a portion of any withdrawal may be subject to
federal income taxes and withdrawals before age 59½ may be subject to a 10% penalty tax.
Index-linked annuity contracts are complicated investments. Prospective purchasers should consult with a financial professional about the Contract's
features, benefits, risks, and fees and whether the contract is appropriate based upon his or her financial situation and objectives.
Prospective purchasers may obtain an application to purchase the Contract through
broker-dealers that have been appointed by Nationwide as insurance agents and that have selling agreements with Nationwide Investment Services Corporation ("NISC"), the principal underwriter for the Contracts. NISC will use its best efforts to sell the Contracts but is
not required to sell any number or dollar amount of Contracts. Nationwide may stop offering the Contracts at any time.
Under state insurance laws, Contract Owners have the right, during a limited period of time,
to examine their contract and decide if they want to keep it or cancel it. This right is referred to as a "free look" right and no CDSC or MVA will apply to this cancellation. If the Contract Owner elects to cancel the contract pursuant to the free look provision, where required by
law, Nationwide will return the greater of the Contract Value or the amount of the purchase payment applied during the free look period, less any withdrawals from the contract (including any CDSC, MVA and Daily ISE Percentage applied to those
withdrawals), and applicable federal and state income tax withholding. Otherwise, Nationwide will return the Contract Value, less any withdrawals from the contract (including any
CDSC, MVA and Daily ISE Percentage applied to those withdrawals), and applicable federal and state income tax withholding. The Contract Value may be more or less than the purchase payment and if a negative Daily ISE Percentage is applied, a loss may result (see "Right to Examine and
Cancel").
This prospectus does not constitute an offering in any jurisdiction in which the Contract may not lawfully be sold.
All guarantees under the Contract are subject to our creditworthiness and
claims-paying ability.
The Contract is not a bank
deposit, is not FDIC insured, and is not insured or endorsed by any bank or government agency. The Contract may not be available in every state.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
For information on how to contact Nationwide, see Contacting the Service Center. |
Table of Contents (continued)
The SEC maintains a website (www.sec.gov) that contains the prospectus and
other information.
DEFINED
TERMS
Provided below is a list of special terms used throughout this prospectus.
Certain other special terms are defined in context where they first appear in this prospectus.
Adjusted Index Performance (AIP) - The percentage gain or loss in the Index Strategy Value at the end of the Strategy Term, calculated using the Crediting Factors applied to the Index Performance, prior to the application of
the Protection Level. |
Annuitant - The person upon whose life any life-contingent annuity payments depend and the person whose death
triggers payment of the Death Benefit. The Annuitant is also the person to whom annuity
payments are made during Annuitization. |
Annuitization - The period during which annuity payments are received by the Annuitant. |
Annuitization Date - The date on which annuity payments begin. Beginning on the Annuitization Date, the only value
associated with the contract is the stream of annuity payments as specified in the
annuity option elected by the Annuitant. |
Annuity Commencement Date - The date on which annuity payments are scheduled to begin. The Annuity Commencement Date is designated by the Contract Owner at the time of application. If no Annuity Commencement
Date is designated at the time of application, Nationwide will establish the Annuity
Commencement Date as the date the Annuitant reaches age 90. The Contract
Owner may initiate a change to the Annuity Commencement Date at any time
subject to the requirements of the "Annuity Commencement Date" section. |
Beneficiary - A person designated by the Contract Owner who may receive certain benefits under the Contract,
including the Death Benefit. |
Business Day - Each day the New York Stock Exchange is open for regular trading. A Business Day ends at the same
time that regular trading on the New York Stock Exchange closes (typically 4:00 p.m.
Eastern Time). |
CDSC Period - The period of time during which a CDSC may be assessed on any partial withdrawal or full surrender
from the Contract. The CDSC Period is currently six years. |
Charitable Remainder Trust - A trust meeting the requirements of Section 664 of the Code. |
Co-Annuitant - The person designated by the Contract Owner to receive the benefit associated with the Spousal
Protection Feature. If there is a Co-Annuitant, references to Co-Annuitants will apply
to both the Annuitant and Co- Annuitant, and references to a Co-Annuitant
will apply to either of them, unless the context requires otherwise. |
Code - The Internal Revenue Code of 1986, as amended. |
Contingent Annuitant - The person who becomes the Annuitant if the Annuitant dies before the Annuitization Date. |
Contingent Beneficiary - The person or entity designated by the Contract Owner to receive any benefits accorded the
Beneficiary if the Beneficiary is not living when the Annuitant dies.
|
Contingent Deferred Sales Charge (CDSC) - A charge that may be assessed if a partial withdrawal or full surrender is taken during the first six Contract Years. |
Contract - The Nationwide Defined Protection® Annuity 2.0 Contract, the individual single purchase payment deferred annuity contract with index-linked strategies described in this prospectus. |
Contract Anniversary - Beginning with the Date of Issue, each recurring twelve month anniversary of the Date of
Issue while the Contract remains in force. |
Contract Owner - The person who owns all rights under the Contract prior to the Annuitization Date, along with any
Joint Owner. As the context requires, "you" refers to a potential or existing Contract
Owner. |
Contract Value - The value of the Contract calculated at the end of each Business Day. The Contract Value is equal
to the sum of the Fixed Strategy Value and Index Strategy Values for each of the Index
Strategies. At issue, the Contract Value is equal to the Purchase
Payment. |
Contract Year - The twelve month period starting on the Date of Issue
and each Contract Anniversary. |
Crediting Factors - The different values that are used to calculate the gain or loss for the Strategies. For the Fixed
Strategy, the Crediting Factors are the Fixed Strategy Rate and Strategy Term. For
Index Strategies, the Crediting Factors are the Index, Strategy Term,
Protection Level, Participation Rate, and Strategy Spread. See each Crediting Factor’s definition in this "Defined Terms" section for a description of each Crediting Factor. |
Daily Index Strategy Earnings Percentage (Daily ISE
Percentage) - A percentage used to calculate Index Strategy Earnings on any day during a Strategy Term other than the Strategy Term End Date. The Daily ISE Percentage does
not apply to the Fixed Strategy. The Daily ISE Percentage is used to calculate Index
Strategy Earnings during a Strategy Term, and, if negative when amounts
are locked in or removed prior to the end of the Strategy Term, may
result in a loss subject to the floor provided by the Strategy’s Protection
Level. |
Daily Pre-Protection Level ISE Percentage - The percentage gain or loss in the Index Strategy Value from the start of the Strategy Term to the calculation date prior to applying the Protection Level. |
Date of Issue - The date the Purchase Payment is applied to the Contract. |
Death Benefit - The benefit payable upon the death of the Annuitant (or Co-Annuitant, if applicable) provided such
death occurs before the Annuitization Date while the Contract is in force and there is
no Contingent Annuitant. |
Elapsed Term - The length of time between the first day of the Strategy Term of a Strategy and a specific day during
that Strategy Term. It is calculated by dividing the number of calendar days that have
elapsed during a Strategy Term by 365. |
Fixed Strategy - An investment option under the Contract offering guaranteed interest rates funded by the General
Account of Nationwide. |
Fixed Strategy Rate - The annualized interest rate credited daily to amounts allocated to the Fixed Strategy during a
Strategy Term. |
Fixed Strategy Minimum Nonforfeiture Rate(s) - The interest rate(s) used to calculate the Fixed Strategy Minimum Nonforfeiture Value. The Fixed Strategy Minimum Nonforfeiture Rate is calculated on the Date of Issue and on each
Redetermination Date. The initial Fixed Strategy Minimum Nonforfeiture Rate is stated
in the Contract. |
Fixed Strategy Minimum Nonforfeiture Value ("Fixed Strategy MNV") -
The minimum guaranteed value a Contract Owner is entitled to upon a full surrender of amounts allocated to the Fixed Strategy and upon a full transfer from the
Fixed Strategy to an Index Strategy that does not offer an Index Strategy
MNV. |
Fixed Strategy Rate - The annualized interest rate credited daily to amounts allocated to the Fixed Strategy during a
Strategy Term. The initial Fixed Strategy Rate is stated in the Contract and may be
different for each subsequent Strategy Term but is guaranteed to be at
least 0.25%. |
Fixed Strategy Value - The value of the Fixed Strategy calculated at the end of each Business Day. The Fixed
Strategy’s Strategy Value is equal to the amount allocated to the Fixed Strategy
plus any interest credited, less any withdrawals (including any
applicable CDSC, MVA and taxes). |
Free Withdrawal - Any portion of the Free Withdrawal Amount that is withdrawn from the Contract during the CDSC
Period. |
Free Withdrawal Amount - While the CDSC and MVA are in effect, the amount that the Contract Owner can withdraw
from the Contract each Contract Year without incurring a CDSC or an MVA. It is
described in the "Waiver or Reduction of the CDSC or MVA"
section. |
General Account - All assets of Nationwide other than those of the Separate Account or in other separate accounts of
Nationwide. |
Home Office - Nationwide's main office located in Columbus, Ohio. |
Index - The third-party market index associated with an Index Strategy which will, in part, determine the amount of any
Index Strategy Earnings applied to a Strategy during a given Strategy
Term. |
Index Performance – The change in an Index Value, expressed as a percentage, between the first day of a Strategy
Term and the last day of that Strategy Term. The Index Performance may be positive,
negative, or equal to zero. |
Index Strategy - An investment option under the Contract that is linked
to the performance of an index. |
Index Strategy Basis - A value used to calculate the Index Strategy Value and the Index Strategy Earnings. On the
first day of a Strategy Term, the Index Strategy Basis equals the amount allocated to
the Index Strategy. During a Strategy Term the Index Strategy Basis is
adjusted for withdrawals (including applicable CDSC and MVA), applicable
premium taxes, fees, transfers out due to a Performance Lock, and the application of
any applicable Term End ISE Percentage. |
Index Strategy Earnings - The amount applied to the Index Strategy Basis to determine an Index Strategy’s Index
Strategy Value. Index Strategy Earnings are represented as a dollar amount and can be
positive, negative, or equal to zero. On the Strategy Term End Date, the
Index Strategy Earnings are equal to the Term End ISE Percentage
multiplied by the Index Strategy Basis. On any other day during a Strategy Term, Index
Strategy Earnings are equal to the Daily ISE Percentage multiplied by the
Index Strategy Basis. |
Index Strategy Minimum Nonforfeiture Rate(s) - The interest rate(s) used to calculate the Index Strategy Minimum Nonforfeiture Value. The Index Strategy Minimum Nonforfeiture Rate is calculated on the Date of Issue and on each
Redetermination Date. The initial Index Strategy Minimum Nonforfeiture Rate is stated
in the Contract. |
Index Strategy Minimum Nonforfeiture Value ("Index Strategy MNV")
-The minimum value a Contract Owner is entitled to upon a full surrender of the Contract Value allocated to all Index Strategies with a 100% Protection Level
and upon a full transfer out of all Index Strategies with a 100% Protection Level to an
Index Strategy(ies) that does not offer an Index Strategy
MNV. |
Index Strategy Value - The value of an Index Strategy calculated at the end of each Business Day. The Index
Strategy Value is equal to the Index Strategy Basis plus Index Strategy Earnings (which
may be positive, negative, or equal to zero). The Index Strategy Value is
the amount used when processing a withdrawal or full surrender, a Death
Benefit payment, a transfer among Strategies, the calculation of any applicable charge
or fee, or an annuitization request. |
Index Value - On a Business Day, the closing value of the Index as provided to Nationwide by the Index provider. If for
any reason, the closing value of an Index on a Business Day is not provided to
Nationwide by the Index provider, the Index Value on that Business Day
will be the most recent closing value provided to Nationwide by the Index provider on a previous Business Day. On a day other than a Business Day, the Index Value for an Index will be the closing
value of the Index for the previous Business Day. |
Individual Retirement Account - An account that qualifies for favorable tax treatment under Section 408(a) of the
Code but does not include Roth IRAs. |
Individual Retirement Annuity (IRA) - An annuity which qualifies for favorable tax treatment under Section 408(b) of
the Code but does not include Roth IRAs or Simple IRAs. |
Investment-Only Contract - A Contract purchased by a qualified pension, profit-sharing, or stock bonus plan as
defined by Section 401(a) of the Code. |
Joint Owner - The person designated as a second person (in addition to the Contract Owner) to possess an undivided
interest in the Contract. If there is a Joint Owner, references to Contract Owner and
Joint Owner will apply to both of them, or either of them, unless the
context requires otherwise. |
Market Value Adjustment (MVA) - An adjustment that may be applied if a partial withdrawal or full surrender is taken
during the first six Contract Years. An MVA, when applied, may be positive, negative,
or equal to zero. If an MVA is negative, it will decrease the withdrawal
or full surrender amount. |
MVA Base - The greater of: 1) zero; and 2) the amount withdrawn minus the Remaining Free Withdrawal Amount. |
MVA Index -The index used to determine the Market Value Reference Rate. The MVA Index is stated in the Contract. |
MVA Period - The length of time beginning on the Date of Issue that Nationwide may apply the MVA to partial
withdrawals and a full surrender. The MVA Period is stated in the
Contract. |
Nationwide - Nationwide Life Insurance Company. As the context requires, "we," "us" and "our" refers to Nationwide. |
Non-Qualified Contract - A Contract which does not qualify for
favorable tax treatment as a Qualified Plan, IRA, Roth IRAs, SEP IRA, or
Simple IRA. |
Participation Rate - A percentage that represents the proportion of the Index Performance used in the calculation of
the Term End ISE Percentage and also impacts the Daily ISE Percentage. An Index
Strategy’s Participation Rate is declared prior to each Strategy
Term and may be different each Strategy Term. |
Performance Lock - A feature that allows the Contract Owner to lock in the performance of an Index Strategy by
transferring Index Strategy Value to the Fixed Strategy on a date other than a Strategy
Term End Date if an Index Strategy’s performance is greater than
the floor provided by the Protection Level. |
Protection Level - An amount of downside protection on negative Index Strategy Earnings for a given Strategy Term. |
Purchase Payment - Money paid into the Contract by the Contract Owner. |
Qualified Plan - A retirement plan that receives favorable tax treatment under Section 401 of the Code, including
Investment-Only Contracts. In this prospectus, all provisions applicable to Qualified
Plans also apply to Investment- Only Contracts unless specifically stated
otherwise. |
Redetermination Date - The sixth Contract Anniversary and then every two Contract Anniversaries thereafter (i.e.,
eighth Contract Anniversary, tenth Contract Anniversary, twelfth Contract Anniversary,
etc.). |
Remaining Free Withdrawal Amount - The amount that the Contract Owner can withdraw from the Contract during the remainder of that Contract Year without incurring a CDSC or an MVA, based on the Free Withdrawals already
taken that Contract Year. |
Roth IRA - An annuity contract which qualifies for favorable tax treatment under Section 408A of the Code. |
Separate Account – The Index-Linked Annuity Separate Account. |
Service Center - The department of Nationwide responsible for receiving all service and transaction requests relating
to the Contract. For service and transaction requests submitted other than by telephone
(including fax requests), the Service Center is Nationwide’s mail
and document processing facility. For service and transaction requests
communicated by telephone, the Service Center is Nationwide’s operations
processing facility. Information on how to contact the Service Center may
be found under Contacting the Service Center. |
Simple IRA - An annuity contract which qualifies for favorable tax treatment under Section 408(p) of the Code. |
Simplified Employee Pension IRA (SEP IRA) - An annuity contract which qualifies for favorable tax treatment under Section 408(k) of the Code. |
Strategies - Investment options under the Contract. Unless otherwise specified, the term Strategies refers to the Fixed
Strategy and Index Strategies collectively. |
Strategy Spread - An annualized percentage that acts as a deduction in the calculation of the Term End ISE
Percentage and also impacts the Daily ISE Percentage. The Strategy Spread reduces Index
Strategy Earnings, subject to the amount of downside protection provided
by the Protection Level. An Index Strategy’s Strategy Spread is
declared prior to each Strategy Term and may be different each Strategy Term . |
Strategy Term – For the Fixed Strategy, the initial Strategy Term begins on the Date of Issue and ends on the first
Contract Anniversary, and each subsequent Strategy Term begins on each Contract
Anniversary and ends on the following Contract Anniversary. For an Index
Strategy, the Strategy Term is the total maturity time of the Index
Strategy, expressed in years. |
Strategy Term End Date – The last day of a Strategy Term. A Strategy Term End Date is the same calendar day as
the Date of Issue. |
Surrender Value - The amount available upon full surrender of the Contract. It is equal to the Contract Value less any
applicable CDSC and premium taxes, plus any applicable MVA, which may be positive or
negative. |
Term End Index Strategy Earnings Percentage (Term End ISE Percentage)
– A percentage used to calculate Index Strategy Earnings on the
Strategy Term End Date. See, "Term End Index Strategy Earnings Percentage" for a description of how the Term End ISE Percentage is calculated. |
SUMMARY
This summary provides a brief overview of the Contract. You should carefully read the entire prospectus before you decide whether to purchase the Contract. This prospectus describes all Strategies, features, and benefits that Nationwide
makes available under the Contract. The Contract may not be currently available in all states, may vary in your state, or may not be available through all selling firms or all financial professionals. In addition, a selling firm may elect to make
available only certain Strategies, features, or benefits to its clients. A selling firm’s marketing materials may describe only those Strategies, features, and benefits available through the firm. A selling firm may limit the Strategies available through
the firm when the Contract is purchased.
Nationwide is the issuer of the Contract. Nationwide is a stock life insurance company organized under Ohio law, with its
home office located at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance,
annuities, and retirement products. It is admitted to do business in all states, the District of Columbia, Guam, the U.S. Virgin Islands, and Puerto Rico.
What is the purpose of the Contract?
The Contract is intended to be a long-term investment vehicle to assist investors in saving for and living in retirement. It
provides the Contract Owner with a stream of periodic income payments upon retirement. During the years leading up to those income payments, the Contract Owner manages his/her assets in the Contract according to their specific goals and risk
preferences by directing the allocation and reallocation among a variety of investment options. The value of your Contract will increase or decrease depending on the amount of
earnings that we apply to your Contract. When earnings are credited to your Contract you may experience a gain or a loss depending on whether the earnings are positive or negative. Contract growth is tax-deferred, meaning that gains in the Contract are not taxable until distributed from the
Contract. Finally, in the event that the Annuitant dies before beginning income payments, the Contract offers a Death Benefit.
All payments under the Contract are subject to Nationwide’s financial strength and claims-paying ability, as well as the terms and conditions described in this prospectus.
While the Contract provides varying levels of protection against loss, you can lose money under the Contract. It is possible to lose a substantial amount of your principal investment. You should not buy the Contract if you are not willing to assume the risks associated with the Contract. See "Risk Factors." Additionally, you should not buy the Contract if you are looking for a short-term investment or if you plan to take withdrawals in excess of the Free Withdrawal Amount during the first six years of the Contract. The Contract may not be appropriate if an investor intends to take ongoing withdrawals,
such as systematic withdrawals or required minimum distributions, particularly during an Index Strategy Term.
Prior to the Annuitization Date, the Contract offers a Fixed Strategy and Index Strategies as
investment options. The Fixed Strategy provides principal protection and credits interest daily at a specified rate called the Fixed Strategy Rate that is guaranteed for each 1-year Strategy Term for which it is declared. Each Index Strategy offered is linked to an Index and has
a Strategy Term of 1 or 3 years. Each Index Strategy includes a defined level of downside protection that limits the amount of loss you can experience during a Strategy Term. We
refer to this defined downside protection as a "Protection Level." Each Strategy also includes a percentage that determines the proportion of the Index performance you receive
over the course of a Strategy Term, subject to the defined level of downside protection, which is referred to as a "Participation Rate." A Strategy’s Participation Rate can be greater than 100%, but can be as low as 5%. The Participation Rate is declared prior to each Strategy Term and may be different for each Strategy Term. Some Strategies also have an
annualized percentage that is used as a deduction in the calculation of an Index Strategy’s performance called a "Strategy Spread." See "Index Strategies."
Values Under the Contract
The value of the Contract is calculated at the end of each Business Day and is equal to the sum of the 1) Fixed Strategy
Value and 2) Index Strategy Values for each of the Index Strategies, which in turn are calculated as follows:
1) Fixed Strategy Value: The Fixed Strategy has one-year Strategy Terms and credits interest daily at a fixed rate. The initial Fixed Strategy Rate
is stated in the Contract and may be different for each subsequent Strategy Term, but is guaranteed to be at least 0.25%. The value of the Fixed Strategy is calculated at the end
of each Business Day and equals the amount allocated to the Fixed Strategy plus any interest credited at the Fixed Strategy Rate. Withdrawals from the Fixed Strategy will reduce the value by the amount of the withdrawal (including any applicable CDSC,
MVA and taxes).
2) Index Strategy
Value: The value of an Index Strategy is calculated at the end of each Business Day and is equal to the Index
Strategy Basis plus Index Strategy Earnings (which may be positive, negative, or equal to zero).
To calculate the Index Strategy Value, Nationwide first calculates the Index
Strategy Basis, which is the amount the Contract Owner allocated to the Index Strategy at the beginning of the Strategy Term, minus adjustments for any withdrawals (using proportionate withdrawal calculations which reflect the Daily ISE Percentage, and including any
applicable CDSC, MVA and taxes), and any fees taken during the Strategy Term. Nationwide then calculates the dollar amount of gain or loss which is referred to as Index Strategy Earnings.
The calculation of Index Strategy Earnings depends on at what point in time during a Strategy Term the Strategy Value is calculated:
•
On the Strategy Term End Date: Index Strategy Earnings are calculated differently on the Strategy Term End Date, which is the last day of a Strategy Term,
than they are on any other day during the Strategy Term.
On the Strategy Term End Date, Index Strategy Earnings are equal to the Term
End ISE Percentage multiplied by the Index Strategy Basis. The Term End ISE Percentage is calculated on the Strategy Term End Date using the Participation Rate and Strategy Spread applied to the actual Index Performance between the beginning and end of a
Strategy Term (i.e., on a "point-to-point" basis) for each Index Strategy. The Index Strategy Earnings applied to each Strategy is the greater of this calculation, which we call
the "Adjusted Index Performance (AIP)" and the floor provided by the Protection Level. The Index Strategy Earnings, regardless of whether they are positive or negative, are then added to the Index Strategy Basis to determine the Index Strategy Value for that day. See
"Valuing the Contract," "Index Strategy Earnings" and "Term End Index Strategy Earnings Percentage (Term End ISE Percentage)" sections.
•
On any day other than the Strategy Term End Date: On any other day other than the Strategy Term End Date, the Index Strategy Value is calculated by multiplying the Daily ISE
Percentage by the Index Strategy Basis.
The Daily ISE Percentage is the greater of:
1) The floor provided by the Protection Level (calculated as the Protection
Level minus 100%) and
2) the Daily Pre-Protection Level
ISE Percentage.
While the Term End ISE Percentage is calculated using the Crediting Factors applied to the actual net Index Performance (point to point), the Daily Pre-Protection Level ISE Percentage is instead calculated using a proxy
fair market value methodology to value hypothetical investments in derivatives that provides an estimated
present value of what the Term End ISE Percentage will be on the Strategy Term End Date (a Black Scholes model)
and is not directly related to the actual Index Performance.
The Index Strategy Earnings calculated using this method, regardless of
whether they are positive or negative, are then added to the Index Strategy Basis to determine the Index Strategy Value for that day. See "Valuing the Contract" and "Index Strategy Earnings."
This method of calculating the Index Strategy Value could result in a negative Daily ISE Percentage even if the performance of the Index is positive which may be due to the application of the Strategy Spread and factors used in
calculating the Daily Pre-Protection Level ISE Percentage.
This may result in losses prior to the Strategy Term End Date, subject to the floor provided by the Index Stategy’s Protection Level.
Note: The Daily ISE Percentage calculation will not impact the Term End Index Strategy Value unless
amounts are removed from the Index Strategy prior to the end of the Strategy Term. This includes if there is a partial withdrawal (including Systematic Withdrawals and required minimum distributions), a transfer under the Performance Lock
feature, a full surrender, a Death Benefit payment, the calculation of any applicable charge or fee, or an annuitization request.
See "Daily Index Strategy
Earnings Percentage (Daily ISE Percentage)" and "Appendix D: Daily Index Strategy Earnings Percentage."
The Contract Owner may take partial withdrawals or fully surrender the Contract Value at any
time prior to the Annuitization Date by submitting a withdrawal request to Nationwide’s Service Center. Partial withdrawals or a full surrender taken in the first six years of the Contract may be subject to a Contingent Deferred Sales Charge (CDSC) and a
negative Market Value Adjustment (MVA) may also apply, both of which will reduce the amount of the withdrawal that the Contract Owner receives. See "What fees or adjustments are assessed if a Contract Owner takes a partial withdrawal or a full
surrender of the Contract?". Also see "Appendix C: MVA, Partial Withdrawal, and Surrender Examples" for example calculations.
During the first six Contract Years, the Contract Owner may take withdrawals, called Free
Withdrawals, that do not incur a CDSC or MVA. The total dollar amount of Free Withdrawals that can be taken each Contract Year is the Free Withdrawal Amount, which is the greater of 10% of the Contract Value as calculated on the first day of that Contract Year, or the
amount required to meet minimum distribution requirements for this Contract under the Code. If amounts are withdrawn from an Index Strategy before the end of a Strategy Term, a loss may result if the Daily ISE Percentage is negative, even
for Free Withdrawals made under the Contract.
All or a portion of any withdrawal may be subject to federal income taxes, and Contract Owners taking withdrawals before age
59½ may be subject to a 10% penalty tax.
The Contract provides a Death Benefit that may be triggered prior to the Annuitization Date upon the death of the Annuitant
(or Co-Annuitant, if applicable). The Death Benefit depends upon the age of the Annuitant (and Co-Annuitant if applicable) at the time of application for the Contract. If the age
of both the Annuitant and Co-Annuitant is less than or equal to age 75 at the time of application the Death Benefit will be the greater of the Contract Value or the Purchase
Payments made to the Contract reduced by any withdrawals in the proportion that such withdrawals reduced the Contract Value on the date of the withdrawal. If the age of either the Annuitant or Co-Annuitant is greater than age 75 at the time of
application, then the Death Benefit will be the Contract Value. The Daily ISE Percentage is used to calculate Index Strategy Earnings during a Strategy Term, and if a Death Benefit is paid from an Index Strategy before the end of a Strategy
Term, a loss may result if the Daily ISE Percentage is negative. If the Death Benefit is based on return of premium instead of Contract Value, the Death Benefit will be reduced in
the same proportion that the Index Strategy Value is reduced by any withdrawals taken prior to the end of a Strategy Term. The Death Benefit is not subject to a CDSC or MVA. See "Death Benefit and Succession Rights."
Upon the Annuitization Date, Nationwide pays guaranteed income in the form of annuity payments. The duration and dollar
amount of the annuity payments will depend on the dollar amount annuitized and the annuity payment option selected. See "Annuitizing the Contract."
How can the Contract be categorized under the Code?
The Contract can be categorized under the Code as a:
•
Charitable Remainder Trust
•
Individual Retirement Annuity (IRA)
•
Investment-Only Contract (Qualified Plans)
•
Simplified Employee Pension IRA ("SEP IRA")
If the Contract is purchased as a Qualified Plan, IRA, Roth IRA, SEP IRA, or Simple IRA the Contract will not provide any
additional tax deferral benefits.
See "Contract Types and Federal Tax Considerations" for additional detail.
How does a prospective purchaser
purchase the Contract?
The Contract may be purchased by completing an
application and submitting a Purchase Payment of at least $25,000 to the Service Center. Only one Purchase Payment is allowed under the Contract. Nationwide may agree to accept
multiple payments as part of a single Purchase Payment. If Nationwide permits multiple payments as part of a single Purchase Payment, the Contract will not be issued until all such payments are received.
What fees or adjustments are assessed?
Partial withdrawals or a full surrender during the first six Contract Years that are in excess of the Free Withdrawal Amount
are subject to a Contingent Deferred Sales Charge (CDSC) and a Market Value Adjustment (MVA). The Daily ISE
Percentage is used to calculate Index Strategy Earnings during a Strategy Term, and if amounts are withdrawn or fully surrendered from an Index Strategy before the end of a Strategy Term, a loss may result if the Daily ISE Percentage is
negative.
Withdrawals from an Index Strategy before the end of its Strategy Term will reduce the Index Strategy Basis in the same
proportion that the Index Strategy Value is reduced (rather than on a dollar-for-dollar basis). The reduction to the Index Strategy Basis will be for the remainder of the Term, and the proportionate reduction may be greater than the dollar amount
of the withdrawal. Similarly, if the Death Benefit is based on return of premium instead of Contract Value, the Death Benefit will be reduced in the same proportion that the Index
Strategy Value is reduced.
On any day other than the Strategy Term End Date, Nationwide uses the Daily ISE Percentage to calculate Index Strategy
Earnings. The method used to calculate the Daily ISE Percentage may result in losses even when the performance of the Index has increased since the beginning of the Strategy Term. If amounts are withdrawn or fully surrendered from an Index
Strategy before the end of a Strategy Term, including for a Performance Lock, payment of the Death Benefit or Annuitization, a loss may result if the Daily ISE Percentage is
negative. See "Daily Index Strategy Earnings Percentage (Daily ISE Percentage)" and "Appendix D: Daily Index Strategy Earnings Percentage."
Contingent Deferred Sales Charges (CDSC)
Partial withdrawals or a full surrender during the first six Contract Years may be
subject to a CDSC. After the sixth Contract Year, no withdrawals, including a full surrender, are subject to CDSCs.
When a CDSC is imposed, the charge will equal the applicable "CDSC Percentage" multiplied by the dollar amount of the withdrawal. The CDSC Percentage will depend on the number of Contract Years you have completed when you take a withdrawal.
The CDSC Percentage schedule is set forth below.
Number of Completed Contract Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value Adjustments (MVA)
Partial withdrawals or a full surrender during the first six Contract Years may be subject to an MVA. After the sixth Contract
Year, no withdrawals, including a full surrender, are subject to an MVA. An MVA may be positive or negative, and is in addition to any applicable CDSC.
When an MVA is imposed, the MVA will equal the calculated "MVA Factor" multiplied by the
dollar amount of the withdrawal less the Remaining Free Withdrawal Amount. For a partial withdrawal or full surrender from the Fixed Strategy or an Index Strategy that offers Minimum Nonforfeiture Value, the MVA amount applicable will never be larger (either
positive or negative) than amounts defined herein. See "Market Value Adjustment (MVA)" for an explanation of how the MVA Factor and amount is calculated, as well as "Appendix C: MVA, Partial Withdrawal, and Surrender Examples" for example
MVA calculations.
Example Impact
of CDSC and Negative MVA
If applicable, a CDSC and negative MVA will reduce a
withdrawal (perhaps significantly). For example, assume a Contract Owner takes a $1,000 withdrawal. Further, assume an 8% CDSC and a 3% negative MVA. As a result of the CDSC and
MVA, $110 would be deducted from the $1,000 withdrawal (i.e., (8% x $1,000) + (3% x $1,000) = $110). This reduction in the withdrawal amount is in addition to a potential reduction of the Index Strategy Value as a result of any proportionate
withdrawal calculations and the Daily ISE Percentage. See "Appendix C: MVA, Partial Withdrawal, and Surrender
Examples" for additional example calculations.
When do CDSCs and MVAs not apply to partial withdrawals or a full surrender?After the
sixth Contract Year, no withdrawals, including a full surrender, are subject to a CDSC or MVA. In addition, during the first six Contract Years, Nationwide will waive CDSC and MVA for withdrawals up to each Contract Year’s Free Withdrawal Amount. At the beginning
of each Contract Year the Free Withdrawal Amount is calculated as the greater of (1) 10% of the Contract Value on the first day of that Contract Year (immediately prior to any
partial withdrawal or full surrender on that date); or (2) the amount required to meet minimum distribution requirements for this Contract under the Code.In addition, no CDSC or MVA is
assessed:
•
upon the payment of the Death Benefit or on any partial withdrawal or full surrender taken
after the Death Benefit is paid;
•
upon Annuitization of the Contract if it has been in force for at least two
years;
•
if the withdrawal qualifies as a Long-Term Care or Terminal Illness or Injury Event as described in the "Increase in
Remaining Free Withdrawal Amount after a Long-Term Care and Terminal Illness or Injury (CDSC And MVA Waiver)" section; and
•
if, under certain contract exchanges, Nationwide decides not to charge a CDSC or MVA if the Contract is surrendered in
exchange for another contract issued by Nationwide or one of its affiliated insurance companies.
While a CDSC and MVA may not apply to certain withdrawals or a full surrender, the Daily ISE Percentage is used to calculate Index Strategy Earnings during a Strategy Term, and if amounts are withdrawn or fully surrendered from an Index
Strategy before the end of a Strategy Term, a loss may result if the Daily ISE Percentage is negative. In addition, withdrawals from an Index Strategy before the end of its
Strategy Term will reduce the Index Strategy Basis in the same proportion that the Index Strategy Value is reduced (rather than on a dollar-for-dollar basis). Similarly, if the
Death Benefit is based on return of premium instead of Contract Value, the Death Benefit will be reduced in the same proportion that the Index Strategy Value is reduced.
What are the investment options under the Contract?
Prior to the Annuitization Date, the Contract Owner may allocate money to the Fixed Strategy
and/or to one or more of the available Index Strategies.
•
Fixed Strategy - the Fixed Strategy credits interest daily at a Fixed Strategy Rate. The initial Fixed Strategy Rate is stated in the
Contract and may be different for each subsequent Strategy Term, but is guaranteed to be at least 0.25%. The Fixed Strategy Rate is declared by Nationwide prior to each Strategy
Term and is guaranteed for that Strategy Term only.
•
Index Strategies - each Index Strategy is linked to the performance of an Index and has multiple
components that impact your Index Strategy Earnings, either by adjusting the Index Performance or otherwise increasing or decreasing gain or loss. Earnings based on actual Index Performance are credited at the end of a Strategy Term. During a
Strategy Term, the Index Strategy Value is calculated using the Daily ISE Percentage that is applied at the end of each Business Day. (The Term End Index Strategy Value is only
impacted by this calculation if amounts were withdrawn or otherwise deducted during a Strategy Term.) Each Index Strategy has a Strategy Term of 1 or 3 years and includes a defined level of downside protection that limits the amount of loss you can
experience during a Strategy Term. We refer to this defined downside protection as a "Protection Level."
Each Index
Strategy also includes a percentage that determines the proportion of the Index performance you receive over the course of a Strategy Term, which is referred to as a "Participation
Rate." A Strategy’s Participation Rate can be as low as 5%. The Participation Rate is declared prior to each Strategy Term and may be different each Strategy Term. See "Index Strategies." A "Strategy Spread" is also included for each Index Strategy,
which, if above 0%, reduces earnings."
For currently
offered Strategies and Strategies offered in the future, the Index, Strategy Term and Protection Level will not change for as long as we continue to offer the Strategy, while the
Participation Rate and Strategy Spread can change for Strategies offered in the future.
Each Index is described in more
detail under "Indexes – Market Exposures and Investment Risks" and "Indexes – Descriptions of the Indexes."
The Participation Rate and Strategy Spread do not apply in the same way when
calculating the Index Strategy Value during a Strategy Term as they do when calculating the Index Strategy Value on the Strategy Term End Date. See "How are earnings calculated for an Index Strategy during a Strategy Term?"
The currently offered Index Strategies are*:
•
BlackRock Select Factor Index, 1 Year, 100% Protection Level Strategy
•
BlackRock Select Factor Index, 1 Year, 95% Protection Level Strategy
•
BlackRock Select Factor Index, 1 Year, 90% Protection Level Strategy
•
BlackRock Select Factor Index, 3 Year, 100% Protection Level Strategy
•
BlackRock Select Factor Index, 3 Year, 95% Protection Level Strategy
•
BlackRock Select Factor Index, 3 Year, 90% Protection Level Strategy
•
J.P. Morgan Mozaic IISM Index, 1 Year, 100% Protection Level Strategy
•
J.P. Morgan Mozaic IISM
Index, 1 Year, 95% Protection Level Strategy
•
J.P. Morgan Mozaic IISM Index, 1 Year, 90% Protection Level Strategy
•
J.P. Morgan Mozaic IISM
Index, 3 Year, 100% Protection Level Strategy
•
J.P. Morgan Mozaic IISM Index, 3 Year, 95% Protection Level Strategy
•
J.P. Morgan Mozaic IISM
Index, 3 Year, 90% Protection Level Strategy
•
MSCI EAFE Index, 1 Year, 100% Protection Level Strategy**
•
MSCI EAFE Index, 1 Year, 95% Protection Level Strategy**
•
MSCI EAFE Index, 1 Year, 90% Protection Level Strategy**
•
MSCI EAFE Index, 3 Year, 100% Protection Level Strategy**
•
MSCI EAFE Index, 3 Year, 95% Protection Level Strategy**
•
MSCI EAFE Index, 3 Year, 90% Protection Level Strategy**
•
NYSE® Zebra Edge® Index, 1 Year, 100% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 1 Year, 95% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 1 Year, 90% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 3 Year, 100% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 3 Year, 95% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 3 Year, 90% Protection Level Strategy
•
SG Macro Compass Index, 1 Year, 100% Protection Level Strategy
•
SG Macro Compass Index, 1 Year, 95% Protection Level Strategy
•
SG Macro Compass Index, 1 Year, 90% Protection Level Strategy
•
SG Macro Compass Index, 3 Year, 100% Protection Level Strategy
•
SG Macro Compass Index, 3 Year, 95% Protection Level Strategy
•
SG Macro Compass Index, 3 Year, 90% Protection Level Strategy
•
S&P 500®
Average Daily Risk Control 10% USD Price Return Index, 1 Year, 100% Protection Level Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 1 Year, 95% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 1 Year, 90% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 3 Year, 100% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 3 Year, 95% Protection Level
Strategy**
•
S&P 500®
Average Daily Risk Control 10% USD Price Return Index, 3 Year, 90% Protection Level Strategy**
•
S&P 500® Index, 1 Year, 100% Protection Level Strategy**
•
S&P 500® Index,
1 Year, 95% Protection Level Strategy**
•
S&P 500® Index, 1 Year, 90% Protection Level Strategy**
•
S&P 500® Index,
3 Year, 100% Protection Level Strategy**
•
S&P 500® Index, 3 Year, 95% Protection Level Strategy**
•
S&P 500® Index,
3 Year, 90% Protection Level Strategy**
* For information on the Participation Rate and Strategy Spread for each Strategy, see "What factors will affect my investment gains or losses under the Contract?". Each Strategy has its own Minimum Participation Rate that will never be less than 5%, and each
Strategy has its own Maximum Strategy Spread that will never be greater than the initial Strategy Spread when that Strategy was first made available to that Contract plus 2%. When a Strategy has both a Participation Rate less than 100% and a Strategy
Spread greater than zero, the Participation Rate and Strategy Spread combine to reduce gains when Index Performance is positive. Additionally, when a Strategy has both a Participation Rate greater than 100% and a Strategy Spread greater than zero, the
Participation Rate and Strategy Spread combine to increase losses when Index Performance is negative. Application of the Participation Rate and Strategy Spread will not cause the Index Strategy Earnings to drop below the floor protection provided by
the Protection Level.
** This is a price return index.
Each Index is described in more detail under "Indexes – Market Exposures and Investment Risks" and "Indexes –
Descriptions of the Indexes."
Nationwide reserves the right to add or remove any Index Strategies at any time, but any such changes will not affect
Strategy Terms already in effect and will become effective on the first day of a new Strategy Term. We reserve the right to make Strategies available for investment that use Indexes other than those listed above. There is no guarantee that a
Strategy using any of the Indexes listed above will always be available for investment; however, there will always be at least one Index Strategy option available, and that option will be identical or similar to one of the options disclosed in this prospectus. The Index Strategies available for election may be different for newly issued Contracts than for existing
Contracts or for Contracts with different issue dates.
Once you reach the Annuitization Date, the Strategies are not available for
investment.
You should understand that Index Performance
is important, but it is not the only factor used to calculate gains or losses under the Contract. Each Strategy has multiple components that impact your Index
Strategy Earnings, either by adjusting the Index Performance or otherwise increasing or decreasing gain or loss.
What is the maximum number of Strategies in which the Contract Owner can
invest?
The Contract Owner may invest in no more than ten Index
Strategies at any given time (the Fixed Strategy does not count towards the maximum number of Index Strategies). If the Contract Owner is simultaneously invested in the same Index
Strategy for Strategy Terms that began on different dates, those investments will be considered separate Index Strategies. There is no minimum dollar amount that can be allocated to a Strategy. Allocations to Strategies must be in whole
percentages.
What factors will affect my investment gains and losses under the Index Strategies?
Each Index Strategy has the following five Crediting Factors: (1) an
Index, which is the market index linked to a Strategy; (2) a Strategy Term, which represents the duration of the Strategy in years; (3) a Protection Level, which represents an
amount of downside protection under an Index Strategy for a Strategy Term; (4) a Participation Rate, which represents the proportion of the Index Performance reflected in the Index Strategy’s performance; and (5) a Strategy Spread, which is an annualized percentage used as a deduction in the calculation of an Index Strategy’s performance. The Index, Strategy
Term and Protection Level will not change for as long as we continue to offer the Strategy, while the Participation Rate and Strategy Spread can change for future Strategy Terms.
When selecting an Index Strategy for investment, you should not select an Index Strategy based on any single Crediting Factor in isolation. While one Crediting Factor for an Index Strategy may be
more or less favorable or attractive to you, the other Crediting Factors also impact whether that Index Strategy is appropriate for you based on your financial needs and goals. You should consult a financial professional prior to selecting an Index Strategy for investment.
The following provides a brief description of the five Crediting Factors. See "Crediting Factors" for additional information.
1. Index
The
index is the market index to which an Index Strategy is linked. The currently offered Indexes are:
•
BlackRock Select Factor Index
•
J.P. Morgan Mozaic IISM Index
•
NYSE® Zebra Edge® Index
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index*
* This is a price return index.
The different Indexes under the Contract provide exposure to different markets and asset classes, all of which may perform differently compared to each other and during different time periods.
When we calculate Index Strategy Earnings at the end of a Strategy Term, if
the Index Performance is negative, you will lose money under your Contract unless the Strategy’s downside protection protects you from the loss. When the Index Performance is positive, you may gain money, lose money, or earn nothing under your Contract, depending on the impact
of the Strategy Spread.
Because we
calculate Index Performance on the Strategy Term End Date by comparing the value of the Index between two specific points in time (i.e., the start and end of the
Strategy Term), Index Performance may be negative or flat even if the Index performed positively for certain time periods between those two specific points in time. This is true even for Index Strategies with Strategy Terms longer than one year.
Some of the Indexes available under this Contract do not include income from
any dividends paid by component companies. The exclusion of dividends from an Index will lower the Index Performance, particularly over the course of time. Some of the Indexes deduct fees and costs when calculating Index Performance, which will reduce the Index Performance.
Certain Indexes are comprised of foreign issuers and include exchange rate methodologies that may lower the Index Performance. See "Crediting Factors – Indexes."
Nationwide reserves the right to add or remove any Index in the
future and there is no guarantee that an Index Strategy using any of the Indexes listed above will always be available for investment. The Index for an Index Strategy generally will not change for the duration of an ongoing Strategy Term. However, Nationwide reserves the right to substitute
the Index during a Strategy Term at any time, if (a) the Index is discontinued or (b) there is a substantial change to the calculation of the Index. If Nationwide substitutes an
Index during a Strategy Term, the new Index will be similar in composition to the old Index, and the Index Performance for the Index Strategy will be equal to the result of compounding the performance of the old index prior to the substitution date and the performance of the new index after
the substitution date. See "Index Substitution During a Strategy Term."
2. Strategy Term
The Strategy Term represents the duration of the Strategy, expressed
in years. Currently, the Index Strategies offered under the Contract have Strategy Terms of either 1 or 3 years. If you select a one-year Strategy Term, the performance of your investment will depend on the performance of the Index for up to a one-year period. If you select a
three-year Strategy Term, the performance of your investment will depend on the performance of the Index for up to a three-year period.
3. Protection Level
The Protection Level represents an amount of downside protection under an Index Strategy for a Strategy Term. The Protection
Level is presented as a percentage (currently, 100%, 95%, or 90%). A higher Protection Level provides more protection against loss than a lower Protection Level. If you select an
Index Strategy with a 90% Protection Level, your rate of return that is calculated at the end of the Strategy Term or at any time during the Strategy Term cannot be lower than -10%. If you select an Index Strategy with a 95% Protection Level, your rate of return that is
calculated at the end of the Strategy Term or at any time during the Strategy Term cannot be lower than -5%. If you select an Index Strategy with a 100% Protection level, your rate of return that is calculated at the end of the Strategy
Term or at any time during the Strategy Term cannot be lower than 0%. Each Strategy has its own Minimum
Protection Level. Regardless of the Strategy, a Protection Level will never be lower than 75% for any Strategy Term.
It is possible to lose a
substantial amount of your principal investment under this Contract. The CDSC and MVA may also result in a loss of principal and related earnings if you take a Withdrawal from your
Contract during the first six Contract Years. This risk exists even if you are invested in a Strategy with an Index that is performing positively as of the date of your withdrawal.
4. Participation Rate
The Participation Rate represents the proportion of the Index
Performance that is reflected in the Index Strategy’s performance. The Participation Rate is presented as a percentage greater or less than, or equal to, 100% (e.g., 50%
or 150%). The Participation Rate for a Strategy Term is for the entire term and is not applied on an annual basis. The Participation Rate may have the effect of increasing or decreasing gains or losses as follows:
•
If the Participation Rate is greater than 100%, it will increase your upside potential when
the Index Performance is positive. For example, if your Participation Rate is 150%, we will multiply any positive Index Performance by 150%. A Participation Rate greater than 100% also increases your downside risk. For example, if your Participation Rate is
150%, we will multiply any negative Index Performance by 150% (subject to any applicable defined downside protection).
•
If the Participation Rate is less than 100%, it will decrease your upside potential when the Index Performance is positive.
For example, if your Participation Rate is 90%, we will apply only 90% of the positive Index Performance. A Participation Rate lower than 100% also decreases your downside risk
when Index Performance is negative. For example, if your Participation Rate is 90%, we will only apply 90% of the negative Index Performance (subject to any applicable defined downside protection).
•
If the Participation Rate is equal to 100%, it will neither increase nor decrease your upside
potential or downside risk.
We declare a new Participation Rate at the start of each Strategy Term,
which may be different than the prior Participation Rate for the same Index Strategy. A Participation Rate may be set as low as 5%. A low Participation Rate would cause an Index Strategy to participate in the performance of the linked Index to only a small extent. An Index
Strategy’s Participation Rate for a particular Strategy Term may be different for newly issued Contracts than for existing Contracts.
5. Strategy Spread
The Strategy Spread is an annualized percentage used as a
deduction in the calculation of an Index Strategy’s performance. A Strategy Spread greater than 0% always has the effect of reducing an Index Strategy’s performance.
An Index Strategy will never have a Strategy Spread lower than 0%.
The impact of a Strategy Spread increases over the course of the Strategy Term, reaching its full impact on the Strategy Term End Date. For instance, if a Strategy with a 1-year Strategy Term has a Strategy Spread of 2%, the impact of
the Strategy Spread will not reach 2% until the Strategy Term End Date. If a Strategy with a 3-year Strategy Term has a Strategy Spread of 2%, the impact of the Strategy Spread
will not reach 6% (2% per year) until the Strategy Term End Date.
A Strategy Spread can result in negative Index Strategy Earnings even if you have positive Index performance.
We declare a new Strategy Spread at the start of each new Strategy Term, which may be different than the prior Strategy
Spread for the same Index Strategy. Each Index Strategy has its own Maximum Strategy Spread that will never be greater than the initial Strategy Spread when that Strategy was first
made available to that Contract plus 2%. A Strategy’s Strategy Spread for a particular Strategy Term may be different for newly issued Contracts than for existing Contracts.
How do I know what the Crediting Factors are for an Index Strategy that I want to invest
in?
As long as we continue to offer any Index Strategy listed above under "What are the investment options under the Contract,"
its Index, Strategy Term, and Protection Level will not change.
The
Participation Rate and Strategy Spread for each Index Strategy will be declared prior to the beginning of each Strategy Term and are subject to change from Strategy Term to
Strategy Term. Such changes will be subject to the following conditions and considerations:
•
The Participation Rate is guaranteed to never be lower than the "Minimum Participation Rate"
applicable to that Index Strategy. Each Index Strategy has its own Minimum Participation Rate. Regardless, a Participation Rate will never be less than 5%.
When the
Participation Rate increases from one Strategy Term to the next, your upside potential will increase, but your risk of loss also increases.
When the Participation Rate decreases from one Strategy
Term to the next, your upside potential decreases, but your risk of loss also decreases.
•
The Strategy Spread is guaranteed never to be greater than the "Maximum Strategy Spread"
applicable to that Index Strategy. The Maximum Strategy Spread for each Index Strategy will equal the initial Strategy Spread for that Strategy when that Strategy was first made available to that Contract plus 2%.
When the Strategy Spread increases from one Strategy Term
to the next, the Strategy Spread will have a greater impact on your gains and losses, decreasing gains and potentially increasing losses.
Before purchasing this Contract, you should contact the Service Center or your financial
professional for information on the available Strategies and the current Participation Rates and Strategy Spreads. For existing Contract Owners, at least 30 days prior to the end of the Strategy Term, we will send you a notice stating (i) the Strategies that will be available for
investment at the end of the Strategy Term, (ii) their respective Crediting Factors, including the Participation Rate and Strategy Spread that we declared for the upcoming Strategy Term, and (iii) how to communicate your instructions to us
regarding what to do with your money invested in the maturing Strategy.
When selecting a Strategy for investment, you should understand that your gains or losses for an Index Strategy will not equal the gains or losses in the Index you choose. Each Index Strategy has multiple components that impact your Index Strategy Earnings, either by adjusting the Index Performance or otherwise increasing or decreasing gain or loss. You should not select an Index Strategy based on any single Crediting Factor in isolation. While one Crediting Factor for an Index Strategy may be more or less
favorable or attractive to you, the other Crediting Factors also impact
whether that Strategy is appropriate for you based on your financial needs and goals. You should consult a financial professional prior to selecting a Strategy for
investment.
What are the different values under the Contract?
Nationwide calculates the Contract Value at the end of each Business Day. The Contract Value
is equal to the sum of the Fixed Strategy Value and Index Strategy Value for each of the Index Strategies. At issue, the Contract Value is equal to the Purchase Payment.
The Fixed Strategy Value is equal to the amount allocated to the Fixed Strategy plus any interest credited, less any
withdrawals (including any applicable CDSC, MVA and taxes).
An Index Strategy’s Index Strategy Value is equal to its Index Strategy Basis plus
Index Strategy Earnings (which may be positive, negative, or equal to zero). See "How are earnings calculated for an Index Strategy at the end of a Strategy Term?" and "How are earnings calculated for an Index Strategy during a Strategy Term?"
The Index Strategy Basis is used to calculate both the Index Strategy Earnings and Index Strategy Value for an Index Strategy. On the first day of a Strategy Term, the Index Strategy Basis equals the amount allocated to the Index Strategy.
On any day during a Strategy Term other than the Strategy Term End Date, the Index Strategy Basis is equal to the Index Strategy Basis on the first day of the Strategy Term minus adjustments for any partial withdrawals (including adjustments
for any applicable CDSC, MVA and taxes) and any fees that occurred during the Strategy Term, and increased by the
same percentage of any adjustment to the Index Strategy Value under any applicable death benefit under the Contract. The Index Strategy Basis is not a cash value under the Contract and cannot be surrendered.
How are earnings calculated for an Index Strategy at the end of a Strategy Term?
On the Strategy Term End Date, Nationwide uses the Term End ISE Percentage to calculate Index Strategy Earnings. A Term End
ISE Percentage is calculated separately for each Index Strategy in which Contract Value is allocated. A Term End ISE Percentage can be positive, negative, or equal to zero.
We calculate your Strategy Earnings at the end of a Strategy Term using the following process:
•
First, we calculate the Index Performance. The Index Performance will be the percentage change
in the value of the Index between the first day of the Strategy Term and the Strategy Term End Date.
•
Second, we calculate the Adjusted Index Performance (AIP). The AIP reflects the application of
the Participation Rate and the Strategy Spread to the Index Performance. The formula for calculating the AIP is as follows: (Index Performance x Participation Rate) – (Strategy Spread x Elapsed Term).
•
Third, we calculate your rate of return, which will be applied as a percentage of the Index Strategy Basis. We refer to this
rate of return as the "Term End Index Strategy Earnings Percentage" ("Term End ISE Percentage"). The Term End ISE Percentage will equal the greater of (a) the AIP or (b) the
Protection Level minus 100%.
•
Fourth, using the Term End ISE Percentage, we calculate the dollar amount of gains or losses
that will be applied to your Contract. We calculate that dollar amount by multiplying the Term End ISE Percentage by the Index Strategy Basis.
The table below provides examples of how your Strategy Earnings are calculated at the end of a Strategy Term. It assumes:
(i) a one-year Strategy Term;
(ii) a Protection Level of 90%;
(iii) a Participation Rate of 100%;
(iv) a Strategy Spread of 2%;
(v) the Index Strategy Basis at the beginning of the Strategy Term equals $10,000; and
(vi) no withdrawals were taken during the Strategy
Term.
|
|
Strategy Earnings applied at end of a Strategy Term |
|
Your Strategy Earnings would be +$800
• The AIP equals 8%. This is calculated as follows: (10% x 100%) – (2% x 1) = 8%.
• The Term End ISE Percentage equals 8%. The AIP (8%) is greater than the Protection Level
minus 100% (-10%).
• The Strategy Earnings equal +$800. This is calculated by multiplying the Term End ISE
Percentage (8%) by the value of the investment ($10,000).
• The value of your investment would now equal $10,800. |
|
Your Strategy Earnings will be -$700 • The AIP equals -7%. This is calculated as follows: (-5% x 100%) –
(2% x 1) = -7%. • The Term End ISE Percentage equals -7%. The AIP (-7%) is greater than the
Protection Level minus 100% (-10%).
• The Strategy Earnings equal -$700. This is calculated by multiplying the
Term End ISE Percentage (-7%) by the value of the investment
($10,000). • The Index Strategy Basis would now equal $9,300.
In this scenario, the 90% Protection Level did not limit the amount of negative Strategy Earnings that
were applied to the Contract. |
|
|
Strategy Earnings applied at end of a Strategy Term |
|
Your Strategy Earnings will be -$1,000 • The AIP equals -17%. This is calculated as follows: (-15% x 100%) –
(2% x 1) = -17%.
• The Term End ISE Percentage equals -10%. The Protection Level minus 100% (-10%) is
greater than the AIP (-17%).
• The Strategy Earnings equal -$1,000. This is calculated by multiplying the Term End ISE
Percentage (-10%) by the value of the investment ($10,000).
• The Index Strategy Basis would now equal $9,000. In this scenario, the 90% Protection Level limited the amount of negative Strategy Earnings that were
applied to the Contract. If there was no downside protection, the Strategy Earnings
would have been -$1,700. |
The examples above assume a Participation Rate of 100%, which means that the
Participation Rate neither increased nor decreased upside potential or downside risk. The table below compares how the Strategy Earnings in Example – Table 1 would change if the Participation Rate was increased to 110% or decreased to 90% and all other assumptions remained the
same.
|
|
Strategy Earnings applied at end of a Strategy Term using
different Participation Rates based on stated assumptions
|
100% Participation Rate
(Example – Table 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As illustrated in the table above, compared to Example – Table 1 which assumed a 100% Participation Rate:
•
A 110% Participation Rate increased gains when the Index performed positively, but also
increased losses when the Index performed negatively.
•
Conversely, a 90% Participation Rate decreased gains when the Index performed positively, but
also decreased losses when the Index performed negatively.
•
In all cases, when the Index Performance was so negative that the AIP was below the
Strategy’s defined downside protection, the Protection Level limited the realized losses.
See "Term End Index Strategy Earnings Percentage (Term End ISE Percentage)" for more
information and examples of the calculations.
How are earnings calculated for an Index Strategy during a Strategy
Term?
On any day other than the Strategy Term End Date, Nationwide uses the Daily ISE Percentage to calculate Index Strategy
Earnings. The Daily ISE Percentage is not directly related to the Index Performance (although the performance of the Index Performance impacts the Daily ISE Percentage) and in general will be different than the Index Performance.
The Daily ISE Percentage may result in a loss even when the performance of the Index has increased since the beginning of the Strategy Term. Losses may be realized if a Death Benefit is processed or if the Contract Owner takes a withdrawal, exercises a Performance Lock or the Right to Examine and Cancel provision, or begins Annuitization.
Withdrawals taken during the first six Contract Years may be assessed a CDSC and MVA.
A Daily ISE Percentage is calculated separately
for each Index Strategy in which Contract Value is allocated. A Daily ISE Percentage can be positive, negative, or equal to zero. The Daily ISE Percentage is multiplied by the
Index Strategy Basis to determine the Index Strategy Earnings for that Index Strategy. The Index Strategy Earnings, regardless of whether they are positive or negative, are then added to the Index Strategy Basis to determine the Index Strategy Value for that day.
See
"Daily Index Strategy Earnings Percentage (Daily ISE Percentage)" and "Appendix D: Daily Index Strategy Earnings Percentage."
What options does a Contract Owner have at the end of a Strategy Term?
At least 30 days prior to a Strategy Term End Date, Nationwide will send a notification to the Contract Owner stating (i) the Strategies that will be available for investment, (ii) their respective Crediting Factors and their values for the upcoming
Strategy Term, and (iii) how to communicate the Contract Owner’s instructions to Nationwide. Prior to the close of business on the Strategy Term End Date, the Contract Owner may:
•
Allocate some or all of the Contract Value in the maturing Strategy to the same Strategy for
another Strategy Term (with the Crediting Factors that we declare for the upcoming Strategy Term), assuming that the Strategy is available for investment.
•
Allocate, free of charge, some or all of the Contract Value in the maturing Strategy to
another Strategy that is available for investment.
If Nationwide does not receive instructions prior to the close of business on a Strategy Term
End Date (or if the Strategy Term End Date is not a Business Day, then at least one Business Day prior to the Strategy Term End Date), the Contract Value in the maturing Strategy will be allocated to the same Strategy for another Strategy Term, but with the Crediting
Factors that Nationwide declares for the upcoming Strategy Term. If the same Strategy is no longer available for
investment, the Contract Value allocated to the maturing Strategy will be transferred to the Fixed Strategy for the upcoming Strategy Term.
How can I access my Contract Value?
Prior to the Annuitization Date or death of the Annuitant, the Contract Owner may access the Contract Value by taking a partial withdrawal or full surrender of the Contract. Withdrawals taken during the first six Contract Years may be assessed
a CDSC and MVA. Partial withdrawals will be taken proportionally from the Strategies in which the Contract Owner is allocated based on the Contract Value in the Strategies at the time of the request. See "Appendix C: MVA, Partial
Withdrawal, and Surrender Examples" for example calculations.
Partial withdrawals reduce an Index Strategy’s Index Strategy Basis in the same proportion that the partial withdrawal
reduced the Index Strategy’s Index Strategy Value on the date of the withdrawal. When the Index Strategy Basis is greater than the Index Strategy Value at the time of a withdrawal, a proportional reduction will reduce the Index Strategy Basis by
more than the dollar amount of the withdrawal.
There is no limit to the number of withdrawals that may be taken in a Contract Year. However, partial withdrawals must be at
least $100.
All or a portion of any withdrawal may be subject to federal
income taxes, and Contract Owners taking withdrawals before age 59½ may be subject to a 10% penalty tax.
What death benefit does the Contract provide?
Prior to the Annuitization Date, the Death Benefit is triggered on the death of the Annuitant
(or Co-Annuitant, if applicable), provided that (i) the death occurs prior to the Annuitization Date; (ii) the Contract is in force at the time of the death; and (iii) there is no Contingent Annuitant.
If the Annuitant dies after the Annuitization Date, any benefit that may be payable will be
paid according to the selected annuity payment option.
The Death Benefit will be determined as follows, depending on the age of the Annuitant (and Co-Annuitant if applicable), on
the date the application for the Contract is signed:
•
If the age of the Annuitant and Co-Annuitant, if applicable, is less than or equal to age 75, then the Death Benefit will be
the greater of the Contract Value or the total Purchase Payment made to the Contract reduced by any withdrawals in the proportion that such withdrawals reduced the Contract Value
on the date of the withdrawal.
•
If the age of either the Annuitant or Co-Annuitant is greater than age 75, then the Death Benefit will be the Contract
Value.
Under
certain circumstances, if the Contract Owner is changed or the Contract is assigned prior to the death of the Annuitant, the Death Benefit will be the Surrender Value.
See "Calculation of the Death Benefit."
What annuity payment options are available on the Annuitization
Date?
Subject to certain restrictions described in this prospectus, you
may select from the available annuity payment options under the Contract. The options currently available include:
•
Standard Joint and Survivor Annuity; or
•
Single life annuity with 10 or 20-year term certain.
Other annuity payment options may
be available, and the available options may change.
Notwithstanding any
other provision in the Contract, if the life expectancy of a 65-year-old has increased by 3 or more years using the prevailing annuity valuation mortality table at the time of
annuitization compared to the life expectancy using the Annuity 2012 Basic Mortality table, the available annuity payment options may be limited to a single life annuity with a term certain equal to the Annuitant's life expectancy or a joint life annuity with term certain equal to the longer of
the Annuitant's or Joint Annuitant's life expectancy. See "Annuitizing the Contract."
If no annuity payment option is selected prior to the latest possible Annuitization Date, we will automatically set it as either 1) a fixed Single Life Annuity With 240 Monthly Payments Guaranteed or 2) a fixed Single Life Annuity With Term Certain with
a guaranteed period of payments equal to the Annuitant's life expectancy, calculated using the prevailing annuity valuation mortality table at the time of annuitization, whichever
is available on the Annuitization Date. Once an annuity payment option is selected, whether by the Annuitant or automatically by Nationwide, it may not be changed. All annuity
payments are paid on a fixed basis.
How do you contact Nationwide?
All inquiries, paperwork, information requests, service requests, and transaction requests should be made to the Service
Center:
•
by telephone at 1-800-848-6331 (TDD 1-800-238-3035)
•
by mail to P.O. Box 182021, Columbus, Ohio 43218-2021
•
by fax at 1-888-634-4472
•
by Internet at www.nationwide.com.
An investment in this Contract is subject to the risk of loss. Each Strategy's defined downside protection, provided by its
Protection Level, does not provide complete protection from loss. You may lose money, including a substantial amount of your principal investment and previously credited earnings. Your losses may be significant.
During a Strategy Term, the Index Strategy Value is determined using an estimated present value of what the Index Strategy Value will be on the Strategy Term End Date. This method of calculating the Index Strategy Value could result in a
loss during a Strategy Term even when the performance of the Index is positive. There is a risk of a substantial loss of your principal and previously earned Index Strategy
Earnings, and the loss is realized if a Death Benefit is processed or if the Contract Owner takes a withdrawal, exercises a Performance Lock or the Right to Examine and Cancel
provision, or begins Annuitization. See "Daily Index Strategy Earnings Percentage (Daily ISE Percentage)" and "Appendix D: Daily Index Strategy Earnings Percentage."
Withdrawals during the first six Contract Years may be subject to a CDSC and MVA which can result in the loss of principal
and previously earned Index Strategy Earnings.
LIQUIDITY RISK
The Contract is designed to be a long-term investment, not a short-term investment. Partial
withdrawals or a full surrender may be taken at any time prior to the Annuitization Date or death of the Annuitant, but there may be negative consequences for doing so if the withdrawal amount exceeds the Remaining Free Withdrawal Amount. Withdrawals in excess of
the Remaining Free Withdrawal Amount may be subject to a CDSC and a negative MVA, which will negatively impact the amount of your withdrawal. See "Appendix C: MVA, Partial
Withdrawal, and Surrender Examples" for example calculations.
In addition, any partial withdrawal or full surrender may also be subject to a 10% additional federal tax if taken before age
59½. This Contract may not be appropriate if you plan on taking partial withdrawals or a full surrender prior to age 59½.
Nationwide may defer payment for a partial withdrawal or full surrender under this Contract
for up to six months if the insurance regulatory authority of the state in which the Contract is issued approves such deferral. There are other circumstances under which Nationwide may delay the payment of partial withdrawals or full surrenders, as described in this
prospectus. See "Withdrawals."
It is not possible to take withdrawals or
surrender the Contract on or after the Annuitization Date.
The following describe various investment risks associated with the Contract:
•
Allocations to an Index Strategy are not directly participating in the performance of any
stocks or other assets. Instead, the performance of the Index Strategy depends (in part) on the performance of its Index. The performance of an Index is based on changes in the values of the securities or other assets that comprise the Index. The
securities comprising the Indexes are subject to a variety of investment risks, many of which are complicated and interrelated. These risks may affect capital markets generally,
specific market segments, or specific issuers. The performance of the Indexes may fluctuate,
sometimes rapidly and unpredictably. Negative Index Performance may cause you to realize investment losses. Your investment losses may be significant. For a description of particular investment risks to which the Indexes are subject, see "Indexes – Market Exposures and Investment Risks."
•
The historical performance of an Index or an Index Strategy does not guarantee future results.
It is impossible to predict whether an Index or an Index Strategy will perform positively or negatively over the course of a Strategy Term.
•
While it is not possible to invest directly in an Index under the Contract or otherwise,
allocations to an Index Strategy are indirectly exposed to the investment risks associated with its Index. An Index Strategy that has an Index with higher investment risks indirectly exposes you to those higher investment risks.
•
Because the Indexes under the Contract are all comprised by a collection of equity securities, each Index is exposed to
market risk and issuer risk. Market risk is the risk that market fluctuations may cause the value of a security or asset to fluctuate, sometimes rapidly and unpredictably. Issuer
risk is the risk that the value of an issuer’s securities may decline for reasons directly related to the issuer, as opposed to the market generally.
•
Index Performance is calculated by comparing the value of the Index between two specific points in time which means Index
Performance may be negative or flat even if the Index performed positively for certain time periods between those two specific points in time.
•
Some of the Indexes available under this Contract do not include income from any dividends
paid by component companies. The exclusion of dividends from an Index will lower the Index Performance, particularly over the course of time. Some of the Indexes deduct fees and costs when calculating Index Performance, which will reduce the Index
Performance. Additionally, certain Indexes are comprised of foreign issuers and include exchange rate methodologies that may lower an Index Strategy’s returns. See, "Indexes
– Market Exposures and Investment Risks" for a summary of other important investment risks to which each Index under the Contract is exposed.
•
If you are invested in multiple Strategies at the time that you request a partial withdrawal,
you cannot select the specific Strategy(ies) from which the partial withdrawal is to be taken. Your partial withdrawal will be allocated among all of your Strategies in proportion to their Strategy Value. This means that when you take a withdrawal you may be
required to withdrawal money from a Strategy that is performing negatively even if you have some other Strategy performing positively at the time of the withdrawal.
•
In recent years, the financial markets have experienced periods of significant volatility and negative returns, contributing
to an uncertain and evolving economic environment. The performance of the markets has been
impacted by several interrelating
factors such as, but not limited to, the COVID-19 pandemic, geopolitical turmoil, rising inflation, changes in interest rates, and actions by governmental authorities. It is not
possible to predict with certainty the future performance of the markets.
•
Nationwide relies on the third-parties who sponsor and administer the Indexes to provide
Nationwide with Index Values which are used to calculate the performance of the Index Strategies. In general, Index Values are to be provided to Nationwide each Business Day. However, there may be short or extended periods of time when Nationwide is not
provided Index Values for an Index. This may occur for a variety of reasons that are not within Nationwide’s control, including severe market disruptions. If Nationwide is
not provided with an Index Value, it will use the most recent Index Value provided to Nationwide when calculating the performance of the Index Strategies linked to the applicable Index. If Nationwide is provided an Index Value for a prior Business Day for which
Nationwide was not originally provided an Index Value, Nationwide will take reasonable steps to recalculate impacted Contract Values and Contract transactions.
RISKS ASSOCIATED
WITH THE INDEXES
If you allocate money to an Index Strategy for a
Strategy Term, the value of your investment will depend in part on the performance of the applicable Index or Indexes. The performance of an Index is based on changes in the values
of the securities or other instruments that comprise or define the Index. The securities and instruments comprising or defining the Indexes are subject to a variety of investment risks, many of which are complicated and interrelated. These risks may
affect capital markets generally, specific market segments, or specific issuers.
The performance of the Indexes may fluctuate, sometimes rapidly and unpredictably.
Negative Index performance may cause you to lose money on your investment in the Contract. The historical performance of an Index or an Index Strategy does not guarantee future results. It is impossible to predict whether an Index will perform positively or negatively over the
course of a Crediting Period.
While it is not possible to invest directly in an Index, if you choose to allocate amounts to an Index Strategy, you are
indirectly exposed to the investment risks associated with the applicable Index.
Because each Index is comprised or defined by a collection of securities, each Index
is largely exposed to market risk and issuer risk.
•
Market risk is the risk that market fluctuations may cause the value of a security to fluctuate, sometimes rapidly and
unpredictably.
•
Issuer risk is the risk that the value of an issuer’s securities may decline for reasons directly related to the issuer, as
opposed to the market generally.
For more information on the other important, specific investment risks to which each particular Index is exposed, see
"Market Exposures and Investment Risks" in the "Index Strategies" section.
DAILY INDEX STRATEGY EARNINGS PERCENTAGE (DAILY ISE PERCENTAGE) RISK
A Daily ISE Percentage is calculated separately for each Index Strategy in which Contract
Value is allocated. The Daily Index Strategy Earnings Percentage is equal to the greater of the Protection Level minus 100% and the Daily Pre-Protection Level Index Strategy Earnings (ISE) Percentage.
The Daily ISE Percentage is not directly related to the Index Performance (although
performance of the Index impacts the Daily Pre-Protection Level ISE Percentage calculation) and the Daily ISE Percentage may be negative even when the performance of the Index is positive.
The Daily ISE Percentage may result in a loss even when the performance of the Index has increased since the beginning of the Strategy Term. The Daily ISE Percentage is used to calculate Index
Strategy Earnings during a Strategy Term, and if a Death Benefit is processed or if the Contract Owner takes a withdrawal, exercises a Performance Lock or the Right to Examine and Cancel provision, or begins Annuitization before the end of a Strategy Term, a loss may result if the Daily ISE Percentage is negative.
LIMITED GROWTH POTENTIAL RISK (STRATEGY SPREAD AND PARTICIPATION RATE RISK)
When you invest in a Strategy, the growth (or upside) potential of your investment is not capped, but the Strategy Spread
will reduce the upside potential of your investment. In addition, if the Participation Rate is less than 100%, the Participation Rate will also decrease the upside potential of your investment.
As part of the process for calculating Index
Strategy Earnings on the Strategy Term End Date, we calculate the Adjusted Index Performance (AIP), which is then used to calculate the Term End Index Strategy Earnings Percentage.
The AIP is the percentage gain or loss in the Strategy Value at the end of the Strategy Term, calculated using the Crediting Factors applied to the underlying values, prior to the application of any Protection Level. See "Calculation of Index Strategy
Earnings." The AIP is the Index Performance after the application of the Strategy Spread and the Participation Rate.
The Strategy Spread represents an annualized percentage rate that, when greater than 0%,
always has the effect of reducing the AIP at the end of the term, and indirectly impacts the Daily ISE Percentage.
•
When comparing Strategies with Strategy Terms that are the same length and all other Crediting
Factors are the same, you should understand that a higher Strategy Spread is always more unfavorable to you than a lower Strategy Spread.
•
When determining the maximum impact that a Strategy Spread will have on your Index
Performance, multiply the Strategy Spread by the number of years in the Strategy Term (e.g., if the Strategy Spread is 2% and the Strategy Term is 3 years, this will reduce the Index Performance (after it has been multiplied by the Participation Rate) by
6% at the end of the Strategy Term). See the "Strategy Spread" subsection in the "Index Strategies" section.
•
When comparing Strategies with Strategy Terms that differ in length, a higher Strategy Spread will always be more
unfavorable to you on an annual basis, but the overall impact of a lower Strategy Spread over a multi-year Strategy Term may be more unfavorable to you than the overall impact of a
higher Strategy Spread over a shorter Strategy Term.
The Participation Rate represents the proportion of Index Performance that is reflected in
the AIP and may have the effect of amplifying or decreasing the Index Performance.
•
If the Participation Rate is greater than 100%, there will be more upside potential when the
Index Performance is positive but more downside potential when the Index Performance is negative (subject to the amount of downside protection provided by the Strategy’s Protection Level).
•
If the Participation Rate is less than 100%, there will be less upside potential when the
Index Performance is positive but less downside potential when the Index Performance is negative (subject to the amount of downside protection provided by the Strategy’s Protection Level).
•
If the Participation Rate is equal to 100%, the Participation Rate will neither increase nor
decrease the Index Performance.
The Participation Rate for a Strategy Term is for the entire term and is not applied on an annual basis.
The Participation Rate and the Strategy Spread may both be applied when calculating gains and
losses for each Index Strategy. When a Strategy has both a Participation Rate less than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to reduce gains when Index Performance is positive. Additionally, when a
Strategy has both a Participation Rate greater than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to increase losses when Index Performance is negative. Application of the Participation Rate and
Strategy Spread will not cause the Index Strategy Earnings to drop below the floor protection provided by the Protection Level.
When selecting a Strategy for investment, you should not select a Strategy based on any
single Crediting Factor, including the Participation Rate or the Strategy Spread. While one Crediting Factor for a Strategy may be more or less favorable or attractive to you, the other Crediting Factors also impact whether that Strategy is appropriate for you based on your
financial needs and goals. You should consult with a financial professional prior to selecting a Strategy for investment.
Except in the limited circumstances under which we may substitute an Index, the Index,
Strategy Term and Protection Level will not change for as long as we offer a Strategy. However, the Participation Rate and Strategy Spread may change from Strategy Term to Strategy Term. The Index Strategies available for a new Strategy Term may have different Crediting
Factors, and we may add or remove the Index Strategies offered. You do not have the right to reject any Participation Rate or Strategy Spread that we declare for a future Strategy Term. If you do not wish to invest in any of the Strategies at some
point in the future, your only option will be to fully surrender your Contract or annuitize your Contract (subject to limitations). A full surrender may be subject to a CDSC and an MVA, and may also have negative tax consequences.
The ability to transfer Contract Value among the
Strategies is restricted. Except when exercising a Performance Lock, Contract Value allocated to a Strategy cannot be transferred until the end of the Strategy Term, even if
Nationwide substitutes an Index during the Strategy Term, and Contract Value cannot be transferred into a Strategy while its Strategy Term is ongoing. This restricts the ability to react to changes in market conditions during a Strategy Term other than
through withdrawals and by exercising the Performance Lock feature, which also has risks. You should consider whether the inability to reallocate Contract Value at any time is consistent with your financial needs.
In order to transfer Strategy Value from a Strategy on the Strategy Term End
Date to another Strategy that is available for investment, we must receive your transfer request prior to the close of business on the Strategy Term End Date (or if the Strategy Term End Date is not a Business Day, then at least one Business Day prior to the Strategy Term End Date). If
Nationwide does not receive the transfer instructions by this time, the Contract Value will remain allocated to the currently elected Strategies using the Crediting Factors applicable for the upcoming Strategy Term. If an Index Strategy is not
available for reinvestment, the entire Index Strategy Value allocated to the Index Strategy will be transferred to the Fixed Strategy.
RISK OF CHANGES TO PARTICIPATION RATE AND/OR STRATEGY SPREAD
Except in the limited circumstances under which we may substitute an Index, the Crediting Factors for a Strategy will not
change for the duration of an ongoing Strategy Term. Also, except in the limited circumstances under which we may
substitute an Index, the Index, Strategy Term and Protection Level will not change for as long as we offer a Strategy. However, the Participation Rate and Strategy Spread may change from Strategy Term to Strategy Term. Other than the
guaranteed minimums and maximums associated with a Strategy’s Participation Rate and Strategy Spread, which will not change for the entire time that the Strategy is offered under the Contract, there is no guarantee that a Strategy’s current Participation Rate and Strategy Spread will remain the same while you own the Contract.
You do not have the right to reject any Participation Rate or Strategy Spread that we declare for a future Strategy Term. If you do not wish to invest in any of
the Strategies at some point in the future, your only option will be to fully surrender your Contract or annuitize your Contract (subject to limitations). A full surrender may be
subject to a CDSC and an MVA. A full surrender may also have negative tax consequences.
You should evaluate whether our ability to change the Participation Rate and Strategy Spread, and your inability to reject such changes, is consistent with your investment goals. When such changes occur, you should also evaluate whether those
changes are appropriate for you based on your investment goals and, if not, you should evaluate your options under the Contract, which may be limited and may have negative
consequences associated with them, as described throughout this prospectus.
Under the Performance Lock feature, , if an Index Strategy’s Index Strategy Value exceeds its Strategy Basis multiplied by its Protection Level, the Contract Owner may transfer such Index Strategy Value to the Fixed Strategy prior to the Strategy
Term End Date. This means that a Performance Lock is available for an Index Strategy so long as the Daily Pre-Protection Level ISE Percentage is greater than the floor provided by the Protection Level for that Strategy. If a Contract Owner
exercises the Performance Lock feature, the Index Strategy Value transferred to the Fixed Strategy will be the Index Strategy Value at the end of the Business Day on which the Performance Lock request is received by Nationwide. If the
Performance Lock request is received by Nationwide on a day that is not a Business Day, or after the close of a Business Day, Nationwide will use the next Business Day’s Index Strategy Value. If a Performance Lock is requested but the Index
Strategy Value falls below the Strategy Basis multiplied by its Protection Level at the close of the Business Day on which the transfer is to occur, the Performance Lock will not be exercised.
Amounts transferred under the Performance Lock feature from an Index
Strategy to the Fixed Strategy before the end of a Strategy Term are subject to a loss if the Daily ISE Percentage is negative.
Once the money is transferred to the Fixed Strategy it cannot be transferred out of the Fixed
Strategy until the end of the Fixed Strategy’s Strategy Term (which would be the next Contract Anniversary). A Contract Owner should consider the following risks related to the Performance Lock feature:
•
The Performance Lock feature can only be used once during an Index Strategy’s Strategy
Term and only the full Index Strategy Value can be transferred. Performance Lock requests for partial amounts of Index Strategy Value will not be accepted. Once a Performance Lock request is received by Nationwide, it may not be revoked.
•
Because the Index Strategy Value will not be calculated until the end of the Business Day that the Contract Owner’s
Performance Lock request is received, the Contract Owner will not know the Index Strategy Value at the time they decide to lock in that value.
•
While a Contract Owner will earn interest in the Fixed Strategy at the Fixed Strategy Rate, once a Performance Lock for an
Index Strategy is exercised, the Contract Owner will no longer participate in the Index Strategy’s performance even if the Index Strategy performs positively.
•
Nationwide does not provide advice or notify Contract Owners regarding whether they should
exercise the Performance Lock feature or the optimal time for doing so, if one exists. Contract Owners bear the risk that they will fail to exercise the Performance Lock at the optimal time during a Strategy Term.
•
Contract Owners also bear the risk that they will exercise the Performance Lock at a time during a Strategy Term when they
miss out on gains that occur after the Performance Lock, or lock in losses that would not have occurred had the Performance Lock been exercised at a later date or not at all.
Nationwide is not responsible for any losses related to a decision whether or not to exercise a Performance Lock. It is impossible to know with certainty whether or not a Performance Lock should be exercised.
•
Nationwide is not responsible for any losses related to a decision whether or not to exercise a Performance Lock. It is impossible to know with certainty whether or not a Performance Lock should be exercised.
You may obtain information about
your current Index Strategy Value(s) by contacting your financial professional or our Service Center. Because of the risks described herein, you should speak to your financial
professional before exercising a Performance Lock.
The Index for an Index Strategy generally will not change for the duration of an ongoing Strategy Term. However, Nationwide
may substitute the Index during a Strategy Term in limited circumstances. Subject to any applicable regulatory approval, Nationwide may substitute the Index if (a) the Index is
discontinued or (b) there is a substantial change to the calculation of the Index. If Nationwide substitutes an Index, the new Index will be similar in composition to the old
Index. Nationwide will seek to notify Contract Owners at least 30 days prior to substituting an Index for any Index Strategy in which they are invested. However, in the event that it is necessary to substitute on less than 30 days’ notice due to
circumstances outside of Nationwide’s control, Nationwide will provide notice of the substitution as soon as practicable.
A Contract Owner will have no right to reject the substitution of an Index. If Nationwide
substitutes the Index for an Index Strategy in which a Contract Owner is invested, unless a Performance Lock is requested, the Contract Owner will not be permitted to transfer the Index Strategy Value until the end of the Strategy Term. See "Reinvestment Risk" above.
If Nationwide substitutes the Index for an Index Strategy, the performance of the new Index
may differ significantly from the performance of the old Index. This may negatively affect the Index Strategy Earnings applied to an Index Strategy.
INVESTMENT RISK DURING THE RIGHT TO EXAMINE PERIOD
Under state insurance laws, a Contract Owner has the right, during a limited period of time, to examine the Contract and
decide to keep it or cancel it. This right is referred to as a "free look" right. The length of this time period depends on state law and may vary depending on whether the purchase is a replacement of another annuity contract. For ease of administration,
Nationwide will honor any free look cancellation request that is in good order and received at the Service Center or postmarked within 30 days after the Date of Issue.
Where state law requires the return of purchase payments for free look cancellations, Nationwide will return the Purchase Payment applied to the Contract, less any withdrawals from the Contract and any applicable federal and state income tax
withholding. Where state law requires the return of Contract Value for free look cancellations, Nationwide will return the Contract Value as of the date of the cancellation, less any withdrawals from the Contract and any applicable federal and
state income tax withholding. There is a risk that the performance of the Index Strategies will decrease the Contract Value during the free look period and the Contract Value will be less than the Purchase Payment.
NATIONWIDE’S FINANCIAL STRENGTH AND CLAIMS PAYING ABILITY
RISK
Nationwide’s general account assets support its obligations
under the Contract and are subject to claims by its creditors. As such, guarantees under the Contract are subject to Nationwide’s financial strength and claims-paying
ability. There is a risk that Nationwide may default on those guarantees. Contract Owners need to consider Nationwide’s financial strength
and claims-paying ability in meeting its
guarantees under the Contract. Contract Owners may obtain information on Nationwide’s financial condition by reviewing its financial statements included in this prospectus.
Additionally, information concerning Nationwide’s business and operations is set forth under "Appendix E: Nationwide Life Insurance Company Management’s Discussion & Analysis and Statutory Financial Statements and Supplemental Schedules."
To request additional information about Nationwide, contact the Service Center.
Nationwide’s businesses are highly dependent upon its computer systems and those of its
business partners and service providers. This makes Nationwide susceptible to operational and information security risks resulting from a cybersecurity incident. These risks include direct risks, such as theft, misuse, corruption and destruction of data maintained by
Nationwide, and indirect risks, such as denial of service, attacks on systems or websites and other operational disruptions that could severely impede Nationwide’s ability to conduct its businesses and administer the contract (e.g., calculate
Contract Values or process transactions).
Financial services companies and their third-party service providers are increasingly the targets of cyber-attacks involving
the encryption and/or threat to disclose personal or confidential information (e.g., ransomware) or disruptions of communications (e.g., denial of service) to extort money or for other malicious purposes. The techniques used to attack
systems and networks change frequently, are becoming more sophisticated, and can originate from a wide variety of
sources. The use of remote or flexible work arrangements, remote access tools, and mobile technology have expanded potential targets for cyber-attack.
Cyber-attacks affecting Nationwide, Index providers, intermediaries, and service providers may adversely affect Nationwide
and Contract Values. As a result of a cybersecurity incident, Nationwide may be subject to regulatory fines, private claims, and financial losses and/or reputational damage. There
may be an increased risk of cyber-attacks during periods of geopolitical or military conflict. Although Nationwide undertakes substantial efforts to protect its computer systems from cyber-attacks, including internal processes and technological defenses that are preventative or detective, and
other controls designed to provide multiple layers of security assurance, there can be no guarantee that Nationwide or its service providers will avoid cybersecurity incidents
affecting Contract Owners in the future. It is possible that a cybersecurity incident could persist for an extended period of time without detection.
In the event that Contract administration or Contract Values are adversely affected as a
result of a failure of Nationwide’s cybersecurity controls, Nationwide will take reasonable steps to take corrective action and restore Contract Values to the levels that they would have been had the cybersecurity incident not occurred. Nationwide will not, however, be responsible
for any adverse impact to Contracts or Contract Values that result from the Contract Owner or its designee’s negligent acts or failure to use reasonably appropriate safeguards to protect against cyber-attacks or to protect personal information.
Nationwide is exposed to risks related to natural and man-made disasters, such as storms,
fires, earthquakes, public health crises, geopolitical disputes, military actions, and terrorist acts, which could adversely affect Nationwide’s ability to administer the contracts. Nationwide has adopted business continuity policies and procedures that may be implemented in the
event of a natural or man-made disaster, but such business continuity plans may not operate as intended or fully mitigate the operational risks associated with such
disasters.
Nationwide outsources certain critical business functions to third parties and, in the event of a natural or man-made
disaster, relies upon the successful implementation and execution of the business continuity planning of such entities. While Nationwide closely monitors the business continuity activities of these third parties, successful implementation and
execution of their business continuity strategies are largely beyond Nationwide’s control. If one or more of the third parties to whom Nationwide outsources such critical business functions experience operational failures, Nationwide’s ability to
administer the contract could be impaired.
CONTINGENT DEFERRED SALES CHARGES (CDSC)
Partial withdrawals or a full surrender during the first six Contract Years may be subject to
a CDSC. After the sixth Contract Year, no withdrawals, including a full surrender, are subject to CDSCs.
When a CDSC is imposed, the charge will equal the
applicable "CDSC Percentage" multiplied by the dollar amount of the withdrawal. The CDSC Percentage will depend on the number of Contract Years you have completed when you take a
withdrawal. The CDSC Percentage schedule starts at 8% for the first two Contract Years and then declines with each completed Contract Year thereafter until it reaches 0% after six completed Contract Years. The CDSC Percentage schedule is
as follows:
Number of Completed Contract Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDSCs are intended to reimburse Nationwide for expenses that we incur in connection with the sale of the Contract.
MARKET VALUE ADJUSTMENTS (MVA)
Partial withdrawals or a full surrender during the first six Contract Years may be subject to
an MVA. After the sixth Contract Year, no withdrawals, including a full surrender, are subject to an MVA. An MVA, when applied, may be positive, negative, or equal to zero. If an MVA is negative, it will decrease the withdrawal. If an MVA is positive, it will increase the withdrawal. If an MVA is equal to zero, it will have no effect on withdrawal. MVAs are assessed in addition to any applicable CDSC. A negative MVA could result in a loss beyond the floor of the Protection Level and, under
extreme circumstances, could result in a total loss of Contract Value. For Index Strategies
with a 100% Protection Level and the Fixed Strategy, a negative MVA is limited to a value that would result in a full surrender value which is no less than the minimum nonforfeiture value.
The Contract is designed to be a long-term investment. When a Contract Owner takes a withdrawal, Nationwide may be required
to liquidate interest rate sensitive fixed-income assets that it holds in order to satisfy its payment obligations under the Contract. The MVA is intended to approximate, without
duplicating, Nationwide’s investment experience when it liquidates those assets. Nationwide utilizes a market value reference rate to determine this approximation. When
liquidating assets, Nationwide may realize either a gain or a loss. If the market value reference rate has increased relative to the market value reference rate on the Date of Issue, the MVA will be negative. Conversely, if the market value reference
rate has decreased relative to the market value reference rate on the Date of Issue, the MVA will be positive.
The MVA is the sum of the MVA applicable to the Fixed Strategy, Index Strategies with Minimum
Nonforfeiture Values, and Index Strategies that do not have Minimum Nonforfeiture Values. The amount of the MVA for each is calculated as follows:
MVA = MVA Base x MVA Factor.
In the formula above, the MVA Base equals the dollar amount of the withdrawal minus the
Remaining Free Withdrawal Amount. If the dollar amount of the withdrawal minus the Remaining Free Withdrawal Amount is less than or equal to zero, then an MVA is not applicable to the withdrawal.
We calculate the MVA Factor using the following formula:
MVA Factor = MVA Scaling Factor x (A – B) x N/12, where:
A = Initial Market Value Reference Rate
B = Market Value Reference Rate on the date we process the
withdrawal
N = Number of whole (partial months will be
rounded up to the next whole month) remaining in the MVA Period, calculated from the date that we process the withdrawal.
In addition, for any MVA applicable to a full surrender or a partial withdrawal from the
Fixed Strategy, the MVA amount applicable to the Fixed Strategy will never be larger (either positive or negative) than the following, calculated immediately prior to the full surrender or partial withdrawal:
M x A, where:
M = MVA Base attributable to the Fixed Strategy / (Fixed Strategy Value
– Remaining Free Withdrawal Amount attributable to the Fixed Strategy)
A = Fixed Strategy Value minus the CDSC applicable to the Fixed Strategy, if any, that would apply on full surrender, minus the Fixed Strategy Minimum Nonforfeiture Value, but not less than zero.
In addition, for any MVA applicable to a full surrender or a partial withdrawal from Index Strategies with Index Strategy Minimum Nonforfeiture Value, the MVA amount applicable to the Index Strategies with Index Strategy Minimum Nonforfeiture
Value will never be larger (either positive or negative) than the following, calculated immediately prior to the full surrender or partial withdrawal:
M = MVA Base attributable to the Index Strategies with Index Strategy
Minimum Nonforfeiture Value / (Index Strategy Value for Index Strategies with Index Strategy Minimum Nonforfeiture Value – Remaining Free Withdrawal Amount attributable to all Index Strategies with Index Strategy Minimum Nonforfeiture Value)
A = Index Strategy Value of all Index Strategies with Index Strategy Minimum
Nonforfeiture Value minus the CDSC applicable to all Index Strategies with Index Strategy Minimum Nonforfeiture Value, if any, that would apply on full surrender, minus the Index Strategy Minimum Nonforfeiture Value, but not less than zero.
In the formulas above, the MVA Scaling Factor will be greater or less than, or equal to, 1.0. The MVA Scaling Factor is declared by Nationwide and is stated in your Contract. Within the formula, the MVA Scaling Factor serves to amplify or
dampen the MVA Factor for purposes of the MVA calculation. An MVA Scaling Factor greater than 1.0 increases the
magnitude of the MVA, an MVA Scaling Factor less than 1.0 dampens the magnitude of the MVA. An MVA Scaling Factor
equal to 1 has no effect on the MVA.
The Market Value Reference Rate refers to the yield of the MVA Index, which is the Bloomberg U.S. Corporate Index. The
Market Value Reference Rate of the MVA Index as of the Date of Issue (the Initial Market Value Reference Rate) is
included in your Contract. The daily Market Value Reference Rate may be obtained thereafter by contacting the Service Center.
If the daily Market Value Reference Rate is not available on any day on which the value is needed, Nationwide will use the Market Value Reference Rate for the previous Business Day. If the MVA Index provider later publishes a yield for the MVA
Index for a Business Day when the yield was not provided to Nationwide or was otherwise not available, Nationwide will recalculate the impacted transactions and Contract Values according to the yield provided to Nationwide by the MVA Index
provider. This recalculation could result in changes to transactions and Contract Values that occurred when the yield was not published by the MVA Index provider.
If the Market Value Reference Rate is no longer available, or if Nationwide at its sole discretion determines that the
Market Value Reference Rate is no longer appropriate for purposes of calculating the MVA, Nationwide will substitute another method for determining the MVA, subject to any required regulatory approval. Nationwide will notify the Contract
Owner of any such change.
See "Appendix C: MVA, Partial Withdrawal, and Surrender Examples" for examples of the MVA
calculation.
WAIVER OR REDUCTION OF THE CDSC OR
MVA
During the first six Contract Years, the Contract Owner may withdraw
an amount up to that Contract Year’s Free Withdrawal Amount without incurring a CDSC or MVA. The Free Withdrawal Amount is the greater of:
•
10% of the Contract Value on the first day of that Contract Year (immediately prior to any
partial withdrawal or full surrender on that date); or
•
the amount required to meet minimum distribution requirements for this Contract under the
Code.
At the
start of each Contract Year, the Remaining Free Withdrawal Amount is set equal to the Free Withdrawal Amount. Each Free Withdrawal during the Contract Year decreases the Remaining
Free Withdrawal Amount by the Free Withdrawal, but not to less than zero.
Each Contract Year’s Free Withdrawal Amount is non-cumulative. This means any portion of the Free Withdrawal Amount not taken by the Contract Owner in a given Contract Year cannot be added to the Free Withdrawal Amount in any later Contract
Year.
In addition, no CDSC or MVA will be
assessed:
•
upon the payment of the Death Benefit or on any partial withdrawal or full surrender after the Death Benefit is
paid;
•
upon the Annuitization of the Contract if it has been in force for at least two
years;
•
on any partial withdrawal or full surrender taken after the sixth Contract Year;
•
if the Contract is surrendered in exchange for another contract issued by Nationwide or one of
its affiliated insurance companies, Nationwide may decide not to charge a CDSC and/or apply an MVA. If another contract issued by Nationwide or one of its affiliates is exchanged for the Contract, Nationwide may reduce the CDSC and/or waive
part of the MVA on the Contract. A CDSC and/or MVA may apply to the contract received in exchange for the Contract.
While a CDSC and MVA may not apply to certain withdrawals or a full surrender,
taxes and tax penalties may be incurred. In addition, the Daily ISE Percentage is used to calculate Index Strategy Earnings during a Strategy Term, and if amounts are withdrawn or fully surrendered from an Index Strategy before the end of a Strategy Term, a loss may result if the Daily
ISE Percentage is negative. In addition, withdrawals from an Index Strategy before the end of its Strategy Term will reduce the Index Strategy Basis in the same proportion that the Index Strategy Value is reduced (rather than on a dollar-for-dollar
basis). Similarly, if the Death Benefit is based on return of premium instead of Contract Value, the Death Benefit will be reduced in the same proportion that the Index Strategy Value is reduced.
INCREASE IN REMAINING FREE WITHDRAWAL AMOUNT AFTER A LONG-TERM CARE AND TERMINAL ILLNESS
OR INJURY (CDSC AND MVA WAIVER)
After the occurrence of a Long-Term Care Event ("LTC Event") or Terminal Illness or
Injury Event ("TI Event"), Nationwide will increase the Remaining Free Withdrawal Amount for the current and all subsequent Contract Years so that all partial withdrawals or a full surrender after the occurrence of the event are Free Withdrawals. This CDSC and MVA waiver is only
available if the Contract Owner and Annuitant are the same person, and as of the Date of Issue that person is no older than 80 years old. If the Contract has a Joint Owner, either the Contract Owner or Joint Owner must be named as Annuitant
and the age of the older of the Contract Owner and Joint Owner must be no older than 80 years old as of the Date of Issue.
In addition, for purposes of this CDSC and MVA waiver, for Contracts that have a non-natural
person as Contract Owner as an agent for a natural person, the Annuitant may exercise the right of the Contract Owner. However, if the non-natural Contract Owner does not own the Contract as an agent for a natural person (e.g., the Contract Owner is a corporation or a
trust for the benefit of an entity), the Annuitant may not exercise the rights of the Contract Owner.
There are no charges associated with these waivers.
An LTC Event occurs if at any time after the first Contract Anniversary, the Contract Owner (or Annuitant if the Contract
Owner is not a natural person) is confined to a Long-Term Care Facility or Hospital beginning after the Date of Issue and is confined for a continuous period of 90 days or more. If there is a Joint Owner, the confinement of the Contract Owner or
Joint Owner may qualify as an LTC Event. An LTC Event waiver claim (including written proof of confinement) must be received by Nationwide while the confinement is ongoing or within 90 days after the confinement ends. If it was not
reasonably possible to give written proof of confinement in the time required, Nationwide will not reduce or deny the increase in the Remaining Free Withdrawal Amount if such proof is given as soon as reasonably possible. In any event, the
written proof required must be given no later than one year from after the confinement ends unless the Contract Owner was legally incapacitated.
A "Hospital" is defined as a state licensed facility which is operated as a hospital
according to the law of the jurisdiction in which it is located; operates primarily for the care and treatment of sick or injured persons as inpatients; provides continuous 24 hours a day nursing service by or under the supervision of a registered graduate professional nurse (R.N.) or
a licensed practical nurse (L.P.N.); is supervised by a staff of physicians; and has medical and diagnostic facilities.
A "Long-Term Care Facility" is defined as a state licensed skilled nursing facility or intermediate care facility that does not include: a home for the aged or mentally ill, a community living center, or a place that primarily provides domiciliary,
residency, or retirement care; or a place owned or operated by a member of the Contract Owner's immediate family.
Terminal Illness or Injury
Event
A TI Event occurs if at any time after the first Contract Anniversary, the
Contract Owner (or Annuitant if the Contract Owner is not a natural person) is diagnosed by a physician (who is not a party to the Contract nor an immediate family member of a party to the Contract) as having a Terminal Illness or Injury beginning after the Date of Issue. If there is a
Joint Owner, the Terminal Illness or Injury of the Contract Owner or Joint Owner may qualify as a TI Event.
A "Terminal Illness or Injury" is defined as an illness or injury diagnosed after the Date of
Issue by a physician that is expected to result in death within 12 months of diagnosis.
The Daily ISE Percentage is used to calculate Index Strategy Earnings during a Strategy Term, and if amounts are withdrawn
or otherwise deducted from an Index Strategy (including partial withdrawals, systematic withdrawals, required minimum distributions, exercise of the Performance Lock, full
surrender, Annuitization and Death Benefit payments) before the end of a Strategy Term, a loss may result if the Daily ISE Percentage is negative. Over the life of the Contract,
there is no limit to the maximum potential loss from a negative Daily ISE Percentage, other than it is limited to the floor provided by the Protection Level and to the minimum nonforfeiture value for Index Strategies with a 100% Protection Level. For example, a maximum loss of up to 25% in Index Strategy Value could occur if you are
invested in an Index Strategy with a 75% Protection Level. This means that there could be
significantly less money available under your Contract for withdrawals, Annuitization, and the Death Benefit. The Daily ISE Percentage does not apply to the Fixed Strategy.
See "Daily Index Strategy Earnings Percentage (Daily ISE Percentage)" and "Appendix D: Daily Index Strategy Earnings Percentage."
Certain states or other governmental entities charge premium tax on purchase payments. Nationwide will charge against the
Contract Value any premium taxes levied by a state or other government entity. Premium tax rates currently range from 0% to 3.5% and vary from state to state. The range is subject
to change. Nationwide will assess premium taxes to the Contract at the time Nationwide is assessed the premium taxes by the state. Premium taxes may be deducted from Death Benefit proceeds.
GENERAL INFORMATION ABOUT THE CONTRACT
This prospectus describes the Contract. The Contract is an agreement between Nationwide and
the Contract Owner or Joint Owner. The Contract has two separate phases: accumulation (savings) and Annuitization (income). During the accumulation phase, the Contract offers a Fixed Strategy and Index Strategies to which the Contract Owner can allocate and
reallocate his/her Contract Value. The Fixed Strategy offers a fixed rate of return while the Index Strategies vary with the performance of an Index and are subject to Crediting
Factors that also impact the performance of the Index Strategies. During the Annuitization phase, Nationwide makes periodic income payments to the Annuitant.
At the time of Annuitization, the Annuitant elects the duration of the annuity payments – either for a fixed period of time or for the duration of the Annuitant’s (and possibly the Annuitant’s spouse’s) life. After Annuitization begins, the only value associated with the Contract is the stream of annuity payments and funds are no longer invested in any Strategy. Unless
otherwise specified in the annuity option, the Annuitant cannot withdraw value from the Contract over and above the annuity payments. Additionally, once Annuitization has begun, there is no Death Benefit, which means that upon the death of
the Annuitant (and the Annuitant’s spouse if a joint annuity option was elected), all payments stop and the Contract terminates, unless the particular Annuitization option
provides otherwise. The Contract is available as a Non-Qualified Contract, which will provide certain tax deferral features under the Code. On the other hand, if the Contract is
purchased as a Qualified Plan, IRA, Roth IRA, SEP IRA, or Simple IRA, the Contract will not provide any additional tax deferral benefits.
STATE VARIATIONS
This prospectus describes the material rights and obligations under the Contract. Certain
provisions of the Contract may be different from the general description in this prospectus due to variations required by state law. For example, state law may require different right to examine and cancel periods. The state in which the Contract is issued also governs whether
certain features will vary under the Contract. All material rights and obligations under the Contract will be included in the Contract or in riders or endorsements attached to the Contract. To review a copy of your Contract and any riders or
endorsements, contact the Service Center. For more detailed information regarding provisions that vary by state, please see "Appendix B: State Variations" later in this prospectus.
Except in certain circumstances involving fraud and where permitted by state law, Nationwide will not contest the contract
after it has been in force during the lifetime of the Annuitant for two years after the Date of Issue or effective date of certain contract changes, as defined in the contract.
The Contract is non-participating, meaning that the Contract will not share in Nationwide’s profits or surplus.
In order to comply with the USA PATRIOT Act and rules promulgated thereunder, Nationwide has
implemented procedures designed to prevent contracts described in this prospectus from being used to facilitate money laundering or the financing of terrorist activities. If mandated under applicable law, Nationwide may be required to reject a purchase payment and/or
block a Contract Owner’s account and thereby refuse to process any request for transfers, withdrawals, surrenders, or death benefits until instructions are received from the appropriate regulators. Nationwide may also be required to provide
additional information about a Contract Owner or a Contract Owner’s account to governmental regulators.
Nationwide will not pay insurance proceeds directly to minors. Contact a legal advisor for
options to facilitate the timely availability of monies intended for a minor’s benefit.
To the extent allowed by state law, Nationwide reserves the right to refuse its consent to any assignment at any time on a
non-discriminatory basis if the assignment would violate or result in noncompliance with any applicable state or federal law or regulation. The Contract Owner may request to assign or transfer rights under the Contract by sending Nationwide a
signed and dated request. Nationwide will not be bound by an assignment until it acknowledges the assignment.
If Nationwide consents to an assignment, the assignment takes effect on the date it is signed, unless otherwise specified by
the request. Nationwide is not responsible for the validity of an assignment, any tax consequences of any assignment, or for any payment or other settlement made prior to our
receipt and consent of and assignment.
Upon assignment
or a change in ownership of the Contract, the Death Benefit under the Contract will be the Surrender Value unless the requirements specified under "Calculation of
the Death Benefit" are satisfied.
BENEFICIALLY OWNED CONTRACTS
A beneficially owned contract is a contract that is inherited or purchased by a beneficiary and the beneficiary holds the
contract as a beneficiary (as opposed to treating the contract as his/her own) to facilitate the distribution of a Death Benefit or Contract Value in accordance with the applicable federal tax laws (see "Required Distributions"). An owner of a
beneficially owned contract is referred to as a "beneficial owner."
There are two types of beneficially owned contracts, a "continued beneficially owned contract" and a "purchased beneficially owned contract." A continued beneficially owned contract is when a beneficiary inherits a contract and
continues that contract as a beneficial owner. A "purchased beneficially owned contract" is when a beneficiary purchases a new contract using a death benefit or contract value that the beneficiary inherited under a different annuity contract.
Not all options and features described in this prospectus are available to beneficially owned
contracts:
•
Withdrawals under beneficially owned contracts are subject to applicable CDSC and MVA except when the withdrawals are made
from a continued beneficially owned contract that is inherited as death benefit proceeds (as opposed to inherited contract value).
•
A beneficial owner must be both the Contract Owner and the Annuitant of a beneficially owned contract, and no additional
parties may be named, except that a purchased beneficially owned contract may name a Co-Annuitant, if applicable.
•
No changes to the parties will be permitted on any beneficially owned contract, except that a beneficial owner may request
changes to their successor beneficiary(ies).
•
Beneficially owned contracts cannot be assigned, except that a beneficial owner may assign
rights to the distribution payments.
•
There is no death benefit payable on a on a continued beneficially owned contract. After the
death of the beneficial owner, any remaining death benefit or contract value to be distributed will be payable to a successor beneficiary in accordance with applicable federal tax laws.
A beneficiary who is the surviving spouse of a contract owner has the option under the tax
laws to continue the contract as the sole contract owner and treat the contract as the spouse’s own. If a spouse continues the contract as the sole contract owner, the spouse will not be treated as a beneficial owner and this section will not apply.
The Contract is issued in consideration of the single Purchase Payment paid by the Contract Owner. Only one Purchase Payment
is allowed under the Contract. A Purchase Payment should be made payable to Nationwide Life Insurance Company and submitted to the Service Center. All purchase payments must be
paid in the currency of the United States of America. The minimum Purchase Payment is $25,000.
Nationwide reserves the right to reject a Purchase Payment that is
comprised of multiple payments paid to Nationwide over a period of time. If Nationwide permits multiple payments as part of a Purchase Payment, the Contract will not be issued until all such payments are received. Nationwide reserves the right to hold such multiple payments in a non-interest
bearing account until the Date of Issue.
Nationwide reserves the right to refuse any purchase payment that would result in the
cumulative total for all contracts issued by Nationwide or its affiliates or subsidiaries on the life of any one Annuitant or owned by any one Contract Owner to exceed $1,000,000. Its decision as to whether or not to accept a purchase payment in excess of that amount will be based
on one or more factors, including, but not limited to: age, spouse age (if applicable), Annuitant age, state of issue, total purchase payments, optional benefits elected, current
market conditions, and current hedging costs. All such decisions will be based on internally established actuarial guidelines and will be applied in a nondiscriminatory manner. In
the event that Nationwide does not accept a purchase payment under these guidelines, the purchase payment will be
immediately returned in its entirety in the same manner as it was received. Any references in this prospectus to purchase payment amounts in excess of $1,000,000 are assumed to have been approved by Nationwide.
Nationwide reserves the right to refuse any application for the Contract. If Nationwide refuses an application, it will return the Purchase Payment.
ALLOCATING THE PURCHASE PAYMENT
The Purchase Payment is allocated according to Contract Owner instructions on the
application. The Purchase Payment may be allocated to the Fixed Strategy and up to ten Index Strategies. There is no minimum dollar amount that can be allocated to a Strategy. Allocations to Strategies must be in whole percentages.
The Date of Issue is the date Nationwide issues the Contract. The Purchase Payment is applied to the Contract on the Date of
Issue. The Date of Issue will be the date as of which Nationwide has both received the Purchase Payment and approved the Contract application.
RIGHT TO EXAMINE AND
CANCEL
The Contract Owner has the right to examine and cancel the Contract. If
the Contract Owner elects to cancel the Contract, he/she may return it to the Service Center within a certain period of time known as the "free look" period and no CDSC or MVA will apply to this cancellation. Depending on the state in which the Contract was purchased (and, in some states, if the
Contract is purchased as a replacement for another annuity contract), the free look period may be 10 days or longer. For ease of administration, Nationwide will honor any free look
cancellation request that is in good order and received at the Service Center or postmarked within 30 days after the Date of Issue regardless of the state in which your Contract
was issued.
Where state law requires the return of purchase payments for free look cancellations,
Nationwide will return the Purchase Payment applied to the Contract, less any withdrawals from the Contract (including any CDSC, MVA and Daily ISE Percentage applied to those withdrawals) and any applicable federal and state income tax withholding. Where state law
requires the return of contract value for free look cancellations, Nationwide will return the Contract Value as of the date of the cancellation, less any withdrawals from the Contract (including any CDSC, MVA and Daily ISE Percentage applied to those
withdrawals) and any applicable federal and state income tax withholding. The Contract Value may be more or less than the purchase payment and if a negative Daily ISE Percentage is
applied, a loss may result.
PARTIES
TO THE CONTRACT AND RELATED PERSONS
Nationwide and the Contract Owner
(including any Joint Owner) are the parties to the Contract. Other related persons—including any Annuitant, Contingent Annuitant, Beneficiary, and Contingent
Beneficiary—have certain rights under the Contract. If the person purchasing the Contract names someone else as the Contract Owner, the purchaser will have no rights under the Contract unless he or she is named under the Contract as one of the other related persons listed above.
Nationwide issues the Contract to the Contract Owner (and any Joint Owner). Nationwide
assumes certain risks and promises to make certain payments under the Contract, as described in this prospectus.
Prior to the Annuitization Date, the Contract Owner has all rights under the Contract, unless
a Joint Owner is named. If a Joint Owner is named, each Joint Owner has all rights under the Contract. Purchasers who name someone other than themselves as the Contract Owner will have no
rights under the contract.
On the Annuitization Date, the Contract Owner cedes all ownership rights to the Annuitant and the Annuitant becomes the
Contract Owner, unless the Contract Owner is a Charitable Remainder Trust. If the Contract Owner is a Charitable
Remainder Trust, the Charitable Remainder Trust continues to be the Contract Owner after Annuitization.
Prior to Annuitization, Joint Owners each own an undivided interest in the Contract.
Non-Qualified Contract Owners can name a Joint Owner at any time before the Annuitization Date. However, Joint Owners must be spouses at the time joint ownership is requested, unless state law requires Nationwide to allow non-spousal Joint
Owners. Joint ownership is not permitted for Contracts owned by a non-natural Contract Owner.
Generally, the exercise of any ownership rights under the Contract must
be in writing and signed by both Joint Owners. However, if a written election, signed by both Contract Owners, authorizing Nationwide to allow the exercise of ownership rights independently by either Joint Owner is submitted, Nationwide will permit Joint Owners to act independently. If such
an authorization is submitted, Nationwide will not be liable for any loss, liability, cost, or expense for acting in accordance with the instructions of either Joint Owner.
If either Joint Owner dies before the Annuitization Date, the Contract continues with the surviving Joint Owner as the
remaining Contract Owner.
On the Annuitization Date, both Joint Owners cede all ownership rights to the Annuitant and the Annuitant becomes the
Contract Owner.
ANNUITANT
Prior to the Annuitization Date, the Annuitant has no interest in the contract, but must be
named in the application. Only Non-Qualified Contract Owners may name someone other than himself/herself as the Annuitant. This Annuitant must be age 85 or younger on the date the application is signed, unless Nationwide approves a request for an Annuitant of greater
age. Prior to the Annuitization Date, the Annuitant’s death triggers payment of the Death Benefit.
On the Annuitization Date, the Annuitant becomes the new owner and has all ownership rights
in the contract. The Annuitant is the person who receives annuity payments and the person upon whose continuation of life any annuity payment involving life contingencies depends.
Prior to the Annuitization Date, if the Annuitant dies before the Annuitization Date, the Contingent Annuitant becomes the
Annuitant and all provisions of the Contract that are based on the Annuitant’s death prior to the Annuitization Date will be based on the death of the Contingent Annuitant. Only Non-Qualified Contract Owners may name a Contingent Annuitant. Once the
Contingent Annuitant becomes the Annuitant, a new Contingent Annuitant cannot be named.
On the date the application is signed, the Contingent Annuitant must be age 85 or younger
unless Nationwide approves a request to name an older Contingent Annuitant.
Prior to the Annuitization Date, a Co-Annuitant is entitled to receive the benefit of the
Spousal Protection Feature, provided all of the requirements set forth in the "Spousal Protection Feature" section are met. A Co-Annuitant, if named, must be the Annuitant’s spouse. If either Co-Annuitant dies before the Annuitization Date, the surviving Co-Annuitant may continue the Contract and will receive the benefit of the Spousal Protection Feature.
After the Annuitization Date, the Co-Annuitant has no interest in the Contract.
Prior to Annuitization, there is no joint annuitant.
At Annuitization, if applicable, a joint annuitant is named. The joint annuitant is designated as a second person (in addition
to the Annuitant) upon whose continuation of life any annuity payment involving life contingencies depends.
BENEFICIARIES AND CONTINGENT BENEFICIARIES
Prior to Annuitization, the Beneficiary is the person who is entitled to the Death Benefit if
the Annuitant (and Contingent Annuitant, if applicable) dies before the Annuitization Date. The Contract Owner can name more than one Beneficiary. Multiple Beneficiaries will share the death benefit equally, unless otherwise specified.
A Contingent Beneficiary will succeed to the rights of the Beneficiary if no
Beneficiary is alive when a Death Benefit is paid. The Contract Owner can name more than one Contingent Beneficiary. Multiple Contingent Beneficiaries will share the Death Benefit equally, unless otherwise specified.
After Annuitization, the Beneficiaries and Contingent Beneficiaries have no interest in the Contract.
CHANGES TO PERSONS NAMED UNDER THE CONTRACT
To the extent allowed by state law, we reserve the right to refuse our consent to any request to change the Contract Owner at any time on a non-discriminatory basis if the change would violate or result in noncompliance with any applicable state
or federal law or regulation. Prior to the Annuitization Date (and subject to any existing assignments), the Contract Owner may request to change the following:
•
Contract Owner (Non-Qualified Contracts only);
•
Joint Owner (must be the Contract Owner’s spouse);
•
Annuitant (subject to Nationwide’s underwriting and approval);
•
Contingent Annuitant (subject to Nationwide’s underwriting and approval);
•
Co-Annuitant (subject to the conditions of the Spousal Protection Feature; must be the
Annuitant’s spouse);
•
Contingent Beneficiary.
The Contract Owner must submit the request to Nationwide in writing and Nationwide
must receive the request at the Service Center before the Annuitization Date. Once Nationwide receives and records the change request, the change will be effective as of the date the written request was signed (unless otherwise specified by the Contract Owner), whether or
not the Contract Owner or Annuitant is living at the time it was recorded. The change will not affect any action taken by Nationwide before the change was recorded. Nationwide reserves the right to reject any change request that would alter the
nature of the risk that Nationwide assumed when it originally issued the Contract.
If the Contract Owner is not a natural person and there is a change of the Annuitant,
distributions will be made as if the Contract Owner died at the time of the change, regardless of whether the Contract Owner named a Contingent Annuitant.
Any request to change the Contract Owner must be signed by the existing Contract Owner and
the person designated as the new Contract Owner. Nationwide may require a signature guarantee. Changes in contract ownership may result in federal income taxation and may be subject to state and federal gift taxes. Certain features under the Contract may have
specific requirements as to who can be named as the Contract Owner, Annuitant, Co-Annuitant, and/or Beneficiary in order to receive the benefit of the feature. Changes to the parties to the Contract may result in the termination or loss of
benefit of these features.
If Nationwide permits an assignment or a change in ownership of the
Contract, the Death Benefit under the Contract will be the Surrender Value unless the requirements specified under "Calculation of the Death Benefit" are satisfied.
The Fixed Strategy is an investment option under the Contract that credits interest daily at
a Fixed Strategy Rate. Nationwide declares Fixed Strategy Rates prior to each Strategy Term and the Fixed Strategy Rate is guaranteed for the Strategy Term in which it is declared. Fixed Strategy Rates are determined at the sole discretion of Nationwide, but Fixed
Strategy Rates are guaranteed to be at least 0.25%. Fixed Strategy Rates may be different for newly issued Contracts than for existing Contracts or for Contracts with different issue dates.
The Fixed Strategy has one-year Strategy Terms. The initial Strategy Term begins on the Date of Issue and ends on the first
Contract Anniversary. Thereafter, each subsequent Strategy Term begins on each Contract Anniversary and ends on the following Contract Anniversary.
The Fixed Strategy’s Strategy Value is equal to the amount allocated to the Fixed
Strategy plus any interest credited. Withdrawals from the Fixed Strategy will reduce the value by the amount of the withdrawal (including any applicable CDSC, MVA and taxes).
If there is no Contract Value allocated to the Fixed Strategy and Index Strategy Value is transferred into the Fixed Strategy
under the Performance Lock feature, the date the Index Strategy Value is transferred into the Fixed Strategy is considered the first day of the Fixed Strategy’s Strategy Term and the Strategy Term End Date will be the next Contract Anniversary. See "Performance Lock." The Fixed Strategy Rate that is applicable to the value transferred to the Fixed Strategy via a
Performance Lock request is the Fixed Strategy Rate that was set at the beginning of the Contract Year in which the Performance Lock is made.
See "Fixed Strategy Minimum Nonforfeiture Value" for information regarding the Minimum Nonforfeiture Value for the Fixed
Strategy.
An Index Strategy is an investment option under the Contract that varies with the performance of an Index and is subject to
certain Crediting Factors that impact the gains and losses under the Index Strategy. Nationwide calculates a separate Index Strategy Value for each Index Strategy that has Contract
Value allocated to it.
The Contract Owner may allocate Contract Value to
no more than ten Index Strategies. The Fixed Strategy is not considered an Index Strategy for purposes of the maximum number of Index Strategies. If the Contract Owner is simultaneously invested in the same Index Strategy for Strategy Terms that began on different dates, those investments are
considered separate Index Strategies for purposes of determining the maximum number of Index Strategies.
Nationwide reserves the right to add or remove any Index Strategies at any time, but any such changes will not affect
Strategy Terms already in effect and will become effective on the first day of a new Strategy Term. The Index Strategies available for election may be different for newly issued Contracts than for existing Contracts or for Contracts with different
issue dates.
Each Strategy has Crediting Factors that serve different purposes and impact your investment differently. We use the
Crediting Factors to calculate the Index Strategy Earnings for each Strategy. Each Strategy has the following five Crediting Factors:
•
Participation Rate; and
The table below briefly summarizes how the various Crediting Factors impact a
Strategy
|
The market index to which the Strategy is linked |
|
The duration of the Strategy in years |
|
A factor in the Strategy’s defined downside protection. A higher Protection
Level means a higher amount of downside protection. A lower Protection
Level means a lower amount of downside protection. |
|
A factor that amplifies or dampens the Strategy’s performance compared to the
Index Performance. A higher Participation Rate means greater upside
potential but also greater downside potential (subject to the downside
protection). A lower Participation Rate means less upside potential but also less downside potential (also subject to the downside protection). |
|
A factor used as a deduction in calculating a Strategy’s performance. In general, a higher Strategy
Spread will reduce a Strategy’s performance more than a lower Strategy Spread
(also subject to the downside protection). |
When selecting a Strategy for investment, you should
not select a Strategy based on any single Crediting Factor in isolation. While one Crediting Factor for a Strategy may be more or less favorable or attractive to you, the other Crediting Factors also impact whether that Strategy is appropriate for you based on your financial needs and goals. You should consult with a financial professional prior to selecting a Strategy for investment.
Except in the limited circumstances under which we may substitute an Index (see "Indexes"
below), the Crediting Factors for a Strategy will not change for the duration of a given Strategy Term. The Index, Strategy Term and Protection Level will not change for as long as we continue offering a Strategy. However, the Participation Rate and Strategy Spread may change
from Strategy Term to Strategy Term, subject to guaranteed minimums and maximums. More specifically:
•
For those Strategies that are available for initial investment under your Contract on the Date
of Issue, their Crediting Factors (as well as any associated guaranteed minimums and maximums) will be described in your Contract.
•
For any new Strategies that we make available for investment under your Contract after the
Date of Issue, their Crediting Factors (as well as any associated guaranteed minimums and maximums) will be declared by us at least 30 days prior to the beginning of their first Strategy Terms.
•
For all Strategies, after their first Strategy Terms, we will declare their Participation
Rates and Strategy Spreads at least 30 days prior to the beginning of an upcoming Strategy Term, subject to their associated guaranteed minimums and maximums.
A Strategy’s Participation Rate and Strategy Spread for a particular Strategy Term may be different for newly issued Contracts than for existing Contracts.
The remainder of this section provides information
about the Crediting Factors and the purposes that they serve under the Contract.
The Index Performance is determined by the Index linked to each Index Strategy. The performance of an Index Strategy will
therefore depend on the performance of a particular market index over the course of a Strategy Term.
The Indexes under the Contract provide exposure to different markets and asset classes, all of which may perform differently
compared to each other and during different time periods. When we calculate Index Strategy Earnings, if the Index Performance is negative, you will lose money under your Contract
unless the Strategy’s downside protection protects you from the loss. When the Index Performance is positive, a loss may still occur under your Contract.
The Index Performance is calculated on a point-to-point basis, which is done by comparing the
Index Value of the Index on the first day of the Strategy Term to the Index Value of the Index on a specific future date during the Strategy Term.
The Contract currently offers Index Strategies with the following Indexes:
•
BlackRock Select Factor Index
•
J.P. Morgan Mozaic IISM
Index
•
NYSE® Zebra Edge® Index
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index*
*This is a price return index.
See "Additional Index Information" for more information on the Indexes.
Nationwide reserves the right to add or remove any Index in the future. There is no guarantee that an Index Strategy using
any of the Indexes listed above will always be available for investment. The Index for an Index Strategy generally will not change for the duration of an ongoing Strategy Term. However, if the Index associated with a particular Index Strategy is
discontinued or calculation of the Index is substantially changed, Nationwide may substitute a comparable index during a Strategy Term subject to applicable regulatory approval. Before a substitute index is used, Nationwide will notify Contract
Owners (and any assignee) of the substitution. See "Index Substitution During a Strategy Term."
MARKET EXPOSURES AND INVESTMENT RISKS
The table below reflects each Index’s primary market exposures and associated
investment risks. The risks and/or returns related to each Index cannot be determined from the table alone. A description of each investment risk immediately follows the table.
|
BlackRock Select
Factor
Index |
J.P.
Morgan
Mozaic IISM
Index |
|
|
|
S&P 500® Average
Daily Risk Control 10%
USD Price Return Index |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock
Select
Factor
Index |
J.P.
Morgan
Mozaic IISM
Index |
|
|
|
S&P 500®
Average
Daily Risk
Control
10%
USD Price
Return
Index |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large-Capitalization
Company Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Non-Participation
Risk |
|
|
|
|
|
|
|
Mid- or Small-
Capitalization Company
Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ukraine-Russia Conflict
Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities Risk. The performance of commodity investments can be extremely volatile and unpredictable.
Prices of commodities are primarily affected by global supply and demand, but they are also significantly influenced by, among other factors, speculative actions, currency exchange rates, governmental programs and policies, national and international
political and economic events, changes in interest and exchange rates, trading activities, and sudden disruptions in supply.
Currency Conversion Risk. Indexes exposed to non-U.S. markets generally include methodologies for converting foreign currencies into U.S. dollars.
Those methodologies may take into account conversion costs and/or exchange rates. The conversion of foreign currencies into U.S. dollars may negatively impact the performance of
the Index. This risk can be impacted by many factors, such as existing and expected rates of inflation; existing and expected interest rate levels; political, civil, or military unrest; the extent of governmental surpluses or deficits; fiscal and trade policies pursued by
governments; and the Index’s methodology for currency conversions. Currency exchange rates can be very volatile and can change quickly and unpredictably.
Equity Risk. Equity securities (e.g., common stocks) are subject to changes in value. The values of equity securities may be volatile and can be influenced by a number of factors, such as changes in (or perceived changes in) general capital
markets, specific market segments, or specific issuers.
Fixed Income Risk. Fixed income instruments (e.g., bonds) are subject to investment risks such as interest rate risk (i.e., negative fluctuations in market
value due to changes in interest rates) and credit risk (i.e., the risk of default by the
obligors). The market price of a fixed income instrument can be volatile and influenced by a number of factors, particularly its duration, yield as compared to current market interest rates, and the actual or perceived credit quality of the issuer.
Futures Risk. A futures contract is a financial instrument in which a party agrees to pay a fixed price for the delivery of an asset or
commodity at a specified future date. The price of a futures contract reflects the expected value of the asset upon delivery in the future, whereas the spot price of an asset
reflects the immediate value of the asset. A variety of factors can lead to a disparity between the expected future price of an asset and the spot price at a given point in time.
In addition, futures markets are subject to disruptions due to various factors, including lack of liquidity, participation of speculators, and government regulation and intervention. There may be an increased risk of prolonged disruptions to futures markets
during geopolitical or military conflict. Such disruptions may adversely impact the performance of the Index or the calculation or availability of Index Values. Futures contracts are subject to the risk of default by obligors. These factors
and others can cause the price of futures contracts to be volatile. Futures contracts may be subject to legal and regulatory uncertainty, particularly futures contracts that are not traded on regulated exchanges.
Government Bond Risk. The prices of government bonds are significantly
influenced by the creditworthiness of the governments that issue them. Any decline or perceived decline in a government’s creditworthiness, as a result of a credit rating downgrade or otherwise, may cause the prices of that government’s bonds to fall, perhaps significantly, and may
cause increased volatility in local or global credit markets. In recent years, U.S. rating agencies have downgraded the creditworthiness and/or assigned negative outlooks to many governments worldwide, including the U.S., U.K., Germany, and
Japan, and may do so again in the future.
Large-Capitalization Company Risk. In general, large-capitalization
companies may be less able than smaller-capitalization companies to adapt to changing market conditions. Large-capitalization companies may be more mature and subject to more limited growth potential compared with smaller-capitalization companies. During different market cycles,
the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
Leverage Risk. An Index is leveraged when its market exposure is greater than 100%. Depending on an Index’s methodology, an Index may
use leverage with respect to all components or only particular components. When an Index is leveraged, any price movements in its leveraged components will result in greater
changes in the value of the Index than if the Index were not leveraged. In particular, the use of leverage will magnify any negative performance which, in turn, could adversely affect the value of the Index (perhaps significantly). Leverage may significantly increase an Index’s volatility, even if leverage is being used as part of a volatility control overlay.
Market Non-Participation Risk. At times, an Index may have less than 100% total market exposure. Any
portion of an Index without market exposure will not participate in positive market movements and may not earn any returns. An Index may not have full market exposure because it has a cash component, or an Index may have a methodology that partially reduces
or entirely removes the Index’s exposure to a particular market or all markets for a period of time. Market non-participation could cause an Index to miss a potential
recovery in the market or in an underlying asset class.
Momentum Risk. Momentum investing generally seeks to capitalize on
positive trends in the returns of financial instruments. However, there is no guarantee that recent trends in returns will continue in the future. Momentum investing may not perform well in markets characterized by short-term volatility.
Mid- or Small-Capitalization Company Risk. Compared to large-capitalization companies, mid-capitalization
companies may be less stable and more susceptible to adverse developments. In addition, the securities of mid-capitalization companies may be more volatile and less liquid than those of large-capitalization companies. All of the risks associated
with mid-capitalization companies are magnified with respect to small-capitalization companies.
Non-U.S. Securities Risk. Securities of non-U.S. issuers are subject to
the risks associated with investing in those non-U.S. markets, such as heightened risks of inflation or nationalization. Non-U.S. securities may decline in value due to political, economic, and geographic events affecting issuers of non-U.S. securities or non-U.S. markets. These types of
securities may also experience stale prices if local markets are closed or disrupted. In addition, non-U.S. securities markets may trade a small number of securities and may be unable to respond effectively to changes in trading volume,
potentially making prompt liquidation of holdings difficult or impossible at times.
Performance Drag Risk. Even though the Indexes track the performance of
securities and other financial instruments, they are not actual portfolios of investments and do not incur the fees or other costs generally associated with managing and owning a portfolio of investments. Nonetheless, in order to more closely align the performance of the Index with the
performance of a managed portfolio that takes identical positions as the Index, the Index (and one underlying index, in the case of the SG Macro Compass Index) includes deductions from the value of the Index as part of its methodology. These
deductions negatively impact the performance of the Index. The performance of the Index would be higher if these
deductions were not applied.
In addition, with respect to the BlackRock Select
Factor Index which tracks the performance of multiple exchange-traded funds ("ETFs"), the underlying ETFs are subject to management fees, other expenses, and transaction costs that
negatively impact their performance and market prices and, consequently, negatively impact the performance of the Index. These negative impacts on performance are compounded by the annualized rate that the BlackRock Select Factor Index deducts
from its value as part of its methodology.
The drags on Index
Values as described above, potentially together with the Strategy Spread and Participation Rate under a Strategy, increase your risk of loss, subject to the
downside protection provided by the Strategy.
Ukraine-Russia Conflict Risk. The military invasion of Ukraine initiated
by Russia in February 2022 and the resulting response by the United States and other countries have led to economic disruptions, as well as increased volatility and uncertainty in the financial markets. It is not possible to predict the ultimate duration and scope of the conflict, or the future impact on U.S. and global economies and financial markets. The performance of the Indexes may be adversely affected. This
risk could be higher for Indexes with exposure to European or Russian markets, including the J.P. Morgan Mozaic IISM Index, the MSCI EAFE Index, and the SG Macro Compass Index.
Underlying ETF Risks. The ETFs that underlie the BlackRock Select Factor Index are subject to several investment risks. Such risks may adversely
affect the ETFs’ performance and, consequently, the performance of the Index.
•
Risks Common to the Underlying ETFs
•
Performance Risk. Each ETF may perform negatively over short periods due to short-term market movements and over longer periods during more prolonged market downturns. The country in which an ETF invests may be subject
to considerable degrees of economic, political, and social instability. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other
public health issues, recessions, or other events could have a significant impact on an ETF's performance.
•
Issuer Risk. The performance of each ETF depends on the performance of individual securities in which the
ETF has exposure. Changes in the financial condition or credit rating of an issuer of those securities may
cause the value of the securities to decline.
•
Tracking Error Risk. Each ETF seeks to track the investment results of a specific market index. There is no guarantee that an ETF’s
investment results will have a high degree of correlation to the performance of the index that it seeks to track, or that the ETF will achieve its investment objective. Each ETF
may be subject to tracking error, which is the divergence of an ETF’s performance from that of the index it seeks to track. This risk may be heightened during times of increased market volatility or other unusual market conditions. Among other reasons,
tracking error may result because an ETF incurs fees and expenses while the index does not. Certain ETFs may experience higher tracking error than is typical for ETFs that track a
market index.
•
Market Trading Risks. Each ETF faces numerous market trading risks, including the potential lack of an active market for fund shares, losses
from trading in secondary markets, periods of high volatility, and disruptions in the creation/redemption process. Any of these factors, among others, may lead to an ETF’s
shares trading at a premium or discount to net asset value.
•
Risks Common to the Underlying Equity ETFs. The underlying equity ETFs are subject to "Equity Risk," "Large-Capitalization Company Risk," and "Mid- or
Small-Capitalization Company Risk" as described above.
•
Risks Common to the Underlying Fixed Income ETFs. The underlying fixed income ETFs are subject to "Fixed Income Risk" and "Government Bond Risk" as described above. They are
also subject to the following risks:
•
Income Risk. Each fixed income ETF is exposed to the risk that the ETF’s income may decline if interest rates fall. This decline
in income can occur because the ETF may subsequently invest in lower-yielding bonds as bonds in its portfolio mature, are near maturity or are called, bonds in the underlying index
are substituted, or the ETF otherwise needs to purchase additional bonds.
•
Interest Rate Risk. Each fixed income ETF is exposed to the risks that during periods of very low or negative interest rates, the ETF may be
unable to maintain positive returns or pay dividends. Very low or negative interest rates may magnify interest rate risk. Changing interest rates, including rates that fall below
zero, may have unpredictable effects on markets, result in heightened market volatility, and detract from the
ETF’s performance to the extent the ETF is exposed to such interest rates. Additionally, under certain
market conditions in which interest rates are low and the market prices for portfolio securities have
increased, the ETF may have a very low, or even negative yield. A low or negative yield would cause the ETF to
lose money in certain conditions and over certain time periods. An increase in interest rates will
generally cause the value of
securities held by the ETF to decline, may lead to heightened volatility in the fixed-income markets, and may adversely affect the liquidity of certain fixed-income investments,
including those held by the ETF.
•
U.S. Treasury Risk. Securities backed by the U.S. Treasury or the full faith and credit of the U.S. government are guaranteed as to the timely
payment of interest and principal when held to maturity. Accordingly, the current market values for these securities will fluctuate with changes in interest rates.
•
Risks Specific to Particular Underlying ETFs
•
iShares MSCI USA Value Factor ETF – Value Securities Risk. This ETF primarily invests in stocks deemed to be undervalued. Stocks that are perceived as undervalued may fail to
appreciate for long periods of time and may never realize their full potential value. Value securities have generally performed better than non-value securities during periods of economic recovery (although there is no assurance that they will continue to do so).
Value securities may go in and out of favor over time.
•
iShares MSCI USA Momentum Factor ETF – Momentum Securities Risk.
This ETF primarily invests in stocks that are deemed to exhibit relatively higher price momentum
characteristics (i.e., stocks exhibiting strong recent price trends). Stocks that previously exhibited high momentum characteristics may not experience positive
momentum in the future or may experience more volatility than the market as a whole.
•
iShares MSCI USA Quality Factor ETF – Quality Stock Risk. This ETF primarily invests in stocks that are deemed to have quality characteristics identified through certain fundamental
metrics. Even if a stock is deemed to be a quality stock, there is no guarantee that the past performance of that stock will continue. Companies that issue these stocks may experience lower than expected returns or may experience negative growth, as well as
increased leverage, resulting in lower than expected or negative returns. Many factors can affect a stock's quality and performance, and the impact of these factors on a stock or
its price can be difficult to predict.
•
iShares MSCI USA Size Factor ETF – Low Size Securities Risk. From a defined universe of large- and mid-capitalization companies, this ETF emphasizes investments in stocks with
relatively smaller average market capitalization. Relative to the larger companies within the investable universe, stocks of such smaller companies may be less stable and more susceptible to adverse developments, and their securities may be more volatile and
less liquid.
•
iShares MSCI USA Min Vol Factor ETF – Volatility Risk. This ETF emphasizes investments in U.S. equities that, in the aggregate, are deemed to have lower volatility characteristics
relative to the broader U.S. equity market. There is no guarantee that such securities will be any less volatile than the market as a whole or any other stocks, and could be more volatile. The ETF may experience more than minimum volatility.
Volatility Control Risk. Volatility is a measure of the degree of variation in the returns of an asset over a period of time. If an Index includes a
volatility control overlay or other volatility control methodologies, the Index may reduce its exposure to one or more markets during periods of volatility in order to mitigate
dramatic changes in the value of the Index. To the extent that an Index reduces its market exposure in response to volatility, the Index will not be fully participating in any
growth in that market. Reducing market exposure during periods of volatility may mitigate the impact of short-term, significant market fluctuations in the Index’s return, but may also cause the Index to not fully participate in market
recoveries. There is no guarantee that any volatility control methodology will be successful.
Because volatility control may limit an Index’s participation in rising markets, volatility control may ultimately limit your gains (if any) under a Strategy. In addition, each Strategy already provides limited downside protection in the form of its
Protection Level. You should therefore consider whether selecting a Strategy that is linked to an Index that also includes volatility control is consistent with your risk tolerances and investment goals.
DESCRIPTION OF THE INDEXES
Provided below is a description of each Index. You may obtain additional information about any Index, including information about its components, weightings, performance, and methodologies, and similar information about any ETFs or
other indexes that underlie an Index, by contacting your financial professional or our Service Center.
BlackRock Select Factor Index (Ticker: BSELFCTX)
The BlackRock Select Factor Index is designed to provide diversified, multi-asset exposure,
while seeking to maintain a target volatility. The Index has dynamic exposure (as discussed further below) to eight ETFs that are actively traded on a U.S. stock exchange (NYSE Arca), including five ETFs that invest in equities ("Equity ETFs"), two ETFs that invest in fixed
income instruments ("Fixed Income ETFs"), and an ETF against which the Index may take a short position ("Hedged ETF") in order to partially hedge its exposure to equity markets. The Index also has a cash component.
Each Equity ETF tracked by the Index emphasizes one of the following equity strategies:
•
Value – Stocks with lower valuations based on fundamentals
•
Momentum – Stocks exhibiting strong recent price trends
•
Quality – Stocks with strong and stable balance sheets
•
Size – Stocks of relatively smaller, more nimble companies
•
Minimum Volatility – Stocks with lower levels of historical volatility
Each Fixed Income ETF
tracked by the Index primarily invests in U.S. Treasury obligations, one investing in short-term bonds and the other investing in long-term bonds.
The Index is considered to be "dynamic" because the Index adjusts its market exposures in
response to changing market conditions. All such adjustments are performed pursuant to a rules-based methodology. The Index adjusts its market exposures primarily by changing the target weightings of the ETFs that the Index tracks. In general, when markets are
volatile, the Index reduces its exposure to the U.S. equity market (generally by reducing the target weightings of the Equity ETFs) and shifts its fixed income exposure from short-term bonds to long-term bonds (by changing the target weightings among
the Fixed Income ETFs). Conversely, when markets are more favorable, the Index increases its exposure to the U.S. equity market (generally by increasing the target weightings of
the Equity ETFs) and shifts its fixed income exposure from long-term bonds to short-term bonds (by changing the target weightings among the Fixed Income ETFs). Similarly, the Index may adjust the weighting of its short position on the Hedged ETF or the cash component in response to changing
market conditions.
The performance of the Index reflects the reinvestment
of ETF dividends back into the Index after the close of trading on the ex-dividend date. Return generated from the Index’s exposure to cash is included in the return of the
Index.
Blackrock Index Services, LLC ("BIS") is the index provider for
this Index. BIS is not affiliated with Nationwide.
BlackRock Fund Advisors ("BFA") serves as the investment adviser for each underlying ETF. Each ETF seeks to track the
investment results of a particular market index. BFA uses a representative sampling indexing strategy to manage each ETF. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that
collectively has an investment profile similar to that of the applicable market index.
BFA is not affiliated with either Nationwide or the index providers for the ETFs’ underlying indexes. Nor is Nationwide affiliated with any of the index providers for the ETFs’ underlying indexes. BFA and BIS are affiliates.
Information about the Equity ETFs
Provided below is a brief description of the five Equity ETFs. Each Equity ETF seeks to track
the investment results of a variant index of the MSCI USA Index. MSCI Inc. is the index provider for the MSCI USA Index and the variant indexes.
The MSCI USA Index is a weighted index that includes U.S. large- and mid- capitalization
stocks, as defined by MSCI Inc. As of February 29, 2024, the MSCI USA Index had 609 component companies with a capitalization range (from largest to smallest) of approximately $2.9 trillion to $3.0 billion. The stocks included in each variant index are selected from the
stocks included in the broader MSCI USA Index (except for the variant MSCI USA Low Size Index, which includes all the stocks from the MSCI USA Index, as discussed further below).
•
iShares MSCI USA Value Factor ETF: This ETF seeks to track the investment results of the MSCI USA Enhanced Value Index, a weighted index composed of stocks with value characteristics and relatively lower
valuations. The MSCI USA Enhanced
Value Index includes stocks that exhibit certain higher value characteristics based on price-to-book value, price-to-forward earnings, and enterprise value-to-cash flow from
operations relative to their peers within the corresponding Global Industry Classification Standard (GICS®)
sector.
•
iShares MSCI USA Momentum Factor ETF: This ETF seeks to track the investment results of the MSCI USA Momentum SR Variant Index, a weighted index composed of
stocks exhibiting relatively higher price momentum characteristics. In general, momentum stocks are stocks that exhibit strong recent price trends. The MSCI USA Momentum SR Variant Index selects stocks based on the stocks’ momentum scores. MSCI Inc. calculates momentum scores by
analyzing the stocks’ excess returns and deviations in weekly returns over historical periods.
•
iShares MSCI USA Quality Factor ETF: This ETF seeks to track the investment results of the MSCI USA Sector Neutral Quality Index, a weighted index composed of stocks with quality characteristics as identified through certain
fundamental metrics. The MSCI USA Sector Neutral Quality Index selects stocks that exhibit certain higher quality characteristics (i.e., high return on equity, low earnings variability, and low leverage) relative to their peers within the corresponding Global
Industry Classification Standard (GICS®) sector.
•
iShares MSCI USA Size Factor ETF: This ETF seeks to track the investment results of the MSCI USA Low Size Index, a weighted index that emphasizes relatively smaller average market capitalizations within the capitalization range of
the MSCI USA Index. The MSCI USA Low Size Index includes all stocks in the MSCI USA Index, and is therefore comprised of only large- and mid-capitalization stocks. However, the
MSCI USA Low Size Index reweights the stocks such that the weightings of the companies on the lower end of the capitalization range are greater than the companies on the higher end of the capitalization range.
•
iShares MSCI USA Min Vol Factor ETF: This ETF seeks to track the investment results of the MSCI USA Minimum Volatility (USD) Index, a weighted index composed of stocks that, in the aggregate, have lower volatility
characteristics relative to the U.S. large- and mid-cap equity market. The MSCI USA Minimum Volatility (USD)
Index selects stocks using a rules-based methodology that is designed to construct a portfolio with the lowest
absolute volatility. "Lowest absolute volatility" is measured by MSCI Inc. using a multi-factor risk model and an
optimization tool that aims to determine the least volatile index composition based on the projected market risk of the securities in the MSCI USA Index and certain weighting constraints.
Information about the Fixed Income ETFs
Provided below is a brief description of the two Fixed Income ETFs. Each Fixed Income ETF
seeks to track the investment results of an index that measures the performance of public obligations of the U.S. Treasury within a range of remaining maturities. The index provider for these indexes is ICE Data Indices, LLC or its affiliates.
•
iShares 1-3 Year Treasury Bond ETF: This ETF seeks to track the investment results of the ICE U.S. Treasury 1-3 Year Bond Index, which is composed of U.S. Treasury bonds with remaining maturities between one and three
years.
•
iShares 20+ Year Treasury Bond ETF:
This ETF seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index, which is composed
of U.S. Treasury bonds with remaining maturities greater than 20 years.
Information about the Hedged ETF
As discussed under "Volatility Control" immediately below, the Index may partially hedge its
exposure to the U.S. equity market by taking a short position against the iShares Core S&P 500® ETF. This ETF seeks to track the investment results of the S&P 500®
Index. Please see the description of the S&P 500® Index later in this
section for information about that index.
The Index creates this short position by assigning a negative weighting to the Hedged ETF within the Index’s equity
allocation.
In general, when the Hedged ETF is negatively weighted within the Index’s equity allocation:
•
The value of the Index’s equity position will be lower when the Hedged ETF performs
positively, and
•
The value of the Index’s equity position will be higher when the Hedged ETF performs
negatively.
The impact on the value of the Index’s
equity position will be proportionate to the Hedged ETF’s negative weighting. In the most defensive market state, the negative weighting is set to a target weight of -50%. In
a neutral market state, the negative weighting is set to a target weight of -33.33%. In an aggressive market state, the negative weighting is set to a target weight of 0%. To the extent that the target weighting is less than 0%, this Index will not be fully participating in any equity market growth.
The Index seeks to maintain a target annualized volatility of 5%. In accordance with its
rules, the Index may manage volatility by dynamically adjusting the target weightings of (i) the Equity ETFs and Fixed Income ETFs, (ii) the cash component, and (iii) the short position against the Hedged ETF as discussed in this section. Depending on market conditions,
the Index’s target weighting for its cash component may be greater than its target weightings for its other components.
Weighting and Rebalancing
On a monthly basis, as part of the Index’s dynamic adjustments, the Index computes the target weightings of the Equity ETFs based on its rule-based methodology reflecting factors such as (i) the current stage of the economic cycle (i.e.,
contraction, expansion, recovery, or slowdown), (ii) the extent to which an Equity ETF offers attractive value (based on market prices of underlying stocks) relative to underlying fundamentals (based on financial reporting metrics of constituent
companies); and (iii) the extent to which daily adjusted returns demonstrate above-market price momentum. Any changes to the Equity ETFs’ target weightings are introduced in equal increments over a rebalancing period that generally extends for 10 business days.
On a daily basis, the Index uses market signals derived from the high-yield bond market to compute the target weightings of
the Fixed Income ETFs and the Index’s short position against the Hedged ETF. Changes to these target weightings are introduced in equal increments over a period that
generally extends for 5 business days. The Index also uses these market signals to maintain the Index’s volatility control overlay on a daily basis. The resulting adjustments
for the volatility control overlay are implemented with a one business day lag.
The performance of the Index reflects the deduction of an annualized rate of 0.50% plus a
rate equal to the effective federal funds rate (i.e., a rate that banks pay when borrowing funds from each other) applied to ETF positions having positive weight in the Index. In addition, the underlying ETFs are subject to management fees, other expenses, and
transaction costs.
Use of the Index in connection with annuity contracts has been exclusively licensed to
Nationwide. The exclusive licensing agreement automatically renews annually on or about May 1, unless terminated by the parties. If the exclusive licensing agreement is not renewed, the Index may become available through other investment vehicles or may be discontinued.
This Index has a more limited performance history, and less publicly available information, compared to more established market indexes.
J.P. Morgan Mozaic IISM
Index (Ticker: JMOZAIC2)
The J.P. Morgan Mozaic IISM Index provides exposure to the performance of futures contracts referencing a diversified group
of equities, fixed income assets, and commodities. The Index generally includes nine components selected on a monthly basis from a defined universe of 15 potential components. The
Index emphasizes high momentum (i.e., positive trends in the returns) when selecting and weighting its components. The Index also targets a level volatility.
A futures contract is a financial instrument in which a party agrees to pay a fixed price for the delivery of an asset at a specified future date. The market value of a futures contract is affected by the price or value of the underlying asset
referenced by the contract. In general, although the value of a futures contract may or may not track the price or value of the referenced asset, as the price or value of the referenced asset rises (or falls), the market value of the futures contract
will generally rise (or fall). The Index, through its exposure to its potential constituents (which include indexes that track
commodity futures), is currently exposed solely to
futures contracts that are traded on regulated futures exchanges, but the Index may in the future be exposed to over-the-counter contracts traded through facilities that are
subject to lesser degrees of regulation or no substantive regulation.
Returns from investing in futures contracts are generally derived from three sources: (a) changes in the price of the
relevant futures contracts (which is known as the "price return"); (b) any profit or loss realized when replacing the relevant futures contract as it reaches its expiration date with a similar futures contract that has a later expiration date (which is
known as the "roll return,"); and (c) any interest earned on the cash deposited as collateral for the purchase of the relevant futures contracts (which is known as the "collateral return"). The Index, which is an "excess return index," measures the
"price return" and "roll return" associated with an investment in uncollateralized future contracts. In contrast, a "total return" index would also measure the "collateral return" as well as the "price return" and "roll return."
J.P. Morgan Securities plc ("JPMS plc") is the index provider. JPMS plc is not affiliated with Nationwide.
Possible Index Components
Described below are the Index’s possible equity, fixed income, and commodities
components.
•
Equity Components. The possible equity components are futures contracts that provide exposure to the
performance of equity indexes. There are six possible equity components, each represented by futures contracts
referencing the:
1)
S&P 500® Index (comprised of large-capitalization U.S. companies);
2)
Nasdaq-100 Index®
(comprised of large-capitalization non-financial U.S. and foreign companies traded on The Nasdaq Stock Market);
3)
Russell 2000® Index (comprised of small-capitalization U.S. companies);
4)
DAX® Index
(comprised of large-capitalization companies traded on the Frankfurt Stock Exchange);
5)
FTSE® 100 Index (comprised of large-capitalization companies traded on the London Stock
Exchange); or
6)
Tokyo Stock Price Index (TOPIX®) (comprised of large-capitalization companies traded on
the Tokyo Stock Exchange).
•
Fixed Income Components. The possible fixed income components are futures contracts that
provide exposure to the performance of U.S and foreign government bonds. There are six possible fixed income components, each represented by futures contracts referencing a particular group of bonds. The six referenced groups of bonds
are:
1)
Short-term U.S.
Treasury notes (i.e., notes issued by the U.S. government);
2)
Medium-term U.S. Treasury notes;
3)
Long-term U.S.
Treasury notes;
4)
Euro Bunds (bonds issued by the German federal government);
5)
Gilts (bonds issued by
the U.K. government); and
6)
JBGs bonds issued by the Japanese government).
The Index’s exposure to fixed
income components may be greater, perhaps significantly greater, than its exposure to equity or commodities components. If the Index has greater exposure to fixed income
components, a change in the value of the Index’s fixed income futures contracts may have a greater impact on the Index’s return than a change in the value of the Index’s equity or commodities components.
•
Commodities Components. The possible commodities components are indexes that track the
performance of futures contracts referencing commodities in the energy, industrial metal, and precious metal sectors. There are three possible commodities components. The three underlying indexes are:
1)
Bloomberg Energy SubindexSM (comprised of futures referencing the commodities included in the
relevant sector within the Bloomberg Commodity IndexSM);
2)
Bloomberg Industrial Metals SubindexSM (comprised of futures referencing the commodities
included in the relevant sector within the Bloomberg Commodity IndexSM); and
3)
Bloomberg Precious
Metals SubindexSM (comprised of futures referencing the commodities included in the relevant sector within the Bloomberg Commodity IndexSM).
The index provider for these
indexes is Bloomberg Index Services Limited. Bloomberg Index Services Limited is not affiliated with JPMS plc or Nationwide.
The Index seeks to maintain a target annualized volatility of 4.2%. In general, when
assigning a weight to a selected component as discussed under "Weighting and Rebalancing" below, if the recent volatility (calculated as the highest annualized volatility observed over 22, 65 and 130 day periods) of the selected component is greater than the target
volatility, the component will be assigned a lesser weight within the Index. Conversely, if the recent volatility of a selected component is less than the target volatility, the component will be assigned a greater weight within the Index. During
periods of high volatility, the total weight of the Index’s components may be lower than 100%. A total weight of less than 100% means that the Index is partially uninvested.
The Index also includes an "exposure flattening" feature. If on any day the Index’s overall weekly return on a rolling basis is less than -3%, the Index progressively decreases its overall market exposure to 0% (i.e., completely uninvested). After
five weekdays, the Index will restore its market exposures by progressively increasing its exposure to each component until that exposure has been fully restored, subject to the initiation of further exposure flattening.
The Index may be subject to increased volatility due to the potential use of significant leverage. The Index may use
leverage to increase return from its components or manage volatility in accordance with its rule-based methodology. When the Index uses leverage, the total weight of the Index components will be greater than 100%, up to a maximum of 300%. The
Index’s individual fixed income components can be significantly leveraged, with maximum weights ranging from 45% up to 250%. By comparison, no individual equity or commodity
component can represent more than 15% in total weight. In general, the Index is most likely to use leverage when recent volatility is lower than the target volatility.
Weighting and Rebalancing
The Index utilizes a rules-based methodology based on momentum and target volatility to
select, weight, and rebalance its components. On a monthly basis, the Index selects for inclusion the nine components with the highest performance over the previous six-month period and then assigns weights to those components based on recent volatility and the Index’s
target volatility, all subject to the Index’s rules-based constraints (such as weight caps on individual components and total weight). The composition of the Index is then implemented at the beginning of the following calendar month over a five-day
rebalancing period, determined separately for each component. The Index may provide exposure to more or fewer than nine components while it is being rebalanced each month.
Depending on recent volatility, it is possible that fewer than nine components could be selected for inclusion.
Use of the Index in connection with annuity contracts has been exclusively licensed to
Nationwide. The exclusivity term under the licensing agreement will expire on December 31, 2024, unless terminated earlier by J.P. Morgan Securities LLC or extended by the parties. If the exclusive licensing agreement is not renewed, the Index may become available through
other investment vehicles or may be discontinued.
This Index has a more limited performance history, and less publicly available information, compared to more established
market indexes.
MSCI EAFE Index (Ticker: MXEA)
The MSCI EAFE Index is designed to represent the performance of common stocks of large- and mid-capitalization companies across 21 developed markets, including countries in Europe, Australasia, and the Far East, excluding the U.S. and
Canada. The Index is available for a number of regions and market segments/sizes and covers approximately 85% of the free float-adjusted market capitalization in each of the 21
countries. As of February 29, 2024, the Index had a capitalization range (from largest to smallest) of approximately $388.3 billion to $1.3 billion.
The Index is a price return index and does not include dividends declared by any of the
companies in the Index.
The index provider for this Index is MSCI Inc.
MSCI Inc. is not affiliated with Nationwide.
NYSE® Zebra Edge® Index (Ticker: ZEDGENY)
The NYSE® Zebra Edge® Index is an equally-weighted index that uses a rules-based, contrarian methodology.
The Index selects stocks from the NYSE® U.S. Large Cap Equal Weight IndexTM, which is comprised of large-capitalization companies. As of March 1, 2024, the
NYSE® U.S. Large Cap Equal Weight IndexTM had a capitalization range (from largest to smallest) of approximately $3.1 trillion to $7.6 billion.
The Index favors "cool" stocks over "hot" stocks. Cool stocks are stocks that have
experienced lower trading frequency over the last two years and lower volatility over the last three months and one year. Hot stocks are stocks that have experienced the highest trading frequency over the last two years and the highest volatility over the last three months and
one year.
The index provider for this Index is ICE Data Indices, LLC. ICE Data Indices, LLC is not affiliated with Nationwide.
The Index is reconstructed on a quarterly basis. From the universe of 500 stocks in the
NYSE® U.S. Large Cap Equal Weight IndexTM, the Index removes the 150 most popular names and the 250 most long- and short-term volatile names. The remaining 100 stocks are selected and weighted equally within the Index. The equity portion of this Index rebalances
quarterly on the last day of trading in February, May, August, and November.
To mitigate the effects of volatility on returns, the Index uses a risk control
process. Rebalancing under the risk control process occurs daily. If recent volatility in the Index’s equity exposure exceeds 5%, the Index moves a portion of its equity
allocation to U.S. Treasury futures. If recent volatility in the Index’s total exposure exceeds 5%, the Index moves a portion of its allocation to cash. If recent volatility is below 5%, the Index maintains equity exposure of at least 100%.
The Index may be subject to increased volatility due to the potential use of significant leverage. Subject to the Index’s risk control process, when recent volatility is below 5%, the Index’s equity exposure may be increased beyond 100% up to a
150% maximum.
SG Macro Compass Index (Ticker: SGMACRO)
The SG Macro Compass Index is a rules-based index tracking the performance of thirteen underlying indexes, providing
exposure to a diversified group of equity, fixed income, and commodities futures. Eleven of the underlying indexes are composed of (or reference) equities, fixed income, or commodities futures contracts. The remaining two underlying indexes
are composed of U.S. stocks. The Index also seeks to maintain a target volatility.
The index provider for this Index and all of the underlying indexes is Société Générale or an affiliate thereof. Société Générale is not affiliated with Nationwide.
Underlying Futures Indexes
A futures contract is a financial instrument in which a party agrees to pay a fixed price for the delivery of an asset at a
specified future date. The market value of a futures contract is affected by the price or value of the underlying asset referenced by the contract. In general, although the value of a futures contract may or may not track the price or value of
the referenced asset, as the price or value of the referenced asset rises (or falls), the market value of the futures contract will generally rise (or fall). The Index is exposed solely to futures contracts that are traded on regulated futures exchanges.
Returns from investing in futures contracts are generally derived from three sources: (a)
changes in the price of the relevant futures contract (which is known as the "price return"); (b) any profit or loss realized when replacing the relevant futures contract as it reaches its expiration date with a similar futures contract that has a later expiration date (which is
known as the "roll return"); and (c) any interest earned on the cash deposited as collateral for the purchase of the relevant futures contract (which is known as the "collateral return"). The underlying futures indexes are "excess return" indexes,
meaning they measure the "price return" and "roll return" associated with an investment in uncollateralized future contracts, rather than a "total return" index which would also measure the "collateral return."
Provided below is a brief description of the eleven underlying indexes composed of (or referencing) futures contracts.
•
Equity Futures Indexes – IND1CUE1, IND1CEE1, IND1CJE1: The three equity futures underlying indexes
provide the SG Macro Compass Index with exposure to stock markets. Each underlying index gains exposure to
stock market performance by including specific futures contracts that track certain U.S. and foreign stock market
indexes. The underlying indexes’ futures contracts reference, respectively, the S&P 500® Index (comprised of large-capitalization U.S. companies), the DAX® Index (comprised of large-capitalization companies traded on the
Frankfurt Stock Exchange), and the Nikkei 225® Index (comprised of large-capitalization companies traded on
the Tokyo Stock Exchange).
•
Fixed Income Futures Indexes – IND1BJB, IND1BFV, IND1BTY, IND1BUS,
IND1BOE, IND1CER1, IND1BUB: The seven fixed income futures underlying indexes provide the SG
Macro Compass Index with exposure to the performance of groups of U.S. and foreign government bonds. Each underlying index gains exposure to these government bonds by including futures contracts that reference U.S. Treasury notes (5, 10, and 20 year
notes issued by the U.S. government), Euro Bunds (5, 10, and 30 year bonds issued by the German federal government), and JGBs (10 year bonds issued by the Japanese
government).
•
Commodities Futures Index – IND1CARC: The commodities futures underlying index exposes the SG Macro Compass Index to the performance of commodities. The
underlying index gains exposure to these commodities by including futures contracts that reference natural gas, WTI crude, Brent crude oil, gasoline blendstock, heating oil, corn, soybean, soybean oil, soybean meal, cotton, coffee, sugar, live cattle, lean hogs, copper, aluminum,
nickel, gas oil, and zinc.
Underlying U.S. Stock Indexes
The two underlying indexes composed of U.S. stocks further expose the SG Macro Compass Index to the U.S. stock market. Both
underlying indexes employ rules-based methodologies to select and track stocks included in the S&P 500® Index. Please see the description of the S&P 500® Index later in this section for information about that index.
Provided below is a brief description of the two underlying indexes composed of U.S.
stocks.
•
SGI Low Vol 200 Index: The SGI Low Vol 200 Index selects on a monthly basis the 200 stocks that, subject to
a liquidity threshold, have exhibited the lowest relative volatility over the previous year. It then weights those stocks inversely proportional to their volatility, with stocks exhibiting lower volatility receiving greater weighting.
•
SGI Equity Value US Index: The SGI Equity Value US Index selects on a quarterly basis an equally weighted basket of the 100 stocks that score the
highest according to a value methodology. The index’s value methodology seeks to identify undervalued stocks by comparing stocks according to five fundamental ratios: book to price; earnings to price; one year forward earnings to price; earnings before interest, taxes, depreciation, and
amortization (EBITDA) to enterprise value; and free cash flow to price.
The Index seeks to maintain a target annualized volatility of approximately 5%. In accordance with its rules-based
methodology, during periods of high volatility, the Index may reduce its exposure to any basket of underlying indexes, in which case the Index may be only partially invested. During periods of low volatility, the Index may increase its exposure to
any basket of underlying indexes, in which case the Index may have an exposure greater than 100%.
The Index may be subject to increased volatility due to the potential use of significant
leverage. The Index may use leverage to manage volatility or increase returns in accordance with its rules-based methodology. When the Index uses leverage, the Index may increase its total exposure up to a maximum of 200%.
Weighting and Rebalancing
The underlying indexes have predetermined weights based on an algorithmic model that looks at real GDP growth and inflation
expectations in order to identify a current market state, either "expansion," "contraction," or "neutral." A neutral or contraction market state will result in the underlying fixed
income indexes being weighted significantly greater than the equity or commodities indexes. An expansion market state will result in the equity indexes being weighted significantly
greater than the fixed income or commodities indexes. When the Index has greater exposure to a particular market, which is done by weighting the corresponding underlying indexes to a greater extent, fluctuations in that market will have a
greater impact on the Index’s return than fluctuations in the other markets.
On a quarterly basis, the Index identifies the current market state and rebalances the weights of the underlying fixed income and equity indexes accordingly.
The commodities-based underlying index has a constant weighting regardless of the market state.
Performance
Drag
The performance of the Index reflects the deduction of transaction and
replication costs from the returns of the underlying indexes. The transaction and replication costs, deducted as an annualized percentage on a daily basis, are fixed for each
underlying index and range from 0.22% to 0.69%. The "transaction costs" represent an estimate of the costs that would be incurred to buy and sell the index components each time the Index rebalances due to changes in weightings of the Index
components. The "replication costs" represent an estimate of the financing costs that would be incurred in holding an investment in the index components. The deduction of these costs occurs at the Index level (i.e., the return on the Index is
reduced based on the applicable transaction and replication costs). One underlying index also includes replication costs which serve to reduce its return.
Use of the Index in connection with annuity contracts has been exclusively licensed to Nationwide. The exclusive licensing
agreement will expire on or about March 8, 2026, unless extended by the parties. If the exclusive licensing agreement is not renewed, the Index may become available through other investment vehicles or may be discontinued.
This Index has a more limited performance history, and less publicly available information, compared to more established market indexes.
S&P 500® Average Daily Risk Control 10% USD Price Return Index (Ticker: SPXAV10P)
The S&P 500® Average Daily Risk Control 10% USD Price Return Index seeks to limit
the volatility of the S&P 500® Index to a target level of 10%.
This Index has exposure to two components: its underlying index (the S&P 500® Index) and a cash component. Please see "S&P 500® Index" below for a description of the underlying index. The Index is dynamically adjusted based on its
target volatility. The Index is considered to be "dynamically adjusted" because the Index adjusts its market exposures in response to changing market conditions. The Index assesses market conditions on a daily basis and adjusts its weightings
based on its methodology. Generally, if volatility increases, the Index moves weight out of the underlying index and into cash. Conversely, if volatility decreases, the Index moves more weight into the underlying index and weights less in cash.
This Index is a price return index and does not include dividends declared by any of the
companies in the underlying index as part of its return. Return is generated within the Index by the cash component when equity exposure is less than 100%.
The index provider for this Index is S&P Dow Jones Indices LLC ("SPDJI"). SPDJI is not
affiliated with Nationwide.
S&P 500® Index (Ticker: SPX)
The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S.
equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
This Index is a price return index and does not include dividends declared by any of the
companies in this Index.
The index provider for this Index is SPDJI.
SPDJI is not affiliated with Nationwide.
ADDITIONAL
INDEX INFORMATION
If an Index Value is not provided to Nationwide by an Index provider or is otherwise
unavailable on a Business Day, the Index Value will be the closing value of the Index for the previous Business Day. If an Index provider later publishes an Index Value for a business day when the Index Value was not provided to Nationwide or was otherwise not available Nationwide
will recalculate the impacted transactions and Contract Values according to the Index Value provided to Nationwide by the Index provider. This recalculation could result in changes
to transactions, Index Values, and Contract Values that occurred when an Index Value was not published by an Index provider.
INDEX SUBSTITUTION DURING A STRATEGY TERM
The Index for an Index Strategy generally will not change for the duration of an ongoing
Strategy Term. However, Nationwide reserves the right to substitute the Index during a Strategy Term at any time, in limited circumstances. Subject to any applicable regulatory approval, Nationwide may substitute the Index if (a) the Index is discontinued or (b) there is a
substantial change to the calculation of the Index. If Nationwide substitutes an Index, the new Index will be similar in composition to the old Index. Nationwide will seek to notify the Contract Owner at least 30 days prior to substituting an
Index for any Index Strategy in which the Contract
Owner is invested. However, in the event that it is necessary to substitute on less than 30 days’ notice due to circumstances outside of Nationwide’s control,
Nationwide will provide notice of the substitution as soon as practicable.
If Nationwide substitutes an Index during a Strategy Term, the performance of the Index for
the Index Strategy will be equal to the result of compounding the performance of the old index prior to the substitution date and the performance of the new index after the substitution date. This is equal to (1+A) x (1+B) -1 where:
•
A is equal to the percentage change in the value of the old Index between the first day of the
Strategy Term (or the first day during the Strategy Term on which the old Index was used, whichever is later) and the value of the Index on the date of substitution; and
•
B is equal to the percentage change in the value of the new Index between the date of
substitution and the relevant later date in the Strategy Term.
For example, assume that Nationwide
substitutes the Index for an Index Strategy on a date during the Strategy Term. Also assume that the performance of the Index for the old Index between the first day of the
Strategy Term and the substitution date was 10%, and that the performance of the Index for the new Index between the substitution date and the Strategy Term End Date was 5%. In this scenario, the Index Performance between the first day of the Strategy Term and the Strategy
Term End Date would be 15.5%, i.e. (1+10%) x (1 + 5%) -1.
Each Index Strategy has a Strategy Term which is the total maturity time of the Index Strategy, expressed in years. The
Contract currently offers Index Strategies with Strategy Terms of 1 and 3 years. A Strategy Term begins on the date Contract Value is allocated to the Index Strategy and ends on the Strategy Term End Date, which will always be a Contract
Anniversary. The Strategy Term for an Index Strategy will not change for as long as that Index Strategy is offered. Strategy Terms for newly-created Index Strategies that are made available for investment after the Date of Issue will be no shorter
than 1 year and will be no longer than 6 years. Because you are not permitted to transfer Contract Value during a Strategy Term, except under the Performance Lock feature, you should understand that a Strategy with a longer Strategy Term provides
less flexibility to allocate your Contract Value than a Strategy with a shorter Strategy Term. This means if you invest in Strategies with longer Strategy Terms, you will have
fewer opportunities to transfer Contract Value among the Strategies.
The Protection Level represents an amount of downside protection under a Strategy for a Strategy Term. The Protection Level
is presented as a percentage (currently, 100%, 95%, or 90%). A higher Protection Level provides more protection against loss than a lower Protection Level. If you select a Strategy
with a 90% Protection Level, your rate of return that is calculated at the end of the Strategy Term or at any time during the Strategy Term cannot be lower than -10%. If you
select a Strategy with a 95% Protection Level, your rate of return that is calculated at the end of the Strategy Term or at any time during the Strategy Term cannot be lower than -5%. If you select a Strategy with a 100% Protection level, your rate
of return that is calculated at the end of the Strategy Term or at any time during the Strategy Term cannot be lower than 0%. The Protection Level for a Strategy will not change
for as long as we offer that Strategy. Each Strategy has its own Minimum Protection Level. Regardless of the Strategy, a Protection Level will never be lower than 75% for any
Strategy Term.
You should understand that a Protection Level less than 100% provides only limited protection against downside potential and does not provide absolute protection against negative Index Strategy Earnings. You may lose money, and it is possible to lose a substantial amount of your principal investment under this Contract. When comparing Strategies with different Protection Levels, a higher Protection Level provides more protection against loss than a lower Protection Level.
You should also understand that the downside protection provided by a Strategy’s Protection Level only applies to a single Strategy Term. If you remain invested in the Strategy over multiple Strategy Terms, you can experience losses up to the downside protection each Strategy Term. In effect, the cumulative losses over multiple Strategy Terms could significantly exceed the level of downside protection provided by the Protection Level for one Strategy Term.
The table below illustrates the impact of the Protection Level.
|
Your Maximum Amount of
Loss* for 1 and 3 Year Strategy Terms |
|
|
|
|
|
|
*Does not include CDSC and MVA
Each Index Strategy has a Participation Rate which is a percentage that represents the proportion of the Index Performance
used in the calculation of the AIP. The Participation Rate applies to both positive and negative Index Performance. The Participation Rate is presented as a percentage greater or
less than, or equal to, 100% (e.g., 50% or 150%). The Participation Rate for a Strategy Term is for the entire term and is not applied on an annual basis. The Participation Rate may have the effect of increasing gains or losses (or neither) as follows:
•
If the Participation Rate is greater than 100%, it will increase the upside potential when the
Index Performance is positive. For example, if the Participation Rate is 150%, it will multiply any positive Index Performance by 150%. A Participation Rate greater than 100% also increases your downside risk. For example, if your Participation Rate is 150%,
we will multiply any negative Index Performance by 150% (subject to any applicable defined downside protection).
•
If the Participation Rate is equal to 100%, it will neither increase nor decrease your upside potential or downside
risk.
•
If the Participation Rate is less than 100%, it will decrease your upside potential when the
Index Performance is positive. For example, if your Participation Rate is 90%, we will apply only 90% of the positive Index Performance. A Participation Rate lower than 100% also decreases your downside risk when Index Performance is negative. For
example, if your Participation Rate is 90%, we will only apply 90% of the negative Index Performance (subject to any applicable defined downside protection).
The Participation Rate for an Index
Strategy will not change for the duration of a Strategy Term. However, the Participation Rate may change for future Strategy Terms. The Participation Rate for a particular Strategy
Term may be different for newly issued Contracts than for existing Contracts. The Participation Rate for a Strategy is guaranteed to never be lower than the applicable "Minimum Participation Rate." Each Strategy has its own Minimum Participation Rate, which will never be
less than 5%.
The table below illustrates the impact of the Participation Rate on the AIP, which is effectively the Index Performance adjusted for the Participation Rate and Strategy Spread. The formula for the AIP may be found under "Calculation of Strategy Earnings – Adjusted Index Performance."
|
|
Adjusted Index Performance* (Assuming 0% Strategy Spread) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*The example does not include the downside protection provided by the Protection Level.
The Strategy Spread is an annualized percentage used as a deduction in the calculation of a Strategy’s AIP. A Strategy
Spread greater than 0% always has the effect of reducing a Strategy’s performance (subject to any applicable defined downside protection). A Strategy will never have a Strategy Spread lower than 0%. With all other Crediting Factors being
equal, a Strategy Spread allows Nationwide to offer a higher Participation Rate for a Strategy than what would be offered on the same Strategy without the Strategy Spread.
The Strategy Spread will not change for the duration of a Strategy Term. However, we may change a Strategy’s Strategy
Spread for future Strategy Terms. The Strategy Spread is guaranteed to never be greater than the applicable "Maximum Strategy Spread." For each Index Strategy, the Maximum Strategy Spread guaranteed for the life of the Contract, is the
initial Strategy Spread when that Strategy was first made available to that Contract plus 2%.
To calculate the Strategy Spread’s impact at the end of a Strategy Term, it is multiplied by the Elapsed Term. For example, a 2% Strategy Spread on a 3-year Strategy Term will reduce earnings calculated at the end of the Strategy Term by 6%
(subject to the downside protection of the Protection Level).
A Strategy Spread can result in negative Index Strategy Earnings even if you have positive Index performance. See "Limited Growth Potential Risk (Strategy Spread and Participation Rate Risk)" for additional risk information about the Strategy Spread.
The table below illustrates the impact of the Strategy Spread on a Strategy with a one-year Strategy Term. The Strategy Spread is used to calculate the Adjusted Index Performance (AIP), which is effectively the Index Performance adjusted for the Participation Rate and Strategy Spread. The table assumes the AIP is calculated at the end of the Strategy Term. See "Calculation of Strategy Earnings – Adjusted Index Performance."
|
|
Adjusted Index Performance*
(Assuming 100% Participation Rate) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* This column assumes that the Strategy has a Strategy Spread of 2%.
The Contract currently offers the following Index Strategies*:
•
BlackRock Select Factor Index, 1 Year, 100% Protection Level Strategy
•
BlackRock Select Factor Index, 1 Year, 95% Protection Level Strategy
•
BlackRock Select Factor Index, 1 Year, 90% Protection Level Strategy
•
BlackRock Select Factor Index, 3 Year, 100% Protection Level Strategy
•
BlackRock Select Factor Index, 3 Year, 95% Protection Level Strategy
•
BlackRock Select Factor Index, 3 Year, 90% Protection Level Strategy
•
J.P. Morgan Mozaic IISM Index, 1 Year, 100% Protection Level Strategy
•
J.P. Morgan Mozaic IISM
Index, 1 Year, 95% Protection Level Strategy
•
J.P. Morgan Mozaic IISM Index, 1 Year, 90% Protection Level Strategy
•
J.P. Morgan Mozaic IISM
Index, 3 Year, 100% Protection Level Strategy
•
J.P. Morgan Mozaic IISM Index, 3 Year, 95% Protection Level Strategy
•
J.P. Morgan Mozaic IISM
Index, 3 Year, 90% Protection Level Strategy
•
MSCI EAFE Index, 1 Year, 100% Protection Level Strategy**
•
MSCI EAFE Index, 1 Year, 95% Protection Level Strategy**
•
MSCI EAFE Index, 1 Year, 90% Protection Level Strategy**
•
MSCI EAFE Index, 3 Year, 100% Protection Level Strategy**
•
MSCI EAFE Index, 3 Year, 95% Protection Level Strategy**
•
MSCI EAFE Index, 3 Year, 90% Protection Level Strategy**
•
NYSE® Zebra Edge® Index, 1 Year, 100% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 1 Year, 95% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 1 Year, 90% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 3 Year, 100% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 3 Year, 95% Protection Level Strategy
•
NYSE® Zebra
Edge® Index, 3 Year, 90% Protection Level Strategy
•
SG Macro Compass Index, 1 Year, 100% Protection Level Strategy
•
SG Macro Compass Index, 1 Year, 95% Protection Level Strategy
•
SG Macro Compass Index, 1 Year, 90% Protection Level Strategy
•
SG Macro Compass Index, 3 Year, 100% Protection Level Strategy
•
SG Macro Compass Index, 3 Year, 95% Protection Level Strategy
•
SG Macro Compass Index, 3 Year, 90% Protection Level Strategy
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 1 Year, 100% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 1 Year, 95% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 1 Year, 90% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 3 Year, 100% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 3 Year, 95% Protection Level
Strategy**
•
S&P 500® Average Daily Risk Control 10% USD Price Return Index, 3 Year, 90% Protection Level
Strategy**
•
S&P 500® Index, 1 Year, 100% Protection Level Strategy**
•
S&P 500® Index,
1 Year, 95% Protection Level Strategy**
•
S&P 500® Index, 1 Year, 90% Protection Level Strategy**
•
S&P 500® Index,
3 Year, 100% Protection Level Strategy**
•
S&P 500® Index, 3 Year, 95% Protection Level Strategy**
•
S&P 500® Index,
3 Year, 90% Protection Level Strategy**
* See "Crediting Factors" for information on the Participation Rate and Strategy Spread for each Strategy. Each Strategy has its own Minimum Participation Rate which will never be less than 5%, and each Strategy has its own Maximum Strategy Spread that will
never be greater than the initial Strategy Spread when that Strategy was first made available to that Contract plus 2%. When a Strategy has both a Participation Rate less than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to reduce gains when Index Performance is positive. Additionally, when a Strategy has both a Participation Rate
greater than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to increase losses when Index Performance is negative.
** This is a price return index.
ACTIONS ON STRATEGY TERM END DATES
The following options are available at the end of a Strategy Term:
•
Allocate Contract Value in the maturing Strategy to the same Strategy for another Strategy
Term (with the Crediting Factors that Nationwide declares for the upcoming Strategy Term), assuming that the Strategy is available for investment.
•
Transfer some or all of the Contract Value in the maturing strategy to another Strategy that
is available for investment for a Strategy Term (with the Crediting Factors that Nationwide declares for the upcoming Strategy Term).
At least 30 days prior to a Strategy Term End Date, Nationwide will send a notification to
the Contract Owner stating (i) the Strategies that will be available for investment, (ii) their respective Crediting Factors and their values for the upcoming Strategy Term, and (iii) how to communicate the Contract Owner’s instructions to Nationwide.
If Nationwide does not receive instructions from the Contract Owner
prior to the close of business on the Strategy Term End Date (or if the Strategy Term End Date is not a Business Day, then at least one Business Day prior to the Strategy Term End Date), the Contract Value in the maturing Strategy will be reinvested in the same Strategy, but with the Crediting
Factors that Nationwide declares for the upcoming Strategy Term. If the same Strategy is no longer available for
investment, the Contract Value allocated to the maturing Strategy will be transferred to the Fixed Strategy for the upcoming Strategy Term.
TRANSFERS BETWEEN
STRATEGIES
On a Strategy Term End Date, the Contract Owner may transfer, free of
charge, Contract Value in the maturing Strategy to another Strategy that is available for investment.
Except under the Performance Lock feature, transfers from a Strategy are not permitted other
than on its Strategy Term End Date. Transfers into a Strategy are not permitted if its Strategy Term is ongoing.
If the Strategy Term End Date is a Business Day, a transfer request must be received by the Service Center prior to the close of business on that Business Day. If Nationwide does not receive a transfer request prior to the close of business on
that Business Day, the transfer will not occur. If the Strategy Term End Date is not a Business Day, a transfer request must be received by the Service Center at least one Business Day prior to the Strategy Term End Date. If Nationwide does not
receive a transfer request at least one Business Day prior to the Strategy Term End Date, the transfer will not occur. Transfer requests may be submitted in writing to the Service Center and must be signed by the Contract Owner. At
Nationwide’s discretion, it may accept transfer requests by telephone or, if available, by Internet.
A transfer request will not be deemed to be received by the Service Center until it is in
good order. To be in good order, the transfer request must identify:
•
The date of the first day of the upcoming Strategy Term;
•
The Strategy (or Strategies) from which Contract Value is being transferred out;
and
•
The Strategy (or Strategies) to which Contract Value is being transferred in.
Upon a full transfer out of the Index Strategy(ies) that offers Index Strategy MNV, the
following occurs:
1) For amounts transferred to
investment options under the Contract where minimum nonforfeiture does not apply, the amount transferred to the investment options will be the greater of the Index Strategy Value
applied proportionately or the Index Strategy MNV, applied proportionately.
2) For amounts transferred to the Fixed Strategy, the amount transferred will be the Index Strategy Value, applied proportionately, and the amount transferred to the Fixed Strategy MNV will be the Index Strategy MNV, applied
proportionately.
See "Fixed Strategy Minimum Nonforfeiture Value" and "Index Strategy Minimum Nonforfeiture Value."
A full transfer out of the Fixed Strategy Value is subject to minimum amounts required by state law. Nationwide guarantees that any full transfer out of the Fixed Strategy Value will be at least equal to the minimums required by state law.
During a Strategy Term, if an Index Strategy’s Index Strategy Value exceeds its
Strategy Basis multiplied by its Protection Level, the Contract Owner may request a Performance Lock. The Performance Lock feature provides the Contract Owner with a one-time transfer during a Strategy Term of the full Index Strategy Value to the Fixed Strategy. For each Index
Strategy, the Performance Lock feature may be exercised only once during a Strategy Term. If Contract Value is allocated to multiple Index Strategies, the Performance Lock may be exercised for any, all, or none of the Index Strategies during
their respective Strategy Terms, but only if each selected Index Strategy’s Index Strategy Value exceeds its Strategy Basis multiplied by its Protection Level. The Contract Owner can request a Performance Lock for only the full Index Strategy
Value. Requests for a Performance Lock of partial amounts of an Index Strategy’s Index Strategy Value will not be accepted. A Performance Lock once exercised is irrevocable.
On any Business Day other than the Strategy Term End Date, the Contract Owner may submit a request to the Service Center to
exercise a Performance Lock. If Nationwide receives the request prior to the close of business on a Business Day, the Index Strategy Value transferred to the Fixed Strategy will be
the Index Strategy Value at the end of the Business Day on which the Performance Lock request is received by Nationwide. If the Performance Lock request is received by Nationwide on a day that is not a Business Day, or after the close of a Business Day, Nationwide will use the next Business
Day’s Index Strategy Value. If a Performance Lock is requested but the Index Strategy Value falls below the Strategy Basis multiplied by its Protection Level at the close of
the Business Day on which the transfer is to occur, the Performance Lock will not be exercised.
See "Performance Lock Risk" for additional
information on the risks associated with the Performance Lock.
If there is no
Contract Value allocated to the Fixed Strategy and a Performance Lock is exercised, the date the Index Strategy Value is transferred into the Fixed Strategy is considered the first
day of the Fixed Strategy’s Strategy Term and the Strategy Term End Date will be the next Contract Anniversary. The Fixed Strategy Rate that is applicable to the value
transferred to the Fixed Strategy via a Performance Lock request is the Fixed Strategy Rate that was set at the beginning of the Contract Year in which the Performance Lock is made.
The amount transferred into the Fixed Strategy will earn interest at the Fixed Strategy Rate until the next Contract
Anniversary at which time the Contract Owner can elect to either transfer out some or all of the Fixed Strategy to one or more available Index Strategies or remain in the Fixed Strategy subject to a newly declared Fixed Strategy Rate.
Once the Contract Value has been transferred into the Fixed Strategy, if no election is made
prior to the Fixed Strategy’s Strategy Term End Date, the amount allocated to the Fixed Strategy as a result of the Performance Lock will remain in the Fixed Strategy for the next Strategy Term at the Fixed Strategy Rate in effect for that Strategy Term.
PERFORMANCE LOCKS EXERCISED WITHIN 45 DAYS OF A CONTRACT ANNIVERSARY
If a Performance Lock is requested within 45 days prior to a Contract Anniversary, the Contract Owner will not receive
notification of the available Strategies and applicable Crediting Factors 30 days prior to the Fixed Strategy’s Strategy Term End Date as described in the "Actions on Strategy Term End Dates" section. Instead, the following will apply:
•
If the Performance Lock is requested through Nationwide’s Service Center via the website
or by telephone, the Contract Owner will receive the available Strategies and Crediting Factors at the time of the request; or
•
If the Performance Lock is requested by mail, the Contract Owner will need to contact the Service Center for the available
Strategies and applicable Crediting Factors prior to the Strategy Term End Date.
CONTRACT VALUE AND STRATEGY VALUES
The Contract Value is calculated each Business Day and is the sum of the Fixed Strategy Value and the Index Strategy Values for each of the Index Strategies.
The Fixed Strategy Value is equal to the amount allocated to the Fixed Strategy plus any interest credited, less any
withdrawals (including any applicable CDSC, MVA and taxes).
The Index Strategy Value is calculated separately for each Index Strategy and is equal to the
Index Strategy’s Index Strategy Basis plus the Index Strategy Earnings (which may be positive, negative, or equal to zero).
The Index Strategy Basis is a value used to calculate the Index Strategy Value and the Index Strategy Earnings. The Index
Strategy Basis is not a cash value under the Contract and cannot be surrendered, although it is a component of the Index Strategy Value which represents the value that can be
surrendered.
On the first day of a Strategy Term, the Index Strategy Basis of an Index Strategy equals the amount allocated to the Index
Strategy. On any day during a Strategy Term other than the Strategy Term End Date, the Index Strategy Basis is equal to the Index Strategy Basis on the first day of the Strategy
Term minus adjustments for any partial withdrawals (including any applicable CDSC, MVA and taxes) and any fees that occurred during the Strategy Term, and increased by the same percentage of any adjustment to the Index Strategy Value under any applicable death benefit under the Contract. On
the Strategy Term End Date, after the Index Strategy Value is calculated, the Index Strategy Basis is reset to equal the Index Strategy Value.
Partial withdrawals, fees, and premium taxes reduce the Index Strategy Basis in the same proportion that the partial withdrawal, fee, or premium tax reduced the Index Strategy’s Index Strategy Value on the date the transaction occurs.
Specifically, the reduction to an Index Strategy’s Index Strategy Basis is calculated as follows:
Total partial withdrawal, fee, and/or premium tax deducted from Index Strategy Value on a specific date |
|
Index Strategy Basis on the date of
the transaction |
Index Strategy Value on the date of the transaction |
The practical effect of this formula is that when
the Index Strategy Basis is greater than the Index Strategy Value at the time of the transaction, the Index Strategy Basis will be reduced by more than the dollar amount of the
withdrawal, fee, and/or premium tax. For example, if a $4,500 withdrawal (assuming no fees or premium taxes) is taken and on that date the Index Strategy Value is $135,000 and the Index Strategy Basis is $150,000, the Index Strategy Value will be reduced by
$4,500 and the Index Strategy Basis will be reduced by $5,000 ($4,500/$135,000 x $150,000 = $5,000).
The Surrender Value is the amount available upon full surrender of the Contract. The Surrender Value is equal to the
Contract Value less any applicable CDSC and premium taxes, plus any applicable MVA. Nationwide may deduct taxes
from the Surrender Value.
A full surrender of the Fixed Strategy Value is subject to minimum amounts required by state law. Nationwide guarantees that
any full surrender of the Fixed Strategy Value will be at least equal to the minimums required by state law. A full surrender of any Index Strategies that offer Index Strategy MNV
will never be less than the Index Strategy MNV.
See "Appendix C: MVA,
Partial Withdrawal, and Surrender Examples" for example calculations.
Index Strategy Earnings can be positive, negative, or equal to zero. How Index Strategy
Earnings are calculated depends on the day of the Strategy Term in which they are calculated. Index Strategy Earnings are calculated differently on a Strategy Term End Date than on any other day during the Strategy Term, as described below.
TERM END INDEX STRATEGY EARNINGS
On a Strategy Term End Date, the Index Strategy Earnings that will be applied to a Strategy are equal to the Index Strategy Basis on the Strategy Term End Date multiplied by the Term End ISE Percentage.
On a Strategy Term End Date, Index Strategy Earnings are always calculated using the Term End ISE Percentage, which differs from Daily Index Strategy Earnings calculated on any other day during the Strategy Term, which uses the Daily ISE
Percentage.
TERM END INDEX STRATEGY EARNINGS PERCENTAGE (TERM END ISE PERCENTAGE)
The Term End ISE Percentage is based on the AIP, which is the percentage gain or loss in the Strategy Value at the end of the Strategy Term, calculated using the Crediting Factors applied to the Index Performance, prior to the application of the
Protection Level.
The Term End ISE Percentage is equal to the greater of the Adjusted Index Performance (AIP)
and the Protection Level minus 100%. The AIP is calculated as the Participation Rate multiplied by the Index Performance less the Strategy Spread multiplied by the Elapsed Term in years. The Index Performance is the change in an Index Value, expressed as a percentage,
between the first day of a Strategy Term and the last day of a Strategy Term.
Term End ISE Percentage Calculation Examples:
The following examples assume an Index Strategy with a 1-year Strategy Term, a Participation Rate of 80%, a Strategy Spread
of 2% and a Protection Level of 95%:
•
If the Index Performance at the end of the Strategy Term is 10%, then the AIP on that date would be 6% (10% Index
Performance x 80% Participation Rate minus 2% Strategy Spread x Elapsed Term of 1). The Term End ISE Percentage would be 6% (the greater of the AIP (i.e., 6%) and the Protection
Level minus 100% (i.e., -5%)).
•
If the Index Performance at the end of the Strategy Term is 1%, then the AIP on that date
would be -1.2% (1% Index Performance x 80% Participation Rate minus 2% Strategy Spread x Elapsed Term of 1). The Term End ISE Percentage would be -1.2% (the greater of the AIP (i.e., -1.2%) and the Protection Level minus 100% (i.e.,
-5%)).
•
If the Index Performance at the end of the Strategy Term is -10%, then the AIP on that date
would be -10% (-10% Index Performance x 80% Participation Rate minus 2% Strategy Spread x Elapsed Term of 1). The Term End ISE Percentage would be -5% (the greater of the AIP (i.e., -10%) and the Protection Level minus 100% (i.e.,
-5%)).
Term End Strategy Earnings Examples
The following examples assume a Strategy Basis of $50,000.
Term End Index Strategy Earnings = Strategy Basis
x Term End ISE Percentage.
•
If the Term End ISE Percentage equals 10%, then the term end Index Strategy Earnings would be
$5,000 ($50,000 x 10%)
•
If the Term End ISE Percentage equals 0%, then the term end Index Strategy Earnings would be $0 ($50,000 x 0%)
•
If the Term End ISE Percentage equals -8%, then the term end Index Strategy Earnings would be -$4,000 ($50,000 x
-8%)
DAILY INDEX STRATEGY EARNINGS
On any Business Day other than the Strategy Term End Date, the Index Strategy Earnings that
will be applied to a Strategy are equal to the Index Strategy Basis on that day multiplied by the Daily ISE Percentage. Daily Index Strategy Earnings are always calculated using the Daily ISE Percentage, which differs from term end Index Strategy Earnings, which
uses the Term End ISE Percentage.
DAILY INDEX STRATEGY
EARNINGS PERENTAGE (DAILY ISE PERCENTAGE)
A Daily ISE Percentage is
calculated separately for each Index Strategy in which Contract Value is allocated. The Daily ISE Percentage is equal to the greater of the floor provided by the Protection Level
(which is the Protection Level minus 100%) and the Daily Pre-Protection Level ISE Percentage.
The Daily Pre-Protection Level ISE Percentage is the percentage of gain or loss in the Index Strategy Value from the start of the Strategy Term to the calculation date prior to applying the Protection Level.
The Daily Pre-Protection Level ISE Percentage is not directly related to the Index
Performance (although performance of the Index impacts the Daily Pre-Protection Level ISE Percentage) and the Daily Pre-Protection Level ISE Percentage may be negative even when the performance of the Index is positive due to market factors that impact the inputs used to value
the hypothetical investment in the derivatives used to calculate the Daily Pre-Protection Level ISE Percentage.
To calculate the Daily Pre-Protection Level ISE Percentage, Nationwide uses a proxy fair
market value methodology to value hypothetical investments in derivatives that provides an estimated present value of what the Term End ISE Percentage will be on the Strategy Term End Date. The estimated present value takes into account the impact of the
applicable Participation Rate and Strategy Spread; however, they do not apply in the same way as they do when
calculating the Term End ISE Percentage.
The Daily Pre-Protection Level ISE Percentage is reduced by an amount reflecting the cost of
instruments used to provide the performance offered by the Contract. At the start of the Strategy Term, this deduction is equal to the cost, on that date, of hypothetical derivatives which provide the Term End Strategy Earnings, and this deduction declines to zero over the
course of the Strategy Term. The Daily Pre-Protection Level ISE Percentage is also reduced by a trading cost, which is an amount intended to represent the additional cost of selling hypothetical options.
The valuation of the hypothetical investments is based on standard methods for valuing
derivatives and, where possible, based on inputs from third party vendors. The methodology used to value these hypothetical investments is determined solely by Nationwide and may vary from other estimated valuations or the actual selling price of identical investments. More
specifically, the Daily Pre-Protection Level ISE Percentage is calculated using the following formula:
A + Fixed Income Proxy – C – 1, defined as follows:
A = A proxy of the fair value, expressed as a percentage, as of the current date, of financial instruments that represent Nationwide’s obligation to provide the Term End ISE Percentage on the Strategy Term End Date
Fixed Income Proxy = (1 – B) ((T – t) / T), where:
B = A proxy of the fair value, expressed as a percentage, as of the first day of the Strategy Term, of financial instruments
that represent Nationwide’s obligation to provide the Term End ISE Percentage on the Strategy Term End Date
t = Time elapsed since the first day of the Strategy Term, in
years
C = trading cost, which is calculated as the greater of:
Zero; or
the trading cost rate (as stated in the Contract) multiplied by
(T-t).
See "Appendix D: Daily Index Strategy Earnings Percentage" for
more information and examples of the Daily ISE Percentage calculation.
MINIMUM NONFORFEITURE VALUE
FIXED STRATEGY MINIMUM NONFORFEITURE VALUE
The Fixed Strategy Minimum Nonforfeiture Value ("Fixed Strategy MNV") is the minimum guaranteed value a Contract Owner is entitled to upon a full surrender of amounts allocated to the Fixed Strategy and upon a full transfer from the
Fixed Strategy to an Index Strategy with a Protection Level less than 100%.
On the Date of Issue, the Fixed Strategy MNV is equal to the Purchase Payment allocated to the Fixed Strategy multiplied by the Nonforfeiture Purchase Payment Factor. The Nonforfeiture Purchase Payment Factor is declared by Nationwide and stated
in your Contract.
After the Date of Issue, the Fixed Strategy MNV
will:
•
increase by the interest credited at the applicable Fixed Strategy Minimum Nonforfeiture Rate;
•
increase by transfers from an Index Strategy that does not offer Index Strategy MNV (the
Nonforfeiture Purchase Payment Factor is applied to the Index Strategy Value transferred to the Fixed Strategy);
•
increase by transfers from an Index Strategy that offers Index Strategy MNV (Index Strategy MNV times the ratio of the Index
Strategy Value being transferred from the Index Strategy that offers Index Strategy MNV divided by the total Index Strategy Value of Index Strategies that offer Index Strategy
MNV);
•
decrease by transfers to an Index Strategy that does not offer Index Strategy MNV (the Fixed Strategy MNV is reduced by the
Strategy Value transferred);
•
decrease by transfers to an Index Strategy that offers Index Strategy MNV (Fixed Strategy MNV
times the ratio of the Fixed Strategy Value being transferred divided by the total Fixed Strategy Value); and
•
decrease by the amount of any withdrawals from the Fixed Strategy.
If the Fixed Strategy Value is zero, the Fixed Strategy MNV is zero. The Fixed Strategy MNV
can never be less than zero.
See the Examples below for how the Fixed
Strategy MNV is calculated.
The Fixed Strategy MNV may be greater than or
less than both the Surrender Value attributable to the Fixed Strategy prior to applying the MNV or the amount of the full transfer out of the Fixed Strategy prior to applying the
MNV.
Upon a full transfer out of Fixed Strategy, the following occurs:
1) For amounts transferred to Index Strategies that do not have a 100% Protection Level, the amount transferred will be the greater of the Fixed Strategy Value applied proportionately and the Fixed Strategy MNV, applied
proportionately.
2) For amounts transferred to an Index Strategy with a 100% Protection Level, the amount transferred will be the Fixed
Strategy Value, applied proportionately, and the amount transferred to the Index Strategy MNV will be the Fixed Strategy MNV, applied proportionately.
See "Appendix C: MVA, Partial Withdrawal, and Surrender Examples" for example
calculations.
Any paid-up annuity, cash Surrender Value or Death Benefit
that may become payable from the Fixed Strategy will never be less than the minimum benefits required by applicable state law.
The Fixed Strategy Minimum Nonforfeiture Rate(s) is the interest rate(s) used to calculate
the Fixed Strategy Minimum Nonforfeiture Value. The initial Fixed Strategy Minimum Nonforfeiture Rate is stated in your Contract. Thereafter, the Fixed Strategy Minimum Nonforfeiture Rate is recalculated on each Redetermination Date. The Fixed Strategy Minimum Nonforfeiture
Rate will be at least the average of the weekly 5-year Constant Maturity Treasury rate for the calendar quarter, excluding the last week (rounded to the nearest 1/20th of 1%),
preceding the Date of Issue or a Redetermination
Date minus 1.25%, but it will never be greater
than 3.0%, nor will it be less than the minimum required by applicable state law. The Fixed Strategy Minimum Nonforfeiture Rate may be equal to or greater than the minimum
nonforfeiture rate used to calculate an Index Strategy Minimum Nonforfeiture Value.
Examples of Fixed Strategy MNV
The following examples assume that the Nonforfeiture Purchase Payment Factor is 87.5%.
Example 1—Fixed Strategy MNV on the Date of
Issue
Assume the purchase payment is $100,000 and
$20,000 is allocated to the Fixed Strategy.
On the Date
of Issue, the Fixed Strategy MNV is calculated as (87.5% x $20,000), which is $17,500.
Example 2—Partial Transfer out of the Fixed
Strategy on the Contract Anniversary
Assume the
following on a Contract Anniversary:
•
All money is in the Fixed Strategy
•
The Fixed Strategy Value is $10,000
•
The Fixed Strategy MNV is $11,000
•
The Contract Owner transfers $3,000 of Strategy Value from the Fixed Strategy to an Index
Strategy with a 90% Protection Level.
•
The Contract Owner transfers $2,000 of Strategy Value from the Fixed Strategy to an Index Strategy with a 100% Protection
Level.
Then the Fixed Strategy MNV is decreased by the following:
•
The Index Strategy with a 90% Protection Level does not offer Index Strategy MNV. For the transfer to that Strategy, the
Fixed Strategy MNV is reduced by $3,000 (i.e., the Strategy Value transferred)
•
The Index Strategy with a 100% Protection Level does offer Index Strategy MNV. For the
transfer to that Strategy, the Fixed Strategy MNV is reduced by $2,200. (This is calculated as $11,000 x $2,000 / $10,000, where $11,000 is the Fixed Strategy MNV, and $2,000 / $10,000 represents the proportion of the Fixed Strategy Value that is transferred to
the Index Strategy with a 100% Protection Level.)
The resulting Fixed Strategy MNV is $5,800 (i.e., $11,000 - $3,000 - $2,200).
The Strategy Values are impacted as follows:
The Fixed Strategy Value is decreased by the amount of Strategy Value transferred out and the resulting Fixed Strategy Value
is $5,000 (i.e., $10,000 - $3,000 - $2,000).
The
Strategy Value for the Index Strategy with a 90% protection Level is increased by $3,000. The Fixed Strategy MNV is not reflected since there was not a full transfer out of the
Fixed Strategy.
The Strategy Value for the Index
Strategy with a 100% protection Level is increased by $2,000.
Example 3—Full Transfer out of the Fixed Strategy on the Contract Anniversary
Assume the following on a Contract Anniversary:
•
All money is in the Fixed Strategy
•
The Fixed Strategy Value is $10,000
•
The Fixed Strategy MNV is $11,000
•
The Contract Owner elects a full transfer out of the Fixed Strategy as follows:
•
The Contract Owner transfers $6,000 of Strategy Value from the Fixed Strategy to an Index
Strategy with a 90% Protection Level.
•
The Contract Owner transfers $4,000 of Strategy Value from the Fixed Strategy to an Index Strategy with a 100% Protection
Level.
Because this is a full transfer out of the Fixed Strategy, the Fixed Strategy Value and Fixed Strategy MNV will be zero after the transfer.
The Index Strategy MNV is increased by $4,400.
(This is calculated as $11,000 x $4,000 / $10,000, where $11,000 is the Fixed Strategy MNV, and $4,000 / $10,000 represents the proportion of the Fixed Strategy Value that is
transferred to the Index Strategy with a 100% Protection Level.)
The Strategy Values are impacted as follows:
Because there is a full transfer out of the Fixed Strategy, the increase in Strategy Value for the Index Strategy with a 90%
protection Level is calculated as the greater of the following:
•
$6,000 (This is the amount of Strategy Value transferred)
•
$6,600 (This is the portion of the Fixed Strategy MNV allocated to the Index Strategy with a
90% protection level. It is calculated as $11,000 x $6,000 / $10,000, where $11,000 is the Fixed Strategy MNV, and $6,000 / $10,000 represents the proportion of the Fixed Strategy Value that is transferred to the Index Strategy with a 90% Protection
Level.)
As a result, the Strategy Value for the Index Strategy with a 90% Protection Level is increased by $6,600 and the Strategy
Value for the Index Strategy with a 100% Protection Level is increased by $4,000.
See "Appendix C: MVA, Partial Withdrawal, and Surrender Examples" for an example of the impacts of a full surrender out of
the Fixed Strategy on the Contract Anniversary.
INDEX STRATEGY MINIMUM NONFORFEITURE VALUE
The Index Strategy Minimum Nonforfeiture Value ("Index Strategy MNV") is the minimum value a Contract Owner is entitled to
upon a full surrender of the Contract Value allocated to all Index Strategies with a 100% Protection Level and upon a full transfer out of all Index Strategies with a 100%
Protection Level to an Index Strategy(ies) that does not offer an Index Strategy MNV.
On the Date of Issue, the Index Strategy MNV is equal to the total Purchase Payment allocated to all Index Strategies with 100% Protection Levels, multiplied by the Nonforfeiture Purchase Payment Factor as stated in the Contract.
After the Date of Issue, the Index Strategy MNV will:
•
increase by interest credited at the applicable Index Strategy Minimum Nonforfeiture
Rate;
•
increase by transfers from an Index Strategy that does not offer Index Strategy MNV (the Nonforfeiture Purchase Payment
Factor is applied to the Index Strategy Value transferred to the Index Strategy offering Index Strategy MNV);
•
increase by transfers from the Fixed Strategy (Fixed Strategy MNV times the ratio of the Fixed Strategy Value being
transferred divided by the total Fixed Strategy Value);
•
decrease by transfers to an Index Strategy that does not offer Index Strategy MNV (the Index
Strategy MNV is reduced by the Strategy Value transferred);
•
decrease by transfers to the Fixed Strategy (Index Strategy MNV times the ratio of the Index Strategy Value that offers
Index Strategy MNV being transferred divided by the total Index Strategy Value of Index Strategies that offer Index Strategy MNV); and
•
decrease by the amount of any withdrawals from Index Strategies with a 100% Protection
Level.
If the Index Strategy Value of all Index Strategies that offer Index Strategy MNV is zero, the Index Strategy MNV is zero. The Index Strategy MNV can never be less than zero.
See the Examples below for how the Index Strategy MNV is calculated.
The Index Strategy MNV may be greater than or less than both the Surrender Value attributable to those Index Strategies that
offer Index Strategy MNV before applying the Index Strategy MNV or the amount of the full transfer out of it before applying the Index Strategy MNV.
Upon a full transfer out of Index Strategy(ies) with a 100% Protection Level, the following
occurs:
1) For amounts transferred to Index Strategies
that do not have a 100% Protection Level, the Strategy Value transferred into the Index Strategies that do not have a 100% Protection Level will be the greater of the Index Strategy Value applied proportionately and the Index Strategy MNV, applied proportionately.
2) For amounts transferred to the
Fixed Strategy, the Strategy Value transferred into the Fixed Strategy will be the Index Strategy Value, applied proportionately, and the amount transferred to the Fixed Strategy
MNV will be the Index Strategy MNV, applied proportionately.
Upon full surrender of all Index Strategies that offer Index Strategy MNV, the Contract Owner will receive the greater of
the portion of the Surrender Value attributable to those Strategies, or the Index Strategy Minimum Nonforfeiture Value. See "Appendix C: MVA, Partial Withdrawal, and Surrender Examples" for example calculations.
Any paid-up annuity, cash Surrender Value or Death Benefit that may become payable from any Index Strategies that offer Index Strategy MNV will never be less than the Index Strategy MNV.
The Index Strategy Minimum Nonforfeiture Rate(s) is the interest rate(s) used to calculate the Index Strategy Minimum
Nonforfeiture Value. The Index Strategy Minimum Nonforfeiture Rate is calculated on the Date of Issue and on each
Redetermination Date. The initial Index Strategy Minimum Nonforfeiture Rate is stated in the Contract. The Index Strategy Minimum Nonforfeiture Rate may be equal to or less than the Fixed Strategy Minimum Nonforfeiture Rate, but will not be less
than the minimum rate required by applicable state law.
Examples of Index Strategy MNV
The following examples assume that the Nonforfeiture Purchase Payment Factor is 87.5%.
Example 1—On the Date of Issue
Assume the Purchase Payment is $100,000 and $30,000 is allocated to
Index Strategies that offer Minimum Nonforfeiture Values (i.e., Index Strategies with a 100% Protection Level).
On the Date of Issue, the Index Strategy MNV is $26,250, calculated as
(87.5% x $30,000)
Example
2— Partial Transfer Out of Index Strategy with MNV on the Contract Anniversary
Assume the following on a Contract Anniversary:
•
All money is in Index Strategy B with a 100% Protection Level
•
The Strategy Value for Strategy B is $12,000
•
The Index Strategy MNV is $11,000
•
The Contract Owner transfers $4,000 of Strategy Value from Index Strategy B to an Index Strategy with a 90% Protection
Level.
•
The Contract Owner also transfers $3,000 of Strategy Value from Index Strategy B to the Fixed
Strategy.
Then the Index Strategy MNV is decreased by the following:
•
The Index Strategy with a 90% Protection Level does not offer Index Strategy MNV. For the transfer to that Strategy, the
Index Strategy MNV is reduced by $4,000 (i.e., the Strategy Value transferred).
•
The Fixed Strategy offers Index Strategy MNV. For the transfer to that Strategy, the Index
Strategy MNV is reduced by $2,750. (This is calculated as $11,000 x $3,000 / $12,000, where $11,000 is the Index Strategy MNV, and $3,000 / $12,000 represents the proportion of the Strategy Value for Strategy B that is transferred to the Fixed
Strategy.)
The resulting Index Strategy MNV is $4,250 ($11,000 - $4,000 - $2,750)
Example 3 - Full Transfer out of Index Strategy with MNV on the
Contract Anniversary
Assume the following on a Contract
Anniversary:
•
All money is in Index Strategy B with a 100% Protection Level
•
The Strategy Value for Strategy B is $12,000
•
The Index Strategy MNV is $11,000
•
The Contract Owner elects a full transfer out of Index Strategy B as follows:
•
The Contract Owner transfers $8,400 of Strategy Value from Index Strategy B to an Index Strategy with a 90% Protection
Level.
•
The Contract Owner transfers $3,600 of Strategy Value from Index Strategy B to the Fixed
Strategy.
Because this is a full transfer
out of Index Strategies which offer an Index Strategy MNV, the Index Strategy MNV will be zero after the transfer.
The Fixed Strategy MNV is increased by $3,300. (This is calculated as
$11,000 x $3,600 / $12,000, where $11,000 is the Index Strategy MNV, and $3,600 / $12,000 represents the proportion of the Index Strategy Value for Index Strategies with a 100% Protection Level that is transferred to the Fixed Strategy)
The Strategy Values are impacted as follows:
Because there is a full transfer out of the Index Strategies with a 100%
Protection Level, the increase in Strategy Value for the Index Strategy with a 90% Protection Level is calculated as the greater of the following:
•
$8,400 (This is the amount of Strategy Value transferred)
•
$7,700 (This is the portion of the Index Strategy MNV allocated to the Index Strategy with a 90% Protection Level. It is
calculated as $11,000 x $8,400 / $12,000, where $11,000 is the Fixed Strategy MNV, and $8,400 / $12,000 represents the proportion of the Index Strategy Value for Index Strategies
with a 100% Protection Level that is transferred to the Index Strategy with a 90% Protection Level.)
As a result, the Strategy Value for the Index Strategy with a 90% Protection
Level is increased by $8,400.
The Strategy Value for the
Fixed Strategy is increased by $3,600.
See "Appendix C: MVA, Partial
Withdrawal, and Surrender Examples" for an example of the impacts of a full surrender out of the Fixed Strategy on the Contract Anniversary.
The Contract Owner may take a partial withdrawal or full surrender of the Contract at any time prior to the Annuitization
Date or the death of the Annuitant. Withdrawals from the Contract may be subject to a CDSC and MVA. Withdrawals from the Contract may also be subject to federal income tax and/or a tax penalty (see "Contract Types and Federal Tax
Considerations").
On any day other than the Strategy Term End Date, Nationwide uses the Daily ISE Percentage to calculate Index Strategy
Earnings, which may result in losses even when the performance of the Index has increased since the beginning of the Strategy Term. These losses are realized when a partial withdrawal or full surrender is taken. See "Daily Index Strategy
Earnings Percentage (Daily ISE Percentage)" and "Appendix D: Daily Index Strategy Earnings Percentage."
The Contract Owner must submit a request for a partial withdrawal or full surrender to the
Service Center. Nationwide will not process a request until it is received by Nationwide in good order. Nationwide will not consider the request to be in good order unless the request (i) is in writing or another form that Nationwide deems acceptable and (ii) includes all the
information necessary for Nationwide to process the request. For a partial withdrawal, the withdrawal must be at least $100. Nationwide reserves the right to require that the signature(s) associated with any partial withdrawal or full surrender
request be guaranteed by a qualifying institution or other firm qualified to give such a guaranty.
Nationwide has the right to suspend or delay the date of any partial withdrawal or full
surrender payment when the partial withdrawal or full surrender request is in a form that is not acceptable to Nationwide. Nationwide further reserves the right to delay payment of a partial withdrawal or full surrender for up to six months from the date the request is received by
Nationwide, subject to regulatory approval.
When Nationwide receives a completed partial withdrawal or full surrender request (including all information necessary for
Nationwide to process the partial withdrawal or full surrender), Nationwide will process the request by deducting the amount requested from the Contract Value. The amount received by the Contract Owner will be equal to the amount of the
partial withdrawal or full surrender requested, minus any applicable CDSC and any applicable taxes (including premium taxes), plus any applicable MVA.
Partial withdrawals will be taken proportionally from the Strategies in which the Contract
Owner is allocated based on the Contract Value in the Strategies at the time of the request. In addition, partial withdrawals reduce the Index Strategy Basis in the same proportion that the partial withdrawal reduces the Index Strategy’s Index Strategy Value on the date the partial withdrawal occurs. When the Index Strategy Basis is greater than the Index Strategy Value at the time of a withdrawal, a
proportional reduction will reduce the Index Strategy Basis by more than the dollar amount of the withdrawal.
If a full surrender of the Contract is requested, the Contract Owner will receive the
Surrender Value. See "Surrender Value." A full surrender terminates the Contract.
For tax purposes, a withdrawal will be treated as
a withdrawal of earnings first.
PARTIAL WITHDRAWAL TREATED AS
A FULL SURRENDER
Nationwide may treat a request for a partial withdrawal
as a request for a full surrender of the Contract if: (a) the partial withdrawal would reduce the Contract Value to an amount less than $5,000; and (b) the Purchase Payment minus
the sum of any withdrawals is less than $5,000.
The Contract Owner may elect in writing on a form provided by Nationwide to take systematic withdrawals of a specified
dollar amount on a monthly, quarterly, semi-annual, or annual basis. The minimum withdrawal amount allowed for this type of systematic transaction is $100. A CDSC and MVA may apply to systematic withdrawals. Unless otherwise instructed,
Nationwide will withhold federal income taxes from each systematic withdrawal. Systematic withdrawals will be taken proportionally from Strategies in which the Contract Owner is allocated based on the Contract Value in the Strategies at the
time of the systematic withdrawal. Systematic withdrawals may be discontinued at any time by notification to Nationwide in writing or other form acceptable to
Nationwide.
Systematic withdrawals are not available prior to the
expiration of the Right to Examine and Cancel period. See "Right to Examine and Cancel."
DEATH BENEFIT AND SUCCESSION RIGHTS
DEATH PRIOR TO ANNUITIZATION
Death of Contract Owner who is not the Annuitant
If the deceased Contract Owner (or Joint Owner) is not an Annuitant, and the deceased Contract Owner (or Joint Owner) dies before the Annuitization Date while the Contract is in force, no Death Benefit is payable. Under such circumstances,
contractual rights under the Contract will succeed as follows:
1)
Contract Owner / Joint Owner. If there is a surviving Contract Owner or Joint Owner, the
survivor becomes the sole Contract Owner. The Contract otherwise continues uninterrupted.
2)
Beneficiary(ies). If
there is no surviving Contract Owner or Joint Owner, the Beneficiary(ies) becomes (become) the new contract owner for purposes of the Code.
3)
Contingent
Beneficiary(ies). If there is no surviving Beneficiary, the Contingent Beneficiary(ies) becomes (become) the new contract owner for purposes of the Code.
4)
Last Surviving
Contract Owner's or Joint Owner’s Estate. If there is no surviving Contingent Beneficiary, the estate of the last surviving Contract Owner or Joint Owner becomes the new
Contract Owner.
Death of Contract Owner who is the Annuitant
If the deceased Contract Owner (or Joint Owner) is an Annuitant, and the deceased Contract Owner (or Joint Owner) dies
before the Annuitization Date while the Contract is in force, the Death Benefit may or may not become payable depending on whether there is a Contingent Annuitant.
If there is Contingent Annuitant, the Contingent Annuitant takes the place of the deceased
Annuitant under the Contract and no Death Benefit is payable. There will no longer be a Contingent Annuitant under the Contract.
If there is no Contingent Annuitant, the Death Benefit becomes payable. Rights to the Death
Benefit will be as follows:
1)
Contract Owner / Joint
Owner. If there is a surviving Contract Owner or Joint Owner, the survivor is entitled to the Death Benefit.
2)
Beneficiary(ies). If there is no surviving Contract Owner or Joint Owner, the Beneficiary(ies)
is (are) entitled to the Death Benefit.
3)
Contingent Beneficiary(ies). If there is no surviving Beneficiary, the Contingent
Beneficiary(ies) is (are) entitled to the Death Benefit.
4)
Last Surviving
Contract Owner's or Joint Owner’s Estate. If there is no surviving Contingent Beneficiary, the estate of the last surviving Contract Owner or Joint Owner is entitled to the
Death Benefit.
Death of Annuitant who is not the Contract Owner
If the deceased Annuitant is not the Contract Owner (or Joint Owner), and the deceased Annuitant dies before the
Annuitization Date while the Contract is in force, the Death Benefit may or may not become payable depending on
whether there is a Contingent Annuitant.
If there is a Contingent Annuitant, the Contingent Annuitant takes the place of the deceased
Annuitant under the Contract and no Death Benefit is payable. The Contract otherwise continues without interruption and there will no longer be a Contingent Annuitant under the Contract.
If there is no Contingent Annuitant, the Death Benefit becomes payable. Rights to the Death
Benefit will be as follows:
1)
Beneficiary(ies). The
Beneficiary(ies) is (are) entitled to the Death Benefit.
2)
Contingent Beneficiary(ies). If there is no surviving Beneficiary, the Contingent
Beneficiary(ies) is (are) entitled to the Death Benefit.
DEATH AFTER ANNUITIZATION
After the Annuitization Date, under no circumstances will the Death Benefit become payable.
All payments under the Contract depend on the annuity payment option selected.
PAYMENT OF THE DEATH BENEFIT
When the Death Benefit becomes payable, Nationwide will not pay the Death Benefit until it
receives in writing at the Service Center each of the following:
•
Instructions regarding the method of distribution; and
•
Any forms required by a state or other jurisdiction.
Proper proof of death includes:
•
A certified copy of the death certificate of the deceased Annuitant;
•
A copy of a certified decree of a court of competent jurisdiction as to the finding of death;
•
A written statement by a medical doctor who attended the deceased; or
•
Any other proof of death that we deem acceptable.
The methods of distribution depend on the person (or people) to whom the Death Benefit will be paid. Under all circumstances, the method of distribution selected must comply with any applicable requirements under the Code.
The following applies to the payment of the Death Benefit:
1)
If the person entitled to receive the Death Benefit is the surviving spouse of the deceased
Contract Owner, the surviving spouse can do one of the following:
a.
Elect to receive their portion of the Death Benefit as a lump sum;
b.
Elect to receive their
portion of the Death Benefit as an annuity;
c.
Elect to receive their portion of the Death Benefit as any distribution that is permitted by
state and federal regulations and is acceptable to Nationwide; or
d.
Elect to continue the Contract with his or her portion of the Death Benefit and become the new
Contract Owner.
2)
For any other person(s) entitled to receive the Death Benefit, he or she can do one of the
following:
a.
Elect to receive their portion of the Death Benefit as a lump sum;
b.
Elect to receive their
portion of the Death Benefit as an annuity; or
c.
Elect to receive their
portion of the Death Benefit as any distribution that is permitted by state and federal regulations and is acceptable to Nationwide.
Premium taxes may be deducted from
the Death Benefit.
If the Contract has more than one Beneficiary entitled
to the Death Benefit, the Contract Value will continue to be allocated to the applicable Strategies until the first Beneficiary provides Nationwide with all the information
necessary to pay that Beneficiary’s portion of the Death Benefit. At the time the first Beneficiary’s proceeds are paid, the remaining portion(s) of the Death Benefit that is allocated to the Strategies will be reallocated to the Fixed Strategy until instructions are received from the remaining Beneficiary(ies).
Except for a surviving spouse that is continuing the Contract, if any Beneficiary entitled to
receive the Death Benefit elects to continue the Contract as the new contract owner or becomes a beneficial owner of the Contract, the Beneficiary’s entire portion of the Death Benefit will be automatically reallocated to the Fixed Strategy. This reallocation to the Fixed Strategy
will occur on the date the Beneficiary’s election is received in good order. The Fixed Strategy’s Strategy Term will begin on the date the Beneficiary’s portion of the Death Benefit is reallocated to the Fixed Strategy. For as long as Nationwide
declares Fixed Strategy Rates for new business, the Fixed Strategy Rate will be the new business Fixed Strategy Rate in effect on the date the Beneficiary’s portion of the Death Benefit is reallocated to the Fixed Strategy. If Nationwide no
longer declares new business Fixed Strategy Rates, Nationwide will declare Fixed Strategy Rates for beneficially owned contracts at its sole discretion which are guaranteed to be at least 0.25%.
For a surviving spouse that continues the Contract under the Spousal Protection Feature, see
"Spousal Protection Feature" below. A surviving spouse that is continuing the Contract under the Spousal Protection Feature will not be reallocated to the Fixed Strategy as described above.
CALCULATION OF THE DEATH BENEFIT
Prior to the Annuitization Date while the Contract is in force, the dollar amount of the Death Benefit will be determined as
follows:
1)
On the date the application for the Contract is signed, if the age of the Annuitant and
Co-Annuitant, if applicable, is less than or equal to age 75, then the Death Benefit will be the greater of the Contract Value or the total Purchase Payment made to the Contract reduced by any withdrawals in the proportion that such withdrawals reduced the
Contract Value on the date of the withdrawal. On the date the Death Benefit is payable, the Contract Value is adjusted to equal the greater of the Contract Value on that date or
the Purchase Payment reduced by a proportional adjustment for any partial withdrawals. This adjustment to the Contract Value is considered payment of the Death Benefit. Unless a surviving spouse is continuing the Contract under the Spousal Protection Feature (see
"Spousal Protection Feature"), the Death Benefit will be paid in accordance with the "Payment of the Death Benefit" section.
2)
On the date the
application for the Contract is signed, if the age of either the Annuitant or Co-Annuitant is greater than age 75, then the Death Benefit will be the Contract Value.
After the Death Benefit is paid, partial withdrawals or a full surrender are not subject to a CDSC or MVA.
Impact of Ownership Changes and Assignment on the Death Benefit
If the Contract Owner is changed, or if the Contract is assigned, prior to the Death Benefit
becoming payable, the Death Benefit will equal the Surrender Value, except in any of the following circumstances:
1)
The new Contract Owner or assignee assumes full ownership of the Contract. We reserve the
right to determine when such circumstances occur in our sole discretion. Examples of such circumstances may include (a) when ownership is transferred from an individual to a revocable trust for the benefit of the same individual; (b) when ownership
changes due to a change in a Contract Owner’s spouse; or (c) when ownership changes because there is a change to a court appointed guardian representing the Contract Owner
during the Contract Owner’s lifetime.
2)
Ownership of a
Contract as an IRA or Roth IRA is being changed from one custodian to another, from the Contract Owner to a custodian, or from a custodian to the Contract Owner.
3)
The assignment is for the purpose of effectuating an exchange pursuant to Section 1035 of the
Code.
4)
The change is the
removal of a Contract Owner or Joint Owner when the Contract is jointly owned.
SPOUSAL PROTECTION
FEATURE
The Death Benefit includes a Spousal Protection Feature at no additional
charge. The Spousal Protection Feature is not available for contracts issued as Charitable Remainder Trusts. The Spousal Protection Feature allows the surviving spouse to continue the contract while receiving any economic benefit of the Death Benefit upon the death of the other
spouse. When the surviving spouse continues the Contract under the Spousal Protection Feature, the Contract will remain allocated to the same Strategies through the end of the current Strategy Terms, and the Death Benefit will not be
automatically reallocated to the Fixed Strategy. After the first Death Benefit is paid, neither CDSC nor MVA will apply to any partial withdrawal or a full surrender. Upon the death of the surviving spouse, provided such death occurs before the
Annuitization Date, the Death Benefit will again become payable.
The Spousal Protection Feature is available provided the conditions described below are satisfied:
1)
One or both spouses (or a revocable trust of which either or both of the spouses is/are
grantor(s)) must be named as the Contract Owner. For contracts issued as an IRA or Roth IRA, only the person for whom the IRA or Roth IRA was established may be named as the Contract Owner;
2)
The spouses must be Annuitant and Co-Annuitant;
3)
On the date the
application is signed, both spouses must be age 85 or younger;
4)
Both spouses must be named as Beneficiaries;
5)
No person other than
the spouse may be named as Contract Owner, Annuitant, Contingent Annuitant, or primary beneficiary;
6)
If both spouses are alive upon Annuitization, the Contract Owner must specify which spouse is
the Annuitant upon whose continuation of life any annuity payments involving life contingencies depend (for an IRA or Roth IRA contract, this person must be the Contract Owner); and
7)
If the Contract Owner requests to add a Co-Annuitant after the Date of Issue, the date of
marriage must be after the Date of Issue and Nationwide will require the Contract Owner to provide a copy of the marriage certificate. In addition, the Co-Annuitant that is added must have been no older than age 85 on the date the application was
signed.
If a surviving spouse continues the contract under the Spousal Protection Feature, then all Strategies remain in their
current Strategy Term, and on the date the Death Benefit is payable, the Contract Value is adjusted as follows:
•
If the Contract Value is greater than or equal to the Death Benefit, no adjustment is made to
the Contract Value.
•
If the Death Benefit is greater than the Contract Value, then the Contract Value will be
increased to equal the Death Benefit. The increase to each Strategy’s Strategy Value will be made proportionally based on the Contract Value in the Strategies at the time the adjustment is made. Additionally, each Index Strategy’s Strategy Basis, as
defined in the Index Strategy Endorsement, will increase by the same percentage that the Strategy Value
increased due to this adjustment.
The process described above is
considered payment of the first Death Benefit. Thereafter, the Contract Value may increase or decrease, and partial withdrawals or a full surrender are not subject to a CDSC. The
surviving spouse may then name a new Beneficiary but may not name another Co-Annuitant. If the surviving spouse dies before the Annuitization Date, the second Death Benefit becomes payable.
If the marriage of the Annuitant and Co-Annuitant terminates due to divorce, dissolution, or annulment, the Spousal
Protection Feature terminates, and the Contract Owner is not permitted to cover a subsequent spouse.
The Spousal Protection Feature may not apply if certain changes to the parties or assignments are made to the Contract. Contract Owners contemplating changes to the parties to the Contract, including assignments, should contact their financial
professional to determine how the changes impact the Spousal Protection Feature.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date on which annuity payments are scheduled to begin. Generally, the Contract Owner
designates the Annuity Commencement Date at the time of application. If no Annuity Commencement Date is designated at the time of application, Nationwide will establish the Annuity
Commencement Date as the date the
Annuitant reaches age 90. The Contract Owner may
initiate a change to the Annuity Commencement Date at any time. Additionally, Nationwide will notify the Contract Owner approximately 90 days before the impending Annuity Commencement Date of the opportunity to change the Annuity Commencement Date or Annuitize the Contract.
Any request to change the Annuity Commencement Date must meet the following requirements:
•
the request is made prior to the Annuitization Date;
•
the requested date is at least two years after the Date of Issue;
•
the requested date is not later than the first day of the first calendar month after the
Annuitant’s 115th birthday unless approved by Nationwide; and
•
the request for change is made in writing, submitted to the Service Center and approved by
Nationwide.
Generally, Nationwide will not initiate Annuitization until specifically directed to do so. However, for Non-Qualified Contracts only, Nationwide will automatically initiate Annuitization within 45 days after the Annuity Commencement Date (whether
default or otherwise), unless (1) Nationwide has had direct contact with the Contract Owner (indicating that the contract is not abandoned); or (2) the Contract Owner has taken some type of action which is inconsistent with the desire to
annuitize.
Annuitization is the period during which annuity payments are received. Annuitization is irrevocable once annuity payments
have begun. Upon the Annuitization Date, the Annuitant must elect an annuity payment option.
Annuity purchase rates are used to determine the amount of the annuity payments based upon the annuity payment option
elected. Actual purchase rates used to determine annuity payments will be those in effect on the Annuitization Date. Annuity benefits at the time of their commencement will not be
less than those that would be provided by the application of the Surrender Value to purchase a single premium immediate annuity contract at purchase rates offered by Nationwide at the time to the same class of annuitants.
Any optional death benefit that the Contract Owner elects will automatically terminate upon Annuitization.
Fixed annuity payments provide for level annuity payments. Premium taxes are deducted prior to determining fixed annuity
payments. The fixed annuity payments will remain level unless the annuity payment option provides otherwise.
Lump sum annuity payment options are not available.
Frequency and Amount of Payments
Annuity payments are based on the annuity payment option elected.
Nationwide reserves the right to change the frequency of payments if the amount of any
payment becomes less than $100. The payment frequency will be changed to an interval that will result in payments of at least $100. Nationwide will send annuity payments no later than 10 Business Days after each annuity payment date.
The Annuitant must elect an annuity payment option before the Annuitization Date. If no
annuity payment option is selected prior to the latest possible Annuitization Date, we will automatically set it as either 1) a fixed Single Life Annuity With 240 Monthly Payments Guaranteed or 2) a fixed Single Life Annuity With Term Certain with a guaranteed period of
payments equal to the annuitant's life expectancy, calculated using the prevailing annuity valuation mortality table at the time of annuitization, whichever is available on the Annuitization Date. Once an annuity payment option is selected, whether
by the Annuitant or automatically by Nationwide, it may not be changed. All annuity payments are paid on a fixed basis.
Not all of the annuity payment options may be available in all states. Additionally, the
annuity payment options available may be limited based on the Annuitant’s age (and the joint annuitant’s age, if applicable) or requirements under the
Code.
Nationwide reserves the right to
refuse any purchase payment that would result in the cumulative total for all contracts issued by Nationwide on the life of any one Annuitant or owned by any one
Contract Owner to exceed $1,000,000. If a Contract Owner does not submit purchase payments in
excess of $1,000,000, or if Nationwide has refused to accept purchase payments in excess of $1,000,000, the references in this provision to purchase payments in excess of $1,000,000 will not apply. If the Contract Owner is permitted to submit purchase payments in excess of $1,000,000,
additional restrictions apply, as follows.
Annuity Payment
Options for Contracts with Total Purchase Payments and/or Contract Value Annuitized Less Than or Equal to $2,000,000
If, at the Annuitization Date, the total of the purchase payment made to the contract and/or
the Contract Value annuitized is less than or equal to $2,000,000, the annuity payment options currently available are:
•
Joint and survivor; and
•
Single life with a 10-year or 20-year term certain.
Each of the annuity payment options is discussed more thoroughly below. Other annuity payment
options may be made available, and the available options may change.
The single life annuity payment option provides for annuity payments to be paid during the lifetime of the Annuitant. This option is not available if the Annuitant is 86 or older on the Annuitization Date.
Payments will cease with the last payment before the Annuitant’s death. For example, if the Annuitant dies before the second annuity payment date, the Annuitant will receive only one payment. The Annuitant will only receive two annuity
payments if he or she dies before the third payment date, and so on. No death benefit will be paid.
No withdrawals other than the scheduled annuity payments are
permitted.
The joint and survivor annuity payment option provides for annuity payments
to continue during the joint lifetimes of the Annuitant and joint annuitant. After the death of either the Annuitant or joint annuitant, payments will continue for the life of the survivor. This option is not available if the Annuitant or joint annuitant is 86 or older on the Annuitization
Date.
Payments will cease with the last payment due prior to the death of the last survivor of the Annuitant and joint annuitant.
As is the case of the single life annuity payment option, there is no guaranteed number of payments. Therefore, it is possible that if the Annuitant dies before the second annuity
payment date, the Annuitant will receive only one annuity payment. No death benefit will be paid.
No withdrawals other than the scheduled annuity payments are
permitted.
Single Life with a 10-Year or 20-Year Term
Certain
The single life with a 10-year or 20-year term
certain annuity payment option provides that monthly annuity payments will be paid during the Annuitant’s lifetime or for the term selected, whichever is longer. The term may
be either 10 or 20 years.
If the Annuitant dies before the end of the 10-year or 20-year term, payments will be paid to the beneficiary for the
remainder of the term.
No withdrawals other than the scheduled annuity payments are permitted.
Notwithstanding any other provision, if the life expectancy of a 65-year-old has increased by 3 or more years using the
prevailing annuity valuation mortality table at the time of annuitization compared to the life expectancy using the Annuity 2012 Basic Mortality table, the available annuity payment options may be limited to a single life annuity with a term certain
equal to the Annuitant's life expectancy or a joint life annuity with term certain equal to the longer of the Annuitant's or Joint Annuitant's life expectancy.
Any Other Option
Annuity payment options not set forth in this provision may be available. Any annuity payment
option not set forth in this provision must be approved by Nationwide.
Annuity Payment Options for Contracts with Total Purchase Payments and/or Contract Value Annuitized Greater Than $2,000,000
If, at the Annuitization Date, the total of the purchase payment made to the contract and/or the Contract Value to be
annuitized is greater than $2,000,000, Nationwide may limit the available annuity payment option to a fixed Single Life Annuity with a guaranteed period of payments equal to the annuitant’s life expectancy, calculated using the prevailing
annuity valuation mortality table at the time of annuitization.
ANNUITIZATION OF AMOUNTS GREATER THAN $5,000,000
Additionally, Nationwide may limit the amount that may be annuitized on a single life to $5,000,000. If the total amount to
be annuitized is greater than $5,000,000 under this contract and/or for all Nationwide issued annuity contracts with the same Annuitant, the Contract Owner must:
1)
reduce the amount to be annuitized to $5,000,000 or less by taking a partial withdrawal from
the Contract;
2)
reduce the amount to be annuitized to $5,000,000 or less by exchanging the portion of the
Contract Value in excess of $5,000,000 to another annuity contract; or
3)
annuitize the portion of the Contract Value in excess of $5,000,000 under an annuity payment
option with a term certain, if available.
CONTRACT TYPES AND FEDERAL TAX
CONSIDERATIONS
The contracts described in this prospectus are classified according to the tax treatment to
which they are subject under the Code. Following is a general description of the various contract types. Eligibility requirements, tax benefits (if any), limitations, and other features of the contracts will differ depending on contract type.
A Non-Qualified Contract is a contract that does not qualify for certain tax benefits under the Code, such as deductibility of purchase payments, and which is not an IRA, Roth IRA, SEP IRA, Simple IRA, or part of a pension plan or employer-sponsored
retirement program.
Upon the death of the owner of a Non-Qualified
Contract, mandatory distribution requirements are imposed to ensure distribution of the entire balance in the contract within a required period.
Non-Qualified Contracts that are owned by natural persons allow the deferral of taxation on
the income earned in the contract until it is distributed or deemed to be distributed. Non-Qualified Contracts that are owned by non-natural persons, such as trusts, corporations, and partnerships are generally subject to current income tax on the income earned inside the
contract, unless the non-natural person owns the contract as an agent of a natural person.
Charitable Remainder Trusts
Charitable Remainder Trusts are trusts that meet the requirements of Section 664 of the Code. An annuity that has a Charitable Remainder Trust endorsement is not a Charitable Remainder Trust; the endorsement is merely to facilitate
ownership of the contract by a Charitable Remainder Trust. Non-Qualified Contracts that are issued to Charitable
Remainder Trusts will differ from other Non-Qualified Contracts in three respects:
1.
Waiver of sales charges. In addition to any sales load waivers included in the contract,
Charitable Remainder Trusts may also withdraw the difference between:
a.
the contract value on the day before the withdrawal; and
b.
the total amount of
purchase payments made to the contract (less an adjustment for amounts surrendered).
2.
Contract ownership at
annuitization. On the annuitization date, if the contract owner is a Charitable Remainder Trust, the Charitable Remainder Trust will continue to be the contract owner and the
annuitant will NOT become the contract owner.
3.
Recipient of death benefit proceeds. With respect to the death benefit proceeds, if the
contract owner is a Charitable Remainder Trust, the death benefit is payable to the Charitable Remainder Trust. Any designation in conflict with the Charitable Remainder Trust’s right to the death benefit will be void.
While these provisions are intended to facilitate a Charitable Remainder Trust’s
ownership of this contract, the rules governing Charitable Remainder Trusts are numerous and complex. A Charitable Remainder Trust that is considering purchasing this contract should seek the advice of a qualified tax and/or financial professional prior to purchasing the
contract.
Individual Retirement Annuities (IRAs)
IRAs are contracts that satisfy the provisions of Section 408(b) of the Code, including the
following requirements:
•
the contract is not transferable by the owner;
•
the premiums are not fixed;
•
if the contract owner is younger than age 50, the annual premium cannot exceed $7,000; if the contract owner is age 50 or
older, the annual premium cannot exceed $8,000 (although rollovers of greater amounts from Qualified Plans, tax sheltered annuities, certain 457 governmental plans, and other IRAs
can be received);
•
certain minimum distribution requirements must be satisfied after the owner attains their
applicable age as defined in the Code;
•
the entire interest of the owner in the contract is nonforfeitable; and
•
after the death of the owner, additional distribution requirements may be imposed to ensure distribution of the entire
balance in the contract within the statutory period of time.
As used herein, the term "individual retirement plans" shall refer to both individual retirement annuities and individual
retirement accounts that are described in Section 408 of the Code.
For further details regarding IRAs, refer to the disclosure statement provided when the IRA was established and the annuity contract’s IRA endorsement.
Roth IRA contracts are contracts that satisfy the provisions of Section 408A of the Code, including the following
requirements:
•
the contract is not transferable by the owner;
•
the premiums are not fixed;
•
if the contract owner is younger than age 50, the annual premium cannot exceed $7,000; if the
contract owner is age 50 or older, the annual premium cannot exceed $8,000 (although rollovers of greater amounts from other Roth IRAs and other individual retirement plans can be received);
•
the entire interest of the owner in the contract is nonforfeitable; and
•
after the death of the owner, certain distribution requirements may be imposed to ensure distribution of the entire balance
in the contract within the statutory period of time.
A Roth IRA can receive a rollover from an individual retirement plan or another eligible retirement plan; however, the
amount rolled over from the individual retirement plan or other eligible retirement plan to the Roth IRA is required to be included in the owner’s federal gross income at the time of the rollover, and will be subject to federal income tax. However, a rollover or conversion of an amount from an IRA or eligible retirement plan cannot be recharacterized back to an IRA.
For further details regarding Roth IRAs, please refer to the disclosure statement provided
when the Roth IRA was established and the annuity contract’s IRA endorsement.
Simplified Employee Pension IRAs (SEP IRA)
A SEP IRA is a written plan established by an employer for the benefit of employees which
permits the employer to make contributions to an IRA established for the benefit of each employee.
An employee may make deductible contributions to a
SEP IRA subject to the same restrictions and limitations as an IRA. In addition, the employer may make contributions to the SEP IRA, subject to dollar and percentage limitations
imposed by both the Code and the written plan.
A SEP IRA plan must satisfy:
•
minimum participation rules;
•
top-heavy contribution rules;
•
nondiscriminatory allocation rules; and
•
requirements regarding a written allocation formula.
In addition, the plan cannot restrict withdrawals of non-elective contributions, and must
restrict withdrawals of elective contributions before March 15th of the following year.
•
participation requirements; and
•
administrative requirements.
The funds contributed to a Simple IRA cannot be commingled with funds in other individual retirement plans or SEP IRAs.
A Simple IRA cannot receive rollover distributions except from another Simple
IRA.
Investment Only (Qualified
Plans)
Contracts that are owned by Qualified Plans are not intended to
confer tax benefits on the beneficiaries of the plan; they are used as investment vehicles for the plan. The income tax consequences to the beneficiary of a Qualified Plan are
controlled by the operation of the plan, not by operation of the assets in which the plan invests.
Beneficiaries of Qualified Plans should contact their employer and/or trustee of the plan to
obtain and review the plan, trust, summary plan description and other documents for the tax and other consequences of being a participant in a Qualified Plan.
Federal Tax Considerations
The tax consequences of purchasing a contract described in this prospectus will depend on:
•
the type of contract purchased;
•
the purposes for which the contract is purchased; and
•
the personal circumstances of individual investors having interests in the
contracts.
See
Synopsis of the Contracts for a brief description of the various types of contracts and the
different purposes for which the contracts may be purchased.
Existing tax rules are subject to change, and may affect individuals differently depending on their situation. Nationwide
does not guarantee the tax status of any contracts or any transactions involving the contracts.
If the contract is purchased as an investment of certain retirement plans (such as qualified retirement plans, IRAs, and custodial accounts as described in Sections 401 and 408(a) of the Internal Revenue Code), the tax advantages enjoyed by the
contract owner and/or annuitant may relate to participation in the plan rather than ownership of the annuity contract. Such plans are permitted to purchase investments other than
annuities and retain tax-deferred status.
The following is a brief
summary of some of the federal income tax considerations related to the contracts. In addition to the federal income tax, distributions from annuity contracts may be subject to
state and local income taxes. The tax rules across all states and localities are not uniform and therefore will not be discussed in this prospectus. Tax rules that may apply to contracts issued in U.S. territories such as Puerto Rico and Guam are also not discussed. Nothing in this
prospectus should be considered to be tax advice. Contract owners and prospective contract owners should consult a financial professional, tax advisor or legal counsel to discuss the taxation and use of the contracts.
The Internal Revenue Code sets forth different income tax rules for the following types of annuity contracts:
•
Non-Qualified Contracts.
IRAs, SEP IRAs and Simple IRAs
Distributions from IRAs, SEP IRAs and Simple IRAs are generally taxed when received. If any
portion of the amount contributed to the IRA was nondeductible for federal income tax purposes, then a portion of each distribution is excludable from income.
The
portion of a distribution that is taxable is based on the ratio between the amount by which non-deductible purchase payments exceed prior non-taxable distributions and total
account balances at the time of the distribution. The owner of an IRA, SEP IRA, or Simple IRA must annually report the amount of non-deductible purchase payments, the amount of
any distribution, the amount by which non-deductible purchase payments for all years exceed nontaxable distributions for all years, and the total balance of all IRAs, SEP IRAs, or Simple IRAs. Depending on the circumstance of the owner, all or a
portion of the contributions (purchase payments) made to the account may be deducted for federal income tax purposes.
IRAs may receive rollover contributions from other individual retirement accounts, other
individual retirement annuities, tax sheltered annuities, certain 457 governmental plans, and qualified retirement plans (including 401(k) plans).
When the owner of an IRA attains their applicable age, the IRA owner is required to begin
taking certain minimum distributions. In addition, upon the death of the owner of an IRA, the Code imposes mandatory distribution requirements to ensure distribution of the entire contract value within the required statutory period. Due to the Treasury Regulation’s valuation rules, the amount used to compute the mandatory distributions may exceed the contract value.
If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for estate tax purposes.
One-Rollover-Per-Year Limitation
A contract owner can receive a distribution from an IRA and roll it into another IRA within 60 days from the date of the
distribution and not have the amount of the distribution included in taxable income. Only one rollover per year from a contract owner’s IRA is allowed. The one-year period begins on the date the contract owner receives the IRA distribution, and not on the date the IRA was rolled over.
The one-rollover-per-year limitation applies in the aggregate to all the IRAs that a taxpayer
owns. This means that a contract owner cannot make an IRA rollover distribution if, within the previous one-year period, an IRA rollover distribution was taken from any other IRAs owned by the taxpayer. Also, rollovers between an individual’s Roth IRAs would prevent a
separate rollover between the individual’s traditional IRAs within the one-year period, and vice versa.
Direct transfers of IRA funds between IRA trustees are not subject to the one rollover per year limitation because such transfers are not considered rollover distributions. Also, a rollover from a traditional IRA to a Roth IRA (a conversion) is not subject to the one roll over per year limitation, and such a rollover is disregarded in applying the one rollover per year
limitation to other rollovers.
Distributions of earnings from Roth IRAs are taxable or nontaxable depending upon whether they are "qualified distributions"
or "nonqualified distributions." A "qualified distribution" is nontaxable if it is made after the Roth IRA has satisfied the five-year rule and meets one of the following
requirements:
•
it is made on or after the date on which the contract owner attains age 59½;
•
it is made to a beneficiary (or the contract owner’s estate) on or after the death of
the contract owner;
•
it is attributable to the contract owner’s disability; or
•
it is used for expenses attributable to the purchase of a home for a qualified first-time buyer.
The five-year rule is satisfied if a five-taxable year period has passed. The five
taxable-year period begins with the first taxable year in which a contribution is made to any Roth IRA established for the owner.
A non-qualified distribution is not includable in
gross income to the extent that the distribution, when added to all previous distributions, does not exceed the total amount of contributions made to the Roth IRA. Any
non-qualified distribution in excess of the total contributions is includable in the contract owner's gross income in the year that is distributed to the contract owner.
A Roth
IRA can receive a rollover from an individual retirement plan or another eligible retirement plan; however, the amount rolled over from the individual retirement plan or other
eligible retirement plan to the Roth IRA is required to be included in the owner's federal gross income at the time of the rollover and will be subject to federal income tax.
However, a rollover or conversion of an amount from an IRA or eligible retirement plan cannot be recharacterized back to an IRA.
Special rules apply for Roth IRAs that have proceeds received from an IRA prior to January 1,
1999, if the owner elected the special four-year income averaging provisions that were in effect for 1998.
If the contract owner dies before the contract is completely distributed, the balance will be
included in the contract owner's gross estate for tax purposes.
10% Additional Tax for Early Withdrawal
If distributions of income from an IRA, SEP IRA, Simple IRA, or Roth IRA are made prior to the date that the owner attains
the age of 59½ years, the income is subject to an additional penalty tax of 10% unless an exception applies. (For Simple IRAs, the 10% penalty is increased to 25% if the distribution is made during the 2-year period beginning on the date that
the individual first participated in the Simple IRA.) The 10% penalty tax can be avoided if the distribution is:
made to a beneficiary on or after the death of the owner;
attributable to the owner becoming disabled (as defined in the Code);
part of a series of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the owner, or the joint lives (or joint life expectancies) of the owner and his or her designated beneficiary. Substantially equal periodic payments must continue until the later of reaching age 59½ or five years. Modification of
payments during that time period will result in retroactive application of the 10% additional penalty tax;
used for qualified higher education expenses; or
used for expenses attributable to the purchase of a home for a qualified first-time
buyer.
Non-Qualified Contracts - Natural Persons as
Contract Owners
Generally, the income earned inside a Non-Qualified
Annuity Contract that is owned by a natural person is not taxable until it is distributed from the contract.
Distributions before the Annuitization Date are taxable to the contract owner to the extent
that the cash value of the contract exceeds the contract owner's investment at the time of the distribution. In general, the investment in the contract is equal to the purchase payments made with after-tax dollars, reduced by any nontaxable distributions. Distributions, for
this purpose, include partial surrenders, any portion of the contract that is assigned or pledged; or any portion of the contract that is transferred by gift. For these purposes, a transfer by gift may occur upon annuitization if the contract owner and the annuitant are not the same individual.
In determining the taxable amount of a distribution that is made prior to the annuitization date, all annuity contracts issued
after October 21, 1988 by the same company to the same contract owner during the same calendar year will be treated as one annuity contract.
A special rule applies to distributions from contracts that have investments in the contract that were made prior to August
14, 1982. For those contracts, distributions that are made prior to the Annuitization Date are treated first as the nontaxable recovery of the investment in the contract as of that date. A distribution in excess of the amount of the investment in the
contract as of August 14, 1982, will be treated as taxable income.
With respect to annuity distributions on or after the Annuitization Date, a portion of each annuity payment is excludable from taxable income. The amount excludable is based on the ratio between the contract owner's investment in the contract and
the expected return on the contract. Once the entire investment in the contract is recovered, all distributions are fully includable in income. The maximum amount excludable from
income is the investment in the contract. If the annuitant dies before the entire investment in the contract has been excluded from income, and as a result of the annuitant's death
no more payments are due under the contract, then the unrecovered investment in the contract may be deducted on his or her final tax return.
The Internal Revenue Code provides that a portion
of a nonqualified annuity contract may be annuitized for either (a) a period of 10 years or greater, or (b) for the life or lives of one or more persons. The portion of the
contract annuitized would be treated as if it were a separate annuity contract. This means that an Annuitization Date can be established for a portion of the annuity contract annuitized and the above description of the taxation of annuity distributions after the
Annuitization Date would apply to the portion of the contract that has been annuitized. The investment in the contract is required to be allocated pro rata between the portion of the contract that is annuitized and the portion that is not. All other benefits under the contract (e.g., death benefit) would also be reduced pro rata. For example, if 1/3 of the cash value of
the contract were to be annuitized, the death benefit would also be reduced by 1/3.
The Internal Revenue Code imposes a penalty tax if a distribution is made before the contract owner reaches age 59½. The amount of the penalty is 10% of the portion of any distribution that is includable in gross income. The penalty tax does
not apply if the distribution is:
•
the result of a contract owner’s death;
•
the result of a contract owner’s disability (as defined in the Internal Revenue
Code);
•
one of a series of substantially equal periodic payments made over the life (or life expectancy) of the contract owner or
the joint lives (or joint life expectancies) of the contract owner and the beneficiary selected by the contract owner to receive payment under the annuity payment option selected
by the contract owner. Substantially equal periodic payments must continue until the later of reaching age 59½ or five years. Modification of payments during that time period will result in retroactive application of the 10% additional penalty tax;
or
•
is allocable to an investment in the contract before August 14, 1982.
If the contract owner dies before the contract is completely distributed, the balance will be
included in the contract owner's gross estate for estate tax purposes.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned by natural
persons (individuals). Different rules (the so-called non-natural persons rules) apply if the contract owner is not a natural person.
Generally, contracts owned by corporations, partnerships, trusts, and similar entities are
not treated as annuity contracts under the Internal Revenue Code. Therefore, income earned under a Non-Qualified Contract that is owned by a nonnatural person is taxed as ordinary income during the taxable year that it is earned. Taxation is not deferred, even if
the income is not distributed out of the contract. The income is taxable as ordinary income, not capital gain.
The non-natural persons rules do not apply to all entity-owned contracts. For purposes of the
rule that annuity contracts that are owned by non-natural persons are not treated as annuity contracts for tax purposes, a contract that is owned by a non-natural person as an agent of an individual is treated as owned by the individual. This would allow the contract to be
treated as an annuity under the Internal Revenue Code, allowing tax deferral. However, this exception does not apply when the non-natural person is an employer that holds the contract under a non-qualified deferred compensation arrangement
for one or more employees.
The non-natural persons rules also do not
apply to contracts that are:
•
acquired by the estate of a decedent by reason of the death of the decedent;
•
issued in connection with certain qualified retirement plans and individual retirement
plans;
•
purchased by an employer upon the termination of certain qualified retirement plans; or
•
immediate annuities within the meaning of Section 72(u) of the Internal Revenue Code.
If the annuitant, who is the individual treated as owning the contract, dies before the
contract is completely distributed, the balance may be included in the annuitant's gross estate for estate tax purposes, depending on the obligations that the non-natural owner may have owed to the annuitant.
Exchanges
As a general rule, federal income tax law treats an exchange of property in the same manner
as a taxable sale of the property. However, pursuant to Section 1035 of the Internal Revenue Code, an annuity contract may be exchanged tax-free for another annuity contract, provided that the obligee (the person to whom the annuity obligation is owed) is the same for
both contracts. If the exchange includes the receipt of other property, such as cash, in addition to another annuity contract special rules may cause a portion of the transaction
to be taxable to the extent of the value of the other property.
Tax Treatment of a Partial 1035 Exchange With Subsequent Withdrawal
Partial exchanges may be treated as a tax-free exchange under Section 1035 of the Code. IRS Rev. Proc. 2011-38 addresses the
income tax consequences of the direct transfer of a portion of the cash value of an annuity contract in exchange for the issuance of a second annuity contract (a partial exchange).
A direct transfer that satisfies the revenue procedure will be treated as a tax-free exchange under Section 1035 of the Code if, for a period of at least 180 from the date of the direct transfer, there are no distributions or surrenders from either annuity contract involved in the exchange. In addition, the 180 day period will be deemed to have been satisfied with respect to amounts received as an annuity for a
period of 10 years or more, or as an annuity for the life of one or more persons. The taxation of distributions (other than distributions described in the immediately preceding sentence) received from either contract within the 180 day period will
be determined using general tax principles. For example, they could be treated as taxable "boot" in an otherwise tax-free exchange, or as a distribution from the new contract. Please discuss any tax consequences concerning any contemplated or
completed transactions with a professional tax advisor. See, also, Non-Qualified Contracts - Natural Persons as Contract Owners, above.
Section 1411 of the Internal Revenue Code imposes a surtax of 3.8% on certain net investment
income received by individuals and certain trusts and estates. The surtax is imposed on the lesser of (a) net investment income or (b) the excess of the modified adjusted gross income over a threshold amount. For individuals, the threshold amount is $250,000
(married filing jointly); $125,000 (married filing separately); or $200,000 (other individuals). The threshold for an estate or trust is $7,500.
Modified adjusted gross income is equal to gross income with several modifications. Consult with a qualified tax advisor regarding how to determine modified adjusted gross income for purposes of determining the applicability of the surtax.
Net investment income includes, but is not limited to, interest, dividends, capital gains,
rent and royalty income, and income from nonqualified annuities. Net investment income does not include, among other things, distributions from certain qualified plans (such as IRAs, Roth IRAs, and plans described in Internal Revenue Code Sections 401(a), 401(k),
403(a), 403(b) or 457(b)); however, such distributions, to the extent that they are includible in income for federal income tax purposes, are includible in modified adjusted gross income.
Same-Sex Marriages, Domestic Partnership and Other Similar Relationships
The Treasury issued final regulations that address what relationships are considered a marriage for federal tax purposes. The final regulations definition of marriage reflects the United States Supreme Court holdings in Windsor and Obergefell, as
well as Rev. Proc. 2017-13.
The final regulations define the terms
spouse, husband, wife, and husband and wife to be gender neutral so that such terms can apply equally to same sex couples and opposite sex couples. The regulations adopt the place
of celebration rule to determine marital status for federal tax purposes. Therefore, a marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by a state, possession, or territory of the US in which the marriage was entered
into, regardless of the couples place of domicile.
Consistent with IRS Rev. Proc. 2013-17, the final regulations provide that relationships entered into as civil unions, or
registered domestic partnerships that is not denominated as marriages under state law are not marriages for federal tax purposes. Therefore, the favorable income-tax deferral options afforded by federal tax law to a married spouse under Code
Sections 72 and 401(a)(9) are not available to individuals who have entered into these formal relationships.
Withholding
Pre-death distributions from the contracts are subject to federal income tax. Nationwide will
withhold the tax from the distributions unless the contract owner requests otherwise. Under some circumstances, the Code will not permit contract owners to waive withholding. Such circumstances include:
•
if the payee does not provide Nationwide with a taxpayer identification number;
or
•
if Nationwide receives notice from the Internal Revenue Service that the taxpayer identification number furnished by the
payee is incorrect.
If a contract owner is prohibited from waiving withholding, as described above, the distribution will be subject withholding
rates established by Section 3405 of the Internal Revenue Code and is applied against the amount of income that is distributed.
Generally, a pre-death distribution from a contract to a non-resident alien is subject to federal income tax at a rate of 30%
of the amount of income that is distributed. Nationwide is required to withhold this amount and send it to the Internal Revenue Service. Some distributions to non-resident aliens may be subject to a lower (or no) tax if a treaty applies. In
order to obtain the benefits of such a treaty, the non-resident alien must:
1.
provide Nationwide with a properly completed withholding certificate claiming the treaty
benefit of a lower tax rate or exemption from tax; and
2.
provide Nationwide with an individual taxpayer identification number.
If the non-resident alien does not
meet the above conditions, Nationwide will withhold 30% of income from the distribution.
Another exemption from the 30% withholding is available if the non-resident alien provides Nationwide with sufficient
evidence that:
1.
the distribution is connected to the non-resident alien's conduct of business in the United
States;
2.
the distribution is includable in the non-resident alien's gross income for United States
federal income tax purposes; and
3.
provide Nationwide with a properly completed withholding certificate claiming the
exemption.
Note
that for the preceding exemption, the distributions would be subject to the same withholding rules that are applicable to payments to United States persons.
This prospectus does not address any tax matters that may arise by reason of application of
the laws of a non-resident alien’s country of citizenship and/or country of residence. Purchasers and prospective purchasers should consult a financial professional, tax advisor or legal counsel to discuss the applicability of laws of those jurisdictions to the purchase or ownership of a contract.
Under Sections 1471 through 1474 of the Internal Revenue Code (commonly referred to as FATCA), distributions from a Contract
to a foreign financial institution or to a nonfinancial foreign entity, each as described by FATCA, may be subject to United States tax withholding at a flat rate equal to 30% of
the taxable amount of the distribution, irrespective of the status of any beneficial owner of the Contract or of the distribution. Nationwide may require you to provide certain
information or documentation (e.g., Form W-9 or Form W-8BEN) to determine its withholding requirements under FATCA.
Federal Estate, Gift, and Generation Skipping Transfer Taxes
The following transfers may be considered a gift for federal gift tax
purposes:
•
a transfer of the contract from one contract owner to another; or
•
a distribution to someone other than a contract owner.
Upon the contract owner's death,
the value of the contract may subject to estate taxes, even if all or a portion of the value is also subject to federal income taxes.
Section 2612 of the Internal Revenue Code may
require Nationwide to determine whether a death benefit or other distribution is a "direct skip" and the amount of the resulting generation skipping transfer tax, if any. A direct
skip is when property is transferred to, or a death benefit or other distribution is made to:
a)
an individual who is two or more generations younger than the contract owner; or
b)
certain trusts, as
described in Section 2613 of the Internal Revenue Code (generally, trusts that have no beneficiaries who are not two or more generations younger than the contract
owner).
If the
contract owner is not an individual, then for this purpose only, contract owner refers to any person:
•
who would be required to include the contract, death benefit, distribution, or other payment
in his or her federal gross estate at his or her death; or
•
who is required to report the transfer of the contract, death benefit, distribution, or other
payment for federal gift tax purposes.
If a transfer is a direct skip, Nationwide will deduct the amount of the transfer tax from
the death benefit, distribution or other payment, and remit it directly to the Internal Revenue Service.
Nationwide is not required to maintain a capital gain reserve liability on Non-Qualified
Contracts. If tax laws change requiring a reserve, Nationwide may implement and adjust a tax charge.
SECURE Act 2.0 was enacted on December 29, 2022, and made changes to the Code that are
effective as of January 1, 2023. They include but are not limited to the following:
•
Increasing the age a contract owner must begin RMDs under IRAs and certain qualified plans
from age 72 to age 75 in two phases. The age is first increased from age 72 to age 73 for those who turn age 72 after 2022. And starting in 2033, the age is then increased to age 75 for those who turn age 73 after 2032. If the contract owner was
born in 1959, the owner should consult their tax advisor regarding their applicable age because it is not clear under SECURE 2.0, as enacted, whether the applicable age is age 73
or age 75.
•
Reducing the RMD excise tax for failure to take an RMD from 50% to 25%.
•
Creating additional exceptions to the 10% additional penalty tax for early withdrawals that include but are not limited to
the following: distributions to terminally ill individuals, distribution of net income on excess IRA contributions, and disaster recovery distributions.
The tax rules across the various states and localities are not
uniform and therefore are not discussed in this prospectus. Tax rules that may apply to contracts issued in U.S. territories such as Puerto Rico and Guam are also not discussed.
Contract owners and prospective contract owners should consult a financial professional, tax advisor or legal counsel to discuss the taxation and use of the contracts.
The Internal Revenue Code requires that certain distributions be made from the contracts issued in conjunction with this
prospectus. Following is an overview of the required distribution rules applicable to each type of contract. Please consult a qualified tax or financial professional for more specific required distribution information.
Required Distributions - General Information
In general, depending on the type of contract, the Internal Revenue Code requires that minimum distributions begin during the contract owner’s lifetime. In addition, the Internal Revenue Code requires that upon the death of the contract owner, minimum distributions must be made to the contract owner’s beneficiary. A beneficiary is an individual or other entity that the contract owner designates to receive death proceeds upon the contract owner’s death. The distribution rules in the
Internal Revenue Code make a distinction between "beneficiary" and "designated beneficiary" when determining the life expectancy that may be used for payments that are made after the death of the contract owner from IRAs, SEP IRAs, Simple
IRAs, Roth IRAs, and Non-Qualified Contracts. A designated beneficiary is a natural person who is designated by
the contract owner as the beneficiary under the
contract. Non-natural beneficiaries (e.g. charities, estates, or certain trusts) are not designated beneficiaries for the purpose of required distributions and the life expectancy
of such a beneficiary is zero.
Life expectancies and joint life expectancies will be determined in accordance with the relevant guidance provided by the
Internal Revenue Service and the Treasury Department, including but not limited to Treasury Regulation 1.72-9 and
Treasury Regulation 1.401(a)(9)-9.
Required distributions paid upon the death of the contract owner are paid to the beneficiary or beneficiaries stipulated by
the contract owner. How quickly the distributions must be made may be determined with respect to the life expectancies of the beneficiaries. For Non-Qualified Contracts, the beneficiaries used in the determination of the distribution period are
those in effect on the date of the contract owner's death. For contracts other than Non-Qualified Contracts, the
beneficiaries used in the determination of the distribution period do not have to be determined until September 30th of the year following the contract owner's death. Any beneficiary that is not a designated beneficiary has a life expectancy of
zero.
Required Distributions for Non-Qualified Contracts
Internal Revenue Code Section 72(s) requires Nationwide to make certain distributions when a contract owner dies. The
following distributions will be made in accordance with the following requirements:
•
If any contract owner dies on or after the Annuitization Date and before the entire interest
in the contract has been distributed, then the remaining interest must be distributed at least as rapidly as the distribution method in effect on the contract owner’s death.
•
If any contract owner dies before the Annuitization Date, then the entire interest in the
contract (consisting of either the death benefit or the Contract Value reduced by charges set forth elsewhere in the contract) will be distributed within 5 years of the contract owner’s death, provided however:
•
any interest payable to or for the benefit of a designated beneficiary may be distributed over
the life of the designated beneficiary or over a period not longer than the life expectancy of the designated beneficiary. Payments must begin within one year of the contract owner’s death unless otherwise permitted by federal income tax
regulations; and
•
if the designated beneficiary is the surviving spouse of the deceased contract owner, the
spouse can choose to become the contract owner instead of receiving a death benefit. Any distributions required under these distribution rules will be made upon that spouse’s death.
In the event that the contract owner is not a natural person (e.g., a trust or corporation),
for purposes of these distribution provisions:
a)
the death of the annuitant will be treated as the death of a contract owner;
b)
any change of
annuitant will be treated as the death of a contract owner; and
c)
in either case, the appropriate distribution will be made upon the death or change, as the
case may be.
These distribution provisions do not apply to any contract exempt from Section 72(s) of the Internal Revenue Code by reason of Section 72(s)(5) or any other law or rule.
The Code does not require that minimum distributions during the contract owner’s lifetime.
Required Distributions for IRAs, SEP IRAs, Simple IRAs, and Roth IRAs
Required Distributions During the Life of the
Contract Owner
Distributions from an IRA, SEP IRA or Simple IRA must
begin no later than April 1 of the calendar year following the calendar year in which the contract owner reaches their applicable age. The applicable age is 73 (age 72 if born
after June 30, 1949 and before January 1, 1951, or age 70½ if born before July 1, 1949).
Distributions may be paid in a lump sum or in substantially equal payments over:
a)
the life of the contract owner or the joint lives of the contract owner and the contract
owner’s designated beneficiary; or
b)
a period not longer than the period determined under the table in Treasury Regulation
1.401(a)(9)-9, which is the deemed joint life expectancy of the contract owner and a person 10 years younger than the contract owner. If the
designated beneficiary is the
spouse of the contract owner, the period may not exceed the longer of the period determined under such table or the joint life expectancy of the contract owner and the contract
owner’s spouse, determined in accordance with Treasury Regulation.
For IRAs, SEP IRAs, and Simple IRAs, required distributions do not have to be withdrawn from this contract if they are being
withdrawn from another IRA, SEP IRA, or Simple IRA of the contract owner.
The rules for Roth IRAs do not require distributions to begin during the contract owner's lifetime, therefore, the required beginning date is not applicable to Roth IRAs.
Required Distributions Upon Death of a Contract Owner
For death of contract owner before January 1, 2020, please consult your tax advisor or legal counsel regarding the post death minimum distribution rules that apply. If the contract owner dies on or after January 1, 2020 and the designated
beneficiary is not an eligible designated beneficiary as defined under Code Section 401(a)(9), then the entire balance of the contract must be distributed by December 31 of the tenth year following the contract owner’s death. This 10-year post-death distribution period applies regardless of whether the contract owner dies before or after the contract owner’s
required beginning date.
In the case of an eligible designated beneficiary, which includes (1) the contract
owner’s surviving spouse, (2) a minor child of the contract owner, (3) a disabled individual, (4) a chronically ill individual, or (5) an individual not more than 10 years younger than the contract owner, the entire balance of the contract can be distributed over a period not exceeding the
life or life expectancy of the eligible designated beneficiary, provided that distributions begin within one year of death. If an eligible designated beneficiary dies before the
entire interest is distributed, the remaining interest must be distributed by December 31st of the tenth year following the eligible designated beneficiary’s
death.
A distribution in the form of annuity payments (an annuitization)
that began on or after January 1, 2020 while the contract owner was alive may need to be commuted or modified after the contract owner’s death in order to comply with the
postdeath distribution requirements. However, distributions in the form of annuity payments (an annuitization) that began prior to January 1, 2020, while the contract owner was alive, can continue under that method after the death the contract
owner without modification.
In addition, a beneficiary who is not an eligible designated beneficiary or a designated beneficiary must withdraw the
entire account balance by December 31st of the fifth year following the contract owner’s death.
Regardless of whether the contract owner dies before or on or after January 1, 2020, a
designated beneficiary who is the surviving spouse of the deceased contract owner may choose to become the contract owner. Any distributions required under these distribution rules will be made upon that spouse’s death.
If the above distribution requirements are not met, a penalty tax of 25% is levied on the difference between the amount that
should have been distributed for that year and the amount that actually was distributed for that year. The penalty tax is reduced to 10% if the required distribution not taken is
distributed within a correction window as defined under the Code.
Purchasers and prospective purchasers should consult a financial professional, tax advisor or legal counsel to discuss the taxation and use of the contracts.
CONTACTING THE SERVICE CENTER
All inquiries, paperwork, information requests, service requests, and transaction requests should be made to the Service
Center:
•
By telephone at 1-800-848-6331 (TDD 1-800-238-3035)
•
By mail to P.O. Box 182021, Columbus, Ohio 43218-2021
•
By Internet at www.nationwide.com
Nationwide will use reasonable
procedures to confirm that instructions are genuine and will not be liable for following instructions that it reasonably determined to be genuine. Nationwide may record telephone
requests. Telephone and computer systems may not always be available. Any telephone system or computer can experience outages or slowdowns
for a variety of reasons. The outages or slowdowns
could prevent or delay processing. Although Nationwide has taken precautions to support heavy use, it is still possible to incur an outage or delay. To avoid technical
difficulties, submit transaction requests by mail.
Nationwide may be required to provide information about the Contract to government regulators. If mandated under applicable
law, Nationwide may be required to reject a Purchase Payment and to refuse to process transaction requests under the Contract until instructed otherwise by the appropriate
regulator.
Nationwide Investment Services Corporation ("NISC"), acts as the national distributor of the
contracts sold through this prospectus. NISC is registered as a broker-dealer under the Securities Exchange Act of 1934 ("1934 Act"), and is a member of the Financial Industry Regulatory Authority ("FINRA"). NISC’s address is One Nationwide Plaza, Columbus,
Ohio 43215. In Michigan only, NISC refers to Nationwide Investment Svcs. Corporation. NISC is a wholly owned
subsidiary of Nationwide.
Contracts sold through this prospectus can be purchased through registered representatives, appointed by Nationwide, of
FINRA broker-dealer firms. Nationwide pays broker-dealers compensation for promoting, marketing and selling the
contracts it sponsors. In turn, the broker-dealers pay a portion of the compensation to their registered representatives, under their own arrangements.
Nationwide does not expect the compensation paid to such broker-dealers (including NISC) to
exceed 8% of Purchase Payments (on a present value basis) for sales of the contracts described in this prospectus.
Nationwide is a stock life insurance company organized under Ohio law in March 1929, with its home office at One Nationwide
Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and retirement products. It is admitted to do business in all states, the District of Columbia,
Guam, the U.S. Virgin Islands, and Puerto Rico.
Nationwide is a member of
the Nationwide group of companies. Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company (the "Companies") are the ultimate controlling persons of the
Nationwide group of companies. The Companies were organized under Ohio law in December of 1925 and 1933 respectively. The Companies engage in a general insurance and reinsurance business, except life insurance.
To request additional information about Nationwide, contact the Service Center.
See "Appendix E: Nationwide Life Insurance Company Management’s Discussion & Analysis and Statutory Financial Statements and Supplemental Scheduled".
Nationwide may use the proceeds from this offering for any legitimate corporate
purpose.
GENERAL ACCOUNT AND SEPARATE ACCOUNTS
The assets in Nationwide’s general account are chargeable with claims by any of its contract owners and creditors, and
are subject to the liabilities arising from any of its businesses. Nationwide’s general account assets do not include the assets in the Index-Linked Annuity Separate Account, an insulated separate account where Nationwide holds assets to support
future Index Strategy Earnings. Nationwide’s general account assets also do not include the assets in any other insulated Nationwide separate accounts.
Nationwide exercises sole discretion over the investment of its general account assets, and Nationwide bears the associated investment risk. Contract Owners will not share in the investment experience of Nationwide’s general account
assets. Nationwide invests its general account assets in accordance with state insurance law.
The Index-Linked Annuity Separate Account is a non-unitized separate account and is not registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940. Nationwide owns and controls the assets in the
Index-Linked Annuity Separate Account and Contract Owners do not have any interest in or claim to the assets in the Index-Linked Annuity Separate Account. Unlike some variable
annuities that utilize separate accounts, Contract Owners do not share in the investment performance of the assets in the Index-Linked Annuity Separate Account. The Index-Linked Annuity Separate Account was established under the laws of Ohio. The assets in the Index-Linked Annuity
Separate Account are not subject to claims by Nationwide’s creditors or subject to liabilities arising from any of Nationwide’s other businesses.
Nationwide may invest the assets of the
Index-Linked Annuity Separate Account in any asset permitted under state law, including hedging instruments such as derivative contracts. Nationwide may move assets between the
Index-Linked Annuity Separate Account and the general account. Where permitted by applicable law, Nationwide reserves the right to make certain changes to the structure and operation of the Index-Linked Annuity Separate Account. Nationwide will not make
any such changes without receiving any necessary approval of any applicable state insurance department.
EXEMPTION FROM PERIODIC REPORTING
Nationwide is relying on the exemption provided by Rule 12h-7 under the 1934 Act. In reliance
on that exemption, Nationwide does not file periodic reports that would be otherwise required under the 1934 Act.
STATEMENTS TO CONTRACT OWNERS
Prior to the Annuitization Date, statements will be sent to the Contract Owner’s last
known address. Contract Owners should promptly notify the Service Center of any address
change.
Nationwide will mail to Contract Owners:
•
statements showing the Contract’s quarterly activity; and
•
confirmation statements showing transactions that affect the Contract’s value.
Contract Owners can receive information from Nationwide faster and reduce the amount of mail
they receive by signing up for Nationwide’s eDelivery program. Nationwide will notify Contract Owners by email when important documents (statements, prospectuses and other documents) are ready to view, print, or download from Nationwide’s secure server. To
choose this option, go to nationwide.com/login.
Contract Owners should review statements carefully. All errors or corrections must be reported to Nationwide immediately to
assure proper crediting to the Contract. Unless Nationwide is notified within 30 days of receipt of the statement, Nationwide will assume statements are correct.
MISSTATEMENTS OF AGE OR SEX
If the age or sex of the Contract Owner, Joint Owner, Annuitant, Co-Annuitant, Contingent
Annuitant, Beneficiary or Contingent Beneficiary is misstated, all payments and benefits under the Contract will be adjusted. Payments and benefits will be based on the correct age or sex. Proof of age of any of these individuals may be required at any time, in a form
satisfactory to Nationwide. When the age or sex of any individual named in the application, including any supplemental applications, has been misstated, the dollar amount of any overpayment will be deducted from the next payment or payments
due under the Contract.
The dollar amount of any underpayment made by
Nationwide as a result of an age or sex misstatement will be paid in full with the next payment due under the Contract. The dollar amount of any overpayment made by Nationwide as a
result of an age or sex misstatement will reduce the next payment due under the Contract, and will continue to reduce subsequent payments under the Contract, until all of the overpayment is recouped. Any adjustment for overpayment or underpayment will
include interest charged or credited, as applicable, at the rate required by law, but not exceeding 6%.
The statutory financial statements and financial statement schedules of Nationwide Life
Insurance Company as of December 31, 2023 and 2022, and for each of the years in the three-year period ended December 31, 2023, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and auditing.
The KPMG LLP report dated March 20, 2024 of Nationwide Life Insurance Company includes explanatory language that states that
the financial statements are prepared by Nationwide Life Insurance Company using statutory accounting practices prescribed or permitted by the Ohio Department of Insurance, which
is a basis of accounting other than U.S. generally accepted accounting principles. Accordingly, the KPMG LLP audit report states that the financial statements are not presented fairly in accordance with U.S. generally accepted accounting principles and further states that those
financial statements are presented fairly, in all material respects, in accordance with statutory accounting practices prescribed or permitted by the Ohio Department of Insurance.
The KPMG LLP report dated March 20, 2024 of
Nationwide Life Insurance Company also contains an emphasis of matter paragraph that states that Nationwide Life Insurance Company’s subsidiary received permission from the
Ohio Department of Insurance in 2023 to account for an excess of loss reinsurance recoverable as an admitted asset. Under prescribed statutory accounting practices, the excess of loss reinsurance recoverable would not be an admitted asset. As of
December 31, 2023, that permitted accounting practice increased statutory surplus over what it would have been had that prescribed accounting practice been followed. KPMG
LLP’s opinions are not modified with respect to this matter.
Legal matters in connection with federal laws and regulations affecting the issue and sale of the Contracts described in
this prospectus and the organization of Nationwide, its authority to issue the contracts under Ohio law, and the validity of the contracts under Ohio law have been passed on by Nationwide's Office of General Counsel.
Nationwide Life Insurance Company
Nationwide Financial Services, Inc. (NFS, or collectively with its subsidiaries, the "Company") was formed in November 1996.
NFS is the holding company for Nationwide Life Insurance Company (NLIC), Nationwide Life and Annuity Insurance Company (NLAIC) and other companies that comprise the life insurance
and retirement savings operations of the Nationwide group of companies (Nationwide). This group includes Nationwide Financial Network (NFN), an affiliated distribution network that markets directly to its customer base. NFS is incorporated in Delaware and maintains its principal
executive offices in Columbus, Ohio.
The Company is subject to legal and regulatory proceedings in the ordinary course of its business. These include proceedings
specific to the Company and proceedings generally applicable to business practices in the industries in which the Company operates. The outcomes of these proceedings cannot be
predicted due to their complexity, scope, and many uncertainties. The Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory proceedings is not likely to have a material adverse effect on the Company’s financial
condition.
The various businesses conducted by the Company are subject to oversight by numerous federal and state regulatory entities,
including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the Internal Revenue Service, the Office
of the Comptroller of the Currency, and state insurance authorities. Such regulatory entities may, in the normal course of business, be engaged in general or targeted inquiries,
examinations and investigations of the Company and/or its affiliates. With respect to all such scrutiny directed at the Company or its affiliates, the Company is cooperating with regulators.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the
"1933 Act") may be permitted to directors, officers and controlling persons of Nationwide, Nationwide has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Nationwide will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
APPENDIX A:
ADDITIONAL INDEX DISCLOSURES
BLACKROCK SELECT FACTOR
INDEX
The BlackRock Select Factor Index (the "Index") is a product of
BlackRock Index Services, LLC and has been licensed for use by Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company ("Licensee").
The Index does not guarantee future income or protect against loss of principal. There can be no assurance that an investment strategy or financial product based on or in any way tracking the Index will be successful. Indexes are unmanaged
and one cannot invest directly in an index.
This Product is not
sponsored, endorsed, marketed, sold, or distributed by BlackRock Index Services, LLC, BlackRock, Inc., or any of its affiliates, or any of their respective third party licensors
(including the Index calculation agent, as applicable) (collectively, "BlackRock"). BlackRock makes no representation or warranty, express or implied, to the owners of this Product or any member of the public regarding the advisability of investing in this Product or the ability of the Index to meet its stated objectives. BlackRock’s only relationship to Licensee with respect to the Index is the licensing of the Index and certain trademarks of BlackRock. The Index is created, compiled, and calculated by BlackRock Index Services, LLC
without regard to Licensee or this Product. BlackRock Index Services, LLC has no obligation to take the needs of Licensee or the owners of this Product into consideration in
calculating the Index. BlackRock is not responsible for and has not participated in the determination of the benefits and charges of this Product or the timing of the issuance or
sale of this Product or in the determination or calculation of the equation by which this Product is to be converted into cash, surrendered or redeemed, as the case may be. BlackRock has no obligation or liability in connection with the administration
of this Product. There is no assurance that products based on the Index will accurately track index performance or provide positive investment returns. BlackRock Index Services,
LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by BlackRock to buy, sell, or hold such security, nor is it considered to be investment advice. Notwithstanding the foregoing, BlackRock, Inc. and its affiliates may independently issue and/or
sponsor financial products unrelated to this Product currently being issued by Licensee, but which may be similar to and competitive with this Product. In addition, BlackRock, Inc. and its affiliates may trade financial products which are linked to the performance of the Index.
THE INDEX AND THE INDEX DATA ARE PROVIDED "AS-IS" AND "AS AVAILABLE". BlackRock DOES NOT
GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE Index OR ANY DATA RELATED THERETO
OR ANY COMMUNICATION WITH RESPECT THERETO, INCLUDING, ORAL, WRITTEN, or ELECTRONIC COMMUNICATIONS. BlackRock SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. BlackRock MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, TITLE, NON-INFRINGEMENT, OR AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THIS PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE Index OR WITH RESPECT TO ANY DATA contained therein or RELATED
THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL BlackRock BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY
HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN BlackRock AND LICENSEE.
BlackRock®, BlackRock Select Factor Index and the corresponding logos are registered and
unregistered trademarks of BlackRock, Inc. or its subsidiaries. All rights reserved.
BLOOMBERG U.S. CORPORATE INDEX
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. BARCLAYS® is a trademark and service mark of Barclays Bank Plc, used under license. Bloomberg Finance L.P. and its affiliates,
including Bloomberg Index Services Limited ("BISL") (collectively, "Bloomberg"), or Bloomberg’s licensors own all proprietary rights in the "Bloomberg U.S. Corporate Index."
Neither Barclays Bank PLC, Barclays Capital Inc., nor any affiliate (collectively "Barclays") nor Bloomberg is the issuer or producer of Nationwide Defined Protection® Annuity 2.0 and neither Bloomberg nor Barclays has any responsibilities, obligations or duties to purchasers in Nationwide
Defined Protection® Annuity 2.0. The Bloomberg U.S. Corporate Index is
licensed for use by Nationwide Life Insurance Company ("Nationwide") as the Issuer of Nationwide Defined Protection®
Annuity 2.0. The only relationship of Bloomberg and Barclays with the Issuer in respect of Bloomberg U.S. Corporate
Index is the licensing of the Bloomberg U.S.
Corporate Index, which is determined, composed and calculated by BISL, or any successor thereto, without regard to the Issuer of Nationwide Defined Protection® Annuity 2.0 or the owners of Nationwide Defined Protection® Annuity 2.0.
Additionally, Nationwide may for itself execute transaction(s) with Barclays in or relating to Bloomberg U.S. Corporate Index in connection with Nationwide Defined Protection® Annuity 2.0. Purchasers acquire Nationwide Defined Protection® Annuity 2.0 from Nationwide and purchasers neither
acquire any interest in Bloomberg U.S. Corporate Index nor enter into any relationship of any kind whatsoever with Bloomberg or Barclays upon making a purchase in Nationwide
Defined Protection® Annuity 2.0. Nationwide Defined Protection® Annuity 2.0 is not sponsored, endorsed, sold or promoted by Bloomberg or Barclays. Neither Bloomberg nor Barclays makes any
representation or warranty, express or implied, regarding the advisability of the purchase of Nationwide Defined Protection® Annuity 2.0 or the advisability of purchasing securities generally or the ability of the Bloomberg U.S. Corporate Index to track corresponding or relative market
performance. Neither Bloomberg nor Barclays has passed on the legality or suitability of Nationwide Defined Protection®
Annuity 2.0 with respect to any person or entity. Neither Bloomberg nor Barclays is responsible for or has participated in the determination of the timing of, prices at, or quantities of Nationwide Defined
Protection® Annuity 2.0 to be issued. Neither Bloomberg nor Barclays has any obligation to take the needs of the Issuer or the owners of Nationwide Defined
Protection® Annuity 2.0 or any other third party into consideration in determining, composing or calculating the Bloomberg U.S.
Corporate Index. Neither Bloomberg nor Barclays has any obligation or liability in connection with administration, marketing or trading of Nationwide Defined Protection® Annuity 2.0.
The licensing agreement between Bloomberg and Barclays is solely for the benefit of Bloomberg
and Barclays and not for the benefit of the owners of Nationwide Defined
Protection® Annuity 2.0, investors or other third parties. In addition, the
licensing agreement between Nationwide Financial Services, Inc. and Bloomberg is solely for the benefit of Nationwide Financial Services, Inc. and Bloomberg and not for the benefit of the owners of Nationwide Defined Protection® Annuity 2.0,
investors or other third parties.
NEITHER BLOOMBERG NOR BARCLAYS SHALL
HAVE ANY LIABILITY TO THE ISSUER, INVESTORS OR OTHER THIRD PARTIES FOR THE QUALITY, ACCURACY AND/OR COMPLETENESS OF THE BLOOMBERG U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN OR FOR INTERRUPTIONS IN THE DELIVERY OF THE BLOOMBERG U.S. CORPORATE INDEX.
NEITHER BLOOMBERG NOR BARCLAYS MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER, THE INVESTORS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN. NEITHER BLOOMBERG NOR
BARCLAYS MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN. BLOOMBERG RESERVES THE RIGHT
TO CHANGE THE METHODS OF CALCULATION OR PUBLICATION, OR TO CEASE THE CALCULATION OR PUBLICATION OF THE BLOOMBERG U.S. CORPORATE INDEX, AND NEITHER BLOOMBERG NOR BARCLAYS SHALL BE LIABLE FOR ANY MISCALCULATION OF OR ANY INCORRECT, DELAYED OR INTERRUPTED
PUBLICATION WITH RESPECT TO ANY OF THE BLOOMBERG U.S. CORPORATE INDEX. NEITHER BLOOMBERG NOR BARCLAYS SHALL BE LIABLE FOR ANY DAMAGES, INCLUDING, WITHOUT LIMITATION, ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR ANY LOST PROFITS, EVEN IF ADVISED OF THE POSSIBLITY
OF SUCH, RESULTING FROM THE USE OF THE BLOOMBERG U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN OR WITH RESPECT TO NATIONWIDE DEFINED PROTECTION®
ANNUITY 2.0.
None of the information supplied by Bloomberg or Barclays and used in this publication may be reproduced in any manner
without the prior written permission of both Bloomberg and Barclays Capital, the investment banking division of Barclays Bank PLC. Barclays Bank PLC is registered in England No. 1026167, registered office 1 Churchill Place London E14 5HP.
J.P. MORGAN MOZAIC II INDEX
The J.P. Morgan Mozaic IISM Index ("J.P. Morgan Index") has been licensed to Nationwide Life Insurance Company (the
"Licensee") for the Licensee’s benefit. Neither the Licensee nor the Contract (the "Product") is sponsored, operated, endorsed, sold or promoted by J.P. Morgan Securities LLC ("JPMS") or any of its affiliates (together and individually, "J.P.
Morgan"). J.P. Morgan makes no representation and no warranty, express or implied, to investors in or owners of the Product (or any person taking exposure to it) or any member of the public in any other circumstances (each a "Contract
Owner"): (a) regarding the advisability of investing in securities or other financial or insurance products generally or in the Product particularly; or (b) the suitability or appropriateness of an exposure to the J.P. Morgan Index in seeking to achieve
any particular objective. It is for those taking an exposure to the Product and/or the J.P. Morgan Index to satisfy themselves
of these matters and such persons should seek
appropriate professional advice before making any investment. J.P. Morgan is not responsible for and does not have any obligation or liability in connection with the issuance,
administration, marketing or trading of the Product. The publication of the J.P. Morgan Index and the referencing of any asset or other factor of any kind in the J.P. Morgan Index do not constitute any form of investment recommendation or advice in respect of
any such asset or other factor by J.P. Morgan and no person should rely upon it as such. J.P. Morgan does not act as an investment adviser or investment manager in respect of the
J.P. Morgan Index or the Product and does not accept any fiduciary duties in relation to the J.P. Morgan Index, the Licensee, the Product or any Contract Owner.
The J.P. Morgan Index has been designed and is compiled, calculated, maintained and sponsored
by J.P. Morgan without regard to the Licensee, the Product or any Contract Owner. The ability of the Licensee to make use of the J.P. Morgan Index may be terminated on short notice and it is the responsibility of the Licensee to provide for the consequences of that
in the design of the Product. J.P. Morgan does not accept any legal obligation to take the needs of any person who may invest in a Product into account in designing, compiling,
calculating, maintaining or sponsoring the J.P. Morgan Index or in any decision to cease doing so.
J.P. Morgan does not give any representation, warranty or undertaking, of any type (whether
express or implied, statutory or otherwise) in relation to the J.P. Morgan Index, as to condition, satisfactory quality, performance or fitness for purpose or as to the results to be achieved by an investment in the Product or any data included in or omissions from the J.P. Morgan
Index, or the use of the J.P. Morgan Index in connection with the Product or the veracity, currency, completeness or accuracy of the information on which the J.P. Morgan Index is based (and without limitation, J.P. Morgan accepts no liability
to any Contract Owner for any errors or omissions in that information or the results of any interruption to it and J.P. Morgan shall be under no obligation to advise any person of any such error, omission or interruption). To the extent any such
representation, warranty or undertaking could be deemed to have been given by J.P. Morgan, it is excluded save to the extent that such exclusion is prohibited by law. To the fullest extent permitted by law, J.P. Morgan shall have no liability or responsibility to any person or entity (including, without limitation, to any Contract Owners) for any losses, damages, costs,
charges, expenses or other liabilities howsoever arising, including, without limitation, liability for any special, punitive, indirect or consequential damages (including loss of business or loss of profit, loss of time and loss of goodwill), even if
notified of the possibility of the same, arising in connection with the design, compilation, calculation, maintenance or sponsoring of the J.P. Morgan Index or in connection with the Product."
The J.P. Morgan Index is the exclusive property of J.P. Morgan. J.P. Morgan is under no obligation to continue compiling,
calculating, maintaining or sponsoring the J.P. Morgan Index and may delegate or transfer to a third party some or all of its functions in relation to the J.P. Morgan Index.
J.P. Morgan may independently issue or sponsor other indices or products that are similar to and may compete with the J.P.
Morgan Index and the Product. J.P. Morgan may also transact in assets referenced in the J.P. Morgan Index (or in financial instruments such as derivatives that reference those
assets). It is possible that these activities could have an effect (positive or negative) on the value of the J.P. Morgan Index and the Product.
No actual investment which allowed tracking of the performance of the Index was possible
before December 2016. Any hypothetical "back-tested" information provided is illustrative only and derived from proprietary models designed with the benefit of hindsight based on certain data (which may or may not correspond with the data that someone else would use to
back-test the Indices) and assumptions and estimates (not all of which may be specified herein and which are subject to change without notice). The results obtained from different
models, assumptions, estimates and/or data may be materially different from the results presented herein and such hypothetical "back-tested" information should not be considered indicative of the actual results that might be obtained from an investment or participation in a financial
instrument or transaction referencing the Indices. J.P. Morgan expressly disclaims any responsibility for (i) the accuracy or completeness of the models, assumptions, estimates and data used in deriving the hypothetical "back-tested" information,
(ii) any errors or omissions in computing or disseminating the hypothetical "back-tested" information, and (iii) any uses to which the hypothetical "back-tested" information may be put by any recipient of such information.
Each of the above paragraphs is severable. If the contents of any such paragraph is held to be or becomes invalid or unenforceable in any respect in any jurisdiction, it shall have no effect in that respect, but without prejudice to the
remainder of this notice.
The product referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to
any such product or any index on which such product is based. The Contract contains a more detailed description of the limited relationship MSCI has with Nationwide and any related
funds.
THIS PRODUCT IS NOT SPONSORED, ENDORSED, SOLD OR
PROMOTED BY MSCI INC. ("MSCI"), ANY OF ITS AFFILIATES, ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE "MSCI PARTIES"). THE MSCI INDEXES ARE THE EXCLUSIVE
PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY NATIONWIDE. NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR OWNERS OF
THIS PRODUCT OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN PRODUCTS GENERALLY OR IN THIS PRODUCT PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF
CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THIS PRODUCT OR THE ISSUER OR OWNERS OF THIS PRODUCT OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY
OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR OWNERS OF THIS PRODUCT OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE
TIMING OF, PRICES AT, OR QUANTITIES OF THIS PRODUCT TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THIS PRODUCT IS REDEEMABLE. FURTHER, NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THIS
PRODUCT OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THIS FUND.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE
MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE
ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF THE PRODUCT, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY
MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO EACH MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY
OF THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The mark NYSE® is a
registered trademark of NYSE Group, Inc., Intercontinental Exchange, Inc. or their affiliates and is being utilized by ICE Data Indices, LLC under license and agreement. The marks
Zebra® and Zebra Edge® are registered trademarks of Zebra Capital Management, LLC, may not be used without prior authorization from Zebra Capital Management, LLC, and are being utilized by ICE Data Indices, LLC under license and agreement.
ICE Data Indices, LLC owns all intellectual and other property rights to the NYSE® Zebra Edge® Index (the "Index"), including the composition and the calculation of the Index, excluding the methodology and formula for the Index. Zebra
Capital Management, LLC owns all intellectual and other property rights to the methodology and formula for the Index, which are being used by ICE Data Indices, LLC under license from Zebra Capital Management, LLC (together with its
subsidiaries and affiliates, "Zebra").
The Index has been licensed by ICE Data Indices, LLC (together with its subsidiaries and affiliates, "IDI") to UBS AG and
sub-licensed by UBS AG (together with its subsidiaries and affiliates, "UBS") to Nationwide Life Insurance Company ("Nationwide"). Neither Nationwide nor the Contract (the "Product") is sponsored, operated, endorsed, recommended, sold or
promoted by Zebra, IDI or UBS. Neither Zebra, IDI nor UBS makes any representation or gives any warranty, express or implied, regarding the advisability or possible benefits of
purchasing the Product or any other financial product. Clients should undertake their own due diligence and seek appropriate professional advice before purchasing any financial
product, including the Product.
The Index and other information disseminated by
IDI are for informational purposes only, are provided on an "as is" basis, and are not intended for trading purposes. Neither Zebra nor IDI makes any warranty, express or implied,
as to, without limitation, (i) the correctness, accuracy, reliability or other characteristics of the Index, (ii) the results to be obtained by any person or entity from the use of the Index for any purpose, or (iii) relating to the use of the Index and other information
covered by the Product, including, but not limited to, express or implied warranties of merchantability, fitness for a particular purpose or use, title or non-infringement. IDI does not warrant that the Index will be uninterrupted and is under
no obligation to continue compiling, calculating, maintaining or sponsoring the Index.
The Index (including the methodology(ies) and formula(s) therefor) has been designed and is compiled, calculated, maintained and sponsored without regard to any financial products that reference the Index (including the Product), any
licensee, sub-licensor or sub-licensee of the Index, any client or any other person. Zebra, IDI and UBS may independently issue and/or sponsor other indices and products that are similar to and/or may compete with the Index and the Product.
Zebra, IDI and UBS may also transact in assets referenced in the Index (or in financial instruments such as derivatives that reference those assets), including those which could have a positive or negative effect on the value of the Index and
the Product.
None of Zebra, IDI or UBS shall bear any responsibility or liability, whether for negligence or otherwise, with respect to (i)
any inaccuracies, omissions, mistakes or errors in the methodology(ies) and formula(s) for, or computation of, the Index (and shall not be obligated to advise any person of and/or to correct any such inaccuracies, omissions, mistakes or errors),
(ii) the use of and/or reference to the Index by Zebra, IDI, UBS or any other person in connection with any financial product or otherwise, or (iii) any economic or other loss
which may be directly or indirectly sustained by any client or other person dealing with any such financial product or otherwise. Any client or other person dealing with such
financial products does so, therefore, in full knowledge of this disclaimer and can place no reliance whatsoever on Zebra, IDI or UBS nor bring claims, actions or legal proceedings in any manner whatsoever against any of them.
The SG Macro Compass Index (the "SG Macro Index") has been licensed to Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company (collectively, the "Licensee") for the Licensee’s benefit. The Contract (the "Product") is not sponsored, promoted, solicited, negotiated,
endorsed, offered, sold, issued, supported, structured or priced by SG Americas Securities, LLC ("SGAS") or any of its affiliates (collectively, "SG"). SG makes no representation
whatsoever and no warranty, express or implied, to investors in or owners of the Product (or any person taking exposure to it) or any member of the public in any other circumstances (each a "Contract Owner"): (a) regarding the advisability of
investing in securities or other financial or insurance products generally or in the Product particularly; or (b) the suitability or appropriateness of an exposure to the SG Macro Index in seeking to achieve any particular objective, including meeting
its stated target volatility. Contract Owners should seek independent financial, tax, accounting, insurance, legal, and other professional advice prior to making any investment in the Product or any other product linked to the SG Macro Index. SG is
not responsible for and does not have any obligation or liability in connection with the design, issuance, administration, actions of the Licensee, marketing, trading or performance of the Product. SG has not prepared any part of this prospectus
and no statements made herein (including, without limitation, any disclosures relating to the SG Macro Index) can be attributed to SG. Publication of the SG Macro Index and the
constituents thereof do not constitute an investment recommendation or advice in respect of the SG Macro Index or any constituent thereof by SG and no person should rely upon it as such. SG does not act as an investment adviser or investment manager in respect of the SG Macro Index or the
Product and does not accept any fiduciary or other duties in relation to the SG Macro Index, the Licensee, the Product or any Contract Owner.
The SG Macro Index has been designed and is maintained and sponsored by SG without regard to the Licensee, the Product or any Contract Owner. The ability of the Licensee to make use of the SG Macro Index may be terminated on short
notice and it is the responsibility of the Licensee to provide for the consequences of that in the design of the Product. SG has no obligation to, and will not, take the needs of
the Licensee or any Contract Owner into consideration in sponsoring, maintaining, determining, composing or calculating the SG Macro Index or in any decision to cease doing
so.
SG makes no representation or warranty whatsoever, whether express or
implied, and hereby expressly disclaim all warranties (including, without limitation, those of merchantability or fitness for a particular purpose or use), with respect to the SG Macro Index or any data included therein or relating thereto, and in particular disclaims any guarantee or warranty
either as to the quality, accuracy, timeliness and/or completeness of the SG Macro Index or any data included therein, the results obtained from the use of the SG Macro Index and/or the calculation or composition of the SG Macro Index, or
calculations made with respect to the Product at any particular time on any particular date or otherwise. SG shall not be liable (whether in negligence or otherwise) to any person for any error or omission in the SG Macro Index or in the
calculation of the SG Macro Index, and SG is under
no obligation to advise any person of any error therein, or for any interruption in the calculation of the SG Macro Index. SG shall not have any liability to any party for any act
or failure to act by SG in connection with the determination, adjustment or maintenance of the SG Macro Index. Without limiting the foregoing, in no event shall SG have any liability for any direct damages, lost profits or any special, incidental, punitive,
indirect or consequential damages, even if notified of the possibility of such damages.
The SG Macro Index is the exclusive property of SG. SG is under no obligation to continue compiling, calculating, maintaining or sponsoring the SG Macro Index and may delegate or transfer to a third party some or all of its functions in
relation to the SG Macro Index. SG has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) ("S&P") to maintain and calculate the SG Macro Index. The SG Macro Index is not sponsored, promoted, sold, or supported
in any other manner by S&P, nor does S&P offer any express or implicit guarantee or assurance either with regard to the results of using the SG Macro Index and/or
trademarks of the Index or the levels of the SG Macro Index at any time or in any other respect. "SG Americas Securities, LLC", "SGAS", "Société Générale",
"SG", "Société Générale Indices", "SGI", and "SG Macro Compass Index" are trademarks or service marks used by SG.
SG may enter into derivative transactions or issue financial instruments linked to the SG
Macro Index and may independently issue or sponsor other indices or products that are similar to and may compete with the SG Macro Index and the Product. SG may also transact in assets referenced in the SG Macro Index (or in financial instruments such as
derivatives that reference those assets). The roles of the different teams involved within SG in the design, maintenance or replication of the SG Macro Index have been strictly defined. Where SG holds a product having the SG Macro Index as its
underlying and other positions exposing it to the SG Macro Index for its own account, the replication of the SG Macro Index is made in the same manner by a single team within SG, be it for the purpose of hedging the product held by external
investors and consumers or for the purpose of the positions held by SG acting for its own account. SG may take positions in the market of the financial instruments or of other
assets involved in the composition of the SG Macro Index, including as liquidity provider. It is possible that these activities could have an effect (positive or negative) on the
value of the SG Macro Index and the Product.
No actual investment which allowed tracking of the performance of the SG Macro Index was possible before August 28, 2020.
Any hypothetical "back-tested" information provided is illustrative only and derived from proprietary models designed with the benefit of hindsight based on certain data (which may
or may not correspond with the data that someone else would use to back-test the SG Macro Index) and assumptions and estimates (not all of which may be specified herein and which are subject to change without notice). The results obtained from different models, assumptions, estimates and/or data
may be materially different from the results presented by SG and such hypothetical "back-tested" information should not be considered indicative of the actual results that might be
obtained from an investment or participation in a financial instrument or transaction referencing the SG Macro Index. SG expressly disclaims any responsibility for (i) the accuracy
or completeness of the models, assumptions, estimates and data used in deriving the hypothetical "back-tested" information, (ii) any errors or omissions in computing or disseminating the hypothetical "back-tested" information, and (iii) any uses to
which the hypothetical "back-tested" information may be put by any recipient of such information. Any back-tested
information provided herein is intended for use only by professional financial advisers and institutional investors within the meaning of FINRA Rule 2210.
Each of the above paragraphs is severable. If the contents of any such paragraph is held to be or becomes invalid or
unenforceable in any respect in any jurisdiction, it shall have no effect in that respect, but without prejudice to the remainder of this notice.
S&P 500® AVERAGE DAILY RISK CONTROL 10% INDEX
The S&P 500 Average Daily Risk Control 10% USD Price Return Index ("S&P 500 Average Daily Risk Control USD Price
Return Index") is a product of S&P Dow Jones Indices LLC or its affiliates ("SPDJI"), and has been licensed for use by Nationwide. Standard & Poor’s® and S&P® are
registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these
trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Nationwide. It is not possible to invest directly in an index. The Product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of
their respective affiliates (collectively, "S&P Dow Jones Indices"). S&P Dow Jones Indices do not make any representation or warranty, express or implied, to the owners of the Product or any member of the public regarding the advisability of
investing in securities generally or in the Product particularly or the ability of the S&P 500 Average Daily Risk Control 10% USD Price Return Index to track general market performance. Past performance of an index is not an indication or guarantee
of future results. S&P Dow Jones Indices’ only relationship to Nationwide with respect to the S&P 500 Average Daily Risk Control 10% USD Price Return Index is the
licensing of the Index and certain trademarks, service marks and/or
trade names of S&P Dow Jones Indices and/or
its licensors. S&P 500 Average Daily Risk Control 10% USD Price Return Index is determined, composed and calculated by S&P Dow Jones Indices without regard to Nationwide or
the Product. S&P Dow Jones Indices have no obligation to take the needs of Nationwide or the owners of the Product into consideration in determining, composing or calculating the S&P 500 Average Daily Risk Control 10% USD Price Return Index
/. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the Product or the timing of the issuance or sale
of the product or in the determination or calculation of the equation by which the Product is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow
Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the Product. There is no assurance that investment products based on the S&P 500 Average Daily Risk Control 10% USD Price Return
Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on
portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be
investment advice.
NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE ADEQUACY, ACCURACY,
TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500 AVERAGE DAILY RISK CONTROL 10% USD PRICE RETURN INDEX OR
ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN.
S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY NATIONWIDE, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P 500 AVERAGE DAILY RISK CONTROL USD PRICE RETURN INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE,
OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND NATIONWIDE, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
The "S&P 500" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been
licensed for use by Nationwide Life Insurance Company ("Nationwide"). Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); DJIA®, The Dow®, Dow
Jones® and Dow Jones Industrial Average are trademarks of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed
for certain purposes by Nationwide. Nationwide the Contract is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates
(collectively, "S&P Dow Jones Indices"). S&P Dow Jones Indices makes no representation or warranty, express or implied, to the owners of the Contract or any member of the
public regarding the advisability of investing in securities generally or in the Contract particularly or the ability of the S&P 500 to track general market performance. S&P Dow Jones Indices’ only relationship to Nationwide with respect to the S&P 500 is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices or its
licensors. The S&P 500 is determined, composed and calculated by S&P Dow Jones Indices without regard to Nationwide or the Contract. S&P Dow Jones Indices have no obligation to take the needs of Nationwide or the owners of the Contract
into consideration in determining, composing or calculating the S&P 500. S&P Dow Jones Indices is not responsible for and has not participated in the determination of the prices, and amount of the Contract or the timing of the issuance or
sale of the Contract or in the determination or calculation of the equation by which the Contract is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices has no obligation or liability in connection
with the administration, marketing or trading of the Contract. There is no assurance that investment products based on the S&P 500 will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is
not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group
Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to the Contract currently being issued by Nationwide, but which may be similar to and competitive with the Contract. In addition, CME Group Inc. and its
affiliates may trade financial products which are linked to the performance of the S&P
500.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE
ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500 OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW
JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR
AS TO RESULTS TO BE OBTAINED BY NATIONWIDE, OWNERS OF THE CONTRACT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT
LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND NATIONWIDE, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
APPENDIX B:
STATE VARIATIONS
Described below are the variations to certain prospectus
disclosures resulting from state law or the instruction provided by state insurance authorities as of the date of this prospectus. Information regarding a state’s
requirements does not mean that Nationwide currently offers contracts within that jurisdiction. These variations are subject to change without notice and additional variations may be imposed as required by specific states.
|
|
|
• The Death Benefit does not change to Surrender Value upon assignment or a change in
ownership of the Contract
• The CDSC and MVA waiver under the Increase in Remaining Free
Withdrawal Amount after a Long-Term Care and
Terminal Illness or Injury (CDSC And MVA Waiver) section is not available. |
|
• The Death Benefit does not change to Surrender Value upon assignment or a change in
ownership of the Contract.
• Under the Long-Term Care Event subsection of the Increase in Remaining
Free Withdrawal Amount after a Long-Term Care and
Terminal Illness or Injury (CDSC And MVA
Waiver) section, an LTC Event must be after the second Contract Anniversary. |
|
• Purchase Payments for any other annuity contract issued by Nationwide to the Contract
Owner, Annuitant, or Contingent Annuitant will not be considered for purposes of
determining whether the Purchase Payment under this Contract exceeds
$1,000,000. • The Annuity Commencement Date must be at least one year after the Date of Issue.
• The Death Benefit does not change to Surrender Value upon assignment or a change in
ownership of the Contract. |
|
• Joint Owners are not limited to spouses. |
|
• The Contract will not be contested. • Misstatements made as to the sex of the Contract Owner, Joint Owner,
Annuitant, Co- Annuitant, Contingent Annuitant, Beneficiary or
Contingent Beneficiary are excluded from the Misstatements of Age or Sex section. |
|
• The CDSC and MVA waiver under the Increase in Remaining Free Withdrawal Amount
after a Long-Term Care and Terminal Illness or Injury (CDSC And MVA Waiver)
section is not available. |
|
• The Annuitant, Co-Annuitant, Contingent Annuitant, Contract Owner, Joint Owner,
Beneficiary and Contingent Beneficiary are excluded from the Misstatements of Age
or Sex section.
• Joint Owners are not limited to spouses. • Under the Purchase Payment section, purchase payments for any other annuity
contract issued by Nationwide with the same Contract Owner,
Annuitant or Contingent Annuitant does not apply to
Nationwide’s reservation of right to refuse any Purchase in excess of $1,000,000 under this Contract. |
|
• Certain Contract Exchanges provision has been removed. Waiver of CDSC
in cases other than those associated with Long Term Care and
Terminal Illness (disability) are not permitted.
• Under the Purchase Payment section, purchase payments for any other annuity contract issued by Nationwide with the same Contract Owner, Annuitant or Contingent Annuitant
does not apply to Nationwide’s reservation of right to refuse any Purchase
in excess of $1,000,000 under this Contract.
|
|
• After receipt of proper proof of death, the number of days allowed for payment of the
Death Benefit is fifteen (15) days. |
|
• The Surrender Value of the Fixed Strategy shall be no less than the
present value, at time of surrender, of the Fixed Strategy Value
then guaranteed at the later of the tenth Contract Anniversary or
the Contract Anniversary next following the Annuitant’s 70th
birthday. |
APPENDIX C: MVA,
PARTIAL, WITHDRAWAL, AND SURRENDER EXAMPLES
Nationwide calculates the MVA Factor using the following formula:
MVA Factor = MVA Scaling Factor x (A – B) x N/12, where:
A = Initial Market Value Reference Rate
B = Market Value Reference Rate on the date the withdrawal is
processed
N = Number of whole months (partial months
will be rounded up to the next whole month) remaining in the MVA Period, calculated from the date that the withdrawal is processed
All examples assume the following:
•
The MVA Scaling Factor is 1.0
•
The Initial Market Value Reference Rate is 3.50%
Example 1: MVA Factor Calculation
•
The MVA is calculated 13-1/2 months after the Date of Issue
•
The Market Value Reference Rate on that date is 4.00%
Then the MVA Factor is calculated using the following values:
•
N is 59 (i.e., there are 58-1/2 months remaining in the MVA Period (72 months – 13-1/2
months), which is rounded up to 59 months)
The MVA Factor on that date is -2.46% (i.e., 1.00 x (3.50% - 4.00%) x 59/12)
Example 2: Partial Withdrawal
•
The MVA is calculated 39 months after the Date of Issue
•
The Market Value Reference Rate on that date is 6.10%
•
The Contract Value is $150,000. There are three Strategies: the Fixed Strategy Value is
$20,000; Index Strategy A has a Protection Level of 90% and a Strategy Value of $100,000; Index Strategy B has a Protection Level of 100% and a Strategy Value of $30,000
•
The Fixed Strategy MNV is $13,520
•
Strategy A does not have a Minimum Nonforfeiture Value
•
The Index Strategy MNV is $27,900 and applies to Strategy B
•
The Remaining Free Withdrawal Amount is $15,000
Then the MVA Factor is calculated using the following values:
•
N is 33 (i.e., there are 33 months remaining in the MVA Period 72 months – 39
months)
•
The CDSC percentage rate 39 months after the Date of Issue is 6%
The MVA Factor on that date is -7.15% (i.e., 1.00 x (3.50% - 6.10%) x 33/12)
Assume the Contract Owner makes a partial withdrawal of $60,000. Partial withdrawals
will be taken proportionally from the Strategies in which the Contract Owner is allocated based on the Contract Value in the Strategies at the time of the request, meaning $8,000 is withdrawn from the Fixed Strategy, $40,000 is withdrawn from Index Strategy A, and $12,000 is
withdrawn from Index Strategy B.
The MVA amount applicable to the Fixed
Strategy will never be larger (either positive or negative) than M x A and is referred to as the MVA limit. It is calculated as follows:
•
The amount of Remaining Free Withdrawal Amount attributable to the Fixed Strategy is $2,000
(i.e., 15,000 x 20,000 / 150,000)
•
The limit on the MVA attributable to the Fixed Strategy is equal to M x A, where:
•
M = (8,000 –2,000) / (20,000 –2,000) = 0.3333
•
A = The greater of zero or 20,000 – (20,000 – 2,000) x 6% –13,520 =
$5,400
The limit applies both positively and negatively. The MVA attributable to the Fixed Strategy cannot be more than $1,800 or
less than -$1,800.
The MVA amount appliable to Index Strategies with Nonforfeiture Values (Index Strategy B) will never be larger (either
positive or negative) than M x A and is referred to as the MVA limit. It is calculated as follows:
•
The amount of Remaining Free Withdrawal Amount attributable to Index Strategies with
Nonforfeiture Values is $3,000 (i.e., 15,000 x 30,000 / 150,000)
•
The limit on the MVA attributable to Index Strategy B is equal to M x A, where:
•
M = (12,000 – 3,000) / (30,000 – 3,000) = 0.3333
•
A = The greater of zero or 30,000 – (30,000 – 3,000) x 6% –27,900 =
$480
The limit applies both positively and negatively. The MVA attributable to Index Strategies with Nonforfeiture Values cannot
be more than $160 or less than -$160.
•
For Index Strategies without Nonforfeiture Values (Index Strategy A):
The amount of Remaining Free Withdrawal Amount attributable to Index Strategies without Nonforfeiture Values is $10,000
(i.e., 15,000 x 100,000 / 150,000)
Before applying the limit, the MVA amounts are equal to:
Index Strategy A: MVA Base x MVA Factor = (40,000 – 10,000) x -7.15% = -$2,145
Fixed Strategy: MVA Base x MVA Factor = (8,000 – 2,000) x -7.15% = -$429
Index Strategy B: MVA Base x MVA Factor = (12,000 – 3,000) x -7.15% =
-$643.50
With the limit, the MVA applicable to the Fixed Strategy cannot
be lower than -$1,800. This has no impact on the MVA. Therefore, the MVA for this Strategy is -$429.
With the limit, the MVA applicable to Index Strategies with Nonforfeiture Values (i.e. Index
Strategy B) cannot be lower than -$160. Therefore, the MVA for these Strategies is -$160.
Therefore, the total MVA is -$2,734 (i.e., -2,145 + (-429) + (-160)).
The withdrawal proceeds are calculated using the following steps:
Step 1: Calculate Withdrawal proceeds for Fixed Strategy
The proceeds are calculated as follows:
•
The Strategy Value withdrawn for this Strategy is $8,000.
•
The CDSC for this Strategy is $360 (i.e., (8,000 – 2,000) x 6%)
•
The MVA for this Strategy is -$429 (as derived above)
•
The resulting withdrawal proceeds are $7,211 (i.e., 8,000 – 360 + (-429))
Step 2: Calculate Withdrawal proceeds for Strategies which offer Minimum Nonforfeiture
Values
The proceeds are calculated as follows:
•
The Strategy Value withdrawn for these Strategies is $12,000
•
The CDSC for these strategies is $540 (i.e., (12,000 – 3,000) x 6%)
•
The MVA for these strategies is -$160 (as derived above)
•
The resulting withdrawal proceeds are $11,300 (i.e., $12,000 – $540 + (-$160))
Step 3: Calculate Withdrawal proceeds for Strategies which do not offer Minimum Nonforfeiture
Values
The proceeds are calculated as follows:
•
The Strategy Value withdrawn for these Strategies is $40,000.
•
The CDSC for these strategies is $1,800 (i.e. (40,000 – 10,000) x 6%)
•
The MVA for these strategies is -$2,145 (as derived above)
•
The resulting withdrawal proceeds are $36,055 (i.e., 40,000 – 1,800 +
(-2,145))
Step
4: Calculate Total Surrender Value
The total withdrawal proceeds are
$54,566 (i.e., 7,211 + 11,300 + 36,055)
Example 3: Full Surrender
Assume the same contract as Example 2. Assume the Contract Owner surrenders the Contract in full, meaning $20,000 is withdrawn from the Fixed Strategy, $100,000 is withdrawn from Index Strategy A, and $30,000 is withdrawn from Index Strategy
B.
The MVA limit for the Fixed Strategy is calculated as
follows:
•
The amount of Remaining Free Withdrawal Amount attributable to the Fixed Strategy is $2,000 (i.e., 15,000 x 20,000 /
150,000)
•
The limit on the MVA attributable to the Fixed Strategy is equal to M x A, where:
•
M = (20,000 – 2,000) / (20,000 – 2,000) = 1
•
A = The greater of zero or 20,000 – (20,000 – 2,000) x 6% –13,520 =
$5,400
The limit applies both positively and negatively. The MVA attributable to the Fixed Strategy cannot be more than $5,400 or
less than -$5,400.
•
The MVA limit for Index Strategies with Nonforfeiture Values (Index Strategy B) is calculated
as follows:
The amount of Remaining Free Withdrawal Amount attributable to Index Strategies with Nonforfeiture Values is $3,000 (i.e., 15,000 x 30,000 / $150,000)
•
The limit on the MVA attributable to Index Strategy B is equal to M x A, where:
•
M = (30,000 – 3,000) / (30,000 – 3,000) = 1
•
A = The greater of zero or 30,000 – (30,000 – 3,000) x 6% –27,900 =
$480
The limit applies both positively and negatively. The MVA attributable to Index Strategies with Nonforfeiture Values cannot
be more than $480 or less than -$480.
For Index Strategies without Nonforfeiture Values (Index Strategy A):
•
The amount of Remaining Free Withdrawal Amount attributable to Index Strategies without
Nonforfeiture Values is $10,000 (i.e. 15,000 x 100,000 / 150,000)
Before applying the limit, the MVA amounts are equal to:
Index Strategy A: MVA Base x MVA Factor = (100,000 – 10,000) x -7.15%
= -$6,435
Fixed Strategy: MVA Base x MVA Factor =
(20,000 – 2,000) x -7.15% = -$1,287
Index Strategy
B: MVA Base x MVA Factor = (30,000 – 3,000) x -7.15% = -$1,930.50
With the limit, the MVA applicable to the Fixed Strategy cannot be lower than -$5,420. This has no impact on the MVA. Therefore, the MVA for this Strategy is -$1,287
With the limit, the MVA applicable to Index Strategies with Nonforfeiture Values cannot be lower than -$480. Therefore, the
MVA for these Strategies is -$480.
Therefore, the total MVA is -$8,202 (i.e., -6,435 + (-1,287) + (-480)).
The Surrender Value is calculated using the following steps:
Step 1: Calculate Surrender Value for Fixed Strategy
•
Prior to the Minimum Nonforfeiture Value, the Surrender Value is calculated as follows:
The Strategy Value for this Strategy is $20,000
•
The CDSC for this Strategy is $1,080 (i.e., (20,000 –2,000) x 6%)
•
The MVA for this Strategy is -$1,287 (as derived above)
•
The resulting Surrender Value is $17,633 (i.e., 20,000 –1,080 + (-1,287))
The Minimum
Nonforfeiture Value for this Strategy is $13,520.
The
Surrender Value is the greater of the two values, which is $17,633.
Step
2: Calculate Surrender Value for Index Strategies which offer Minimum Nonforfeiture Values
•
Prior to the Minimum Nonforfeiture Value, the Surrender Value is calculated as follows:
The Strategy Value for these Strategies is $30,000
•
The CDSC for these strategies is $1,620 (i.e., (30,000 – 3,000) x 6%)
•
The MVA for these strategies is -$480 (as derived above)
•
The resulting Surrender Value is $27,900 (i.e., 30,000 –1,620 + (-480))
The Minimum
Nonforfeiture Value for these Strategies is $27,900
The
Surrender Value is the greater of the two values, which is $27,900
Step
3: Calculate Surrender Value for Strategies which do not offer Minimum Nonforfeiture Values
•
The Surrender Value is calculated as follows:
The Strategy Value for these Strategies is $100,000
•
The CDSC for these strategies is $5,400 (i.e., (100,000 – 10,000) x 6%)
•
The MVA for these strategies is -$6,435 (as derived above)
•
The resulting Surrender Value is $88,165 (i.e., 100,000 – 5,400 + (-6,435))
Step 4: Calculate Total
Surrender Value
The total Surrender Value is $133,698 (i.e., 17,633 +
27,900 + 88,165).
APPENDIX D:
DAILY INDEX STRATEGY EARNINGS PERCENTAGE
The Daily ISE Percentage is calculated
as the greater of 1) the Protection Level minus 100%, or 2) the Daily Pre-Protection Level ISE Percentage.
The Daily Pre-Protection Level ISE Percentage is calculated using the following
formula:
A + Fixed Income Proxy – C – 1,
where:
A: A proxy of the fair value, as of the current
date, of the hypothetical derivatives that represents Nationwide’s obligation to provide the Term End ISE Percentage on the Strategy Term End Date
Fixed Income Proxy: (1 – B) ((T – t) / T)
B: A proxy of the fair value, as of the first day of the Strategy Term, of the hypothetical derivatives that represents
Nationwide’s obligation to provide the Term End ISE Percentage on the Strategy Term End Date
t: Time elapsed since the first day of the Strategy Term, in years
C: trading cost, which is calculated as the greater of zero or the trading cost rate (as stated in the Contract) multiplied
by (T – t).
Proxy Fair Value of the Hypothetical Derivatives
The proxy fair value of the hypothetical derivatives is calculated using an options valuation model called the Black Scholes model. The model uses a variety of market inputs to estimate the derivative’s value on a specific day. See, "Market Inputs" below for detail on the inputs that Nationwide uses.
The valuation of these financial instruments is based on standard methods for valuing derivatives and based on inputs from
third party vendors where possible. The methodology used to value these financial instruments is determined solely by Nationwide and may vary from other estimated valuations or the
actual selling price of identical financial instruments. Nationwide may, but is not required to, hold actual investments corresponding to the hypothetical derivatives.
For any Business Day when a value needed to calculate the Daily ISE Percentage is
unavailable, Nationwide will use the unavailable value’s previous Business Day’s value to calculate the Daily ISE Percentage. If a third party that provides these values later provides a value for a Business Day when the value was not provided to Nationwide or was otherwise not
available, Nationwide will recalculate the impacted transactions and Contract Values according to the value provided to Nationwide. This recalculation could result in changes to
transactions and Contract Values that occurred when a value was not provided by the third party provider.
Nationwide uses the following derivatives in its fair value methodology. Note that for the
100% Protection Level, only the first of these options is used:
•
Call Option (CO) – an option to buy a position in the Index on the Strategy Term End
Date at the strike price of [1 + (Strategy Spread) x (Strategy Term) / (Participation Rate)]. On a Term End Date, the Call Option’s value is equal to the {Index Performance - [(Strategy Spread) x (Strategy Term) / (Participation Rate)]}, but no less than
0.
•
First Put Option (FPO) – an option to sell a position in the Index on the Strategy Term
End Date at the strike price of {1 + [(Protection Level – 1) + (Strategy Spread) x (Strategy Term)] / (Participation Rate)}. On a Term End Date, the First Put’s value is equal to {[(Protection Level – 1) + (Strategy Spread) x (Strategy Term )] /
(Participation Rate) - Index Performance}, but no less than 0.
•
Second Put Option (SPO) – an option to sell a position in the Index on the Strategy Term
End Date at the strike price of [1 + (Strategy Spread) x (Strategy Term) / (Participation Rate)]. On a Term End Date, the Second Put’s value is equal to [(Strategy Spread) x (Strategy Term) / (Participation Rate) - Index Performance], but no less than
0.
The proxy
fair value for Index Strategies is calculated as follows:
•
For Index Strategies with a 100% Protection Level, the proxy fair value is equal to:
Participation Rate x CO.
•
For other Index Strategies, the proxy fair value is equal to: Participation Rate x (CO + FPO
– SPO).
Nationwide uses the following market inputs to
value the derivatives:
•
Strike price – the strike price varies by each derivative as follows:
•
For the Call Option (CO), the strike price is equal to [1 + (Strategy Spread) x (Strategy
Term) / (Participation Rate)].
•
For the First Put Option (FPO), the strike price is equal to {1 + [(Protection Level –
1) + (Strategy Spread) x (Strategy Term)] / (Participation Rate)}
•
For the Second Put Option (SPO), the strike price is equal to [1 + (Strategy Spread) x
(Strategy Term) / (Participation Rate)]
•
Risk-free Rate – interest rate derived using option quotes from Bloomberg or another
independent third-party financial institution. Linear interpolation is used to derive the rate corresponding to the exact Time Remaining needed for the input.
•
Dividend Yield – For price return indexes, the implied dividend rate for the entire
Index derived using option quotes from Bloomberg or another independent third-party financial institution. Linear interpolation is used to derive the rate corresponding to the exact Time Remaining needed for the input. For excess return indexes this is based on
the risk-free rate.
•
Volatility – implied option volatility using quotes from Bloomberg or another
independent third-party financial institution. The quotes may be approximated using observed option prices. Direct sources for implied volatility are generally not available because options in the marketplace do not directly align with the time remaining in the Strategy
Term and strike prices for each of the hypothetical derivatives underlying the calculation of Index Strategy Value for each Index Strategy. For each derivative, linear
interpolation is used to derive the volatility corresponding to the exact moneyness and Time Remaining needed for the input.
•
Time Remaining – the number of days remaining in the Strategy Term divided by 365.25
When third-party option quotes are not publicly available, Nationwide may use values from its
own option transactions and known index properties (such as target volatility) to determine an input.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless Otherwise Noted, Examples Use the Following Time Input |
Years Elapsed since Strategy
Term start (t) |
|
|
Years Remaining in Strategy Term |
|
|
Index Performance of -25%, other inputs changed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
|
|
|
Index Performance of -5%, other inputs unchanged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
Index Performance of 0%, other inputs unchanged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
Percentageiv |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
Index Performance of 0%, Time Remaining = 0.25 years
|
Time in years Elapsed since
Strategy Term start (t) |
|
|
Time Remaining in Strategy Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
Index Performance of +25%, other inputs unchanged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
Index Performance of -5%, Risk-free Rate down 0.50%, other inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
Index Performance of 0%, dividend up 2%, volatility down 4%,
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Pre-Protection Level ISE
|
|
|
|
|
|
|
|
|
|
|
|
The Strategy Values in the next
row show what the Strategy
Values would be at the end of
the Strategy Term when
calculated with the Term End
ISE Percentage, assuming all
assumptions in the example
above did not change until the
end of the Strategy Term. Not
all of the assumptions above
are used in the Term End ISE
Percentage calculation. See the
Index Strategy Earnings section
of the prospectus for details on
the Term End ISE Percentage
calculation. |
|
|
Strategy Value at the end of the
Strategy Term |
|
|
i For Index Strategies with a 100% Protection Level, the Proxy Fair Value is equal to
Participation Rate x CO. For other Index Strategies, the Proxy Fair Value is equal to Participation Rate x (CO + FPO – SPO)
ii Fixed Income Proxy is equal to (1 – B) ((T – t) / T)
iii Trading cost is equal to trading cost rate x (T – t). The examples use a trading cost rate of 0.10%
iv Daily Pre-Protection Level ISE Percentage is equal to A +
Fixed Income Proxy – C – 1
v Daily ISE Percentage is equal to the greater of 1) the
Protection Level minus 100%, or 2) the Daily Pre-Protection Level ISE Percentage..
APPENDIX E:
NATIONWIDE LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION & ANALYSIS AND STATUTORY FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
NATIONWIDE LIFE INSURANCE COMPANY
(A Wholly Owned Subsidiary of Nationwide Financial Services, Inc.)
2023 Form S-1 MD&A, Statutory Financial Statements and Supplemental Schedules
BUSINESS
Nationwide Life Insurance Company ("NLIC" or "the Company") is an Ohio domiciled stock 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 affiliates and subsidiaries.
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.
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 wide range of products and services, which include life insurance, fixed and variable individual annuities, private and public sector group retirement plans, investment advisory services, pension risk transfer
("PRT") contracts and other investment products. The Company is licensed to conduct business in all fifty states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
Wholly-owned subsidiaries of NLIC as of December 31, 2023 include Nationwide Life and Annuity Insurance Company ("NLAIC")
and its wholly-owned subsidiaries, Olentangy Reinsurance, LLC ("Olentangy") and Nationwide SBL, LLC ("NWSBL"), Jefferson National Life Insurance Company ("JNL") and its
wholly-owned subsidiary, Jefferson National Life Insurance Company of New York ("JNLNY"), Eagle Captive Reinsurance, LLC ("Eagle"), Nationwide Investment Services Corporation ("NISC") and Nationwide Investment Advisors, LLC ("NIA"). NLAIC primarily offers individual annuity contracts
including fixed annuity contracts, group annuity contracts including PRT contracts, universal life insurance, variable universal life insurance, term life insurance and corporate-owned life insurance on a non-participating basis. Olentangy is
a dormant Vermont domiciled special purpose financial insurance company and nonadmitted subsidiary. NWSBL is an
Ohio limited liability company and offers a securities-based lending product and is a nonadmitted subsidiary. JNL and JNLNY primarily offer individual deferred fixed and variable annuity products. Eagle is an Ohio domiciled special purpose
financial captive insurance company. NISC is a registered broker-dealer. NIA is a registered investment advisor and nonadmitted subsidiary.
Management views the Company’s business primarily based on its underlying products and uses this basis to define its
four reportable segments: Life Insurance, Annuities, Retirement Solutions and Corporate Solutions and Other.
"Pre-tax operating earnings (losses)" used below is defined as income before federal income
tax expense and net realized capital gains and losses on investments.
The Life Insurance segment consists of life insurance products, including individual variable universal life insurance products, traditional life insurance products, fixed universal life insurance products and indexed universal life insurance
products. Life insurance products provide a death benefit and, for certain products, allow the customer to build cash value on a tax-advantaged basis.
The following table summarizes selected financial data for the Company’s Life Insurance segment for the years ended:
|
|
|
|
|
|
|
|
|
|
Pre-tax operating earnings (losses) |
|
|
|
The Annuities segment consists of individual deferred annuity products and immediate annuities. Individual deferred annuity contracts consist of deferred variable annuity contracts, deferred fixed annuity contracts, deferred registered
index-linked annuity contracts and deferred fixed indexed annuity contracts. 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, deferred variable annuity contracts provide the customer with access to a wide range of investment options and asset protection
features. Deferred fixed annuity contracts offered by the Company generate a return for the customer at a specified interest rate fixed for prescribed periods. Deferred registered
index-linked annuity contracts and deferred fixed indexed annuity contracts are linked to the performance of an external index and subject to other factors that determine the performance of the contract. Immediate annuities differ from deferred annuities
in that the initial premium is exchanged for a
stream of income for a certain period and/or for the owner’s lifetime without future access to the original investment. The selected financial data for the Company’s
Annuities segment for the years ended December 31, 2022 and 2021, reflect transfers for retirement plan guarantee products to the Retirement Solutions segment beginning in 2023.
The following table summarizes selected financial data for the Company’s Annuities segment for the years ended:
|
|
|
|
|
|
|
|
|
|
Pre-tax operating earnings |
|
|
|
The Retirement Solutions segment is composed of the private
and public sector retirement plans businesses. The private sector business primarily includes Internal Revenue Code ("IRC") Section 401-qualified plans funded through fixed and
variable group annuity contracts. The public sector business primarily includes IRC Section 457(b) and Section 401(a) governmental plans, both in the form of full-service arrangements that provide plan administration along with fixed and
variable group annuities, as well as in the form of administration-only business. The Retirement Solutions segment also includes stable value wrap products and solutions. The selected financial data for the Company’s Retirement Solutions
segment for the years ended December 31, 2022 and 2021, reflect transfers for retirement plan guarantee products from the Annuities segment beginning in 2023.
The following table summarizes selected financial data for the Company’s Retirement Solutions segment for the years
ended:
|
|
|
|
|
|
|
|
|
|
Pre-tax operating earnings |
|
|
|
Corporate Solutions and
Other
The Corporate Solutions and Other segment consists of
corporate-owned life insurance ("COLI") and bank-owned life insurance ("BOLI") products, PRT, small business group life insurance, spread income on Federal Home Loan Bank of
Cincinnati ("FHLB") funding agreements and net investment income on invested assets not assigned to other reportable segments. Certain COLI and BOLI products include stable value wrap products and solutions.
The following table summarizes selected financial data for the Company’s Corporate Solutions and Other segment for the years ended:
|
|
|
|
|
|
|
|
|
|
Pre-tax operating earnings |
|
|
|
Marketing and Distribution
The Company sells its products through a diverse distribution network. Unaffiliated
entities that sell, recommend or direct the purchase of the Company’s products to their own customer bases include independent broker-dealers, financial institutions, wirehouses and regional firms, pension plan administrators, life insurance agencies, life insurance specialists
and registered investment advisors. Affiliates that market products directly to a customer base include Nationwide Retirement Solutions, Inc. ("NRS"), Nationwide Securities, LLC ("NSLLC") and Nationwide Financial General Agency, Inc.
("NFGA"). The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively under various economic conditions.
Unaffiliated Distribution
Independent Broker-Dealers, Registered Investment Advisors, Regional Firms and Life Insurance Agencies. The Company sells individual annuities, mutual funds, group retirement plans, PRT and life insurance products through, or
at the recommendation or direction of, independent broker-dealers, registered investment advisors and agencies (including brokerage general agencies in the Life Insurance and Annuities segments) and regional firms in each state and the District
of Columbia. The Company also provides information
and education to registered investment advisors who may recommend these products to their customers. The Company believes that it has developed strong relationships based on
its diverse product mix, large selection of fund options and administrative technology. In addition to such relationships, the Company believes its financial strength and the Nationwide brand name are competitive advantages in these distribution
channels. The Company regularly seeks to expand this distribution network.
Financial Institutions and Wirehouses. The Company markets individual
annuities, mutual funds, private sector retirement plans and life insurance products through financial institutions and wirehouses, consisting primarily of banks and their subsidiaries. The Company markets individual annuities and life insurance products under its brand name and on a
private-label basis. The Company believes that it has competitive advantages in this distribution channel, including its expertise in training financial institution personnel to sell annuities, life insurance and pension products, its breadth of
product offerings, its financial strength, the Nationwide brand name and the ability to offer private-label products.
Pension Plan Administrators. The Company markets group retirement plans organized pursuant to IRC Section 401 and sponsored by employers as part of
employee retirement programs through regional pension plan administrators. The Company also has linked pension plan administrators to the financial planning community to sell group
pension products. The Company targets employers with 25 to 2,000 employees because it believes that these plan sponsors tend to require extensive record-keeping services from pension plan administrators, and therefore are more likely to become long-term
customers.
Life Insurance Specialists. The Company markets COLI and BOLI through life insurance specialists, which
are firms that specialize in the design, implementation and administration of executive benefit plans.
NRS.
NRS markets various products and services to the public sector, primarily on a retail basis, through several sales organizations. NRS markets group variable annuities and fixed
annuities, as well as administration and record-keeping services to state and local governments for use in their IRC Section 457 and Section 401(a) retirement programs. NRS maintains endorsement arrangements with state and local government entities, including the National Association of Counties
and the International Association of Fire Fighters.
Affiliated Producers. The Company has affiliated producers that are
authorized to distribute life insurance, annuity and mutual fund products, as well as individual securities and investment advisory services. Producers licensed and appointed
through NFGA sell fixed life insurance and fixed annuities to individual consumers. Producers licensed and registered with NSLLC, a registered broker-dealer and federally registered investment advisor, offer variable life insurance and variable
annuities, as well as various other securities and investment advisory services.
The Company follows the industry practice of reinsuring with other companies a portion of its life insurance, annuity and
accident and health risks in order to reduce the net liability on individual risks, to provide protection against large losses, achieve greater diversification of risks and obtain statutory capital relief. The maximum net amount at risk of individual
ordinary life insurance retained by the Company on any one life is $10 million. The Company cedes insurance on both 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 has entered into reinsurance contracts with certain unaffiliated reinsurers to cede a portion of its general account life, annuity and accident and health business. Total
amounts recoverable under these unaffiliated reinsurance contracts totaled $58 million and $9 million as of December 31, 2023 and 2022, respectively.
Under the terms of certain contracts, specified assets are generally 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 Life Insurance and Annuities segments. The Company has no other
material reinsurance arrangements with unaffiliated reinsurers.
The Company’s material reinsurance agreements with affiliates are the modified coinsurance agreement, pursuant to
which NLIC cedes to NMIC nearly all of its accident and health insurance business not ceded to unaffiliated reinsurers, the 100% coinsurance agreement with funds withheld with Eagle to cede specified guaranteed minimum death benefits ("GMDB")
and guaranteed lifetime withdrawal benefits ("GLWB") obligations provided under substantially all of the variable
annuity contracts and certain fixed indexed
annuity contracts issued and to be issued by NLIC, the modified coinsurance agreement with NLAIC, pursuant to which NLIC assumes certain inforce and subsequently issued fixed
individual deferred annuity contracts, the modified coinsurance agreement with NLAIC, pursuant to which NLIC assumes certain variable universal life insurance, whole life insurance and universal life insurance policies, and the 100% coinsurance agreement
with NLAIC, pursuant to which NLIC assumes a certain life insurance contract, as described in Note 11 to the audited statutory financial statements included in the F pages of this report.
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. Such factors are important to policyholders, agents and intermediaries. They are not evaluations directed toward the protection of investors and are not
recommendations to buy, sell or hold securities. 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. Ratings are continually evaluated relative to 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.
Ratings are important to maintaining public confidence in the Company and its ability to market 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. As of December 31, 2023, NLIC has a financial strength rating of "A+" (Superior) from A.M. Best Company, Inc. ("A.M. Best") and its claims-paying
ability/financial strength is rated "A1" (Good) by Moody’s Investors Service, Inc. ("Moody’s") and "A+" (Strong) by Standard & Poor’s Rating Services ("S&P").
The Company competes with many other insurers, as well as non-insurance financial services
companies, some of which 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 greater financial resources and larger
market share than the Company. Competition in the Company’s lines of business is primarily based on price, product features, commission structure, perceived financial strength, claims-paying ability, customer and producer service and name
recognition.
See also "Risk Factors – The Company operates in a highly competitive industry, which can significantly impact operating results."
Regulation at State Level
NLIC and NLAIC are each domiciled and licensed in the State of Ohio as life insurers. The Ohio Department of Insurance ("the
Department") serves as their domiciliary regulator. NLIC is licensed and regulated as a life insurer in all 50 states, the District of Columbia, Guam, Virgin Islands and Puerto
Rico. NLAIC is licensed and regulated as a life insurer in 49 states (excluding New York) and the District of Columbia. JNL is domiciled in the State of Texas, with the Texas
Department of Insurance serving as its domiciliary regulator. JNL is licensed as a life insurer in 49 states (excluding New York) and the District of Columbia. JNLNY is domiciled and licensed as a life insurer in the state of New York with the New York State
Department of Financial Services ("NY DFS") serving as its domiciliary regulator. Eagle is domiciled in Ohio and is licensed in Ohio as a special purpose financial captive insurance company regulated by the Department. Olentangy is
domiciled in Vermont and is licensed in Vermont as a dormant special purpose financial insurance company regulated by the Vermont Department of Financial Regulation.
State insurance authorities have broad administrative powers with respect to various aspects of the insurance business.
Among other areas, these authorities regulate advertising and marketing; privacy; acquisitions; payment of dividends; the form and content of insurance policies (including pricing); operating and agent licenses; regulation of premium rates;
premium tax increases; rating and underwriting restrictions and limitations; asset and reserve valuation requirements;
enterprise risk management; surplus requirements;
accounting standards; Risk Based Capital ("RBC") requirements; statutory reserve and capital requirements; assessments by guaranty associations; affiliate transactions; unfair
trade and claims practices; admittance of assets to statutory surplus; maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; the type, amounts and valuations of investments permitted; reinsurance
transactions, including the role of captive reinsurers; environmental, social and governance ("ESG") rules and standards including management and disclosure of climate risks; and other matters.
The National Association of Insurance Commissioners ("NAIC") is the U.S. standard setting and regulatory support
organization created and governed by the chief insurance regulatory authorities of the 50 states, the District of Columbia and the five U.S. territories. A primary mandate of the NAIC is to benefit state insurance regulatory authorities and
consumers by promulgating model insurance laws and regulations for adoption by the states. The NAIC also provides
standardized insurance industry accounting and reporting guidance through the NAIC Accounting Practices and
Procedures Manual ("the Accounting Manual"). However, model insurance laws and regulations are only effective when adopted by the states, and statutory accounting and reporting principles continue to be established by individual state
laws, regulations and permitted practices. Changes to the Accounting Manual or modifications by the various state
insurance departments may affect the statutory capital and surplus of NLIC, NLAIC, JNL, JNLNY, Olentangy and Eagle.
Insurance Holding Company Regulation
NLIC is a wholly-owned subsidiary of NFS, which in turn is a wholly-owned subsidiary of
Nationwide Corp., a wholly-owned subsidiary of NMIC. NMIC is the ultimate controlling entity of the Nationwide group of companies. As such, Nationwide is subject to certain insurance laws of each of the states of domicile of its insurance subsidiaries and
affiliates. All 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 to furnish annually 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 (generally referred to as "insurance holding company acts"). Generally, under such laws, among other requirements, transactions within the insurance holding company system
to which the Company’s operating insurance companies are a party must be fair and reasonable, and, if material or of a specified category, they require prior notice and approval or non-disapproval by the state of domicile and, in some cases, the state of commercial domicile of each
insurance company that is party to the transaction. In addition, 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.
The NAIC has promulgated model laws for adoption in the U.S. that would provide for "group-wide" supervision of certain
insurance holding companies in addition to the current regulation of insurance subsidiaries. While the timing of their adoption and content will vary by jurisdiction, the following generally represent the areas of focus in these model laws: (1)
uniform standards for insurer corporate governance; (2) group-wide supervision of insurance holding companies; (3) adjustments to risk-based capital calculations to account for group-wide risks; and (4) additional regulatory and disclosure
requirements for insurance holding companies.
Some laws which facilitate group-wide supervision have already been enacted in the jurisdictions in which the Company
operates, such as Own Risk and Solvency Assessment ("ORSA") reporting, which requires larger insurers to assess the adequacy of its and its group’s risk management and current and future solvency position, and Corporate Governance
Annual Disclosure reporting, which requires insurance groups to report on their governance structure, policies and practices. The NAIC utilizes a U.S. group capital calculation ("GCC") using an RBC aggregation methodology. The GCC is
intended to be a financial tool to assist regulators in identifying risks that may emanate from a holding company system and to holistically understand the financial condition of non-insurance entities and how capital is distributed across an
entire group. It is a quantitative measure used to complement the view of group-specific risks provided in the ORSA. In addition, the GCC is intended to comply with the requirements under the Covered Agreements with the European Union ("EU")
and the United Kingdom ("UK"). The GCC met the requirement that the States have a "worldwide group capital calculation" in place by November 7, 2022 in order to avoid the EU or UK
from imposing a group capital assessment or requirement at the level of the worldwide parent. The NAIC encouraged states with groups impacted by the Covered Agreements to adopt the revisions to the NAIC Insurance Holding Company System Model Act (#440) and Insurance Holding
Company System Model Regulation (#450) which implements the GCC effective November 7, 2022. In April 2022, Ohio adopted the revisions to the NAIC Insurance Holding Company System
Model Act (#440) and Insurance Holding Company System Model Regulation (#450) to implement the GCC. As such, Nationwide filed its first GCC with the Department, the Company’s lead state regulator in May 2023.
Principle-Based
Reserving
In June 2016, the NAIC adopted a recommendation that activated a
principle-based reserving approach for life insurance products. Principle-based reserving replaced the previous formulaic basis for reserves which did not fully reflect the risks
or costs of the liability or obligations of the insurer. The principle-based reserving approach had a three-year phase in period. At the Company’s discretion, it could be applied to new individual life business beginning as early as January 1, 2017 and was required to be applied for all new individual life business issued January 1, 2020 and later. The Company
started the application of the principle-based reserving approach on all new individual life business on January 1, 2020. The principle-based reserving approach did not affect reserves for policies in force prior to January 1, 2020 and had no
material impact on the Company’s statutory financial statements.
In 2019, the NAIC adopted revisions to the Valuation Manual Requirements for Principle-Based Reserves for Variable Annuities ("VM-21"), which provided comprehensive updates to the Commissioners Annuity Reserve Valuation Method of reserving
for variable annuities. VM-21 provided the choice of (1) full adoption beginning January 1, 2020, (2) an election to grade in over 3 years, or (3) an election to grade in over 7
years, subject to commissioner discretion. The Company elected to fully adopt the change in reserving valuation basis as of January 1, 2020.
Captive Reinsurance Regulation
The NAIC Model Regulation entitled "Valuation of Life Insurance Policies," commonly known as
"Regulation XXX," establishes statutory reserve requirements for term life insurance policies and universal life insurance policies with secondary guarantees, such as those issued by NLAIC and reinsured by Eagle. Actuarial Guideline 38 ("AG 38") clarifies the
application of Regulation XXX with respect to certain universal life insurance products with secondary guarantees. As the result of an NAIC study on the use of captives and special
purpose vehicles to transfer insurance risk-related products subject to Regulation XXX and AG 38, Actuarial Guideline 48 ("AG 48") was created. The purpose and intent of AG 48 is
to establish uniform, national standards governing Regulation XXX and AG 38 reserve financing arrangements. The
provisions of AG 48 apply to new policies that were issued on or after January 1, 2015. The NAIC adopted a revised Credit for Reinsurance Model Law in January 2016 and the Term and Universal Life Insurance Reserve Financing Model
Regulation (the "Reserve Financing Model Regulation") in December 2016 to replace AG 48. The Reserve Financing
Model Regulation is consistent with AG 48 and will replace AG 48 in a state upon the state’s adoption of the model law and regulation. The Reserve Financing Model Regulation became an NAIC accreditation standard on September 1, 2022, although
states can use AG 48 to satisfy the accreditation requirement.
In 2018, the NAIC adopted a framework for proposed revisions to the current Actuarial Guideline No. 43 ("AG 43") and RBC "C-3 Phase II" system applicable to variable annuity reserves and capital requirements. Changes included: (i) aligning
economically-focused hedge assets with liability valuations; (ii) reforming standard scenarios for AG 43 and C-3 Phase II; (iii) revising asset admissibility for derivatives and
deferred tax assets; and (iv) standardizing capital market assumptions and aligning total asset requirements and reserves. The revised framework was effective January 1, 2020
and includes an optional three-year phase in. The impact to the Company was minimal due to its continued utilization of a captive which was not impacted by AG 43 and resulted in a reduction of AG 43-related reserves that were not ceded to the
captive. See also "Risk Factors - The Company may be unable to mitigate the impact of
Regulation XXX and Actuarial Guideline 38, potentially resulting in a negative impact to NLAIC’s capital position and/or a reduction in sales of
NLAIC’s term and universal life insurance products".
Macro-Prudential Supervision
The NAIC has been focused on a Macro-Prudential Initiative ("MPI") to improve state
macro-prudential supervisory tools. The MPI focuses on four areas for potential enhancement: (1) liquidity, (2) recovery and resolution, (3) capital stress testing and (4) identifying exposure concentrations. The NAIC explained that the key objectives of the MPI are to better
monitor and respond to the impact of external financial and economic risk to supervised firms; better monitor and respond to risks emanating from or amplified by the supervised firms that might be transmitted externally and which may result in
significant market impacts or financial, reputational, litigation or regulatory risks for the firm; and increase public awareness of NAIC/state monitoring capabilities regarding macro-prudential trends within the U.S. insurance sector and their
implications. The NAIC adopted amendments to the Model Holding Company Act and Regulation that also implemented a filing requirement for a liquidity stress-testing ("LST")
framework. The LST requires the ultimate controlling person of certain large U.S. life insurers and insurance groups meeting certain scope criteria based on the amounts of business written or material exposure to certain investment transactions, to file the results of the LST annually with a
group’s lead state regulator. Nationwide filed its first LST with the Department on June 30, 2023.
Regulation of
Dividends and Other Distributions
See Note 14 to the audited statutory financial statements in the F
pages of this report for a discussion of dividend restrictions.
Annual and Quarterly Reports and Statutory Examinations
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, in accordance with accounting practices and procedures prescribed or permitted by state insurance regulatory authorities, 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. NLIC, NLAIC, JNL and Eagle each file reports with state insurance departments regarding management’s assessment of internal controls over financial reporting in
compliance with the Annual Financial Reporting Model Regulation, as adopted in the states in which they do business.
As part of their routine regulatory oversight process, state insurance regulatory authorities
periodically conduct detailed examinations, generally once every three to five years, of the books, records and accounts of insurance companies domiciled in their states. Such examinations generally are conducted in coordination with the insurance departments of other
domestic states under guidelines promulgated by the NAIC. The Department’s most recently completed financial examination of NLIC, NLAIC and Eagle concluded in 2023 and was
for the five-year period ended December 31, 2021.
The most recently
completed financial examination of JNL and JNLNY by the Texas Department of Insurance and NY DFS, respectively, was as of December 31, 2021 and concluded in 2023. Vermont, in
coordination with the timing of the Department exams above, completed an examination of Olentangy in 2023 for the five-year period ended December 31, 2021.
The examinations for NLIC, NLAIC, JNL, JNLNY, Eagle and Olentangy completed in 2023 did not result in any significant issues or adjustments. The examination reports are available to the public.
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, including among other things, the form and content of disclosure to consumers, advertising, sales practices and complaint handling. State
regulators have imposed significant fines on various insurers for improper market conduct. NLIC, NLAIC, JNL and JNLNY continually monitor sales, marketing and advertising practices and related activities of 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 guarantee that any non-compliance with such applicable laws and regulations would not have a material adverse
effect on the Company.
Guaranty
Associations and Similar Arrangements
Each of the 50 states of the U.S. and the District of Columbia have laws requiring insurance companies doing business within its jurisdiction to participate in various types of guaranty associations or other similar arrangements. These
arrangements provide certain levels of protection to policy owners from losses arising from insurance policies or annuity contracts issued by insurance companies that become impaired or insolvent. Typically, assessments are levied (up to
prescribed limits) on member insurers on a basis which is related to the member insurer’s proportionate share of the business written by all member insurers, in the lines of business in which the impaired or insolvent member insurer was
writing. Some jurisdictions permit member insurers to recover assessments paid through full or partial premium tax offsets, usually over a period of years.
Assessments levied against the Company and subsidiaries during the past three years have not been material. The amount and
timing of any future assessment on or refund to NLIC, NLAIC, JNL, or JNLNY under these laws are beyond the control of NLIC, NLAIC, JNL, and JNLNY. A portion of the assessments paid
by NLIC, NLAIC, JNL, or JNLNY pursuant to these laws may be used as credits for a portion of NLIC, NLAIC, JNL, or JNLNY’s premium taxes. For the years ended December 31, 2023, 2022 and 2021, credits received by the Company have not been material.
As licensed insurers, NLIC, NLAIC, JNL and JNLNY are subject to the supervision of the regulators of each state, and each state has the discretionary authority, in connection with the ongoing licensing of such entity, to limit or prohibit writing new business within its jurisdiction when, in the state’s judgment, such entity is not maintaining adequate statutory surplus
or capital or is operating in a hazardous
financial condition. The Company does not currently anticipate that any regulator would limit the amount of new business that NLIC, NLAIC, JNL and JNLNY may write due to an
inability to meet the levels of statutory surplus required by the regulators. Olentangy is subject to the specific requirements and restrictions of its Licensing Order, as issued by the State of Vermont, and Eagle is subject to the specific requirements and restrictions of
its Licensing Order, as issued by the State of Ohio.
As of December 31, 2023, NLIC, NLAIC, JNL, JNLNY and Eagle are subject to RBC requirements for life insurance companies. All
states have adopted the NAIC RBC model law or a substantially similar law. The RBC calculation, which regulators use to assess the sufficiency of an insurer’s statutory
surplus, measures the risk characteristics of a company’s assets, liabilities and certain off-balance sheet items. In general, RBC is calculated by applying factors to
various asset, premium, claim, expense and reserve items. The requirements result in insurers maintaining, for the protection of policyholders, capital in excess of statutory surplus requirements. 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. See Note 14 to the audited statutory financial statements included in the F pages of this report for additional discussion of RBC requirements. Eagle is subject to the separate requirements and restrictions of its Licensing Order, as
issued by the State of Ohio.
The NAIC often considers reforms to the RBC framework which can increase the Company’s capital requirements. For
instance, in 2021, the NAIC adopted a new longevity risk charge and changes to risk charges for bonds and real estate. The NAIC also approved an RBC update for mortality risk that took effect at year-end 2022. The NAIC has undertaken a
principle-based bond project, effective January 1, 2025, which includes consideration of factors to determine whether an investment in an asset-backed security qualifies for reporting on an insurer’s statutory financial statement as a bond on Schedule D, Part 1 (long-term bonds) as opposed to Schedule BA, Part 1 (other long-term invested assets), the latter of
which has a higher risk charge. The NAIC is also reviewing the RBC treatment of collateralized loan obligations ("CLOs") on an interim and long-term basis, and on August 16, 2023, the NAIC increased the RBC factor for structured security
residual tranches from 30% to 45%, which will be effective for year-end 2024 RBC filings.
On August 13, 2023, the NAIC adopted a short-term solution related to the accounting treatment of an insurer’s negative Interest Maintenance Reserve ("IMR") balance, which may occur when a rising interest rate environment causes an
insurer’s IMR balance to become negative as a result of bond sales executed at a capital loss. If this occurs, previous statutory accounting guidance required the non-admittance of negative IMR, which can impact how accurately an insurer’s
surplus and financial strength are reflected in its financial statements and result in lower reported surplus and RBC ratios. The NAIC’s new interim statutory accounting guidance, which is effective through December 31, 2025, allows an insurer
with an authorized control level RBC greater than 300% to admit negative IMR up to 10% of its general account capital and surplus, subject to certain restrictions and reporting obligations. The NAIC intends to develop a long-term solution for
the accounting treatment of negative IMR.
The Company’s annuity sales practices are subject to strict regulation. State insurance and certain federal regulators are becoming more active in adopting and enforcing suitability standards and other enhanced conduct standards that create
additional responsibilities with respect to sales of annuities, both fixed and variable. Such regulations and responsibilities could increase the Company’s operational costs or compliance costs or burdens or expose the Company to increased
liability for any violation of such regulations and responsibilities.
The NAIC adopted revisions to the Suitability in Annuity Transactions Model Regulation to incorporate a best interest standard of care for sales of annuity products. Several states have adopted the amendments, including Ohio. Additionally,
some state insurance and securities regulators are actively engaged in the development and adoption of rulemaking in this space independent from the NAIC.
Regulation of Investments
The Company is subject to state laws and regulations that require diversification of its investment portfolios and limit the
amount of investments in certain investment categories such as below-investment grade fixed income securities, real estate-related equity, foreign investments and common stocks. Failure to comply with these laws and regulations may cause
investments exceeding regulatory limitations to be treated as non-admitted assets for purposes of measuring statutory surplus, and, in some instances, could require divestiture of
such non-qualifying investments. The Company believes that its investments comply, in all material respects, with such laws and regulations as of December 31, 2023.
In recent years, the NAIC has been evaluating the
risks associated with insurers’ investments in leveraged loans and CLOs. In March 2023, the NAIC adopted an amendment to the Purposes and Procedures Manual to assign risk
weights to CLOs based on its own modeling as opposed to credit ratings. Under the amendment, the NAIC Structured Securities Group will model CLO investments and evaluate tranche level losses across all debt and equity tranches under a series of
calibrated and weighted collateral stress scenarios to assign NAIC designations that reduce RBC arbitrage. The NAIC’s goal is to ensure that the aggregate RBC factor for owning all tranches of a CLO is the same as that required for owning all
of the underlying loan collateral, in order to avoid RBC arbitrage. The amendment became effective on January 1, 2024, with insurers first reporting the financially modeled NAIC
designations for CLOs with their year-end 2024 financial statement filings.
Although the U.S. federal government generally does not directly regulate the insurance business, federal legislation and administrative policies, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("the Dodd-Frank
Act") expand the federal presence in insurance oversight.
The Dodd-Frank
Act established the Financial Stability Oversight Counsel ("FSOC"), which has authority to designate non-bank financial companies as systemically important financial institutions
("non-bank SIFIs"), thereby subjecting them to enhanced prudential standards and supervision by the Federal Reserve. The prudential standards for non-bank SIFIs include enhanced RBC requirements, leverage limits, liquidity requirements, single counterparty exposure limits, governance
requirements for risk management, stress test requirements, special debt-to-equity limits for certain companies, early remediation procedures and recovery and resolution planning.
It is possible, although not likely, that the Company could be designated as a non-bank SIFI by the FSOC. Being so designated would subject the Company to enhanced oversight and prudential standards by the Federal Reserve, beyond those applicable to our competitors not so
designated.
On December 4, 2019, the FSOC approved a proposal that significantly altered its process for making such non-bank SIFI
designations. Among other things, the guidance: (i) required the FSOC to focus on regulating activities that pose systemic risk, allowing for the involvement of primary regulators, rather than designations of individual firms (also known as an
"activities-based approach"); (ii) shortened the designation process; (iii) invited participation from firms under consideration for designation earlier in the designation process to provide greater transparency; (iv) required a cost-benefit
analysis prior to making a designation, which must include a determination of the likelihood of the potential systemic impact actually occurring; and (v) clarified the "off ramp" process for firms that have been designated as SIFIs.
In April 2023, the FSOC issued a proposal on further revised guidance and analytical
framework on the designation of non-bank SIFI’s that would replace the 2019 guidance and alter the designation process by: (i) eliminating the requirement that FSOC use an activities-based approach before considering the designation of a non-bank financial company in order to
clarify that FSOC may use any of its statutory tools to address risks and threats to U.S. financial stability; and (ii) no longer requiring FSOC to conduct a cost-benefit analysis
or assessment of the likelihood of a non-bank financial company’s material financial distress prior to making a determination. The U.S. Secretary of the Treasury has stated
that the proposed guidance would remove certain elements of the 2019 guidance that have made it difficult for FSOC to use its designation authority. The final interpretive guidance was issued on November 17, 2023, and revised guidance became
effective January 16, 2024.
In addition, the Dodd-Frank Act established the Federal Insurance Office ("FIO") within the U.S. Department of the Treasury
("Treasury"), which has the authority to participate on behalf of the U.S. in the negotiations of international insurance agreements with foreign regulators, as well as to collect
information about the insurance industry and recommend prudential standards, and, along with the U.S. Trade Representative, to enter into covered agreements with one or more foreign governments which have the ability to preempt inconsistent state insurance measures. While not having
general supervisory or regulatory authority over the business of insurance, the director of the FIO will perform various functions with respect to insurance (other than health
insurance), including serving as a non-voting member of FSOC and making recommendations to FSOC regarding insurers to be designated for more stringent regulation.
Further, Dodd-Frank Act established the Consumer Financial Protection Bureau ("CFPB")
as an independent agency within the Federal Reserve to supervise and regulate institutions that provide certain financial products and services to consumers. Although consumer financial products and services generally exclude the business of insurance, the CFPB does have
authority to regulate non-insurance consumer financial products and services.
Securities
Laws
Certain of NLIC and its subsidiaries’ products, policies and
contracts are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission ("SEC") and under certain state securities laws.
Certain separate accounts of NLIC, NLAIC, JNL and JNLNY are registered as investment companies under the Investment Company Act of 1940, as amended. Separate account interests under certain variable annuity contracts and variable insurance
policies issued by NLIC, NLAIC, JNL and JNLNY are also registered under the Securities Act of 1933, as amended (the "Securities Act"). NISC, a subsidiary of the Company, is
registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of, and subject to regulation by, the Financial Industry Regulatory Authority and is also subject to the SEC’s net capital rules.
NIA, a subsidiary of the Company, is an investment advisor registered under the Investment
Advisors Act of 1940, as amended, and under the Securities Act.
All aspects of investment advisory activities are subject to applicable federal and state laws and regulations in the
jurisdictions in which they conduct business. These laws and regulations are primarily 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 events, 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.
The SEC adopted a package of rulemaking and interpretive guidance regarding the standards of conducts for broker-dealers and
investment advisors. Of particular note was the adoption of a new "best interest" standard for broker-dealers when making recommendations to retail customers of any securities
transaction or investment strategy involving securities. Also adopted as part of the package was a new "relationship summary" disclosure requirement for broker-dealers and investment advisors that must be provided to "retail investors."
The Company’s derivatives use is subject to statutory and regulatory requirements in
the states of Ohio, the Company’s domiciliary state, and New York, where the Company is licensed to sell certain products. Each state requires the Company to follow a board-approved derivatives’ use plan. The Company’s derivatives’ use plan meets the requirements of both states. While the statutory constructs and regulatory oversight of Ohio and New York are historically consistent, there is a
possibility the two states could diverge in their respective regulation of the Company’s derivatives use creating an additional expense or lost opportunity to the Company.
Title VII of the Dodd-Frank Act is a framework to regulate the over-the-counter ("OTC") derivatives markets through the
required clearing of certain types of OTC transactions and the posting of collateral, each of which results in additional risk mitigation costs to the Company. NLIC and NLAIC, currently required to clear specified OTC derivatives products, are subject
to the posting and collection of initial margin on its non-cleared OTC derivatives portfolios with certain of their counterparties. These initial margin requirements, in
conjunction with variation margin requirements, may require the Company to hold more cash and highly liquid securities with lower yields than it might otherwise hold in the absence
of the margin requirements; potentially resulting in a reduction of investment income. Furthermore, U.S. and global regulation of the derivatives markets continues to evolve, potentially creating unexpected costs as well as opportunities.
Environmental, Social and Governance Regulation
The Company is exposed to risks relating to ESG factors. Customers, regulators and other
market participants may evaluate the Company’s business or other practices according to a variety of ESG standards, expectations, or metrics, all of which may evolve, may be subjective or underdeveloped in nature, and may reflect contrasting or conflicting values.
Standard-setting organizations and regulators including, but not limited to, the NAIC, SEC, legislators and state insurance regulators, have proposed or adopted, or may propose or adopt, ESG legislation, rules or standards applicable to the
Company. For example, the NAIC (led by the California Department of Insurance) has modified the Insurer Climate Risk Disclosure Survey to align with the standards established by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures ("TCFD"), a recognized framework of recommendations that were developed to enhance climate-related
disclosures. On March 6, 2024, the SEC adopted final climate disclosure regulations that impose new reporting requirements for certain climate-related information including
disclosure of the board’s existing oversight practices for climate-related risks and management’s role in assessing and managing material climate-related risks as well
as describing internal processes for identifying, assessing, mitigating and disclosing material climate risks. The final regulation includes a phased-in compliance period, with the compliance date dependent on a filer’s status and content of
disclosure. The impacts of the final regulation
are being evaluated by the Company. Some regulators are taking opposing positions on financial services companies’ consideration of ESG factors in carrying out their
businesses. For instance, some states are prohibiting entities with state contracts from considering certain ESG factors, while others are encouraging consideration of such factors and promoting divestment from certain industries, especially carbon-based
industries. Such opposing regulatory positions present potential difficulties for Nationwide’s Investment and Retirement Security businesses, which have extensive state contracts. Due to the sometimes conflicting, uncertain, and subjective ESG
regulatory and market environment, the Company may be seen as acting inconsistently with ESG standards or values from the perspective of certain customers, regulators or other
constituents. As a result, the Company could face adverse regulatory, customer, media or public scrutiny related to ESG that potentially could have a negative impact on our business or reputation or lead to legal challenges. More specifically, climate risk has the potential for negative impacts
resulting from damage to physical property insured or held as investments due to increase extreme weather events,
financial losses or decreased revenues resulting from the transition to a low carbon economy and legal and regulatory losses attributable to climate change or failing to manage climate risk factors.
Management of Climate Risk
The NAIC, state legislators and state insurance regulators are evaluating issues related to the management of climate risk.
The NAIC’s goal is to address climate-related risks through three areas of insurance regulation: financial risk analysis; insurance market availability and affordability; and
consumer education and outreach. The NAIC’s executive-level Climate and Resiliency Task Force has four workstreams dedicated to this initiative.
In October 2023, California adopted legislation that requires businesses with total revenues
over $1 billion and operating in California to disclose to an emissions reporting organization their Scope 1 and 2 greenhouse gas emissions starting in 2026 and Scope 3 starting in 2027.
In addition, in furtherance of the Executive Order on Climate-Related Financial Risk, dated May 20, 2021, the FIO sought
public comment on climate-related financial risks in the insurance industry. In June 2023, the FIO released a report entitled, Insurance Supervision and Regulation of Climate-Related Risks, which assesses climate-related issues and gaps in the supervision and regulation of insurers. The report acknowledges that
there are important existing efforts to incorporate climate-related risk into state insurance regulation and supervision, although they largely remain in the preliminary stage. The report encourages state insurance regulators and the NAIC to build on their progress and makes 20
policy recommendations to improve the supervision of climate-related risks, including that NAIC and state insurance regulators should prioritize the creation and use of new and
effective climate-related risk tools and processes, such as the development of scenario analysis.
Diversity and Corporate Governance
The NAIC and state insurance regulators are also evaluating issues related to diversity
within the insurance industry. In New York, the NY DFS issued a circular letter in 2021 stating that it expects the insurers it regulates to make diversity of their leadership a business priority and a key element of their corporate governance. The NY DFS published aggregate data
from 2020 regarding the diversity of corporate boards and management from insures that met certain New York premium thresholds, although no further guidance was provided. The NAIC
is also evaluating issues related to race, diversity and inclusion, and is examining practices in the insurance industry in order to determine how barriers are created that disadvantage people of color or historically underrepresented groups.
Privacy and Cybersecurity Regulation
The Company is regulated by the federal Gramm-Leach-Bliley Act ("GLBA") and subject to federal and state regulations
promulgated thereunder that require financial institutions and other businesses to ensure the privacy, security and confidentiality of nonpublic personal information, including laws that regulate the use and disclosure of, among others,
Social Security numbers and health information. Federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including Social
Security numbers and health information. Federal regulations require financial institutions and creditors to implement effective programs to detect, prevent, and mitigate identity theft. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited commercial e-mail, text or fax messages to
consumers and customers. Federal laws and regulations regulate the permissible uses of certain personal information, including consumer report information. Federal and state legislatures and regulatory bodies continue to focus on regulation
regarding these subjects, including the privacy of personal information, and the security of financial institutions’ information technology ("IT") systems and the information
processed thereon. Despite functionally similar laws and regulations, there is ongoing risk of non-uniform regulatory interpretation and application due to the multiplicity of
state and federal regulators examining the Company.
The California Consumer Privacy Act of 2018
("CCPA") grants all California residents the right to know the information a business has collected from them and the sourcing and sharing of that information, as well as a right
to have a business delete their personal information (with some exceptions). The CCPA’s definition of "personal information" is more expansive than those found in other privacy laws applicable to the Company in the U.S. Failure to comply with CCPA could
result in regulatory fines, further, the law grants a right of action for any unauthorized disclosure of personal information as a result of failure to maintain reasonable security procedures. The CCPA became effective on January 1, 2020 and enforcement
by California’s Attorney General began July 1, 2020. Final regulations were promulgated shortly thereafter. In November 2020, the CCPA was amended by the California Privacy
Rights Act ("CPRA"), which became effective in most material respects on January 1, 2023. The CPRA provides expanded rights for California consumers (e.g., the right to correct inaccurate personal information) and created a new regulatory agency, the California Privacy Protection Agency,
dedicated to enforcing Californians’ consumer privacy rights. Other U.S. states have enacted, or are considering, similar privacy laws; however, some of these laws include entity-wide exemptions for financial institutions that collect and use
nonpublic personal information subject to the GLBA.
New York’s cybersecurity regulation for financial services institutions requires entities, including insurance entities subject to the jurisdiction of the NY DFS, to establish and maintain a cybersecurity program designed to protect consumers’
private data. The regulation specifically provides for: (i) senior leader and Board oversight of the covered entity’s cybersecurity program; (ii) controls relating to the governance framework for a cybersecurity program; (iii) risk-based
minimum standards for technology systems for data protection; (iv) requirements for cyber breach responses, including notice to the NY DFS of material events; and (v) identification and documentation of material deficiencies, remediation
plans and annual certification of regulatory compliance with the NY DFS. In November 2022, the NY DFS proposed
amendments to expand the regulation, including heightened governance and technical requirements. As a result of
comments received on the draft amendments, the NY DFS proposed revisions to the draft amendments, which were
subject to another comment period that ended on August 14, 2023. On November 1, 2023, NY DFS adopted amendments
to its cybersecurity regulation. The amended regulation will require the Company’s Chief Executive Officer ("CEO") to sign an annual certification that Nationwide is complying with the cybersecurity regulation. Previously, this certification was
signed by the Chief Information Security Officers ("CISO") only, but it must now be signed by both the CEO and CISO.
The NAIC adopted the Insurance Data Security Model Law (the "Cybersecurity Model Law"), which
established standards for data security and notification of cybersecurity events in states where adopted. The Cybersecurity Model Law has been adopted in Ohio and several other states. Additional states may follow. The Cybersecurity Model Law, which is functionally
similar to the NY DFS’ regulation, imposes significant regulatory burdens intended to protect the confidentiality, integrity and availability of the regulated entity’s information systems. The NAIC is also developing a new model law to replace the existing privacy models, Insurance Information and Privacy Protections Model Act, and Privacy of Consumer Financial and
Health Information Regulation, rather than updating them. In Spring 2023, the NAIC’s Privacy Protections (H) Working Group’s ("PPWG") held meetings during which interested parties and consumer advocates provided feedback on the initial
exposure draft of the new Consumer Privacy Protections Model Law ("Model 674"). At the conclusion of the meetings, PPWG rewrote the model law and, on July 11, 2023, exposed the new draft of Model 674 for further public comment. Due to the
large number of comments received, PPWG requested an extension of time to develop Model 674 at the NAIC’s Fall National Meeting in December 2023, wherein the NAIC announced
that a one-year extension would be given, with final adoption expected at the NAIC 2024 fall meeting.
The NAIC has also established a Big Data and Artificial Intelligence (H) Working Group ("BDAIWG") devoted to ensuring that regulations and regulatory activities appropriately protect consumers from harm which could result from technological
developments in the insurance sector. The BDAIWG is considering such issues as the lack of transparency and potential for bias in algorithms used to synthesize big data. It has issued an artificial intelligence survey for life insurance and is
exploring the creation of a regulatory evaluation of third-party data and model vendors. On July 17, 2023, the NAIC’s Innovation, Cybersecurity, and Technology (H) Committee exposed for public comment a draft model bulletin which outlines how
insurance departments should govern the development, acquisition and use of artificial intelligence technologies, as well as the types of information that regulators may request
during an investigation or examination of an insurer in relation to artificial intelligence systems. The public comment period closed on September 5, 2023. The NAIC released a revised version of the bulletin on October 17, 2023, and it adopted a final version of the Model Bulletin on the
Use of Artificial Intelligence Systems by Insurers during its Fall National Meeting in December 2023. The Company cannot predict what, if any, changes to laws or regulations may be enacted with regard to big data and artificial intelligence.
In February 2022, the SEC proposed new rules for investment advisors, registered investment
companies, and business development companies to enhance cybersecurity preparedness and improve the resilience against cybersecurity threats and attacks. Specifically, the proposal would: require advisers and funds to adopt and implement written policies and
procedures that are reasonably designed to address cybersecurity risks; require advisers to report significant
cybersecurity incidents to the SEC on proposed
Form ADV-C; enhance adviser and fund disclosures related to cybersecurity risks and incidents; and require advisers and funds to maintain, make, and retain certain
cybersecurity-related books and records. In March 2023, the SEC approved additional proposals for public comment to amend Privacy of Consumer Financial Information (Regulation S-P) and Regulation Systems Compliance and Integrity, which would require
covered entities, including broker-dealers, to, among other requirements, notify the SEC of significant cybersecurity events and make disclosures regarding cybersecurity risks and
incidents via Form Summary of Cybersecurity Incidents and Risks, Part II.
Compliance with existing and emerging privacy and cybersecurity regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation and have a material effect on our business, financial condition and results of
operations. The Company cannot predict whether such rules would be adopted, or what effect such rules would have on its business or compliance costs.
Employee Retirement Income Security Act ("ERISA")
The ERISA contains fiduciary obligations that have been changing dramatically back and forth over the past few years. In 2016, the Department of Labor ("DOL") enacted a 2016 Fiduciary Rule that expanded the traditional Five Part Test as to who
was a fiduciary under ERISA. However, on June 21, 2018, the United States Court of Appeals for the Fifth Circuit vacated the 2016 Fiduciary Rule. As a result, the fiduciary
standards under ERISA revert to those in place before the issuance of the 2016 Rule. On June 29, 2020, the DOL further released technical amendments that reinstated the Five
Part Test. On December 18, 2020, the DOL also adopted a new Prohibited Transaction Class Exemption ("PTE"),
"Improving Investment Advice for Workers & Retirees" effective February 16, 2021. Although this is the current status of the law, on October 31, 2023, the DOL once again proposed another Fiduciary Rule referred to as "the Retirement Security
Rule." Like the 2016 Fiduciary Rule, the Retirement Security Rule would again significantly alter the Five Part Test, expand the definition of a fiduciary, and modify known
exemptions.
See also "Risk Factors—Changes to regulations under ERISA could adversely affect the Company’s
distribution model by restricting the Company’s ability to provide customers with advice."
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 rates 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.
In August 2022, the Inflation Reduction Act (the "Act") was signed into law. The Act includes
a new Federal corporate alternative minimum tax, effective in 2023, that is based on the adjusted financial statement income set forth on the applicable financial statement of an applicable corporation. See Note 8 to the audited statutory financial statements
included in the F pages of this report for additional discussion of the Act.
Additional changes to the IRC to address the fiscal challenges currently faced by the federal government may also be made. 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 to the IRC could have an adverse impact on the desirability of the products offered by the Company.
The Company does not have any employees of its own, but rather is provided personnel by NMIC or NLAIC pursuant to the
enterprise cost sharing agreements between the companies.
Risks Related to Economic and Financial Market Conditions
Adverse capital and credit market conditions may
significantly affect the Company’s ability to meet liquidity needs and access the capital required to operate its business, most
significantly its insurance operations.
The Company’s insurance, annuity and investment products, as well as its investment returns and access to and cost of financing, are sensitive to disruptions, uncertainty or volatility in the capital and credit markets, thereby ultimately
impacting the Company’s profitability and ability to support or grow its businesses. In the insurance industry, liquidity refers
to the ability of an enterprise to generate
adequate amounts of cash from its normal operations in order to meet its financial commitments. The principal sources of the Company’s liquidity are insurance premiums,
annuity considerations, deposit funds and cash, including from its investment portfolio and assets. Sources of liquidity also include surplus notes and a variety of short-term debt instruments, including intercompany borrowings and FHLB programs.
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, including market conditions, the availability of
credit generally and specifically to the financial services industry, market liquidity, the Company’s credit ratings, 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 its level of business activity decreases. Similarly, the Company’s access to funds may be impaired if regulatory authorities or rating agencies take negative actions against it.
The Company’s internal sources of liquidity may prove to be insufficient, and in such a case, it may not be able to successfully obtain additional financing on favorable terms, or at all.
As such, the Company may be forced to issue debt with terms and conditions that may be unfavorable to it, bear an
unattractive cost of capital or sell certain assets, any of which could decrease the Company’s profitability and significantly reduce its financial flexibility. The Company’s results of operations, financial condition and cash flows could be materially adversely affected by disruptions in the capital and credit market.
Difficult conditions in the global economy and capital markets could adversely affect the Company’s business and operating results and these conditions may not improve in the near future.
At times throughout the past few years, volatile conditions have characterized financial markets. Stressed conditions,
volatility and disruptions in global capital markets, particular markets or financial asset classes could adversely affect the Company’s investment portfolio. Disruptions in one market or asset class can also spread to other markets or asset
classes.
General economic conditions could also adversely affect the Company by impacting consumer behavior and pressuring investment results. Consumer behavior changes could include decreased demand for the Company’s products. For example,
holders of interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Investment results could be
adversely affected as deteriorating financial and business conditions affect the issuers of the securities in the investment portfolio.
The impact on distributors, vendors and customers of
sustained or significant deterioration in economic conditions could adversely affect the Company’s business.
The Company is exposed to risks associated with the potential financial instability of its
customers and distributors, many of whom may be adversely affected by volatile conditions in the financial markets or an economic slowdown. As a result of uncertainties with respect to financial institutions and the global credit markets, changes in energy costs, and other
macroeconomic challenges currently or potentially affecting the economy of the U.S. and other parts of the world,
customers and distributors may experience serious cash flow problems and other financial difficulties. In addition, events in the U.S. or foreign markets and political and social unrest in various countries around the world can impact the global
economy and capital markets. The impact of such events is difficult to predict. Protectionist trade policy actions, such as tariffs and quotas could adversely affect the Company’s investment results, as an increase in the scope and size of tariffs could disrupt global supply chains and increase inflationary pressures which may have an adverse effect on economic
activity. As a result, they may modify, delay, or cancel plans to buy or sell the Company’s products, or make changes in the mix of products bought or sold, that are unfavorable to the Company.
In addition, the Company is susceptible to risks associated with the potential financial instability of the vendors on which
the Company relies to provide services or to whom the Company delegates certain functions. The same conditions that may affect the Company’s distributors could also adversely affect the Company’s vendors, causing them to significantly and quickly increase their prices or reduce their output. The Company’s business depends on its ability to perform, in an efficient and uninterrupted fashion, its necessary business functions, and any interruption in the services provided by third
parties could also adversely affect the Company’s business, results of operations and financial condition.
Risks Related to
Investments
The Company is exposed to significant financial market risk, which may adversely affect its results of operations and financial condition, and may cause the Company’s net investment income to vary from period to period.
The Company is exposed to significant financial market risk, including changes in interest rates, credit spreads, equity
prices, real estate values, foreign currency exchange rates, domestic and foreign market volatility, the performance of the economy in general, the performance of specific obligors included in its portfolio and other factors outside the Company’s control. Adverse changes in these rates, spreads and prices may occur due to changes in monetary policy and the economic
climate, the liquidity of a market or market segment, investor return expectations and/or risk tolerance, insolvency or financial distress of key market makers or participants, or
changes in market perceptions of credit worthiness.
The Company’s exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. The Company’s investment portfolio contains interest rate sensitive instruments, such as bonds and derivatives, 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 its control. During periods of low or declining interest rates, as cash becomes available from premiums
on insurance and annuity policies and from the maturity, redemption or sale of existing securities or from other sources or as securities are realized prior to maturity, the
yield on new investments will be lower than that on existing investments, thus lowering the average yield that the Company earns on its investment portfolio. Conversely, inflation may increase and interest rates may suddenly spike, which could
have a material effect on the Company’s results of operations, insofar as inflation may affect interest rates. Although the Company seeks to carefully measure and manage its interest rate risk positions, the Company’s estimate of the liability
cash flow profile may be inaccurate, and it might need to sell assets in order to cover the liability, which could adversely affect the Company’s financial position and results of operations.
The Company’s insurance and investment products are also sensitive to interest rate fluctuations and expose the
Company to the risk that falling interest rates or credit spreads will reduce the Company’s margin, or the difference between the returns earned on the investments that support the obligations under these products and the amounts that must be
paid to policyholders and contractholders. Because the Company may reduce the interest rates credited on most of these products only at limited, pre-established intervals, and
because some contracts have guaranteed minimum interest crediting rates, or may be subject to regulatory minimum rates, declines in interest rates may adversely affect the profitability of these products.
There may be economic scenarios, including periods of rising interest rates, that increase
the attractiveness of other investments to the Company’s customers, which could increase life insurance policy loan, surrender, and withdrawal activity in a given period. Such situations could result in cash outflows requiring that the Company sell investments at a
time when the prices of those investments are adversely affected, which may result in realized investment losses.
Unanticipated withdrawals and terminations may also cause the Company to accelerate other expenses, which reduces
net income in the period of the acceleration.
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 would increase unrealized losses or decrease unrealized gains in the investment portfolio and, if issuer credit spreads increase as a result of fundamental credit deterioration, would likely
result in higher other-than-temporary impairments. Credit spread tightening will reduce net investment income associated with new purchases of fixed securities. 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 due to market volatility, which could have a material adverse effect on the Company’s results of operations or financial condition.
The Company invests a portion of its portfolio in alternative investments, such as private
equity funds, private debt, real estate funds, hedge funds and tax credit funds. The capital and surplus of the Company can be affected by changes in the underlying value of the investments. In addition, the timing and amount of distributions from such funds, which depend on
particular events relating to the underlying investments, as well as the funds’ schedules for making distributions, can be inherently difficult to predict and can impact the Company’s net realized capital gains and losses.
The Company’s exposure to equity risk relates primarily to the
potential for lower earnings associated with certain of the Company’s insurance businesses, such as variable annuities and investment advisory business, in each case where
fee income is generally 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 its potential benefit exposure. Statutory reserve and capital requirements for these products are sensitive to market movements, which could deplete
capital. Increased reserve and capital requirements could lead to rating agency downgrades.
The Company is exposed to many different industries, issuers, 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 institutions. Many of these transactions expose the Company to credit risk in the event of default of the counterparty. While counterparty risk is generally secured, 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 may have further exposure to these issuers
in the form of holdings in unsecured debt instruments, derivative transactions and stock investments of these issuers. Realized losses or impairments to the carrying value of these
assets may materially and adversely affect the Company’s business, results of operations and financial condition.
For additional information on market risk, see Quantitative and Qualitative Disclosures about
Market Risk.
The Company uses derivative instruments to manage exposures
and mitigate risks. See Note 2 and Note 6 to the audited statutory financial statements in the F pages of this report for additional information regarding the Company’s use
of derivatives instruments. These derivative instruments primarily include interest rate swaps, currency swaps, futures contracts and options. There can be no assurances these programs will successfully mitigate the associated risks.
The Company maintains an Asset Valuation Reserve ("AVR") as established in accordance with
the NAIC Annual Statement Instructions for Life and Accident and Health Insurance Companies for the purpose of offsetting potential credit related investment losses on each invested asset category, excluding cash, policy loans and income receivable. The Company
records an IMR established in accordance with the NAIC Annual Statement Instructions for Life and Accident and Health Insurance Companies, which represents the net deferral for
interest-related gains or losses arising from the sale of certain investments, such as bonds, mortgage loans and loan-backed and structured securities sold. See Note 2 to the audited statutory financial statements included in the F pages of this report for additional information regarding the
Company’s use of an AVR and IMR.
Some of the Company’s investments are relatively illiquid.
The Company holds certain investments that may lack liquidity, such as privately placed bonds and structured securities
based upon residential or commercial mortgage loans or trust preferred securities, commercial mortgage loans, policy loans, consumer loans secured by securities portfolios, equity real estate, including real estate joint ventures and other
limited partnership interests.
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 Company does not have the intent to sell, nor is it more likely than not that it will be
required to sell, bonds and stocks in an unrealized loss position. Investment losses, however, may be realized to the extent liquidity needs require the disposition of bonds and stocks in unfavorable interest rate, liquidity or credit spread environments.
Securities Lending can affect liquidity and exposes Nationwide to investment risk.
Nationwide currently engages in securities lending. Its securities lending program is managed
through Bank of New York Mellon ("BNYM"). As its agent, BNYM lends out securities to approved borrowers and receives cash or U.S. government/agency collateral (non-cash loans). The cash collateral is invested in accordance with the approved investment policy. The
investment policy currently is constrained to U.S. Government and Agency collateralized overnight reverse repurchase agreements. While securities are on loan, Nationwide is not able to sell those securities. This can affect near-term liquidity
until the securities can be returned. In the event the borrower defaults and does not return the securities, Nationwide would retain the cash collateral that has been invested in U.S. government or agency collateralized overnight reverse
repurchase agreements. BNYM indemnifies Nationwide against borrower default and losses on non-cash loans.
Nationwide bears the risks associated with cash investments. There is risk in the reverse repurchase agreements which the cash collateral is invested in. If the counterparty in the repurchase agreement defaults, Nationwide would retain the
U.S. Government Bonds and/or U.S. agency bonds/mortgages. There is risk that the U.S. government bonds and/or U.S. agency bonds/mortgages have declined in value below the level of the cash invested.
The Company has
exposure to mortgage-backed securities, which could cause declines in the value of its investment portfolio.
Securities and other capital markets products connected to residential mortgage lending,
particularly those backed by non-agency loans, may become less liquid. The value of the Company’s investments in mortgage-backed securities may be negatively impacted by an unfavorable change in or increased uncertainty regarding delinquency rates, foreclosures, home
prices, and refinancing opportunities. In addition, securities backed by commercial mortgages are sensitive to the strength of the related underlying mortgage loans, the U.S.
economy, and the supply and demand for commercial real estate. Deterioration in the performance of the residential and commercial mortgage sector could cause declines in the
value of that portion of the Company’s investment portfolios.
Defaults on commercial mortgage loans and volatility in performance may adversely affect the Company’s results of operations and financial condition.
A decline in the commercial real estate market within the U.S. resulting from changes in interest rates, real estate market conditions or an economic downturn may have a negative impact on the value of the Company’s commercial mortgage loan
portfolio. The Company has a broadly diversified commercial mortgage loan portfolio (i.e., property type or geographic location), but negative developments across a certain
property type or the occurrence of a negative event within a geographic region may have a significant negative impact, if the Company has some concentration risk within that
property type or geographic region. The Company’s operations and financial conditions may be adversely affected from an increase in borrower defaults within the Company’s commercial mortgage loan portfolio.
The determination of the amount of allowances and
impairments taken on the Company’s investments is judgmental and could materially impact its results of operations or financial
position.
The Company’s determination of the amount of allowances and impairments varies by investment type and is based on its
periodic evaluation and assessment of known and inherent risks associated with the relevant asset class. Such
evaluations and assessments are revised as conditions change and new information becomes available. The Company
updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. Market volatility can make it more difficult to value the Company’s securities if trading in such securities becomes less frequent. In addition, a forced sale by holders of large amounts of a security, whether due to insolvency,
liquidity, or other issues with respect to such holders, could result in declines in the price of a security. 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 additional information on the Company’s allowance and impairment review process,
see Note 2 to the audited statutory financial statements included in the F pages of this report.
The Company’s valuation of investments is based on
amortized cost, fair value, and the equity method of accounting in the Company’s statutory financial statements, which may be significantly
different than the values at which the investments may ultimately be realized.
The Company’s investments primarily consist of bonds, stocks, investments in
subsidiaries, mortgage loans, policy loans, cash equivalents, short-term investments and alternative investments. On the basis of accounting practices prescribed or permitted by the Department, as applicable, the carrying value of such investments is as follows:
•
Bonds are generally stated at amortized cost, except those with an NAIC designation of "6",
which are stated at the lower of amortized cost or fair value. Changes in fair value of bonds stated at fair value are charged to capital and surplus.
•
Loan-backed and structured securities, which are included in bonds in the statutory financial
statements, are stated in a manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S.
government agencies, commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined
for each security. The initial NAIC designation, which takes into consideration the security’s amortized cost relative to an NAIC-prescribed valuation methodology, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost
or fair value).
•
Preferred stocks are generally stated at amortized cost, except those with an NAIC designation
of "4" through "6", which are stated at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in fair value of stocks stated at fair value are charged to capital and surplus.
•
The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC, JNL and Eagle, and wholly-owned
noninsurance subsidiaries, NISC and NIA, are carried using the equity method of accounting. Investments in NLAIC, JNL and NISC are included in stocks, and the investment in Eagle
is included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus.
•
Commercial mortgage loans are recorded at unpaid principal balance, adjusted for premiums and discounts, less a valuation
allowance.
•
Policy loans, which are collateralized by the related insurance policy, are carried at the
outstanding principal balance and do not exceed the cash surrender value of the policy. As such, no valuation allowance for policy loans is required.
•
Cash equivalents include highly liquid investments with original maturities of less than three
months and amounts on deposit in internal qualified cash pools.
•
Short-term investments consist of government agency discount notes with maturities of twelve
months or less at acquisition and are carried at amortized cost, which approximates fair value. Short-term investments also include outstanding promissory notes with initial maturity dates of one-year or less with certain affiliates.
•
Alternative investments are generally reported based on the equity method of
accounting.
Investments not carried at fair value in the Company’s statutory financial statements (certain bonds and stocks and commercial mortgage loans) may have fair values which are substantially higher or lower than the carrying value reflected in
the Company’s statutory financial statements. Each such asset class is regularly evaluated for impairment under the accounting guidance appropriate to the respective asset
class.
The Company’s valuation
of certain bonds and stocks held at fair value may include methodologies, estimates and assumptions which are subject to differing
interpretations and could result in changes to investment valuations that may materially and adversely affect the Company’s results of
operations or financial condition.
See Note 2 to the audited statutory financial statements included in
the F pages of this report, for a discussion of the Company’s fair value categories and valuation methodologies.
The determination of fair values in the absence of quoted market prices is based on valuation
methodologies, values of securities the Company deems to be comparable, and assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. Further,
rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Company’s statutory 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.
Risks Related to the Legal and Regulatory Environment of the Insurance Industry
Certain changes in accounting and/or financial reporting standards issued by the National Association of Insurance Commissioners, state insurance departments, the Securities and Exchange Commission or other standard-setting bodies could have a material adverse impact on the Company’s financial condition or results of operations.
The Company’s insurance entities are required to comply with the Statutory
Accounting Principles ("SAP") established by the NAIC and adopted and administered by state departments of insurance. The various components of SAP (such as actuarial reserve methodologies) are currently subject to review by the NAIC and its task forces and committees, as well as
by state insurance departments, in an effort to address emerging issues and otherwise improve or alter financial reporting. Calculations made in accordance with SAP also govern the
ability of the Company’s insurance entities to pay dividends to their respective parent companies. The NAIC is working to reform state regulation in various areas, including
comprehensive reforms relating to life insurance reserves and the accounting for such reserves. The Company cannot predict whether or in what form reforms will be enacted and, if so, whether the enacted reforms will positively or negatively
affect the Company’s insurance entities.
The Accounting Manual provides that state insurance departments may permit insurance
companies domiciled therein to depart from SAP through prescribed practices or by granting them permitted practices.
NLIC and NLAIC have elected to apply a prescribed
practice promulgated under Ohio Administrative Code Section 3901-1-67 ("OAC 3901-1-67") to its derivative instruments hedging indexed products and indexed annuity reserve
liabilities in order to better align the measurement of indexed product reserves and the derivatives that hedge them. Under OAC 3901-1-67, derivative instruments are carried at amortized cost with the initial hedge cost amortized over the term and asset payoffs
realized at the end of the term being reported through net investment income, rather than the derivative instruments being carried at fair value with asset payoffs realized over
the term through net realized capital gains and losses. Additionally, the cash surrender value reserves for indexed annuity products only reflect index interest credits at the end of the crediting term as compared to partial index interest credits accumulating throughout the crediting term in
increase in reserves for future policy benefits and claims. The application of this prescribed practice on NLIC’s eligible derivative instruments and indexed products resulted in a decrease of NLIC’s statutory surplus by an immaterial amount
as of December 31, 2023 and an increase of NLIC’s statutory surplus by an immaterial amount as of December 31, 2022. The application of this prescribed practice on NLAIC’s eligible derivative instruments and indexed products resulted in a decrease of NLIC’s subsidiary valuation of NLAIC by $89 million as of December 31, 2023 and an increase of NLIC’s
subsidiary valuation of NLAIC by $232 million as of December 31, 2022.
Eagle applies one prescribed practice with multiple applications as provided under the State of Ohio’s captive law, which values assumed GMDB and GLWB risks on variable annuity contracts from NLIC and GLWB risks on fixed indexed annuity contracts
from NLIC and NLAIC using an alternative reserving basis from the Statutory Accounting Principles detailed within the NAIC Accounting Practices and Procedures manual pursuant to Ohio Revised Code Chapter 3964 and approved by the Department. The prescribed practice resulted in an increase of the Company’s subsidiary valuation of
Eagle by $228 million as of December 31, 2023 and a decrease of the Company’s subsidiary valuation of Eagle by $118 million as of December 31, 2022.
Effective October 1, 2023, Eagle was granted a permitted practice from the Department, allowing Eagle to carry a reinsurance
recoverable asset under an excess of loss reinsurance agreement with a third-party reinsurer as an admitted asset that increased NLIC's valuation of Eagle by $853 million as of
December 31, 2023.
Prior to October 1, 2023, Olentangy was granted a
permitted practice from the State of Vermont allowing Olentangy to carry the assets placed into a trust account by Union Hamilton Reinsurance Ltd. on its statutory statements of
admitted assets, liabilities and surplus at net admitted asset value for certain universal life and term life insurance policies. This permitted practice increased NLIC and NLAIC’s valuation of Olentangy by $67 million as of December 31, 2022 and
December 31, 2021. Effective October 1, 2023, Olentangy terminated this permitted practice due to NLAIC's recapture of the reinsurance agreements.
However, the Company cannot predict what permitted and prescribed practices any applicable state insurance department may
allow or mandate in the future, nor can the Company predict whether or when the insurance departments of states of domicile of the Company’s competitors may permit them to
utilize advantageous accounting practices that depart from SAP. Moreover, although states generally defer to the interpretations of the insurance department of the state of
domicile with respect to the application of regulations and guidelines, neither the action of the domiciliary state nor the action of the NAIC is binding on a non-domiciliary state. Accordingly, a state could choose to follow a different interpretation. The
Company can give no guarantees that future changes to SAP or components of SAP, or the ability to apply a prescribed practice or the granting of permitted practices to the Company’s competitors, will not have a material impact on the
Company’s financial condition or results of operations.
The Company’s insurance entities are subject to extensive regulation.
The Company’s insurance entities are subject to extensive state regulatory oversight in
the jurisdictions in which each does business, as well as to federal oversight with respect to certain portions of their business. Insurance companies are regulated by the insurance departments of the states in which they are domiciled or licensed. The primary purpose of such
regulatory supervision is to protect policyholders, rather than the Company. State insurance authorities have broad administrative powers with respect to various aspects of the
insurance business. Accordingly, the Company could be adversely affected by, among other things, changes in state law relating to advertising and marketing; privacy; acquisitions; payment of dividends; the form and content of insurance policies (including pricing); operating and agent
licenses; regulation of premium rates; premium tax increases; rating and underwriting restrictions and limitations; asset and reserve valuation requirements; enterprise risk management; surplus requirements; accounting standards; RBC
requirements, statutory reserve and capital requirements; assessments by guaranty associations; affiliate transactions; unfair trade and claims practices; admittance of assets to statutory surplus; maximum interest rates on life insurance
policy loans and minimum accumulation or surrender values; the type, amounts and valuations of investments permitted; reinsurance transactions, including the role of captive reinsurance; ESG rules and standards including management and
disclosure of climate risks and other matters.
Changes in state regulations, or in the interpretation or application of existing state laws or regulations may adversely impact the Company’s pricing, capital requirements,
reserve adequacy or exposure to litigation and could increase the costs of regulatory
compliance.
Changes are often implemented by state regulators in order to benefit policyholders to the detriment of insurers. State
insurance regulators and the NAIC continually re-examine existing laws and regulations and may impose changes in the future that put further regulatory burdens on the Company, and thus, could have an adverse effect on its results of
operations and financial condition.
In addition, state insurance laws, rather than federal bankruptcy laws, govern the liquidation or restructuring of insurance
companies. Virtually all states in which the Company operates require the Company bear a portion of the loss suffered by some insureds as a result of impaired or insolvent insurance companies via participation in state guaranty associations.
From time to time, increased scrutiny has been placed upon the U.S. insurance regulatory
framework, and a number of state legislatures have considered or enacted legislative measures that alter, and in many cases increase, state authority to regulate insurance and reinsurance companies. In addition to legislative initiatives of this type, the NAIC and insurance
regulators are regularly involved in a process of re-examining existing laws and regulations and their application to insurance and reinsurance companies.
At the federal level, the Company could be affected by laws and regulations that may affect certain aspects of the insurance
industry. While the federal government in most contexts does not directly regulate the insurance business, federal legislation and administrative policies in a number of areas,
including limitations on antitrust immunity, minimum solvency requirements, systemic risk regulation, grant of resolution authority to a federal agency, uniform market conduct
standards, credit for reinsurance initiatives, other proposals at the federal level to replace or streamline state regulatory processes, employment and employee benefits regulation, financial services regulation, and federal taxation, can
significantly affect the insurance business.
This state regulatory oversight and various proposals at the federal level could in the
future adversely affect the Company’s ability to sustain adequate returns in certain lines of business. The Company cannot predict the effect any proposed or future legislation or change in the interpretation or application of existing laws or regulations may have on its
financial condition or results of operations.
A failure to comply with rules and regulations in a jurisdiction could lead to disciplinary action, the imposition of fines or the revocation of the license, permission or authorization necessary to conduct the Company’s business in that jurisdiction, all of which could have a material adverse effect on the continued conduct of business in a particular jurisdiction.
The Company could be adversely affected if its controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective.
The Company’s business is highly dependent on the ability to engage on a daily basis in a large number of insurance underwriting, claims processing and investment activities, many of which are highly complex. These activities often are
subject to internal guidelines and policies, as well as to legal and regulatory standards. A control system, no matter how well-designed and operated, can provide only reasonable assurance that the control system’s objectives will be met.
Ineffective controls could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk) or damage to the Company’s reputation.
Litigation or regulatory actions could have a material adverse impact on the Company.
Current and future litigation or regulatory investigations and actions in the ordinary course
of operating the Company’s business, including class action lawsuits, 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, harming the Company’s reputation with customers or making it more difficult to retain current customers and to recruit and retain agents or Nationwide employees.
See Note 13 to the audited statutory financial statements included in the F pages of this report for a description of litigation and regulatory actions.
The amount of
statutory capital and surplus that the Company and its insurance subsidiaries have and the amount of statutory capital and surplus they must hold
can vary significantly from time to time and is sensitive to a number of factors outside of the Company’s control, including equity market
and credit market conditions and the regulatory environment and rules.
The Company conducts the vast majority of its business through its licensed insurance
entities. Insurance regulators and the NAIC prescribe accounting standards and statutory capital and reserve requirements for the Company and its U.S. insurance entities. The NAIC has established regulations that provide minimum capitalization requirements based on RBC
formulas for life insurance companies. The RBC formula for life companies establishes capital requirements relating to insurance, business, asset and interest rate risk, including equity, interest rate, operational and management and expense
recovery risks associated with life and annuity products that contain death benefits and/or certain living benefits.
In any particular year, statutory surplus amounts and RBC ratios may increase or decrease
depending on a variety of factors, including the amount of statutory income or losses generated by the Company’s insurance entities (which itself is sensitive to equity market and credit market conditions), the amount of additional capital they must hold to support their
business growth, changes in equity market levels, changes in reserve requirements, credit market volatility, changes in consumer behavior, the value of certain bonds in their investment portfolios, the value of certain derivative instruments
that do not get hedge accounting treatment, changes in interest rates and foreign currency exchange rates, and changes to the NAIC RBC formulas. Nationally Recognized Statistical Rating Organizations ("NRSROs") may also implement changes to
their internal models, which differ from the NAIC RBC model, that have the effect of increasing or decreasing the amount of statutory capital that the Company’s insurance
entities must hold in order to maintain their current ratings. Increases in the amount of required statutory reserves reduce the statutory surplus used in calculating the
Company’s insurance entities’ RBC ratios.
In addition, the NAIC often considers reforms to the RBC framework which can increase the
Company’s capital requirements. See "Business—Regulation—Risk-Based Capital" for further discussion of potential changes to the RBC framework.
The Company’s insurance entities’ statutory surplus and RBC ratios have a significant influence on their financial strength ratings, which, in turn, are important to their ability to compete effectively. To the extent that any of the Company’s
insurance entities’ statutory capital resources are deemed to be insufficient to maintain a particular rating by one or more rating agencies, capital may need to be raised. If the Company is unable to raise additional capital in such a scenario, any
ratings downgrade that followed could have a material adverse effect on its business, financial condition, results of operations and liquidity. See Note 14 to the audited statutory financial statements included in the F pages of this report for
a further discussion of RBC.
Changes in tax laws could adversely affect the Company.
Congress has periodically considered legislation that, if enacted, could materially reduce or eliminate many of the tax advantages of purchasing and owning annuity and life insurance products, such as disallowing a portion of the income tax
interest deduction for many businesses that own life insurance. In addition, Congress has considered proposals to further limit contributions to retirement plans and accelerate the distributions from such plans after the death of the participant. If these proposals or other changes affecting the taxation of life insurance and/or annuity contracts, or the qualification
requirements for retirement plans, were to be enacted, the Company’s sale of COLI, BOLI, variable annuities, variable life products and other retirement plan products could be adversely affected.
Congress and various state legislatures also have considered proposals to reduce the taxation of certain products or
investments that may compete with life insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of the Company’s
products, making them less competitive. Such proposals, if adopted, could have a material effect on the Company’s profitability and financial condition or ability to sell such products, and could result in the surrender of some existing
contracts and policies.
The products that the Company sells have different tax characteristics, in some cases generating tax deductions for the
Company. The level of profitability of certain products is significantly dependent on these characteristics and the Company’s ability to continue to generate taxable income, which is taken into consideration when pricing products and is a component of the Company’s capital management strategies. Accordingly, changes in tax law, the Company’s ability to generate taxable income, or other factors impacting the availability or value of the tax characteristics generated by the
Company’s products, could impact product pricing and returns or require the Company to reduce its sales of these
products or implement other actions that could be
disruptive to the Company’s businesses. In addition, the adoption of "principle-based" approaches for statutory reserves may lead to significant changes to the way tax
reserves are determined and thus reduce future tax deductions.
See "Business—Tax Matters" for further discussion of other changes in federal tax laws and regulations that may
adversely affect the Company’s business, results of operations and financial condition.
Changes to regulations under ERISA could adversely affect the Company’s distribution model, by restricting the Company’s ability to provide customers with advice.
The prohibited transaction rules of ERISA and the IRC generally restrict the provision of investment advice to ERISA plans and participants and Individual Retirement Account ("IRAs") owners, if the investment recommendation results in fees paid to
the individual advisor, his or her firm, or their affiliates, that vary according to the investment recommendation chosen. Although the DOL issued final regulations which provide
limited relief from these investment advice restrictions, the investment advice restrictions could restrict the ability of the Company’s affiliated broker-dealers and their
registered representatives to provide investment advice to ERISA plans and participants and with respect to IRAs. Also, the investment advice restrictions may require the fee and revenue arrangements of certain advisory programs to be revenue
neutral, resulting in potential lost revenues for these broker-dealers and their affiliates. The 2020 PTE, which took effect on February 16, 2021, was expected to ease some of the investment advice restrictions under ERISA. However, this expectation
may change if the Retirement Security Act, a new rule similar to the 2016 Fiduciary Rule, becomes law.
Overall, the DOL has issued or proposed several regulations over the past eight years that increase the level of disclosure
that must be provided to plan sponsors and participants. These ERISA disclosure requirements will increase the
Company’s regulatory and compliance burden, resulting in increased costs. See "Business – The Company’s insurance entities are subject to extensive regulation" for further information on the impact of regulations issued by the DOL.
Changes in state insurance laws regarding the suitability
of product sales and fiduciary/best interest standards may affect the Company’s operations and profitability.
The Company’s annuity sales practices are currently subject to strict regulation. State
insurance regulators are becoming more active in adopting and enforcing suitability standards with respect to sales of annuities, both fixed and variable. The NAIC amended its annuity suitability model regulation to incorporate a best interest standard. Many states have adopted the
amendments, including Ohio. Some states have enacted or proposed legislation to impose new or expanded fiduciary/best interest standards on broker-dealers, investment advisors
and/or insurance agents providing services to retail investors. Additionally, some state regulators have adopted or signaled they will be pursuing rule-making in this space. For
example, the NY DFS amended the annuity suitability regulation to incorporate the best interest standard for annuity sales and they expanded its scope to include "in-force" recommendations and life insurance policies. Any material changes to the
standards governing the Company’s sales practices, including applicable state laws and regulations, could affect the Company’s business, results of operations and
financial condition. See "Business—Regulation—Annuity Sales Practices."
The Company may be unable to mitigate the impact of
Regulation XXX and Actuarial Guideline 38, potentially resulting in a negative impact to NLAIC’s capital position and/or a reduction in
sales of NLAIC’S term and universal life insurance products.
NLAIC has implemented reinsurance and capital management transactions to mitigate the capital impact of Regulation XXX and
AG 38 for certain term life insurance and universal life insurance policies with secondary guarantees. These arrangements are subject to review by state insurance regulators and
rating agencies and, for any new transactions entered into in the future, are subject to AG 48 as well. For those insurance policies where NLAIC has not implemented reinsurance and capital management transactions to mitigate the capital impact of Regulation XXX and AG 38, NLAIC has
experienced a negative impact on its financial condition and results of operations. If NLAIC is unable to implement solutions to mitigate the impact of in force Regulation XXX and AG 38 business, this may continue to have a negative impact
on its financial condition and results of operations.
See "Business – Regulation - Captive Reinsurance Regulation" for further discussion of Regulation XXX and Actuarial Guideline 38.
Risks Related to the Business and
Operations of the Company
The Company is
rated by S&P, Moody’s, and A.M. Best, and a decline in ratings could adversely affect the Company’s operations.
Financial strength and claims-paying ability ratings, which various NRSROs publish as indicators of an insurance
company’s ability to meet contractholder and policyholder obligations, are important to maintaining public confidence, competitive position, and ability to market products. Such factors are important to policyholders, agents and
intermediaries; however, they are not evaluations directed towards the protection of investors and are not
recommendations to buy, sell or hold securities. Downgrades in NLIC and its subsidiaries’ financial strength ratings could have an adverse effect on their financial condition and certain of their results of operations in many ways, including
reducing new sales and renewals of insurance products, annuities, and other investment products, adversely affecting their relationships with their sales force and independent sales intermediaries, materially increasing the number or amount
of policy surrenders and withdrawals by contractholders and policyholders, requiring a reduction in prices to remain competitive, and adversely affecting their ability to obtain reinsurance at reasonable prices or at all.
Additionally, 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 credit ratings for NFS and its subsidiaries could have an adverse effect on the Company’s financial condition and results of operations in
many ways, including adversely limiting access to capital markets, potentially increasing the cost of debt and requiring the posting of collateral.
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. The Company cannot predict what actions rating agencies may take, or what actions it may take in
response to the actions of rating agencies, which could adversely affect its business. As with other companies in the financial services industry, the Company’s ratings could be downgraded at any time and without any notice by any
NRSRO.
See "Business—Ratings" for further information on current
financial strength, claims-paying ability and credit ratings.
Guarantees within certain of the Company’s and its insurance entities’ products may adversely affect the Company’s financial condition or results of operations.
The Company offers guarantees which can include a return of no less than the total deposits made on the contract less any customer withdrawals, total deposits made on the contract less any customer withdrawals plus a minimum return, or the
highest contract value on a specified anniversary date minus any customer withdrawals following the contract anniversary. These guarantees can also include benefits payable in the
event of death, upon annuitization, upon periodic withdrawal or at specified dates during the accumulation period.
NLIC remains ultimately liable for the specific guaranteed benefits and is subject to the risk that reinsurers are unable or unwilling to pay. In addition, NLIC is subject to the risk that hedging and other risk management procedures prove
ineffective, or the estimates and assumptions made in connection with their use fail to reflect or correspond to the actual liability exposure, or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces
economic losses beyond the scope of the risk management techniques employed. These risks, individually or collectively, may have a material adverse effect on the Company’s financial condition or results of operations.
An inability to access the
Company’s credit facilities could have a material adverse effect on its financial condition and results of operations.
The Company maintains committed unsecured revolving credit facilities. The Company relies on these facilities as a potential
source of liquidity, which could be critical in enabling it to meet its obligations as they come due, particularly during periods when alternative sources of liquidity are limited.
The Company’s ability to borrow under these facilities is conditioned on the Company’s satisfaction of covenants and other requirements contained in the facilities. The
Company’s failure to satisfy the requirements contained in the facilities would, among other things, restrict the Company’s access to the facilities when needed and, consequently, could have an adverse effect on the Company’s financial condition and
results of operations.
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 Company’s earnings significantly depend upon the extent to which the actual
experience is consistent with the assumptions the Company uses in setting prices for its products and establishing liabilities for some future policy benefits and claims. Such amounts are established based on estimates by actuaries of how much the Company will need to pay for future
benefits and claims. The process of calculating reserve amounts for some products within 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 likelihood of death or the likelihood of survival), morbidity (likelihood of sickness or disability) and interest rates (the rates expected to be paid or received on financial instruments, including insurance or
investment contracts). In addition, significant changes in mortality or morbidity could emerge gradually over time, due to changes in the natural environment, including climate change, the health habits of the insured population, treatment
patterns and technologies for disease or disability, the economic environment, or other factors. Actual results could differ significantly from those assumed. Although the Company may be permitted to increase premiums or adjust other charges and
credits during the life of certain policies or contracts, the adjustments permitted under the terms of the policies or contracts may not be sufficient to maintain profitability or
may cause the policies or contracts to lapse. As such, significant deviations from one or more of these assumptions could result in a material adverse impact on the Company’s
life insurance entities’ results of operations or financial condition.
Pricing of the Company’s insurance and deferred annuity products are also based in part upon expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next.
Persistency within the Company’s annuities business may be significantly impacted by the value of guaranteed minimum benefits contained in many of the Company’s annuity products being higher than current account values, in light of poor
equity market performance or extended periods of low interest rates, as well as other factors. Persistency could be adversely affected generally by developments affecting client perceptions of the Company, including perceptions arising from
adverse publicity. Many of the Company’s products also provide the Company’s customers with wide flexibility with respect to the amount and timing of premium deposits
and the amount and timing of withdrawals from the policy’s value. Results may vary based on differences between actual and expected premium deposits and withdrawals for these
products, especially if these product features are relatively new to the marketplace. The pricing of certain of the Company’s annuity products that contain certain living benefit guarantees is also based on assumptions about utilization
rates, or the percentage of contracts that will utilize the benefit during the contract duration, including the timing of the first lifetime income withdrawal. Results may vary based on differences between actual and expected benefit utilization. The
development of a secondary market for life insurance, including life settlements or "viaticals" and investor-owned life insurance, and third-party investor strategies in the annuities business, could adversely affect the profitability of existing
business and the Company’s pricing assumptions for new business.
The Company’s risk management policies, practices and procedures could leave it exposed to unidentified or unanticipated risks, which could negatively affect its business or result in losses.
The Company has developed an enterprise-wide risk management framework to mitigate risk and
loss to the Company, and maintains policies, procedures and controls intended to identify, measure, monitor, report and analyze the risks to which the Company is exposed. Many of the Company’s risk management strategies or techniques are based upon historical
customer and market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. The Company cannot provide assurance that
its risk management framework, including the underlying assumptions or strategies, will be accurate and effective.
The risk management policies and procedures, including hedge programs at NLIC and NLAIC,
utilize derivative financial instruments, and expect to do so in the future. Nonetheless, the Company’s policies and procedures to identify, monitor, and manage both internal and external risks may not effectively mitigate these risks or predict future exposures, which
could be different or significantly greater than expected. As the Company’s businesses change and the markets in which the Company operates evolve, the Company’s risk management framework may not evolve at the same pace as those changes.
As a result, there is a risk that new products or new business strategies may present risks that are not appropriately identified, monitored or managed. Additional risks and
uncertainties not currently known to the Company, or that it currently deems to be immaterial, may adversely affect its business, results of operations and financial
condition.
A large-scale
pandemic or epidemic, natural and man-made catastrophes, climate change, the continued threat or acts of terrorism, or ongoing military and other
actions may result in decreases in the Company’s net income, revenue, and assets under management and may adversely impact its investment
portfolio.
A large-scale pandemic or epidemic, natural and man-made catastrophes, climate change, the continued threat or acts 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. As a result, the
Company’s net income and/or revenue, and some of the assets in the Company’s investment portfolio, may be adversely affected by declines in the securities markets and economic activity.
The Company cannot predict whether or the extent to which industry sectors in which it 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 the interest or principal on their securities, or how the value of any underlying collateral might be affected.
The Company operates in a highly competitive industry,
which can significantly impact operating results.
The Company’s
ability to compete is based on a number of factors including scale, service, product features, price, investment performance, commission structure, distribution capacity, financial
strength ratings and name recognition. The Company competes with a large number of financial services companies such as banks, mutual funds, broker-dealers, insurers and asset managers, many of which have advantages over the Company in one or more of the above competitive factors.
The Company’s revenues and profitability could be impacted negatively due to such competition. The competitive landscape in which the Company operates may be further affected
by government-sponsored programs and longer-term fiscal policies. Competitors that receive governmental financing or other assistance or subsidies, including governmental guarantees of their obligations, may have or obtain pricing or other competitive advantages. Competitors that are not
subject to the same regulatory framework may also have a pricing advantage as a result of lower capital requirements.
See
"Business—Competition" for a further description of competitive factors affecting the Company.
The Company’s products and services are complex and are frequently sold through intermediaries, and a failure of such intermediaries to properly perform services, or their misrepresentation of the Company’s products or services, could have an adverse effect on the Company’s business, results of operations and financial condition.
Many of the Company’s products and services are complex and are frequently sold through intermediaries. In particular,
the Company is reliant on intermediaries in its unaffiliated distribution channels to describe and explain its products to potential customers. The intentional or unintentional misrepresentation of the Company’s products and services in
advertising materials or other external communications, or inappropriate activities by the Company’s personnel or an intermediary, could adversely affect the Company’s reputation and business prospects, as well as lead to potential
regulatory actions or litigation.
The Company’s business success depends, in part, on
effective information technology systems and on continuing to develop and implement improvements in technology.
The Company depends in large part on technology systems for conducting business and
processing claims, as well as for providing the data and analytics it utilizes to manage its business, and thus the Company’s business success is dependent on maintaining the effectiveness of existing technology systems and on continuing to develop and enhance technology systems
that support its business processes and strategic initiatives in a cost- and resource- efficient manner. Some system development projects that are long-term in nature, may
negatively impact the Company’s expense ratios as it invests in the projects, and may cost more to complete than the Company expects. In addition, system development projects may not deliver the benefits the Company expects once they are complete, or may be replaced or become obsolete more
quickly than expected, which could result in accelerated recognition of expenses. If the Company does not effectively and efficiently manage and upgrade its technology portfolio,
including with respect to the technology portfolio of its recently acquired businesses, or if the costs of doing so are higher than it expects, the Company’s ability to
provide competitive services to new and existing customers in a cost-effective manner and its ability to implement its strategic initiatives could be adversely impacted.
The Company
faces a risk of non-availability and increased cost of reinsurance.
Market
conditions beyond the Company’s control determine the availability and cost of the reinsurance protection it purchases. The Company can offer no guarantees that reinsurance
will remain continuously available to it to the same extent, and with the same terms and rates, as are currently available. If the Company is unable to maintain its current level of reinsurance or purchase new reinsurance protection in amounts that it considers sufficient and at prices that it
considers acceptable, the Company would either have to be willing to accept an increase in its net exposures or reduce its insurance writings. A significant reinsurer’s insolvency or inability to make payments under the terms of a reinsurance
treaty could subject the Company to credit risk with respect to its ability to recover amounts due from reinsurers. Because of the risks set forth above, the Company may not be able to collect all amounts due to it from reinsurers, and reinsurance
coverage may not be available to it in the future at commercially reasonable rates or at all. These risks could have a material adverse effect on the results of operations or financial condition of the Company.
A breach of information security or other unauthorized data access could have an adverse impact on the Company’s business and
reputation.
In the ordinary course of business, the Company collects, processes, transmits, and stores large quantities of personal
information, customer financial and health information, and proprietary business information (collectively referred to herein as "Sensitive Information"). The secure processing, storage, maintenance, and transmission of this Sensitive Information are
vital to the Company’s operations and business strategy. Although the Company undertakes substantial efforts to reasonably protect Sensitive Information, including internal
processes and technological safeguards and defenses that are preventative or detective, and other commercially reasonable controls designed to provide multiple layers of security,
Sensitive Information maintained by the Company may be vulnerable to attacks by computer hackers, to physical theft by other third-party criminals, or to other compromise due to error or malfeasance by an individual providing services. Attacks
may include both sophisticated cyber-attacks perpetrated by organized crime groups, "hactivists," or state-sponsored groups, as well as non-technical attacks ranging from sophisticated social engineering to simple extortion or threats, which
can lead to access, disclosure, disruption or further attacks. Such events may expose the Company to civil and criminal liability or regulatory action, require consumer and regulatory notification of the unauthorized data access harming its
reputation among customers, deter people from purchasing the Company’s products, cause system interruptions, require significant technical, legal and other remediation expenses, and otherwise have an adverse impact on its business. Third
parties to whom the Company outsources certain functions are also subject to the risks outlined above, and if such a third party suffers a breach of information security involving the Company’s Sensitive Information, such breach may result in
the Company incurring substantial costs and other negative consequences, including a material adverse effect on its business, financial condition, results of operations and liquidity. The Company offers no guarantees that it will be able to
implement information security measures to anticipate or prevent all breaches of information security.
Losses due to system failures or physical locations being
unavailable to conduct business could have an adverse impact on the Company’s business and reputation.
Network, utility, telecommunications, business systems, hardware and/or software failures due
to a computer virus or cyber-attack, such as a distributed denial of service attack, could prevent the Company from conducting its business for a sustained period of time. The Company’s facilities could be inaccessible due to a disaster, natural or man-made
catastrophe, blackout, terrorist attack, pandemic or war. Even if the personnel providing services to the Company are able to report to work, they may be unable to perform their duties for an extended period of time if the Company’s data or
systems are disabled or destroyed. There can be no assurance that the Company’s business continuation plans and insurance coverages would be effective in mitigating any negative effects on the Company’s operations or profitability, and the Company could be adversely impacted by any disruption of its ability to conduct business.
Nationwide employee error, misconduct, or excessive risks may be difficult to detect and prevent and could adversely affect the Company.
As an insurance enterprise, the Company is in the business of accepting certain risks. The associates who conduct the
Company’s business, including executive officers and other members of management, sales managers, investment professionals, product managers, sales agents, and other personnel, do so in part by making decisions and choices that
involve exposing the Company to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining what assets to purchase for investment and when to sell them, deciding which
business opportunities to pursue, and other decisions. Losses may result from, among other things, excessive risk, fraud, errors, failure to document transactions properly, failure to obtain proper internal authorization or failure to comply with
regulatory requirements. Although the Company employs controls and procedures designed to monitor individual business decisions and prevent the Company from taking excessive risks, it is not always possible to deter or prevent individual
misconduct, and the precautions the Company takes
to prevent and detect this activity may not be effective in all cases. The impact of those losses and excessive risks could harm the Company’s reputation and have a material
adverse effect on the Company’s financial condition and business operations.
The Company’s business may be
adversely affected if Nationwide is unable to hire and retain qualified employees.
There is significant competition from within the financial services and life insurance
industries, and from businesses outside those industries, for qualified employees, especially those in key positions and those possessing highly specialized underwriting knowledge. The Company’s performance is largely dependent on the talents, efforts and proper conduct of
highly-skilled individuals, including the Company’s senior executives. For many of the Company’s senior positions, it competes for talent not just with insurance or financial service companies, but with other large companies and other
businesses. The Company’s continued ability to compete effectively in its business and to expand into new business areas depends on its ability to attract new personnel and to retain and motivate its existing personnel. If the Company is not able
to successfully attract, retain, and motivate the personnel that provide services to it, its business, financial results and reputation could be materially and adversely affected.
The Company may be subject to intellectual property risk.
The Company relies on copyright, trademark, patent and trade secret laws, as well as various contractual rights and obligations, to protect its intellectual property. Although the Company uses a broad range of measures to protect its
intellectual property rights, third parties may infringe or misappropriate its intellectual property. The Company may resort to litigation in order to enforce its intellectual property rights. Such litigation would represent a diversion of resources that may be significant in amount, and the final outcome of any litigation cannot be predicted with certainty. The Company’s
inability to successfully secure or enforce the protection of the Company’s intellectual property assets, despite the Company’s best efforts, could have a material adverse effect on its business and ability to compete.
The Company also may be subject to costly litigation in the event that another party alleges that its operations or activities infringe upon that party’s intellectual property rights. The Company may be subject to claims by third parties for alleged infringement of third-party patents, copyrights, trademarks, trade secrets or breach of any license. If the Company were
found to have infringed any third-party intellectual property rights, it could incur substantial liability, and in limited circumstances could be enjoined from providing certain products or services to its customers. Alternatively, the Company
could be required to enter into costly licensing arrangements with third parties to resolve any alleged intellectual property infringement claims brought by third parties.
Acquisitions and integration of acquired businesses and
dispositions or other structural changes may result in operating difficulties, unforeseen liabilities or asset impairments, and other unintended
consequences.
From time to time, the Company may investigate and pursue acquisition or disposition opportunities if it believes that such
opportunities are consistent with its long-term objectives and that the potential rewards of an acquisition or disposition justify the risks.
The Company’s ability to achieve certain financial benefits it anticipates from its acquisitions will depend in part upon its ability to successfully grow the businesses consistent with its anticipated acquisition economics. The Company’s financial results could be adversely affected by unanticipated performance issues, unforeseen liabilities, transaction-related
charges, diversion of management time and resources to acquisition integration challenges or growth strategies, loss of key Nationwide employees, amortization of expenses related to intangibles, charges for impairment of long-term assets or
goodwill and indemnifications.
The process of integrating an acquired company or business can be complex and costly and may create unforeseen operating
difficulties and expenditures. Acquired businesses may not perform as projected, any cost savings and other synergies anticipated from the acquisition may not materialize and costs
associated with the integration may be greater than anticipated. Acquired businesses may not be successfully integrated, resulting in substantial costs or delays and adversely affecting the Company’s ability to compete. Accordingly, the Company’s results of operations might be
materially and adversely affected.
The Company
faces compliance obligations and corresponding risk of noncompliance with, and enforcement action under, the Bank Secrecy Act and other
anti-money laundering, and sanctions statutes and regulations.
A major focus of U.S. governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 substantially broadened the scope of U.S. anti-money
laundering laws and regulations by imposing significant new compliance and due diligence obligations on regulated
companies, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the U.S., in certain circumstances, and by expanding the categories of financial institutions subject to such laws and regulations to include
some categories of insurance companies. Certain financial institutions are also prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with
certain types of high-risk clients and implement a written customer identification program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of
suspicious transactions without notifying the affected clients. Similarly, the U.S. government has been escalating the obligations and requirements associated with sanctions laws including those enforced by the Treasury Department’s
Office of Foreign Assets Control ("OFAC"). Regulatory authorities routinely examine financial institutions to ensure that they have policies and procedures reasonably designed to comply with applicable requirements and for compliance with the
policies and procedures and these substantive obligations. Failure of a financial institution to maintain and implement adequate programs, including policies and procedures, to
combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the
institution, including causing applicable regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed
cease and desist orders and civil money penalties against institutions found to be violating these obligations. The Company and its subsidiaries are subject to OFAC’s regulations, and anti-money laundering statutes and certain
regulations, and its compliance obligations under these rules result in increased costs and allocation of internal resources.
Consolidation of distributors of insurance products may
adversely affect the insurance industry and the profitability of the Company’s business.
The Company distributes many of its individual products through other financial institutions
such as banks and broker−dealers. An increase in bank and broker−dealer consolidation activity could increase competition for access to distributors, result in greater distribution expenses and impair the Company’s ability to expand its customer base.
Consolidation of distributors and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling agreements to terms less favorable to the Company.
See Note 13 to the audited statutory financial statements included in the F pages of this report for a
discussion of legal proceedings.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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 2023.
There were no dividends paid in 2023 or 2022. During March 2021, the Company paid an ordinary dividend of $550 million to
NFS.
NLIC currently does not have a formal dividend policy.
See Business – Regulation – Regulation of Dividends and Other Distributions and Risk-Based Capital
for information regarding dividend restrictions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND FINANCIAL DISCLOSURE
Forward-Looking Information
The information included herein contains certain forward-looking statements with respect to the results of operations, businesses and financial condition of the Company made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Whenever used in this report, words such as "anticipate," "estimate," "expect," "intend,"
"plan," "believe," "project," "target," "will,"
"shall," "could," "may" and other words of similar meaning are intended to identify such forward-looking statements. These forward-looking statements are based on current
expectations and involve a number of risks and uncertainties that are difficult to predict. These forward-looking statements are not a guarantee of future performance, and certain important factors that may cause actual results to differ materially from those expressed or
implied in such forward-looking statements include, among others, the following possibilities:
(a)
fluctuations in the results of operations or financial condition;
(b)
actual claims losses
exceeding reserves for claims;
(c)
difficult economic and business conditions, including financial, capital and credit market
conditions as a result of changes in interest rates or prolonged periods of low interest rates, equity prices, volatility, yields and liquidity in the equity and credit markets, as well as geopolitical conditions and the impact of political, regulatory, judicial, economic or
financial events, including terrorism, epidemics or pandemics, impacting financial markets generally and companies in the Company’s investment portfolio
specifically;
(d)
the degree to which the Company chooses not to hedge risks, or the potential ineffectiveness or
insufficiency of hedging or risk management strategies the Company does implement;
(e)
changes in certain accounting and/or financial reporting standards issued by the Financial
Accounting Standards Board ("FASB"), SEC, NAIC or other standard-setting bodies;
(f)
the inability to maintain the availability of systems and facilities in the event of a
disaster, natural or man-made catastrophe, blackout, terrorist attack or war;
(g)
heightened competition that affects the cost of, and demand for, the Company’s products,
specifically including the intensification of price competition, the entry of new competitors, consolidation, technological innovation and the development of new products by new and existing competitors;
(h)
adverse state and federal legislation and regulation, with respect to, among other things, tax
law changes impacting the federal estate tax and tax treatment of life insurance and investment products; limitations on premium levels; restrictions on product approval and policy issuance; increases in minimum capital and reserves and other financial
viability requirements; restrictions on mutual fund service fee payments; changes affecting sales practices, including investigations and/or claims handling and escheat investigations; and regulatory actions of the DOL under ERISA, in
particular proposed rule-making with respect to fiduciary obligations, rule-making adopted by regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act,
including SEC comprehensive rulemaking and guidance regarding standards of conduct for broker dealers and investment advisers;
(i)
the inability to
mitigate the capital impact associated with statutory reserving and capital requirements;
(j)
failure to maintain or expand distribution channels;
(k)
possible difficulties in executing, integrating and realizing projected results of
acquisitions, divestitures and restructurings;
(l)
loss of key vendor relationships or failure of a vendor to protect confidential and
proprietary information or otherwise perform;
(m)
changes in interest rates and the equity markets causing a reduction in the market value of the
Company’s investment portfolio, investment income and/or asset fees; an acceleration of other expenses; a reduction in separate account assets or a reduction in the demand for the Company’s products; increased liabilities related to
living benefits and death benefit guarantees; or an impact on ultimate realizability of deferred tax assets;
(n)
outlook changes and downgrades in the financial strength and claims-paying ability ratings of
the Company assigned by NRSROs;
(o)
competitive, regulatory or tax changes that affect the cost of, or demand for,
products;
(p)
fluctuations in RBC levels;
(q)
settlement of tax liabilities for amounts that differ significantly from those recorded on the
balance sheets;
(r)
deviations from assumptions regarding future persistency, mortality and morbidity rates
(including as a result of natural and man-made catastrophes, pandemics, epidemics, malicious acts, terrorist acts and climate change), and interest rates used in calculating reserve amounts and in pricing products;
(s)
adverse results and/or
resolution of litigation, arbitration, regulatory investigation and/or inquiry;
(t)
the availability, pricing and effectiveness of reinsurance;
(u)
the effectiveness of
policies and procedures for managing risk;
(v)
interruption in telecommunication, information technology or other operational systems or
failure to maintain the security, confidentiality or privacy of sensitive data on such systems;
(w)
adverse consequences, including financial and reputational costs, regulatory problems and
potential loss of customers resulting from a breach of information security, a failure to meet privacy regulations, or inability to secure and maintain the confidentiality of proprietary or customers’ personal information;
(x)
the inability to protect intellectual property and defend against claims of
infringement;
(y)
realized losses with respect to impairments of assets in the investment portfolio of the
Company;
(z)
exposure to losses related to variable annuity guarantee benefits, including from downturns and
volatility in equity markets;
(aa)
statutory reserve requirements associated with term and universal life insurance policies under
Regulation XXX, Guideline AXXX and principle-based reserving requirements;
(ab)
lack of liquidity in certain investments, access to credit facilities, or other inability to
access capital; and
(ac)
defaults on commercial mortgages and volatility in their performance.
The Company undertakes no
commitment to revise or update any forward-looking statements as a result of new information, future events or development, except as required by law. For a more complete
description of the various risks, uncertainties, and other factors that could affect future results, see Risk Factors.
The following discussion provides an assessment of the financial position and results of operations of the Company for the
three years ended December 31, 2023. This discussion and analysis is based on and should be read in conjunction with the audited statutory financial statements and related notes
beginning on page F-1 of this report.
See Business – Overview for a description of the Company and its ownership structure.
See Business – Business Segments for a description of the components of each segment and a description
of management’s primary profitability measure.
The Company earns revenues and generates cash primarily from life insurance premiums, annuity considerations, policy
charges, accident and health insurance premiums and net investment income. Life insurance premiums are recognized as revenue over the premium paying period of the related policies. Annuity considerations are recognized as revenue when
received. Policy charges are comprised of several components including asset fees, which are earned primarily from separate account values generated from the sale of individual and group variable annuities and life insurance products and
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. Policy charges also include 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/deposits withdrawn during a
specified period for annuity and certain life insurance contracts. Accident and health insurance premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Net investment income includes
earnings on investments supporting fixed annuities, FHLB funding agreements, certain life insurance products and
earnings on invested assets not allocated to product segments, all net of related investment expenses.
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 are reported in net realized capital gains and losses.
Also included in net realized investment gains and losses are the impact of exercised, matured or terminated derivatives, with the exception of derivatives applying the prescribed practice under OAC 3901-1-67 which are recognized in net
investment income. All charges related to other-than-temporary impairments of bonds, specific commercial mortgage
loans, other investments, and changes in the valuation allowance not related to specific commercial mortgage loans are reported in net realized capital gains and losses.
The Company’s primary expenses include
benefits to policyholders and beneficiaries, commissions and other business expenses. Policy benefits and claims that are expensed include interest credited to policy account
balances, benefits and claims incurred in the period in excess of related policy reserves and other changes in future policy benefits. Commissions include commissions paid by the Company to affiliates and non-affiliates on sales of products. See
Business – Marketing and Distribution for a description of the Company’s unaffiliated and affiliated distribution channels.
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.
In particular, the Company’s profitability is driven by premiums and annuity
considerations for life and accident and health contracts, fee income on separate account products, general and separate account asset levels and management’s ability to manage interest spread income. Premiums and annuity considerations for life and accident and health contracts can vary
based on a variety of market, business and other factors. 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.
See Note 2 and Note 7 to the audited statutory financial statements
included in the F pages of this report for details regarding the Company’s policies for fair value measurements of certain assets and
liabilities.
Credit Risk Associated
with Derivatives
See Note 6 to the audited statutory financial statements
included in the F pages of this report for details regarding the Company’s evaluation of credit risk associated with derivatives.
Significant Accounting Estimates and Significant
Accounting Policies
The preparation of the statutory financial statements
requires the Company to make estimates and assumptions that affect the amounts reported in the statutory financial statements and accompanying notes. Significant estimates include
certain investment and derivative valuations and future policy benefits and claims. Actual results could differ significantly from those estimates.
Note 2 to the audited statutory financial statements included in the F pages of this report provides a summary of
significant accounting policies.
The following table summarizes the Company’s results of operations for the years
ended:
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Income before federal income tax expense and net realized capital (losses) gains on
investments |
|
|
|
Federal income tax expense |
|
|
|
Income before net realized capital (losses) gains on investments |
|
|
|
Net
realized capital (losses) gains on investments, net of tax and transfers to the interest
maintenance reserve |
|
|
|
|
|
|
|
The Company recorded lower net income for the year ended December 31, 2023 compared to 2022, primarily due to higher
benefits to policyholders and beneficiaries, increases in reserves for future policy benefits and claims and net realized capital (losses) gains on investments, net of tax and
transfers. These were partially offset by larger net transfers from separate accounts and increases in net investment income and premiums and annuity considerations.
Higher benefits to policyholders and beneficiaries were principally related to
surrender benefits in individual deferred variable annuity products and private sector retirement plans.
The increase in reserves for future policy benefits and claims was primarily related to
larger reserve increases in individual deferred fixed annuity and immediate annuity products that was partially offset by larger reserve decreases in private and public sector retirement plans and individual deferred variable annuity products.
Net realized capital losses on investments, net of tax and transfers during 2023 compared to gains in 2022 were primarily associated with derivative instruments in each period.
The increase in net transfers from separate accounts was primarily associated with individual deferred variable annuity,
variable COLI and BOLI, separate account PRT and retirement plan guarantee products.
The increase in net investment income was principally related to the
Corporate Solutions and Other segment.
The increase in premiums and
annuity considerations was primarily attributable to individual deferred fixed annuity and immediate annuity product considerations, partially offset by decreases in deferred
registered index-linked annuity, individual deferred variable annuity and retirement plan guarantee product considerations and COLI and BOLI product premiums.
The following table summarizes the Company’s results of operations for the years
ended:
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Income before federal income tax expense (benefit) and net realized capital gains (losses)
on investments |
|
|
|
|
|
|
|
|
|
|
Federal income tax expense (benefit) |
|
|
|
Income before net realized capital gains (losses) on investments |
|
|
|
Net
realized capital gains (losses) on investments, net of tax and transfers to the interest
maintenance reserve |
|
|
|
|
|
|
|
The Company recorded higher net income for the year ended December 31, 2022 compared to 2021,
primarily due to increases in premiums and annuity considerations and net realized capital gains (losses) on investments, net of tax and transfers and decreases in benefits to policyholders and beneficiaries. These were partially offset by increases in reserves
for future policy benefits and claims and lower net transfers from separate accounts.
The increase in premiums and annuity considerations was primarily attributable to COLI and BOLI products, individual deferred fixed annuity products, retirement plan guarantee products and PRT products, partially offset by a decrease in
individual deferred variable annuity products.
Net realized capital gains on investments, net of tax and transfers during 2022 compared to losses in 2021 were primarily
driven by gains on derivative instruments period over period.
Lower benefits to policyholders and beneficiaries were principally related to surrender benefits in individual deferred
variable annuity products and private and public sector retirement plans.
The increase in reserves for future policy benefits and claims were principally related to larger reserve increases in the Annuities segment and Corporate Solutions and Other segment products, partially offset by a larger reserve decrease in
public sector retirement plans.
The lower net transfers from separate accounts were primarily driven by larger net transfers to separate accounts for
variable COLI and BOLI products and retirement plan guarantee products plus lower net transfers from separate accounts for private and public sector retirement plans, partially offset by an increase in net transfers from separate accounts for
individual deferred variable annuity products.
The following table summarizes selected financial data for the Company’s Life Insurance segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022,
primarily due to lower net transfers from separate accounts, higher benefits to policyholders and beneficiaries and larger increases in reserves for future policy benefits and
claims, partially offset by higher net investment income.
The lower net transfers from separate accounts
reflects a decrease in benefits to policyholders and beneficiaries and transfers into fixed option funds for variable universal life insurance products.
The increase in benefits to policyholders and beneficiaries were primarily related to fixed
universal life insurance product death benefits, partially offset by a decrease in variable universal life insurance product death and surrender benefits.
The increase in change in reserves for future policy benefits and claims was driven by a
larger year over year increase in fixed and indexed universal life insurance products reserves that was partially offset by a larger year over year decrease in reserves for variable universal life insurance and traditional life insurance products.
Higher net investment income was primarily associated with growth in fixed universal life insurance products.
The following table summarizes selected financial data for the Company’s Life Insurance
segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings (losses) |
|
|
|
Pre-tax operating earnings (losses) increased for the year ended December 31, 2022 compared
to the year ended December 31, 2021, primarily due to lower benefits to policyholders and beneficiaries and smaller increases in reserves for future policy benefits and claims.
The decrease in benefits to policyholders and beneficiaries were primarily related to individual variable universal life,
traditional life and universal life insurance product death benefits.
The decrease in change in reserves for future policy benefits and claims was driven by a smaller increase year over year for individual fixed universal life insurance products that was partially offset by a larger increase year over year for
individual variable universal life insurance products.
The following table summarizes selected financial data for the Company’s Annuities segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
|
|
|
|
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022,
primarily driven by a larger increase in reserves for future policy benefits and claims and higher benefits to policyholders and beneficiaries, partially offset by higher annuity
considerations, net transfers from separate accounts and net investment income.
The larger increase in reserves for future policy benefits and claims was driven by higher sales in individual deferred fixed annuity and immediate annuity products that was partially offset by larger outflows in individual deferred variable annuity
products and lower sales in deferred registered index-linked annuity products.
The increase in benefits to policyholders and beneficiaries reflects higher surrender benefits in individual deferred variable annuity products driven by positive year-over-year market performance increasing account values of surrendered contracts as
the increasing interest rate environment influenced participant lapse behavior.
The annuity considerations increase was due to higher sales of individual deferred fixed annuity and immediate annuity
products that were driven by the increasing interest rate environment and partially offset by lower sales in deferred registered index-linked annuity and individual deferred variable annuity products due to recent market volatility.
The increase in net transfers from separate accounts primarily reflects a decrease in
annuity considerations and higher benefits to policyholders and beneficiaries in individual deferred variable annuity products.
The increase in net investment income was principally due to growth in individual deferred
fixed annuity, deferred registered index-linked annuity and individual immediate annuity products.
The following table summarizes selected financial data for the Company’s Annuities
segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
Reserve
adjustment on reinsurance assumed |
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021,
primarily driven by increases in reserves for future policy benefits and claims and decreases in annuity considerations, partially offset by higher net transfers from separate
accounts and lower benefits to policyholders and beneficiaries.
The increase in reserves for future policy
benefits and claims was driven by a larger increase in individual deferred fixed annuity products, individual immediate annuity products and individual deferred registered indexed
linked annuity products.
Annuity considerations decreased due to lower sales of individual deferred variable annuity products, partially offset by an
increase in sales of individual deferred fixed annuity and immediate annuity products.
The increase in net transfers from separate accounts primarily reflects a decrease in annuity considerations, partially offset by lower benefits to policyholders and beneficiaries, for individual deferred variable annuity products.
The decrease in benefits to policyholders and beneficiaries was principally driven by reduced
individual deferred variable annuity product surrender benefits.
The following table summarizes selected financial data for the Company’s Retirement Solutions segment for the years
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Decrease in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022,
primarily driven by lower annuity considerations and larger benefits to policyholders and beneficiaries, partially offset by higher decrease in reserves for future policy benefits
and claims and net transfers from separate accounts.
The decrease in
annuity considerations was primarily related to the non-recurrence of a 2022 large case acquisition in retirement plan guarantee products and a reduced level of exchanges from
noninsurance trust products in public sector retirement plans.
Benefits to policyholders and beneficiaries increased primarily due to surrender benefits in private sector retirement plan
products, partially offset by decreases in surrender benefits in public sector retirement plan and retirement plan guarantee products.
The
larger decrease in reserves for future policy benefits and claims in private and public sector retirement plan reserves primarily reflects lower participant account values due to
higher volumes of withdrawals.
The larger net transfers from separate
accounts was principally related to retirement plan guarantee products and driven by lower annuity considerations, partially offset by decreased surrender benefits to policyholders
and beneficiaries.
2022 Compared to
2021
The following table summarizes selected financial data for the
Company’s Retirement Solutions segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
(Decrease) increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers from separate accounts |
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings was consistent for the year ended December 31, 2022 compared to
the year ended December 31, 2021. Lower net transfers from separate accounts were offset by a decrease in reserves for future policy benefits and claims, an increase in annuity considerations and smaller benefits to policyholders and beneficiaries.
The decrease in net transfers from separate accounts was principally related to transfers to fixed option funds in private and public sector retirement plan separate accounts and higher annuity considerations, partially offset by higher surrender
benefits, in retirement plan guarantee products.
The larger decrease in reserves for future policy benefits and claims primarily reflects a decrease in public sector
retirement plan reserves due to large case withdrawals.
The increase in annuity considerations was primarily attributable to a large case acquisition in retirement plan guarantee
products.
Benefits to policyholders and beneficiaries decreased primarily due to surrender benefits in private and public sector
retirement plans, partially offset by an increase in retirement plan guarantee product surrender benefits.
Corporate Solutions and Other
The following table summarizes selected financial data for the Company’s Corporate
Solutions and Other segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers to separate accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings increased for the year ended December 31, 2023 compared to the
year ended December 31, 2022, primarily due to an increase in net investment income and lower net transfers to separate accounts, partially offset by decrease in premiums and annuity considerations, higher benefits to policyholders and beneficiaries and a larger increase
in reserves for future policy benefits and claims.
The increase in net investment income was principally due to dividends received from Eagle included in invested assets not assigned to other reportable segments, interest income in the FHLB funding agreement program and growth in COLI, BOLI
and PRT products.
The decline in net transfers to separate accounts was
primarily attributable to lower premiums and annuity considerations due to the non-recurrence of 2022 large case acquisitions in variable COLI and BOLI products and lower separate
account PRT annuity sales.
The non-recurrence of 2022 large case acquisitions in variable COLI and BOLI products was also the primary factor for the
decrease in premiums and annuity considerations.
Increases in benefits
to policyholders and beneficiaries was driven by interest expense in the FHLB funding agreement program, surrender benefits in COLI and BOLI products and annuity benefit payments
in PRT products.
The increase in reserves for future policy benefits
and claims was primarily associated with higher general account PRT annuity sales and increased renewal premiums in COLI and BOLI products.
The following table summarizes selected financial data for the Company’s Corporate
Solutions and Other segment for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
|
|
Increase in reserves for future policy benefits and claims |
|
|
|
Net
transfers to separate accounts |
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
|
Pre-tax operating earnings |
|
|
|
Pre-tax operating earnings decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021,
primarily due to an increase in net transfers to separate accounts, a decrease in net investment income and an increase in reserves for future policy benefits and claims, partially
offset by an increase in premiums and annuity considerations.
The net transfers to separate accounts increase was primarily attributable to large case
acquisitions in variable COLI and BOLI products.
The decrease in net investment income was principally due to a decrease in invested assets not assigned to other reportable
segments.
The increase in reserves for future policy
benefits and claims was primarily associated with new case acquisitions in PRT products and COLI and BOLI products.
Large case acquisitions drove the increase in COLI and BOLI product premiums and PRT product
annuity considerations increased due to new case acquisitions.
Liquidity and Capital Resources
Liquidity and capital resources demonstrate the overall financial strength of the Company and its ability to generate cash
flows from its operations and borrow funds at competitive rates to meet operating and growth needs. The Company’s operations have historically provided substantial cash flow. The Company has sufficient cash resources to meet all current
obligations for policyholder benefits, withdrawals, surrenders, dividends and policy loans. The Company also participates in inter-company repurchase agreements or other borrowing arrangements with affiliates to satisfy short-term cash needs.
The most significant long-term contractual obligations of the Company relate to the future
policy benefits and claims for its annuity and life insurance products. The Company purchases investments with durations aligned with the expected durations of the liabilities they support.
To mitigate the risks that actual withdrawals may exceed anticipated amounts or that rising interest rates may cause a
decline in the value of the Company’s bond investments, the Company imposes market value adjustments or surrender charges on many of its products and offers products where the investment risk is transferred to the contractholder.
Liabilities related to separate accounts, where the investment risk is typically borne by the contractholder, comprised 68.3% of total liabilities as of December 31, 2023 and 68.0% as of December 31, 2022.
A primary liquidity concern with respect to annuity and life insurance products is the risk of early policyholder withdrawal. The Company attempts to mitigate this risk by offering variable products where the investment risk is transferred to the
policyholder, charging surrender fees at the time of withdrawal for certain products, applying a market value adjustment to withdrawals for certain products in the Company’s general account and monitoring and matching anticipated cash inflows
and outflows.
For individual annuity products, surrender charges generally are calculated as a percentage of deposits and are assessed at
declining rates during the first seven years after a deposit is made.
For
group annuity products, surrender charge amounts and periods can vary significantly depending on the terms of each contract and the compensation structure for the producer.
Generally, surrender charge percentages for group products are less than individual products because the Company incurs lower expenses at contract origination for group products.
In addition, much of the general account group annuity reserves are subject to a market value adjustment at withdrawal.
Life insurance policies are less susceptible to withdrawal than annuity products because
policyholders generally must undergo a new underwriting process and may incur a surrender fee in order to obtain a new insurance policy.
The short-term and long-term liquidity requirements of the Company are monitored regularly to
match cash inflows with cash requirements. The Company reviews its short-term and long-term projected sources and uses of funds, investment and cash flow assumptions underlying these projections. The Company periodically adjusts to its investment policies to
reflect changes in short-term and long-term cash needs and changing business and economic conditions.
Given the Company’s historical cash flows from operating and investing activities and
current financial results, the Company believes that cash flows from activities over the next year will provide sufficient liquidity for the operations of the Company and sufficient funds for interest payments.
The Company is a party to a $750 million revolving variable rate credit facility agreement. The Company had no amounts
outstanding under the facility as of December 31, 2023 and 2022.
The Company 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. The maximum amount available under the agreement is $350 million. The borrowing rate on this program is equal to Effective Federal Funds Rate plus 0.18%. The Company had no amounts outstanding
under this agreement as of December 31, 2023 and 2022.
The Company has
agreements with the FHLB to provide financing for operations. These agreements, which were renewed in February 2024 and expire January 31, 2025, allow the Company access to borrow
up to $1.1 billion. As of December 31, 2023 and 2022, the Company had no amounts outstanding under these agreements.
See Note 9 to the audited statutory financial statements included in the F pages of this report for details regarding the Company’s usage of short-term debt and FHLB funding agreements.
The surplus notes below were issued in accordance with Section 3901.72 of the Ohio Revised Code. The principal and interest
on these surplus notes shall not be a liability or claim against the Company, or any of its assets, except as provided in Section 3901.72 of the Ohio Revised Code. The Department
must approve interest and principal payments before they are paid.
On December 19, 2001, the Company issued a $300 million surplus note to NFS, with an interest rate of 7.5%, and a maturity date of December 31, 2031. Interest on the note is subject to prior approval of the Department and is payable
semi-annually on June 17 and December 17. The Company received approval from the Department and made all
scheduled interest payments.
On June 27, 2002, the Company issued an additional $300 million surplus note to NFS, with an interest rate of 8.15%, and a
maturity date of June 27, 2032. Interest on the note is subject to prior approval of the Department and is payable semi-annually on April 15 and October 15. The Company received
approval from the Department and made all scheduled interest payments.
On December 23, 2003, the Company issued an additional $100 million surplus note to NFS, with an interest rate of 6.75%, and a maturity date of December 23, 2033. Interest on the note is subject to prior approval of the Department and is
payable semi-annually on January 15 and July 15. The Company received approval from the Department and made all scheduled interest payments.
On December 20, 2019, the Company issued an additional $400 million surplus note to NFS, with
an interest rate of 4.21%, and a maturity date of December 19, 2059. Interest on the note is subject to prior approval of the Department and is payable semi-annually on June 1 and December 1. The Company received approval from the Department and made all scheduled
interest payments.
See Note 10 to the audited statutory financial
statements included in the F pages of this report for details regarding the Company’s usage of surplus notes.
Regulatory Risk-based Capital
Each insurance company’s state of domicile imposes minimum RBC requirements that were
developed by the NAIC. RBC is used to evaluate the adequacy of an insurer’s statutory capital and surplus in relation to the risks inherent in the insurer’s business related to asset quality, asset and liability matching, mortality and morbidity, and other business factors. Regulatory compliance is determined annually based on a ratio of a company’s regulatory total adjusted capital, as
defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Companies with a ratio below 200% (or below 250% with negative trends) are required to take corrective action steps. The Company exceeded the minimum RBC
requirements for all periods presented. See Note 14 to the audited statutory financial statements included in the F pages of this report for details regarding the Company’s regulatory RBC.
The Company’s assets are divided into separate account and general account assets. Of the Company’s total assets,
$113.3 billion (64%) and 102.8 billion (64%) were held in separate accounts as of December 31, 2023 and 2022,
respectively. As of December 31, 2023 and 2022, the Company held assets of $63.9 billion (36%) and $58.6 billion (36%) in general accounts, respectively, including $61.9 billion of general account invested assets as of December 31, 2023
compared to $57.0 billion as of December 31, 2022.
Separate account assets primarily consist of investments made with deposits from the Company’s variable annuity and
variable life insurance business. Most separate account assets are invested in various mutual funds. After deducting fees or expense charges, investment performance is generally passed into the Company’s separate account assets through to
the Company’s customers.
The following table summarizes the Company’s
general account investments by asset category, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term investments |
|
|
|
|
Securities lending collateral assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 5 to the Company’s audited statutory financial statements included in the F
pages for further information regarding the Company’s investments.
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 bonds, 96% were in the two highest NAIC designations as of December 31, 2023 and 2022.
Bonds are generally stated at amortized cost, except those with an NAIC designation of "6", which are stated at the lower of amortized cost or fair value. Changes in the fair value of bonds stated at fair value are charged to surplus.
The following table displays the NAIC designation of the Company’s investment in
bonds, as of the dates indicated:
|
|
|
|
|
|
% of total
statement value |
|
|
% of total statement value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2 to the Company’s audited statutory financial statements included in the F
pages for the policy for valuation of bonds.
Loan-backed structured securities
Loan-backed and structured securities include residential mortgage-backed securities,
commercial mortgage-backed securities and certain other asset-backed securities.
The following table displays the NAIC designation of the Company’s investment in loan-backed structured securities, as of the dates indicated:
|
|
|
|
|
|
% of total
statement value |
|
|
% of total statement value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total statement value
|
|
|
% of total statement
value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks are largely comprised of investments in affiliated entities. Refer to Note 2 and
Note 5 to the Company’s audited statutory financial statements included in the F pages for information on the valuation methodology and investment in subsidiaries.
The Company’s other invested assets consist primarily of alternative investments in private equity funds, private debt
funds, tax credit funds, real estate partnership, investment in Eagle accounted for under the equity method, and
derivatives collateral and receivables.
The following table summarizes the composition of the Company’s carrying value of
other invested assets, as of the dates indicated:
|
|
|
|
|
|
|
|
Private
equity and debt funds |
|
|
|
|
|
|
|
|
|
|
|
Total alternative investments |
|
|
Derivatives collateral and receivables |
|
|
Total other invested assets |
|
|
Mortgage Loans, Net of Allowance
As of December 31, 2023, commercial mortgage loans were $9.1 billion, compared to $8.4 billion as of December 31, 2022. There were $490 million and $291 million of outstanding commitments to fund commercial mortgage loans as of December
31, 2023 and 2022, respectively.
As of December 31, 2023 and December
31, 2022, the Company has a diversified mortgage loan portfolio with no more than 23% in a geographic region in the U.S., no more than 44% in a property type and no more than 1%
with any one borrower.
See Note 5 to the Company’s audited statutory financial statements included in the F
pages for the additional information on the mortgage loan portfolio.
Other Investment Information
See Note 5 to the Company’s audited statutory financial statements included in the F
pages for the additional information on the Company’s investment in subsidiaries, real estate, and securities lending agreements. See Note 6 to the Company’s audited statutory financial statements included in the F pages for the additional information on the Company’s derivative instruments.
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 some of its assets and liabilities, as well as variations in expected cash flows due to changes in interest rates and equity markets.
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 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.
Fluctuations in interest rates can impact the Company’s earnings, cash flows and the fair value of some 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 on certain life and 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 following table presents account values by range of minimum guaranteed crediting rates and the current weighted average
crediting rates for certain of the Company’s products, as of the dates indicated:
|
|
|
|
Corporate Solutions
and Other |
|
|
Weighted
average
crediting rate
|
|
Weighted
average
crediting rate
|
|
Weighted
average
crediting rate
|
|
Weighted average crediting rate |
|
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
3.51% or greater |
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
3.01% to 3.50% |
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
2.01% to 3.00% |
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
0.01% to 2.00% |
|
|
|
|
|
|
|
|
No
minimum guaranteed crediting rate4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
3.51% or greater |
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
3.01% to 3.50% |
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
2.01% to 3.00% |
|
|
|
|
|
|
|
|
Minimum guaranteed crediting rate of
0.01% to 2.00% |
|
|
|
|
|
|
|
|
No
minimum guaranteed crediting rate4 |
|
|
|
|
|
|
|
|
1
Includes universal life insurance products and the fixed investment options selected within
variable life insurance products.
2
Includes individual fixed annuity products and the fixed investment options selected within
individual variable annuity and indexed products.
3
Includes group fixed annuity products.
4
Includes certain products with a stated minimum guaranteed crediting rate of 0%.
The Company attempts to mitigate this risk by managing the maturity and interest-rate
sensitivities of certain of its assets to be consistent with those of liabilities. In addition, the Company adheres to a strict discipline of setting interest crediting rates on new business at levels believed to be adequate to provide returns consistent with management expectations.
A rising interest rate environment could also
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 nine years as of December 31, 2023. 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 its operations, the Company might need to sell assets. The Company mitigates 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.
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 support each general account line of business. 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 and sectors may result in portfolio
turnover or transfers among the various portfolios.
Investment strategies are executed by dedicated investment professionals based on the investment policies 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.
In addition, sophisticated Asset/Liability Management models are employed to project the assets and liabilities over a wide range of interest rate scenarios to evaluate the efficacy of the strategy for a line of business.
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 management team 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 management team data to use in computing and declaring interest crediting rates for their lines of business.
The Company’s risk management process includes modeling both the assets and liabilities over multiple stochastic
scenarios, as well as certain deterministic 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
See Note 6 to the audited statutory financial statements included in the F pages of this report for a discussion of the Company’s use of derivatives to manage interest rate risk.
Characteristics of Interest Rate Sensitive Financial Instruments
In accordance with SAP and as noted above, the majority of the Company’s assets and liabilities are carried at amortized cost and not at fair value. As a result, the elements of market risk discussed above do not generally have a significant
direct impact on the financial position or results of operations of the Company. See Note 7 to the audited statutory financial statements included in the F pages of this report for a summary of the Company’s assets and liabilities held at fair value.
Foreign
Currency Risk
As part of its regular investing activities, the Company may
purchase foreign currency denominated investments. These investments and the associated income expose the Company to volatility associated with movements in foreign exchange
rates. In an effort to mitigate this risk, the Company uses cross-currency swaps. As foreign exchange rates change, the increase or decrease in the cash flows of the derivative instrument generally offsets the changes in the functional-currency
equivalent cash flows of the hedged item.
Credit risk is the risk the Company assumes if its debtors, customers, reinsurers, or other counterparties and
intermediaries may be unable or unwilling to pay their contractual obligations when they come due and may manifest itself through the downgrading of credit ratings of counterparties. It is the Company’s policy to monitor credit exposure within the investment portfolio to enable it to provide for future policy obligations and to minimize undue concentrations of assets
in any single geographic area, industry, or entity.
See Note 6 to the audited statutory financial statements included in the F pages of this
report for details regarding the Company’s evaluation of credit risk associated with derivatives.
Asset fees calculated as a percentage of separate account assets are a significant source of
revenue to the Company. As of December 31, 2023 and 2022, approximately 87% of separate account assets were invested in equity mutual funds. Gains and losses in the equity markets result in corresponding increases and decreases in the Company’s separate
account assets and asset fee revenue.
The Company issues 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 provides various forms of guarantees to benefit the related contractholders. The Company’s primary guarantees for variable
annuity contracts include GMDB and GLWB.
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.
The Company offers certain indexed life insurance and annuity products for which the
policyholders’ interest credits are based on market performance with caps and floors, and which may also include GMDB and GLWB. See Note 2 to the audited statutory financial statements included in the F pages of this report for further information regarding these indexed
features and guarantees.
Use of Derivatives to Manage Equity Market Risk
To mitigate these risks, the Company enters into a variety of derivatives including futures, options, index options and total return swaps. See Note 6 to the audited statutory financial statements included in the F pages of this report for a
discussion of the Company’s use of derivatives to manage these risks.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors of the Registrant
For biographical information on Mmes. Snyder and Messrs. Carter, Frommeyer, Ginnan, Henderson, and Walker, please see the
information provided below in Executive Officers of the Registrant.
Executive Officers of the Registrant
|
|
|
|
|
President and Chief Operating Officer |
|
|
Executive Vice President-Chief Human Resources Officer |
|
|
Executive Vice President-Chief Technology Officer |
|
|
Executive Vice President-Chief Financial Officer |
|
|
Executive Vice President-Chief Legal Officer |
|
|
Executive Vice President-Chief Marketing Officer |
|
|
Executive Vice President-Chief Customer, Strategy and Innovation Officer |
|
|
Executive Vice President-Chief Transformation Officer |
|
|
Senior Vice President-NF Strategic Customer Solutions |
|
|
Senior Vice President-Marketing Management-Financial Services |
|
|
Senior Vice President-Corporate Controller and Chief Accounting Officer |
|
|
Senior Vice President-Chief Investment Officer |
|
|
Senior Vice President-Chief Compliance Officer |
|
|
Senior Vice President-Chief Financial Officer-Nationwide Financial |
|
|
Senior Vice President-Annuity Distribution |
|
|
Senior Vice President-Retirement Solutions Sales |
|
|
Senior Vice President-Nationwide Annuity |
|
|
Senior Vice President-Investment Management Group |
|
|
Senior Vice President and Treasurer |
|
|
Senior Vice President-Corporate Solutions |
|
|
Senior Vice President-Finance & Strategy Legal and Corporate Secretary |
|
|
Senior Vice President-Nationwide Life |
|
|
Senior Vice President-Retirement Solutions |
Business experience for each of the individuals listed in the previous table is set forth below:
Kirt A. Walker has been a Director of NLIC since November 2009 and has been Chief Executive Officer of NMIC since October 2019. Immediately
prior to that, Mr. Walker was President and Chief Operating Officer of NLIC from December 2009 to October 2019 and President and Chief Operating Officer-Nationwide Financial for
NMIC from October 2009 to October 2019. Previously, he served as President and Chief Operating Officer-Nationwide Insurance for NMIC from February 2009 through October 2009, Division President-NI Eastern Operations for NMIC from March 2006 to February 2009, and
President-Allied Insurance Operations from August 2003 through March 2006. Mr. Walker has been with Nationwide since 1986.
John L. Carter has been President and Chief Operating Officer of NLIC since October 2019. Previously, Mr. Carter was Senior Vice
President–Nationwide Retirement Plans of NLIC from April 2013 to October 2019, President of Nationwide Retirement Solutions, Inc. from July 2015 to October 2019 and President
and Chief Operating Officer of Nationwide Retirement Solutions, Inc. from July 2013 to July 2015. He has also served as a Director of NLIC since February 2013. Prior to that time, Mr. Carter served as Senior Vice President of other Nationwide companies from November 2005 to April
2013.
Vinita J. Clements has been Executive Vice President-Chief Human Resources Officer of NLIC since July 2021.
Previously, Ms. Clements was Senior Vice President-Human Resources – P&C from November 2018-March 2021. She also served as Senior Vice President-Human Resources – NF from October 2017 to November 2018 and Vice President-Human
Resources from January 2016 to October 2017 and Associate Vice President-Human Resources from January 2008 to January 2016.
James R. Fowler has been Executive Vice President-Chief Technology Officer of NLIC since September 2021. Previously, Mr. Fowler was
Executive Vice President-Chief Information Officer from August 2018 to September 2021. Prior to joining Nationwide, Mr. Fowler was Chief Information Officer for General
Electric.
Timothy G. Frommeyer has been Executive Vice President of NLIC and several other Nationwide companies since October 1, 2021 and has served as a
Director of NLIC since January 2009. Mr. Frommeyer is currently the CFO of Nationwide Mutual Insurance Company. Previously, Mr. Frommeyer was Senior Vice President–Chief
Financial Officer since November 2005.
Mark S. Howard has been Executive Vice President-Chief Legal Officer of NLIC and Nationwide Life and Annuity Insurance Company since
December 2022. Mr. Howard is also Executive Vice President-Chief Legal Officer of Nationwide Mutual Insurance Company since April 2016. Prior to joining Nationwide, Mr. Howard
served as Senior Vice President and Deputy General Counsel of USAA.
Ramon Jones has been Executive Vice President-Chief Marketing Officer of NLIC and Nationwide Life and
Annuity Insurance Company since December 2022. Previously, Mr. Jones served as Senior Vice President-Marketing – Financial Services. Mr. Jones has been with Nationwide since 2009.
Michael W. Mahaffey has been Executive Vice President-Chief Customer, Strategy and Innovation Officer of
NLIC and Nationwide Life and Annuity Insurance Company since January 2024. Previously, Mr. Mahaffey served as Executive Vice President-Chief Strategy and Corporate Development Officer of NLIC and Nationwide Life and Annuity Insurance Company from
December 2022 to January 2024. Previously, Mr. Mahaffey served as Senior Vice President-Chief Risk Officer, and Associate Vice President-Enterprise Risk Management. Mr. Mahaffey
has been with Nationwide since 2005.
Amy T. Shore has been Executive Vice President-Chief Transformation Officer of NLIC and Nationwide Life and Annuity Insurance Company
since January 2024. Previously, Ms. Shore served as Executive Vice President-Chief Customer Officer of NLIC and Nationwide Life and Annuity Insurance Company from December 2022 to
January 2024. Previously, Ms. Shore served as Senior Vice President-Field Operations EC, Vice President-Field Operations EC, Regional Vice President-Ohio/West Virginia, Vice President-Ohio/West Virginia, and Associate Vice President-Administrative Assistant –
Office of the President.
Tina Ambrozy has been Senior Vice President-NF Strategic Customer Solutions since October 2019. Currently,
Ms. Ambrozy serves as President of NFS Distributors, Inc. and Nationwide Financial Assignment Company since December 2016 and President of Nationwide Investment Services Corporation since April 2017. Previously, Ms. Ambrozy was Senior Vice
President-NF Sales and Distribution of NLIC from December 2016 to October 2019. Ms. Ambrozy has been with Nationwide since 1996.
Ann
Bair has been Senior Vice President-Marketing Management - Financial Services since October 2020. Ms. Bair has
been with Nationwide since 2006 in various marketing roles.
James D. Benson has been Senior Vice President-Corporate Controller and Chief Accounting Officer of NLIC
and Nationwide Life and Annuity Insurance Company since December 2022. Previously Mr. Benson was Vice President-Controller from 2005-2011 and Senior Vice President-Controller from 2011-2014 of NLIC. Mr. Benson has been with Nationwide since
1997.
Joel L. Coleman has been Senior Vice President-Chief Investment Officer of NLIC since August 2020. Currently Mr. Coleman is President of
Nationwide Asset Management, LLC since July 2020. Prior to joining Nationwide, Mr. Coleman was Chief Investment Officer of Transamerica.
Rae Ann Dankovic has been Senior Vice President-Chief Compliance Officer of NLIC since August 2021. Previously, Ms. Dankovic was Senior Vice
President-Nationwide Financial Services Legal of NLIC from February 2013 to August 2021. Ms. Dankovic has been with Nationwide since 1993.
Steven A. Ginnan has been Senior Vice President-Chief Financial Officer-Nationwide Financial of NLIC and several other Nationwide companies
since 2018 and has served as Director of NLIC since June 2018. Mr. Ginnan is also President of 525 Cleveland Avenue, LLC since June 2021. Previously Mr. Ginnan served as VP-NF
Chief Actuary from August 2006 to September 2012; and VP-Nationwide Financial Services Chief Actuary.
Rona Guymon has been Senior Vice President-Annuity Distribution for NLIC and several other companies within Nationwide since February
2022. Previously, Ms. Guymon was Vice President, Annuity Distribution - Broker Dealer.
Craig Hawley has been Senior Vice President-Retirement Solutions Sales since January 2022. Previously, Mr.
Hawley was Senior Vice President-Annuity Distribution since October 2019. Mr. Hawley has been with Nationwide since March 2017 and was previously with Jefferson National Life Insurance Company in a legal role.
Eric S. Henderson has been Senior Vice President–Nationwide
Annuity of NLIC and several other companies within Nationwide since November 2019. He has also served as a Director of NLIC since March 2012. Mr. Henderson is currently President of Olentangy Reinsurance, LLC since September 2012, Eagle Captive Reinsurance, LLC since September 2015,
President of Jefferson National Life Insurance Company, Jefferson Financial Corp. and Jefferson National Life Insurance Company of New York since January 2022. Previously, Mr.
Henderson served as Senior Vice
President–Individual Products &
Solutions from October 2011 to November 2019, Senior Vice President-Individual Investments Business Head from August 2007 to October 2011 and as Vice President-CFO-Individual
Investments from August 2004 to August 2007.
Kevin T. Jestice has been Senior Vice President–Investment Management Group of NLIC since February
2023. Previously, Mr. Jestice was Vice President-Internal Sales Services – Institutional Investments Distribution. Prior to joining Nationwide, Kevin was Principal, Head of Enterprise Advice with Vanguard.
David LaPaul has been Senior Vice President and Treasurer of NLIC as well as other Nationwide companies
since November 2010. Mr. LaPaul is also a Director for several Nationwide companies. Mr. LaPaul has been with Nationwide since 2010.
Juan J. Perez has been Senior Vice President-Corporate Solutions of NLIC since February 2021 and several
other companies within Nationwide. Mr. Perez has been with Nationwide since 2009 in various product, financial, business development roles.
Denise Skingle has been Senior Vice President-Finance & Strategy Legal and Corporate Secretary of NLIC
and several other companies within Nationwide since June 2020. Ms. Skingle has been with Nationwide since September 2005.
Holly Snyder has been Senior Vice President-Nationwide Life since October 2019. Ms. Snyder also serves as Director for NLIC since
October 2019. Ms. Snyder has been with Nationwide since 2003 in various product, financial, business development roles.
Eric Stevenson has been Senior Vice President-Retirement Solutions of NLIC and several other companies within Nationwide since February
2021. Mr. Stevenson also serves as Director for several companies within Nationwide. Previously, he was Senior Vice President-Workplace Solutions from November 2020 to February
2021 and Senior Vice President-Retirement Plan Sales from January 2019 to November 2020.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides a detailed description of our executive compensation philosophy and
programs, the compensation decisions the NMIC Human Resources Committee has made under those programs, and the factors considered in making those decisions. This Compensation
Discussion and Analysis focuses on the compensation of our Named Executive Officers (NEOs):
2023 Named Executive Officers
John L. Carter – President and Chief Operating Officer ("PEO" of
NLIC)
Steven A. Ginnan – Chief Financial Officer – Nationwide Financial ("PFO" of NLIC)
Kirt A. Walker – NMIC Chief Executive Officer
Eric S. Henderson – Senior Vice President – Nationwide Annuity
Timothy G. Frommeyer – Executive Vice President
Our mission is to protect people, businesses, and futures with extraordinary care. We exist
to create value for members and businesses by protecting what is important to them, helping them build a secure financial future, and providing the best personalized customer experience through competitively priced, high-quality products. We motivate our executives to
achieve these goals, in part, by delivering direct rewards including base salary, annual and long-term incentives, and other benefits and perquisites. Consistent with our pay for performance philosophy, we focus our compensation programs on
sustained financial performance. Compensation levels will increase or decrease to the extent we meet our pre-established performance expectations.
The discussion below is intended to show how:
•
our financial planning process leads to financial and individual objectives;
•
we identify our industry peers to determine market-competitive levels of target rewards;
•
we incorporate financial and individual objectives into our incentive programs;
•
our executive compensation program is designed to closely link pay and performance and align the interests of our executives
with our members;
•
we consider individual performance and use other non-financial factors to create flexibility
in our compensation programs; and
•
we consider both the level and form of these rewards, which we believe help us to attract and
retain the executive talent that is necessary to create and maintain stakeholder value.
Compensation Process and Roles
Organizational Structure with Respect to Compensation Decisions
Our Named Executive Officers provide services to other Nationwide companies in addition to NLIC. Decisions regarding the total compensation levels of our Named Executive Officers are made by the NMIC Human Resources Committee based on their
roles within NFS and NMIC, as applicable. The NMIC Human Resources Committee does not directly consider the roles of Named Executive Officers with respect to NLIC in determining
total compensation. Instead, NLIC pays an allocable portion of total compensation for its Named Executive Officers, which is determined pursuant to a cost-sharing agreement among several Nationwide companies. The remainder of the compensation of NLIC’s executive officers was
allocated to and paid by other Nationwide companies according to the terms of the cost-sharing agreement.
Amounts we disclose in this prospectus reflect only compensation allocated to and paid by NLIC or its subsidiaries; however,
performance is measured at the NFS and/or NMIC level, which includes NLIC performance, when determining compensation for our Named Executive Officers. As a result, metrics and
results discussed herein will refer to NFS or NMIC metrics and results, as applicable. The methods we use for the allocation of compensation paid to our Named Executive Officers varies by officer and the type of compensation and is discussed in more detail in "2023 Compensation
Program Design and Implementation."
NMIC Board of Directors and NMIC Human Resources Committee
As delegated by our Board of Directors, the NMIC Human Resources Committee's primary purpose is to discharge the responsibilities of the board as to the compensation of our executive officers. The NMIC Human Resources Committee also
carries out the Board of Directors' oversight responsibilities by reviewing our human resources, compensation, and benefits practices.
The operation of the NMIC Human Resources Committee is outlined in a charter that has been
adopted by the NMIC Board of Directors. The charter provides that the committee's duties include, among other things:
•
establishment of an overall compensation philosophy;
•
oversight and review of human resources programs for directors, executive officers, and associates;
•
approval of salaries, incentive compensation plans, and awards under such plans for certain
executive officers, including the NEOs; and
•
oversight of people and culture risk practices, including policy, strategy, tolerance, and
control. Key areas of risk oversight include key person risk and succession planning, employment practices, workplace safety, organizational culture, and compensation design.
The NMIC Human Resources Committee is actively engaged throughout the year and met six times during 2023, including executive sessions without management present. The graphic below summarizes the activities performed during a typical
compensation cycle.
The NMIC Human Resources Committee has the sole authority to retain and terminate any consultant assisting in the evaluation of compensation and has the power to retain and terminate independent counsel, auditors or others to assist in
the conduct of any investigation into matters within the NMIC Human Resources Committee's scope of responsibilities. Compensation Advisory Partners LLC (CAP), the NMIC Human Resources Committee’s external consultant, attended NMIC
Human Resources Committee meetings to provide information and perspective on competitive compensation practices, the competitiveness of executive pay levels, and the alignment of
executive pay with company performance, and to raise issues to be addressed by management and/or the NMIC Human Resources Committee. With committee concurrence, management at times directed CAP to collect and analyze data and develop needed background material. CAP has
also recommended changes to pay programs and compensation. Management representatives and CAP consultants attend executive sessions of committee meetings as required.
The NMIC Human Resources Committee annually reviews CAP’s independence,
considering, among other factors, that CAP provides no other services for us other than those related to its engagement by the NMIC Human Resources Committee as described above. Based on this review, the NMIC Human Resources Committee has determined CAP’s work for
the committee to be free from conflicts of interest.
Under the guidance of the NMIC Human Resources Committee, Nationwide’s executive compensation programs align with
industry best practices including:
|
|
Pay for Performance. A significant percentage of total compensation is pay-at-risk that is connected to performance. |
No guaranteed annual salary increases. Annual salary increases are based on evaluations of individual performance and market data. |
Independent Compensation Consultant. The NMIC Human Resources Committee retains an independent consultant to avoid conflicts of interest with the business and management. Other consulting services provided to management are subject to approval by the NMIC Human Resources Committee. |
No Incentive for Short-term Results to the Detriment of
Long-term Goals and Results. NEOs’ pay mix is heavily weighted toward long-term incentives. |
Generally, Target Pay at the Median of Market Comparator
Groups. We aim to target compensation at the median of companies comparable to us in size. We review the peer group annually to ensure alignment of the industry, companies with whom we compete for talent, business complexity, and company size based on revenue. |
No Excessive Perquisites. We provide limited perquisites and
personal benefits. |
|
|
Maximum Payout Caps for Broad-based Annual and Long-
term Incentive Plans. The maximum payment prior to the exercise of discretion is two times the target amount. |
No Excessive Severance Benefits. Severance benefits for the CEO are limited to two times base salary and annual incentives; and for Named Executive Officers other than the CEO, severance benefits are limited to one times base salary and annual incentive. |
Clawback of Incentive Compensation. Incentive compensation is subject to clawback if a material financial accounting restatement occurs or if we must materially adjust the results of a metric used for funding incentive compensation plans. Additional events that would trigger the clawback policy include detrimental conduct and solicitation of employees. |
No Above Market Target Pay Philosophy. We generally do not aim to position target compensation for our Named Executive Officers above market median. |
Meaningful Stretch Goals. We establish clear and measurable performance goals at the beginning of performance cycles. |
No Plans That Encourage Excessive Risk Taking. Risk
mitigation is included in sales, broad-based annual, and long-
term plan design, and a risk assessment and mitigation plan is
reviewed annually. |
Role of Executives in Establishing the Compensation of our
Named Executive Officers
Upon request of the NMIC Human Resources
Committee, members of management may also attend meetings to provide information and answer questions regarding our strategic objectives, financial performance, and legal and
regulatory issues impacting the committee's functions. Mr. Walker attends a portion of the meetings of the NMIC Human Resources Committee and assists the Committee by providing recommendations regarding compensation for Mr. Frommeyer and Mr. Carter.
Messrs. Walker, Carter, and Frommeyer assist the NMIC Human Resources Committee by providing recommendations regarding the compensation of Messrs. Ginnan and Henderson. The NMIC
Human Resources Committee and the entire NMIC Board of Directors, as applicable, as described in "Benchmarking and Compensation Target-Setting Process" and "Determination of the Final Annual Incentive Payments", exercise their discretion to modify or
accept these recommendations. The NMIC Human Resources Committee also meets in executive session without
management when discussing compensation matters and on other occasions as determined by the NMIC Human
Resources Committee.
Compensation Objectives and Philosophy
The objectives of our compensation programs are to:
•
align the interests of executives with those of stakeholders;
•
maintain a strong link between pay and both individual and company performance; and
•
attract, retain, and motivate top-caliber executive officers with compensation that is
competitive in level and form.
|
|
|
|
Cash compensation that is a fixed element of total compensation. |
• attract and retain top-caliber executive
talent • recognize executive officers' skills,
competencies, experience, and job
responsibilities |
|
Cash payments awarded after the completion of a one-year performance period. |
• reward executives for achieving annual
performance goals |
|
Cash awards based on performance over multiple years and subject to forfeiture. |
• reward executives for sustained
long-term performance • retain and motivate executives to ensure
business stability and success
• recognize
the achievement of performance objectives that drive
long-term success, financial stability, and
create value for our customers
• align
the interests of executives with long-term value of our members |
|
|
|
Executive Benefits and Perquisites |
Includes pension plans, deferred compensation plans, and limited personal perquisites. |
• attract and retain top-caliber executive
talent • provide income after retirement and
enable saving of income for retirement |
Benchmarking and Compensation Decision Process
The NMIC Human Resources Committee uses competitive market analysis to compare our
compensation practices to those of companies that compete with us for customers, capital and/or executive-level talent and are similar to us in size, scope, and/or business focus. Our market data sources include publicly disclosed compensation information from companies in
two peer groups (described below) that the NMIC Human Resources Committee has identified to provide a holistic view of the competitive market, together with commercially available
financial services industry and general industry compensation surveys. For certain Named Executive Officers, we average peer group and survey market data specific to the financial services industry because the NMIC Human Resources Committee believes it is appropriate to compare
our positions to others in our market for talent that require similar skills, knowledge, and experience. We also review general industry data to supplement the industry-specific
view. We use data sources we believe have the best matches for our positions.
Annually, CAP reviews the Insurance/Financial Services Peer Group and recommends changes, as needed, based on the following criteria:
•
Peer group median revenue should approximate Nationwide’s revenue, and peer companies
should generally have revenue between one-third and three-times Nationwide’s revenue;
•
Peer group industry representation should be balanced, reflecting an appropriate mix of
insurance and other related industries; and
•
Peer group business mix (i.e., Property & Casualty insurance vs. other insurance and
financial services) and geographic footprint (i.e., U.S. vs. non-U.S. operations) should be, on average, comparable to Nationwide.
The review that CAP performed in 2022 resulted in the following companies in the Insurance/Financial Services Peer Group to be used to inform 2023 target compensation recommendations:
•
American Express Company
•
American International Group, Inc.
•
Capital One Financial Corporation
•
Equitable Holdings, Inc.
•
Lincoln National Corporation
•
Manulife Financial Corporation
•
Principal Financial Group, Inc.
•
The Progressive Corporation
•
Prudential Financial, Inc.
•
The Allstate Corporation
•
The Hartford Financial Services Group, Inc.
•
The PNC Financial Services Group, Inc.
•
The Travelers Companies, Inc.
The NMIC Human Resources Committee removed Athene Holding Ltd. From the peer group in
2022.
Public Company Peer
Group Proxy Data |
|
|
|
|
Insurance/Financial
Services Peer Group1 |
|
|
|
|
Public Company Peer Group Proxy
Data |
|
|
|
|
General Industry Peer Group2 (includes the 50 companies closest to Nationwide in the Fortune rankings that publicly disclose executive compensation) |
Supplemental
Reference Point |
|
|
|
|
|
|
|
|
1
2023 insurance/financial services peer group determination
2
Fortune 500 rank for 2023 general industry peer group determination
We generally target pay at the
market median because we believe this is a competitive and responsible pay position, necessary to compete for talent; however, when necessary to attract or retain exceptional
talent or a unique skill set, we may target total compensation or an individual element of compensation above the median. Annually, we engage in a talent planning process to:
•
anticipate talent demands and identify implications;
•
identify critical roles;
•
conduct talent assessments; and
•
identify successors for critical roles.
The NMIC Human Resources Committee determines the total compensation levels for the Named Executive Officers (which are benchmarked to the competitive external market) as well as the individual elements distributed among base salary
and annual and long-term incentives. Annually, we review and may adjust targets for company and individual performance to recognize competitive market compensation and performance
in determining the final compensation we deliver to executive officers. The following is an overview of these review procedures.
John L. Carter and Timothy G. Frommeyer
In November 2022, CAP also conducted an analysis of competitive market data for
Messrs. Carter’s and Frommeyer’s roles to inform 2023 compensation recommendations. CAP summarized the 25th, median (50th), and 75th percentile market data for each position and explained any adjustments necessary to attain appropriately competitive compensation. The
NMIC Human Resources Committee approved the 2023 executive compensation structure and insurance and financial services peer group used to inform executive compensation decisions.
The compensation elements included in the analysis were: base salary, target annual incentive opportunity and target total cash compensation, and target long-term incentive opportunity and target total direct compensation. The analysis considered the size and complexity of each
executive’s roles, as measured by assets or direct written premiums, compared to the market data. CAP also considered factors such as:
•
the comparability of job responsibilities to benchmark job responsibilities;
•
experience, tenure, and performance of each executive; and
•
the responsibilities, internal equity, and strategic importance of the positions.
CAP provided recommendations for Mr. Walker's 2023 compensation program and met with the NMIC
Human Resources Committee, which determined a recommendation for Mr. Walker's compensation targets. CAP conducted an analysis of competitive market data in November 2022 to inform 2023 compensation decisions for Mr. Walker. The NMIC Human Resources
Committee reviewed and approved 2023 compensation targets for Mr. Walker. The NMIC Human Resources Committee's final decision on target compensation was subject to the NMIC Board
of Directors’ assessment of Mr. Walker’s 2022 performance. The NMIC Human Resources Committee met with the NMIC Board to review and approve the target compensation for Mr. Walker.
Steven A.
Ginnan and Eric S. Henderson
In November 2022, Nationwide management conducted an analysis of competitive market data for Messrs. Ginnan’s and Henderson’s roles to inform 2023 compensation recommendations. As a delegate of the NMIC Human Resources Committee,
Mr. Walker approved the target compensation for Messrs. Ginnan and Henderson of behalf of the Committee.
2023 Target Compensation Levels and Mix
We compensate executive officers through a mix of base salary, annual incentives, long-term
incentives, benefit plans, perquisites, and deferred compensation plans. The plans and the target opportunities for base salary and annual and long-term incentives are reviewed annually by the NMIC Human Resources Committee to ensure total compensation and the mix of
pay elements are competitive and changes reflect both the competitive market data and company needs. This ensures we continue to retain talent in key areas and provides a framework
for recruiting new talent.
We determine an appropriate mix of pay
elements by using the market data as a guideline. In practice, we may adjust individual elements above or below the mix represented in the market data while maintaining the
recommended target total compensation range. Some of the reasons we may deviate from the mix of elements represented in market data include:
•
recruiting needs based on compensation received by a candidate in previous positions;
•
year-to-year variation in the market data, indicating the market data may be
volatile;
•
differences between the specific responsibilities of our executives' positions and the
positions represented in the market data; and
•
a desire to change the alignment of our incentives between annual and long-term goals for
certain positions.
For 2023, the analysis resulted in the following compensation levels and mix at target for the Named Executive Officers:
2023 Target Total Direct Compensation
|
Base Salary
(percentage of target
total
compensation) |
Target Annual
Incentive Percent of Base
Salary
(percentage of
target total
compensation) |
|
Target Long-Term
Incentive for 2023-2025 Performance
Period
(percentage of
target
total compensation) |
Target Total
Direct
Compensation |
Percentage of
Target Total
Compensation Attributed
to
Target Incentives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary (percentage of target total
compensation) |
Target Annual Incentive Percent of
Base Salary (percentage of target total
compensation) |
|
Target Long-Term Incentive for 2023-2025
Performance Period (percentage of target total
compensation) |
Target Total Direct Compensation
|
Percentage of Target Total
Compensation Attributed to Target
Incentives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The elements summarized in the table and chart above illustrate the following points relative to our executive compensation
philosophy:
•
Consistent with market practices, a relatively small percentage of the target total direct compensation is provided as base
salary, as the NMIC Human Resources Committee believes compensation should be delivered to our Named Executive Officers based on performance.
•
A substantial percentage of the target total direct compensation is comprised of variable incentives, delivered through a
mix of annual incentives, which are more focused on short-term financial results, and long-term incentives, which are focused on achievements over multiple years and most closely
align with building sustained value for our stakeholders. The NMIC Chief Executive Officer's target pay mix is more heavily weighted toward long-term incentives (70% of target direct compensation), consistent with the role.
The charts below illustrate the percentage change in target total direct compensation,
which includes changes to base salary, total target cash (which includes base salary and target annual incentives), and/or long-term incentive targets for the Named Executive Officers in 2023 as compared to 2022.
Target Total Direct Compensation Change in 2023
2023 Compensation Program Design and Implementation
We discuss the following items in this section:
•
what we intend to accomplish with our compensation programs;
•
how we determine the amount for each element of compensation; and
•
the impact of performance on compensation.
The principal elements of 2023 compensation for our Named Executive Officers were base salary and annual and long-term incentives. Each serves a different purpose, as discussed above in "Compensation Objectives and Philosophy."
Base
Salary
Our overall pay philosophy is to establish base salaries that are
generally at the median of the companies represented in the market data. We typically base a departure from the median on factors such as incumbent experience and industry or
functional expertise, scope of job responsibilities as compared to similar positions in the market, special retention needs, and executive performance. In determining adjustments to the Named Executive Officers' salaries for 2023, the NMIC Human
Resources Committee evaluated the following:
•
salaries for comparable positions in the marketplace, taking scope of responsibility into account;
•
our recent financial performance, both overall and with respect to key financial
indicators;
•
the annual performance evaluation of each executive officer compared to previously established
objectives; and
Base salary rates for the Named Executive Officers increased by an average of 6.0% in
2023. The overall salary increase percentage reflects the impact of competitive market data, a challenging labor market, and individual and company performance.
In 2023, we used the Performance Incentive Plan, or "PIP," to provide a portion of at-risk pay to our Named Executive Officers, which promoted our pay-for-performance philosophy. Below are the highlights of our annual incentive plan design
and the changes we made in 2023.
•
The PIP provides participants with direct financial rewards in the form of annual incentives
the participants earn subject to the achievement of key financial and strategic objectives.
•
In 2023, one set of PIP metrics applied to all Named Executive Officers and reflected a blend
of enterprise, corporate staff, and major business line results.
•
The design of incentive plans and reward programs has been used to reinforce a "One
Nationwide" strategy, drive an enterprise perspective, and support the alignment of our business operating model.
•
In 2023, enterprise and business unit weights were adjusted to reinforce business unit accountability to drive profitable
growth in lines of business by increasing the business unit weighting from 65% to 70%.
•
Business unit weights reflect a blend of profit, growth, expense, and customer
metrics.
•
Customer metrics are measured at the business unit level, reflecting a blend of internal
measures and external JD Power customer metrics.
•
The enterprise metric continues to be Consolidated Net Operating Income (CNOI).
•
The maximum payment for each participant is 200% of the participant’s target amount. Any adjustments to printed
performance results for incentive purposes are presented to and approved by the NMIC Human Resources Committee. Adjustments to printed performance results for incentive purposes
may be made for one-time or unusual financial items that have impacted actual performance, but which management believes should not be included to penalize or receive credit for incentive purposes. Examples may include, but are not limited to:
•
Gains and losses from the acquisition or divestiture of businesses and/or
operations;
•
Non-recurring, unanticipated tax adjustments; and
•
Errors and/or omissions during target calculations.
No discretionary adjustments were made in 2023.
•
In 2023, Mr. Henderson’s annual incentive plan included a blend of 60% PIP and 40% Sales
Incentive Plan or "SIP," metrics to provide a portion of at-risk pay for his role. The SIP plan provides direct financial rewards in the form of short-term incentives for the achievement of key enterprise, financial services business unit, and annuity product
line metrics.
•
Our plan also allows the Chief Executive Officer to recommend use of discretion, on approval
by the NMIC Human Resources Committee, based on defined guiding principles. Any and all annual incentive performance scores (and corresponding incentive pools), and individual incentive payments may be adjusted up to +/-15%. Proposed
adjustments greater than +/-15% require Board approval. The purpose of CEO discretion is to determine if the accomplishments are not adequately reflected in the calculated
performance score.
❍
The rationale for such discretion may include, but is not limited to:
◼
changes in industry
and competitive conditions after target setting;
◼
execution and achievement of key performance indicators that have a longer-term financial
impact; and
◼
performance on key performance indicators such as customer experience, associate engagement,
Agency ratings, etc. that may not be reflected in the financial results.
Calculating the 2023 Annual Incentive Scores
All Named Executive Officers are compensated using a mix of enterprise, corporate staff, and
major business unit metrics. To calculate the overall performance scores for the financial metrics, the performance score on each applicable metric is weighted, adjusted if applicable, and summed, as shown below:
We define the financial goals used in the tables below as
follows:
|
|
|
Consolidated Net Operating Income
(CNOI) |
Consolidated Net Operating Income "CNOI" measures our profitability from continuing
operations. CNOI excludes the impact of realized gains and losses on
sales of investments and hedging instruments, certain hedged items,
credit losses, discontinued operations, and extraordinary items, net of
tax. |
P&C Business Unit Metrics |
P&C Adjusted General Operating
Expenses |
Excludes Incentives, Defense & Adjusting, Commissions, Premium Tax, Fees and all
other. |
|
The increase or decrease in the current performance year-ending business unit premium
over the prior performance year-ending business unit premium, as a
percentage. |
P&C Non-Weather Loss Ratio |
Net incurred losses from non-weather perils, excluding contingent suits, divided by
earned insurance premiums in the current year. Incurred losses only
reflect losses from the current year and prior year development from
the previous year. |
P&C JD Powers/CEM Customer
Metric |
Performance results are calculated by averaging the quartile rankings of each product
line. |
|
NF Return on Capital (adjusted for
excess capital) |
NF net operating income for the year, excluding interest income on excess capital and adding
back debt expense, divided by the total NF GAAP equity plus long-term debt at the
beginning of the year, excluding excess capital.
|
|
|
NF Adjusted General Operating
Expenses |
Excludes sales incentives, management incentives, premium and other taxes, licenses
and fees, and contingent suits. |
|
NF sales primarily include individual and group annuity considerations, as well as
life and specialty insurance premiums calculated in accordance with
statutory accounting practices. In addition, NF sales includes deposits
on administration-only and group trust products within our retirement
solutions segment, as well as sales associated with our institutional fund business and securities-backed lending program. |
|
Percentage of assets retained in NF’s key businesses year-over-year. This is
calculated in each of the business segments. NF’s retention rate
is then calculated using a segment weighting based on
revenue. |
NF JD Power/Market Metrics |
Performance results are calculated by averaging the quartile rankings of each product
line. |
NW Pet Business Unit Metrics |
Pet Trade Combined Ratio (TCR) |
Sum of the calendar year loss ratio, statutory expense ratio, and dividend ratio
where applicable. |
|
New customers / policies that are brought to Nationwide. |
|
Portion of the portfolio that has renewed and been retained.
|
|
|
All variable annuity sales with living benefits. |
|
Registered Indexed-Linked Annuity sales (Nationwide Defined Protection Annuity and
Nationwide Defender Annuity). |
|
All Fixed Index Annuity sales. |
|
All non-living benefit sales sold through Advisory or Fee Based Brokerage and JP
Morgan Multi-Asset Choice product for annuities sales.
|
NF Annuity: SPIA/Trad Fix |
All single-premium immediate annuity (SPIA) and traditional fixed annuity
sales. |
|
|
Includes Finance, HR, Legal, Marketing Staff, Customer, CRE, Aviation, and IT Run.
Excludes Brand, IT Build, Foundation/ Charitable Contributions,
Management incentives. |
CEO Non-Financial Metrics |
|
Continue to develop a world class organization, talent, and culture.
|
|
Enabling the execution of strategy with accountability. |
|
Building an accountable and transparent organization. |
2023 PIP Metrics, Weights, and Performance
|
|
Messrs.
Carter,
Ginnan,
Frommeyer (Weight) |
|
|
|
|
2023
Incentive
Performance
Results |
|
|
Enterprise Consolidated Net Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messrs. Carter, Ginnan,
Frommeyer (Weight) |
|
|
|
|
2023 Incentive Performance
Results |
|
NF
Expense: Adjusted General Operating
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NF
Customer: Asset Retention |
|
|
|
|
|
|
|
|
NF
Customer: NF JD Power/Market Metrics1 |
|
|
|
|
|
|
|
|
P&C Business Unit Metrics |
Expense: P&C Adjusted
General Operating Expenses |
|
|
|
|
|
|
|
|
P&C Written Premium Growth |
|
|
|
|
|
|
|
|
P&C Non-Weather Loss
Ratio |
|
|
|
|
|
|
|
|
P&C Customer: JD Power/CEM Customer
Metric1 |
|
|
|
|
|
|
|
|
Nationwide Pet Business Unit Metrics |
Pet
Trade Combined Ratio (TCR) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NF
Annuity: SPIA/Trad Fix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO Non-Financial Metrics |
People, Strategy and Governance |
|
|
|
Qualitative and quantitative non-financial metrics2 |
|
1
Performance results are calculated by averaging the quartile rankings of each product line. Actual calibration for 3rd quartile is 0.67, 2nd quartile is 1.33, and 1st quartile is 2.00.
2
Non-financial metrics includes objectives related to people, strategy and governance. Metrics
include qualitative and quantitative metrics approved by the NMIC Board of Directors.
Determination of the Final Annual Incentive Payments
To determine the 2023 annual incentive compensation payments for our Named Executive
Officers, the NMIC Human Resources Committee assessed each executive officer's performance under the PIP, considering the metrics in the tables above in addition to the executive officer's overall performance, our overall financial performance, and management's
assessment of performance on individual objectives.
The actual amounts the Named Executive Officers received under the PIP depended solely on
the achievement of the approved metrics and the discretion of the NMIC Human Resources Committee to reward individual performance, as described above.
The performance assessment for Mr. Walker, the NMIC Chief Executive Officer, also included non-financial components, which were approved by the NMIC Human Resources Committee. These emphasized:
•
developing world class organization, talent, and culture;
•
enabling execution of strategy with accountability; and,
•
building an accountable and transparent organization.
Each independent director completed a formal evaluation of Mr. Walker’s performance
against the non-financial objectives and gave a rating on a five-point scale. After summarizing the results and meeting with the Chair of the NMIC Human Resources Committee, CAP and the NMIC Human Resources Committee met with the NMIC Board of Directors to approve the overall
non-financial performance score for Mr. Walker. The score, expressed as a multiple of the weighted target amount, was incorporated into the overall PIP score and approved by the
NMIC Board of Directors.
The resulting cash payments for our Named Executive Officers are below:
|
|
Annual Incentive
Payment vs. Target |
|
|
|
|
|
|
Performance compared
to the PIP enterprise scorecard objectives |
|
|
|
|
Performance compared
to the PIP enterprise scorecard objectives |
|
|
|
|
Performance compared
to the PIP enterprise scorecard objectives
and non-financial objectives |
|
|
|
|
Performance compared
to PIP enterprise and NF business unit; and SIP annuity scorecard objectives |
|
|
|
|
Performance compared
to the PIP enterprise scorecard objectives |
1
Messrs. Carter, Frommeyer and Ginnan’s 2023 annual incentive payment included an
individual performance discretion adjustment of $192,970, $13,457, and $42,132 respectfully, to recognize them for achieving above goal performance results.
2
Mr. Walker’s 2023 annual incentive payment did not include individual discretion. Mr.
Walker’s award was based on the 85% PIP scorecard results and 15% non-financial objective results.
3
Mr. Henderson’s 2023 annual incentive payment did not include individual discretion. Mr.
Henderson’s award was based on the 60% NF PIP scorecard results and 40% annuity sales results.
Long-Term Incentives: Long-Term Performance Plan (LTPP)
Three-year Performance Cycle
Consistent with our philosophy of emphasizing pay that is performance-based, long-term incentive compensation constitutes a substantial portion of each Named Executive Officer's total compensation package. The LTPP is intended to
accomplish the following objectives:
•
reward sustained long-term value creation with appropriate consideration of risk capacity,
appetite, and limits;
•
deliver market-competitive target compensation consistent with organizational performance;
and
•
retain and motivate executives to ensure business stability and success.
In 2023, the NMIC Human
Resources Committee used the LTPP to award long-term incentives to the Named Executive Officers. The goals used are:
•
Sales and Direct Written Premium growth; and
•
Capital Strength measured by Standard & Poor's capital calculation.
Minimum performance on both metrics is required
for a score above 0.0. A situation where Sales and DWP Growth plan is achieved, and Capital Strength is at least AA+ results in a score of 1.00; higher or lower scores will be
achieved according to the extent each metric is above or below target. Performance is measured at the end of each year over a three-year period and the final score is the average of the three previous years’ annual scores. A time value of money factor of
3.00% is added to the final payment to account for the length of time between the grant of the target award and the payment.
Three-year Cycle LTPP Performance Matrix and Results for 2023 Year
|
|
2021-2023 LTPP Payment vs. Target |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
2021-2023 LTPP payments included a time value of money factor of 3.00%.
The 2023 LTPP grants for the
2023-2025 performance cycle are described in "Grants of Plan-Based Awards."
If we are required to prepare a material financial accounting restatement or to materially adjust the results of a metric
used for funding incentive compensation plans, we may recover from any current or former person we determine to be an elected officer any amount more than what should have been paid, up to and including:
•
The amount of any incentive award under the PIP or LTPP to the extent the restatement impacts
the amount awarded;
•
The total amount of awards granted to the extent the restatement impacts the amounts that
would have been granted, with such awards valued in good faith at the discretion of the NMIC Board of Directors; and
•
Any other amount determined by the NMIC Board of Directors, in its sole discretion, to have been improperly
awarded.
Recovery may, at the NMIC Board of Directors' discretion, be in the form of an adjustment to future incentive awards, as applicable.
For adjustments to incentive plan funding metrics
that are not related to an accounting restatement but are considered material for incentive payment purposes, the impacts will be analyzed to determine the degree of incentive plan
materiality, and if recovery or additional payments are required, the adjustments will be applied during the next incentive plan payout.
In
addition, if an elected officer engages in detrimental conduct, we may recover from the officer all or any portion of incentive compensation that was paid or payable to the officer
within the three-year period preceding the date on which we become aware that the officer engaged in detrimental conduct.
For this purpose, "Detrimental Conduct" means any of the following
conduct:
•
Misconduct, gross negligence, or commission of a material error, including in a supervisory
capacity, that causes, or might reasonably be expected to cause, material reputational, financial or other harm to the Company
•
Material violation of any applicable Company policies, including the Company’s written code of business conduct and
ethics
•
Material breach of any written non-competition, non-disclosure, or non-solicitation agreement in effect with the
Company.
Personal Benefits and Perquisites
Together with perquisites and other personal benefits, which are the same for all associates (such as health and welfare benefits and pension and savings plans), we provide to our executive officers non-qualified pension and savings plans,
deferred compensation plans and personal perquisites, all of which we believe are consistent with market competitive practices. For more information about these personal benefits and perquisites, see the "Summary Compensation Table."
Termination Benefits and Payments
It is Nationwide's practice to provide severance agreements to the NMIC Chief Executive
Officer and a limited number of senior executive officers, including our Named Executive Officers. We believe these agreements are a standard industry practice for these positions and are necessary to attract and retain executive officers at this level. Annually, the NMIC
Human Resources Committee reviews a competitive analysis of the provisions to ensure alignment with industry
practices. The agreements provide certain protections to the executive officer regarding compensation and benefits. In exchange for those protections, the executive officer agrees to keep our information confidential, and agrees not to solicit
our employees or customers and not to compete with Nationwide for a specified period following termination. We provide additional information with respect to post-termination benefits provided under these severance agreements in "Potential
Payments Upon Termination or Change of Control."
|
|
Messrs. Carter, Ginnan,
Henderson and Frommeyer |
|
|
|
Annual bonus for the year of termination |
|
|
Outstanding LTPP performance cycles |
• Actual payout in accordance with plan
vesting provisions |
• Actual payout in accordance with plan
vesting provisions |
Lump sum and gross-up for continuation of health care benefits |
|
|
|
• Bridge to early retirement if terminated
within 3 years of age 55
• Lump sum for company contribution to 401(k) and Supplemental 401(k) for 24 months |
• Bridge to early retirement if terminated
within 3 years of age 55 • Lump sum for company contribution to
401(k) and Supplemental 401(k) for 12
months |
|
• Non-compete for 2 years
• Non-solicitation for 2 years • Confidentiality |
• Non-compete for 1 year
• Non-solicitation
for 1 year • Confidentiality |
Certain termination-of-employment events may trigger post-termination payments and benefits if a severance agreement does
not apply to the payments and benefits. Those events include retirement, severance, termination for cause, death, disability, and voluntary termination. The details of the benefits
and payments made upon termination are also described in "Potential Payments Upon Termination or Change of Control."
Impact of Regulatory Requirements
on Compensation
There were no regulatory requirements that influenced our
compensation arrangements.
Risk Mitigation in Plan Design
Nationwide’s Enterprise Risk & Capital Management capabilities are linked with business planning and execution. The
Risk Appetite framework is embedded in strategy development and informs key decisions regarding growth, resource
allocation, product development and pricing, strategic asset allocation, asset-liability management, risk transfer, and target returns. Nationwide has spent considerable time developing an appropriate compensation plan to motivate prudent risk taking
in pursuit of business objectives. Our compensation plan strengthens the culture of risk management across the organization through risk and capital metrics embedded in the design.
The NMIC Human Resources Committee annually reviews our alignment with governance best practices and regulatory requirements regarding the risks inherent in our compensation policies and practices. The risk assessment is comprehensive and:
•
includes the appropriate review of potential areas of risk in the incentive plans, and design
features and internal control processes / governance that mitigate risk and support responsible decision making;
•
considers overall enterprise risk management at Nationwide and interplay with compensation
programs; and
•
incorporates checks and balances as it relates to performance measurement, risk
considerations, and the structure upon which rewards are earned.
We believe that our broad-based
compensation programs do not provide incentives for excessive risk taking and do not lead to risks that are reasonably likely to have a material adverse effect on the
company.
Summary Compensation Table
Name and principal position |
|
|
|
Non-Equity
Incentive Plan
|
Change in
Pension Value and
Non- qualified Deferred
Compensation
|
|
|
John L. Carter
President and Chief Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven A. Ginnan
Chief Financial Officer -
Nationwide Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kirt A. Walker NMIC
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric S. Henderson
SVP - Nationwide Annuity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy G. Frommeyer
Executive Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Amounts in the summary compensation table above reflect incentive compensation earned under the
PIP for the 2022 performance year and the allocated amounts earned under the LTPP for the 2020-2022 cycle that were paid in 2023.
2
Amounts in the table below reflect incentive compensation earned under the PIP for the 2023 performance year and the allocated
amounts earned under the LTPP for the 2021-2023 cycle that were paid in 2024.
2024 Incentive
Payment Summary2
3
In accordance with Instruction 3 to Item 402(c)(2)(viii), negative values are shown as $0.
4
Includes the contribution we made on behalf of Mr. Carter in the amount of $46,474 under the
Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000.
5
Includes the contribution we made on behalf of Mr. Ginnan in the amount of $12,731 under the Nationwide Supplemental Defined
Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000.
6
Includes the actual incremental cost of Mr. Walker's personal use of the company plane in the
amount of $22,683; the contribution we made on behalf of Mr. Walker in the amount of $52,670 under the Nationwide Supplemental Defined Contribution Plan; a tax gross-up in the amount of $520 for the actual cost of an executive physical; and $474 the company-paid portion for parking
expenses and automotive service in the executive parking garage.
7
Includes the contribution we made on behalf of Mr. Henderson in the amount of $21,238 the
Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000.
8
Includes the contribution we made on behalf of Mr. Frommeyer in the amount of $18,165 under the
Nationwide Supplemental Defined Contribution Plan. Aggregate value of perquisites and personal benefits is less than $10,000.
Grants of Plan-Based Awards in 2023
|
|
Estimated Future Payouts Under
Non-equity Incentive Plan Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
We calculated thresholds for metrics other than CNOI separately after a $350.0 million performance level was achieved on CNOI.
Actual payment may be less than the amount shown for threshold.
2
Represents PIP award. The maximum reflects a 200% maximum performance-based payout and potential discretionary adjustment of
15% that would require NMIC Human Resources Committee approval and any adjustments beyond 15% require NMIC Board of Directors approval.
3
Represents an award under the LTPP for the 2023-2025 performance period. A time value of money
factor of 3.00% will be added to the final payment.
Annual Incentive Compensation
On February 7, 2023, we granted annual incentive target opportunities to our Named
Executive Officers. The amounts earned for 2023 annual award opportunities are reflected in the "Summary Compensation Table." In 2023, goals under the PIP were met at 101% to 136% of the target amount. Additional detail is provided in "2023 Compensation Program Design and
Implementation."
Long-term
Incentive Compensation
On February 7, 2023, we granted long-term incentive
target opportunities to Named Executive Officers. The long-term plan performance is based on based on NF Sales and DWP Growth, and S&P Capital Strength. Performance is measured
annually and averaged at the end of a three-year period to determine a final performance score. A time value of money factor of 3.00% was added to the final payment based on based on the Guaranteed Investment Contract rate as reviewed and
approved by the NMIC Human Resources Committee at the time awards are granted.
Pension Benefits for 2023
|
|
Number of Years Credited Service
|
Present Value of Accumulated |
|
|
Nationwide
Retirement Plan |
|
|
|
Nationwide Supplemental Retirement Plan |
|
|
|
|
Nationwide
Retirement Plan |
|
|
|
Nationwide Supplemental Retirement Plan |
|
|
|
|
Nationwide
Retirement Plan |
|
|
|
Nationwide Supplemental Retirement Plan |
|
|
|
|
Nationwide
Retirement Plan |
|
|
|
Nationwide Supplemental Retirement Plan |
|
|
|
|
Nationwide
Retirement Plan |
|
|
|
Nationwide Supplemental Retirement Plan |
|
|
|
1
These amounts are unaudited.
2
No Named Executive Officer received pension benefits payments in 2023.
The "Pension Benefits for 2023" table reports the years of credited service and the present value of accrued benefits under
the Nationwide Retirement Plan, or "NRP," and the Nationwide Supplemental Retirement Plan, or "SRP," as of December 31, 2023. We discuss these plans in more detail below. The
reported values are the present value of accrued benefits with benefit commencement occurring at normal retirement age, which is age sixty-five, payable as a life annuity. Optional payment forms are available with reduced payments. A full single lump sum payment option is generally not
available. Where applicable, the "Number of years credited service" column for the NRP will reflect years credited for purposes of the final average pay formula and the account balance formula, respectively.
The credited service reported in the "Pension Benefits for 2023" table represents complete years of credited service under the NRP and SRP; however, the NRP and the SRP provide for crediting of service in different ways. The NRP provides one month
of credited service for each month a participant works, beginning with the participant's hire date. The SRP credits service based on the date an individual first becomes a
participant. For details regarding how the SRP credits service, see the "Supplemental Defined Benefit Plan" section below. We do not provide credited service under the NRP or
the SRP on a more favorable basis for the named executives than for other eligible participants.
Present Value of Accumulated Benefits
The reported present values of accumulated benefits, which are payable as a life
annuity, are based upon the benefit earned from service and compensation as of December 31, 2023. The present values assume the participant survives to, and commences his or her benefit at, the earliest age at which unreduced benefits are payable, which is age sixty-five.
We base the present value determinations on the measurement date, discount rate, and
post-retirement mortality in accordance with FASB ASC 715, Compensation-Retirement Benefits. For the December 31, 2023, and 2022 valuations, the discount rates used under this guidance were 4.95% and 5.25%, respectively. There is no mortality discount prior to age
sixty-five in the values reported above. We also used the Pension Protection Act Mortality Table.
Pension plan compensation includes base salary and certain management incentives.
Qualified and Supplemental
Pension Plans
Nationwide Retirement
Plan
Nationwide maintains a qualified defined benefit plan called the
Nationwide Retirement Plan, or the "NRP." In general, the Named Executive Officers and other participants in the NRP will receive an annual retirement benefit under the NRP equal
to the greater of the benefit calculated under the final average pay formula, if applicable, or the account balance formula. We describe these formulae below. Any participant, including a named executive officer, who we hired on or after January 1,
2002, will receive an annual retirement benefit under the NRP based solely on the account balance formula. Participants become fully vested in the NRP after the completion of three
years of service. The accrued benefit is payable as a life annuity. Optional payment forms are available, however, with reduced payments. A full, single lump sum payment option is generally not available.
The NRP allows a participant the option of receiving his or her benefit at any age, provided that he or she is vested when
he or she leaves Nationwide. If a participant terminates his or her employment with Nationwide before age sixty-five, and decides to receive benefits before age sixty-five, the participant will receive an actuarially reduced monthly benefit amount
to reflect the longer payout period due to early distribution.
The NRP provides a pre-retirement death benefit payable to a participant's spouse. The NRP
also provides for the funding of retiree medical benefits under Section 401(h) of the Internal Revenue Code.
The Final Average Pay Formula
We compute the final average pay, or "FAP", formula benefit as follows:
•
1.25% of the participant's final average compensation, as defined below, multiplied by the
number of years of service, up to a maximum of thirty-five years subject to the limitations set forth in the Internal Revenue Code; plus
•
0.50% of the participant's final average compensation in excess of Social Security covered
compensation, as defined below, multiplied by the number of years of service, up to a maximum of thirty-five years and subject to the limitations set forth in the Internal Revenue Code.
For services rendered prior to January 1, 1996, final average compensation is equal to the
average of the highest three consecutive covered compensation amounts of the participant in the participant's last ten years of service. For services rendered on January 1, 1996, or later, final average compensation is equal to the average of the highest five consecutive
covered compensation amounts of the participant in the participant's last ten years of service. The NRP defines covered compensation to mean all wages reported on a Form W-2 Wage and Tax Statement from Nationwide, plus compensation deferred
under Sections 125, 132(f)(4) and 401(k) of the Internal Revenue Code and excluding:
•
severance pay and other amounts following the later of: (i) the pay period that includes the
participant's date of termination, or (ii) the pay period in which the participant's date of termination is posted to Nationwide’s payroll system;
•
company car value or subsidy or reimbursement for loss of company car;
•
a lump-sum payment for vacation days made upon termination of employment or pursuant to an election by the
participant;
•
imputed income, executive officer perquisites and benefits paid under any long-term
performance or equity plan;
•
income imputed to any participant as a result of the provisions of health or other benefits to
members of the participant's household;
•
any payment made to a participant to offset the tax cost of other amounts Nationwide paid that
are included in the participant's income for federal tax purposes;
•
any payment of deferred compensation made prior to the participant's severance
date;
•
expense reimbursement or expense allowances including reimbursement for relocation expenses;
•
retention payments made on or after January 1, 2002;
•
all gross-up payments, including the related compensation payment, made on or after January 1, 2002; and
•
compensation earned following the date on which a participant's employment status changes from
eligible to ineligible and during the period he or she is ineligible.
Covered compensation is subject to Internal
Revenue Code limits and, for purposes of determining final average compensation, is calculated on a calendar-year basis.
Social Security covered compensation means the average of the Social Security wage bases in
effect during the thirty-five-year period ending with the last day of the year that the participant attains Social Security retirement age. The portion of a participant's benefit attributable to years of service with certain Nationwide companies credited prior to 1996 is also
subject to post-retirement increases following the commencement of benefits or the participant's attainment of age sixty-five, whichever is later.
For employees hired (or rehired) before January 1, 2002, benefits are the greater of the FAP formula determination or the
account balance formula, described below. We use the account balance formula to determine the retirement benefit under the NRP for all employees hired or rehired on or after January 1, 2002. The notional account under the account balance
formula is comprised of the following components:
•
Opening Balance Amount: We determined the accrued benefit under the FAP formula as of December 31, 2001, and converted this accrued benefit into a
lump sum that reflected the current value of that benefit; plus
•
Pay Credits: We add amounts to the account every pay period based on the participant's years of service and compensation. The pay
credits range from 3% of pay if the participant has up to thirty-five months of service, plus 3% of pay over the Social Security wage base for the year in question, to 7% of pay
for those with over twenty-two years of service, plus 4% of pay over the Social Security wage base for the year in question; plus
•
Interest Credits: We add interest amounts to the account on a biweekly basis based on the thirty-year
United States Treasury bill rate in effect from the second month preceding the current quarter. The minimum interest rate is 3.25%.
Effective January 1, 2010, participants eligible for the FAP formula are not eligible to receive pay credits under the account
balance formula after December 31, 2009; however, such participants do continue to receive interest credits on their account balance benefit.
Transition from FAP Formula to Account Balance Formula for Certain NRP Participants
Notwithstanding the foregoing description of NRP benefit calculation(s), for participants who were actively employed and accruing benefits under the FAP formula as of December 31, 2016, but had not yet attained age 55 as of such date, their FAP
benefit accruals ceased as of such date. These participants accrue NRP benefits under the account balance formula after December 31, 2016. As a result, such participants’
overall accrued benefit under the NRP will generally be equal to the sum of:
The FAP benefit accumulated through December 31, 2016
The account balance benefit accrued after December 31, 2016.
Nationwide Supplemental Retirement Plan
Nationwide maintains the Nationwide Supplemental Retirement Plan, or "SRP," an unfunded, nonqualified supplemental defined
benefit plan. The SRP provides supplemental retirement benefits to individuals who are in an executive-level position and who are receiving compensation in excess of the limits set
by Section 401(a)(17) of the Internal Revenue Code. An individual's participation in the SRP begins the first day of January of the calendar year following the date they meet the eligibility requirements.
Individuals who became participants prior to January 1, 2013 generally receive the following
benefits under the SRP:
•
1.25% of the participant's final average compensation, as defined in the "Qualified Pension Plans" section above, multiplied
by the number of years of service, up to a maximum of forty years; plus
•
0.75% of the participant's final average compensation in excess of Social Security-covered
compensation, as defined in "Qualified Pension Plans" above, multiplied by the number of years of service, up to a maximum of forty years; minus
•
benefits the executive accrued under the NRP.
Individuals who became participants
on or after January 1, 2013 receive the following benefits under the SRP:
•
a pay credit for each year in which the participant is employed on December 31 equal to 7% of the excess of such
participant’s covered compensation for such year over the limit set by Section 401(a)(17) of the Internal Revenue Code; plus
•
a biweekly interest credit based on the thirty-year United States Treasury bill rate in effect from the second month
preceding the current quarter. The minimum interest rate is 3.25%.
For purposes of the SRP, the definition of "covered compensation" is the same as described above in the "Final Average Pay
Formula" section, without the Internal Revenue Code limits and including, at the time of deferral, any compensation that would be deferred pursuant to an individual compensation
agreement with Nationwide.
To the extent permitted under the rules
governing nondiscrimination for the NRP, all or a portion of the benefit under the SRP for participants who were fully vested on December 31, 2008, was transferred to the
NRP.
In addition, the SRP provides all participants with a minimum benefit equal to the accrued benefit under the SRP as of
December 31, 2007. For participants who first became eligible on or after January 1, 1999, and before January 1, 2007, benefits vest over a period of five years. Benefits vest for participants who first become eligible on or after January 1,
2007, over a period of 49 months. The vested percentage is based on the lesser of the participant's vested percentage in the NRP or the vested percentage pursuant to a specified vesting percentage schedule under the SRP.
For all individuals who are new participants on or after January 1, 2009, the SRP credits service by providing twelve months of credited service on the date they become a participant and credits twelve months of service for each subsequent
calendar year only if the individual meets the eligibility requirements as of the last day of the calendar year. For individuals who were participants in the SRP before January 1,
2009, the SRP provides one month of credited service for each month the participant performs service, beginning on the participant's date of hire through December 31, 2007. After December 31, 2007, these participants received credits for twelve months of service for a calendar year only if the
individual meets the SRP eligibility requirements as of the last day of the calendar year.
Effective January 1, 2010, the SRP no longer provides a subsidized early retirement benefit for participants whose benefit calculation includes months of credited service accrued or credited on or after January 1, 2010. For an affected
participant, the SRP determines his or her benefit by providing the greatest of three benefit calculations:
•
his or her SRP benefit as of December 31, 2007, with the subsidized early retirement
factors;
•
his or her total benefit as of December 31, 2009 minus the benefits accrued under the NRP at
date of termination, with the subsidized early retirement factors; or
•
his or her SRP benefit without subsidized early retirement factors at the date of termination.
Effective January 1, 2016, the maximum number of SRP participation service years includable
in an individual’s benefit determination under the SRP is reduced from 40 years to 25 years. For SRP participants who had more than 25 years of participation service as of December 31, 2015, the maximum number of SRP participation years included in the SRP benefit
determination is the total number of participation years as of December 31, 2015 (not to exceed 40 years). In addition, an additional vesting criterion is added to the SRP. In lieu
of the previous four-year vesting schedule, participants now become 100% vested in their SRP benefit upon the attainment of 120 months of vesting service. Participants who were 100% vested as of January 1, 2016 will remain 100% vested. However, any participant who was not 100% vested had his
vesting percentage, as of December 31, 2015, frozen until such time as he attains 120 months of vesting service. These participants become 100% vested at 120 months of vesting
service. Lastly, effective as of January 1, 2016, SRP participants must be age 55 or older at the date of termination of employment to be eligible to receive benefits under the
SRP.
The Nationwide Savings Plan, or the "NSP," is a qualified 401(k) plan that includes a qualified cash or deferred arrangement and covers eligible employees of Nationwide. Under the NSP, our Named Executive Officers and other eligible
participants may elect to contribute between 1% and 80% of their compensation to accounts established on their behalf. Participant contributions are in the form of voluntary,
pre-tax salary deductions or after-tax "Roth 401(k)" salary deductions. Participants who reach the age of fifty during the plan year may also make "catch up" contributions for that
year of up to the IRS published limits. Nationwide makes matching employer contributions for the benefit of their
participating employees, at a rate of 50% of the first 8% of compensation deferred or contributed to the NSP by each employee. The NSP holds all amounts that the participants contribute in a separate account for each participant and invests
the amounts in the available investment options chosen by the participant.
For purposes of the NSP, covered compensation
includes all wages reported on a Form W-2 Wage and Tax Statement from Nationwide, plus compensation deferred under Sections 125, 132(f)(4) and 401(k) of the Internal Revenue Code
and excludes:
•
severance pay and other amounts following the later of (i) the pay period that includes the
participant's date of termination, and (ii) the pay period in which the participant's date of termination is posted to Nationwide's payroll system;
•
company car value or subsidy or reimbursement for loss of a company car;
•
a lump-sum payment for vacation days made upon termination of employment or pursuant to an election by the
participant;
•
imputed income, executive officer perquisites and benefits paid under any long-term
performance or equity plan;
•
income imputed to any participant as a result of the provision of health or other benefits to
members of the participant's household;
•
any payment made to a participant to offset the tax cost of other amounts Nationwide paid that
are included in the participant's income for federal tax purposes;
•
any payment of deferred compensation made prior to the participant's severance date or on
account of a participant's severance date;
•
expense reimbursement or expense allowances including reimbursement for relocation expenses;
•
retention payments made on or after January 1, 2002;
•
all gross-up payments, including the related compensation payment, made on or after January 1, 2002; and
•
compensation earned following the date a participant’s employment status changes from
eligible to ineligible and during the period he or she is employed in an ineligible status.
Covered
compensation is subject to Internal Revenue Code limits and is calculated on a calendar-year basis.
A participant is eligible to receive the value of his or her vested account balance upon termination of his or her
employment. However, he or she may withdraw all or a part of the amounts credited to his or her account prior to
termination, such as upon attainment of age fifty-nine and one-half years old and 60 months of service with Nationwide. A participant is immediately vested in all amounts credited to his or her account as a result of salary deferrals or after-tax
contributions and earnings or losses on those deferrals or contributions, as applicable. Vesting in employer matching contributions and earnings or losses on those contributions occurs on a pro rata basis over a period of five years.
The NSP offers an automatic enrollment and automatic increase feature, the latter of which
applies to participants contributing less than 12% of their compensation.
Nationwide Supplemental Defined Contribution Plan
The Nationwide Supplemental Defined Contribution Plan, or "NSDC Plan," is an unfunded,
nonqualified defined contribution supplemental benefit plan. The NSDC Plan provides benefits equal to employer matching contributions that would have been made for the participants under the NSP but for the Internal Revenue Code's limitation on compensation that
can be considered for deferrals to the NSP. Only executives of Nationwide whose annual compensation is in excess of the limit set forth in the Internal Revenue Code are eligible to
participate in the NSDC Plan. The benefits under the plan vest after five years of participation.
For purposes of the NSDC Plan, "covered compensation" refers to covered compensation as
defined in "Nationwide Savings Plan" above, without the Internal Revenue Code limits and including, at the time of deferral, any compensation that would be deferred pursuant to an individual compensation agreement with Nationwide. We credit individual accounts under
the NSDC Plan with deferral amounts and earnings or losses based on the net investment return on the participant's choice of investment measures offered under the NSDC Plan. No
guaranteed or above-market earnings are available under the NSDC Plan. Participants may change their investment options on a daily basis.
Payouts under the NSDC Plan are made as follows:
•
credits made for plan years prior to 1996, and earnings on those amounts, are paid in January
of the year following the year the participant’s employment terminates;
•
unless otherwise elected in accordance with the terms of the NSDC Plan, credits made to the NSDC Plan for years after 1995,
and earnings on those amounts, are paid in 10 installments for participants who qualify for a benefit from the NRP and whose account balance exceeds $25,000, and in a single lump
sum payment for all other participants.
Nonqualified Deferred Compensation for 2023
|
Executive Contributions in
|
Registrant Contributions in Last
Fiscal |
|
|
Aggregate Balance at
Last Fiscal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Amount represents voluntary deferrals to the Nationwide Individual Deferred Compensation Plan.
2
Amount represents company contributions to the NSDC Plan.
3
Amount represents investment gain from applicable nonqualified deferred compensation plans attributable to all prior year deferrals in the plans. Investment gains or losses are attributable to the investment selections the executive officer makes. Executive officers may choose from approximately fifty investment options for the Nationwide Individual Deferred Compensation Plan and the NSDC
Plan, and from sixteen investment options for the Nationwide Economic Value Incentive Plan.
4
Amount represents distributions from the Nationwide Individual Deferred Compensation Plan.
5
Represents balances in the following plans: the Nationwide Individual Deferred Compensation
Plan, the NSDC Plan and the Nationwide Economic Value Incentive Plan. The Nationwide Economic Value Incentive Plan is a terminated plan that provided for involuntarily deferred compensation we may still pay to an executive officer based on his or her distribution election.
Nonqualified Deferred Compensation Plans
We provide a voluntary deferred compensation plan to allow executives to prepare for
retirement.
Nationwide Individual
Deferred Compensation Plan
Under the "Nationwide Individual Deferred
Compensation Plan," or "IDC Plan," eligible executives of Nationwide may elect to defer payment of compensation otherwise payable to them. Eligible executive officers may enter
into deferral agreements in which they may annually elect to defer up to 80% of their salary and short-term incentive compensation they earn during the following year or performance cycle. Participants may also defer up to 80% of the long-term incentive
compensation they earn during the following performance cycle. Deferral elections are effective prospectively. Amounts an executive officer defers under the IDC Plan are generally payable in cash in annual installments beginning in January of the
calendar year immediately following the calendar year in which the executive officer terminates his or her employment, including due to the death of the participant. However, an
executive officer may elect to receive payments after the expiration of the deferral period the executive officer elects, from one to fifteen years from the year in which the
deferral of compensation applies. If the entire (post-2005) account balance is less than $25,000 at the time a payment is due, the entire account balance will be distributed, regardless of the distribution election on file. We credit individual accounts under the IDC Plan with deferral amounts and earnings or losses based on the net investment return on the participant's choice of
investment measures offered under the IDC Plan. No guaranteed or above-market earnings are available under the IDC Plan. The IDC Plan permits participants to make investment
changes on a daily basis. Each participant is always fully vested in his or her accrued amount.
The IDC Plan permits a participant or beneficiary to take an unscheduled withdrawal from
his or her account provided that such elective withdrawal applies only to amounts earned and vested, including earnings, on or before December 31, 2004, and any such withdrawal is subject to a 10% early withdrawal penalty.
Payments Made Upon Standard Termination
General Termination Payments
Regardless of the manner in which an executive officer’s employment terminates, he or she is entitled to receive the
following amounts, which are earned during employment:
•
vested amounts contributed, plus related earnings under, the NSP, the IDC Plan, and the NSDC
Plan;
•
amounts accrued and vested under the NRP and the SRP; and
•
unused paid time off, up to specified limits and subject to certain limitations as specified
within our paid time off plan.
The effect of a termination of employment on certain executive officers' annual incentives is controlled by the terms of the PIP. Under these plans, unless otherwise provided by the NMIC Human Resources Committee in connection with specified
terminations of employment, we make a payment of an annual incentive only if, and to the extent, the executive officer has attained the performance goals with respect to the related performance period, and only if we employ the executive officer
through the end of the performance period. In addition, an executive officer must be employed through the date the annual award is paid. However, in the event an executive officer's employment terminates during the performance period, or prior to
the date awards are paid, due to death or disability, the executive officer or the executive officer's deemed beneficiary (determined pursuant to the terms of the PIP) will receive
a portion or all of the incentive as the NMIC Human Resources Committee determines. In the event an executive officer's employment terminates prior to the date PIP payments are
paid due to retirement or termination of the executive officer's employment without cause, the executive officer will remain eligible to receive a portion of the incentive, based on the amount of time the executive officer was employed during the
performance period on the date the PIP payment is paid and the executive officer's attainment of the performance goals for the performance period.
Nationwide Long-Term Performance Plan
The LTPP plan design measures performance over a three-year period. The design requires both sales and direct written
premium growth and capital strength in order for participants to receive payments, which will range from zero to two times the target amount. If a voluntary termination of employment or termination for cause occurs prior to the last day of the
performance period, an executive officer's outstanding target award opportunities will be forfeited. If a termination is due to death, disability or retirement the target award opportunity will be prorated based on the number of days worked in the
performance period. Because the termination payment tables that follow assume that the Named Executive Officers
worked through all three years of the 2021-2023 performance period, through the first and second years of the 2022-2024 performance period, and through the first year of the 2023-2025 performance period, the amounts shown in the tables relating
to the awards under the LTPP reflect prorated opportunities for termination without cause or for termination due to death, disability or retirement, which would be paid after
December 31, 2023 or 2024 (as applicable), based on actual performance. Organizational performance was estimated at target performance for 2024 and 2025 for purposes of these
tables.
Executive Severance Agreements
Nationwide has entered into executive severance agreements with the Named Executive Officers. The severance agreements are not triggered upon a voluntary termination of employment.
Nationwide entered into a new agreement with Mr. Frommeyer effective as of August 20, 2021,
which replaced his original executive severance agreement dated January 1, 2017 and amended as of January 1, 2020. Nationwide entered into an agreement with Mr. Henderson effective as of January 1, 2017. Nationwide entered into an agreement with Mr. Ginnan effective
as of April 3, 2018. Nationwide entered into a new agreement with Mr. Carter on November 1, 2019, effective as of October 8, 2019, which replaced his original executive severance
agreement dated October 1, 2012. Nationwide entered into a new agreement with Mr. Walker as the new Chief Executive Officer on November 4, 2019. The new agreement was effective as of January 1, 2020 and replaced his original executive severance agreement dated January 1, 2016.
For Mr. Frommeyer, the initial term ended on December 31, 2021, with automatic one-year renewals commencing on January 1, 2022, unless Nationwide or the executive officer gives
notice of nonrenewal. For Mr. Henderson, the initial term ended on December 31, 2017, with automatic one-year renewals commencing on January 1, 2018, unless Nationwide or the executive officer gives notice of nonrenewal. For Mr. Ginnan, the initial term ended on December 31, 2018, with
automatic one-year renewals commencing on January 1, 2019, unless Nationwide or the executive officer gives notice of nonrenewal. For Messrs. Carter and Walker, the initial term ended on December 31, 2020, with automatic one-year renewals
commencing on January 1, 2021, unless Nationwide or the executive officer gives notice of nonrenewal. Nationwide entered into amendments to the severance agreements with Messrs.
Frommeyer, Henderson and Ginnan on November 1, 2019. The amendments, effective for terminations after December 31, 2019, provide updated terms with respect to the arbitration dispute resolution process, the jurisdiction and venue of any dispute regarding the restrictive
covenants in the executive severance agreements, and the required return of Nationwide property upon termination.
The agreements provide that Nationwide will pay
salary, incentive compensation, and benefits as determined by Nationwide's Board of Directors, or a committee thereof, as well as certain payments and benefits upon specified
termination events.
The following description of the executive officers’ agreements and the amounts
presented in the tables that follow are based on the terms of the agreements as they existed on December 31, 2022 and assume a termination of employment, and such triggering events as are contemplated by the executive severance agreements, occurred on December 31, 2022.
The executive severance agreements in effect as of December 31, 2022, for the executive
officers are substantially similar to each other, with certain differences reflected in Mr. Walker’s agreement and highlighted below. Each agreement contains material non-competition, non-solicitation and confidentiality provisions, which condition Nationwide's promises to
pay severance on the executive officer's compliance with such provisions. The agreements also condition receipt of severance upon the execution of a binding release of Nationwide and other related parties.
Under the executive severance agreements in effect as of December 31, 2022, upon a termination by Nationwide without cause, the following payments and benefits would be provided:
•
a lump-sum cash payment equal to one times (two times, for Mr. Walker) the annual base salary
in effect immediately before the termination, payable within 30 days following the executive's termination date;
•
a lump-sum cash payment equal to one times (two times, for Mr. Walker) the annual incentive compensation that would have
been earned pursuant to the PIP during the fiscal year in which the executive officer's termination date occurs, based on actual performance over the full year, payable when annual
bonuses are paid to our other executives;
•
a lump-sum cash payment equal to the cost, including a gross-up payment to cover income and
FICA taxes on the payment, to the executive officer of continuing the medical, dental and vision coverage under COBRA, or under the retiree medical provisions of Nationwide's medical plan, if applicable, for the executive officer, his or her
spouse and dependents, for the one-year period (two-year period, for Mr. Walker) following the executive's termination date;
•
supplemental benefits equal to the benefits the executive officer would have been entitled to receive on the termination
date under certain retirement and deferred compensation plans, had the executive officer been fully vested in those plans on the termination date, less any benefits the executive
officer actually receives under those plans, paid at the time the executive's benefits are otherwise paid under the applicable plans;
•
in the event that the executive officer's termination date occurs within three years of the date on which the executive
officer would have been first eligible to retire under the NRP, a supplemental benefit equal to the benefits the executive officer would have received under the NRP and the SRP had
the executive officer earned service and age credit for the period ending on the earlier of three years after the executive officer's termination date or the earliest date the executive officer would have been eligible to retire under the NRP and had the executive
officer been fully vested under those plans, less any benefits the executive officer actually receives under those plans, paid at the time the executive's benefits are otherwise
paid under the applicable plans;
•
a lump-sum cash payment equal to the matching contributions that Nationwide would have made
for the executive officer under the NSP and the NSDC Plan during the one-year period (two-year period, for Mr. Walker) following the termination date, as if the executive officer's contributions had continued in the same amount and at the same
rate in effect immediately prior to the executive officer's termination date, payable within 30 days following the executive's termination date;
•
service and age credits for the purpose of eligibility under Nationwide's retiree medical plan, as if the executive officer
had continued employment through the one-year period (two-year period, for Mr. Walker) following the termination date;
•
the right to retain certain office equipment and furniture used at the executive officer's
home; and
•
amounts earned, accrued or owed but not paid and benefits owed under employee benefit plans
and programs.
Payments Made Upon Retirement
If an executive officer were to retire on December 31, 2023, the executive officer would receive the full three-year
2021-2023 LTPP award, an amount equal to two-thirds of the total target incentive opportunity for the 2022-2024 performance period and one-third of the total target incentive opportunity for the 2023-2025 performance period multiplied by the
respective performance scores paid in the year following the end of the performance periods. For purposes of LTPP
awards, retirement means a termination of employment on or after the date on which the executive officer has attained:
•
age fifty-five and completed 120 months of vesting service; or
•
age sixty-two and completed sixty months of vesting service,
as determined under the NRP.
The PIP provides that if an executive officer retires, the executive officer will receive his or her annual incentive
compensation earned during the fiscal year in which termination occurs. The annual compensation payment is prorated to reflect services performed through the date of employment termination and is based on actual performance for the year.
Payments Made Upon Death or Disability
If an executive officer dies or becomes disabled, in addition to any applicable benefits
listed in "Payments Made Upon Standard Termination," the executive officer will receive benefits under our disability plan or his named beneficiary will receive payments under Nationwide's life insurance plan, as appropriate. In addition, under the PIP, the executive officer
will receive his or her annual incentive compensation earned during the fiscal year in which the termination occurs. The annual compensation payment is prorated to reflect services performed through the date of employment termination and is
based on the actual performance for the year.
Potential Payments Made Upon a Change of Control or Termination Upon or Following a Change of Control
The PIP and the LTPP do not provide for special treatment of awards upon a change in
control.
The following tables reflect our estimates of
the payments and benefits our Named Executive Officers would have received in lump sum if a termination of employment or a change of control had occurred on
December 31, 2023.
President and Chief Operating Officer - Nationwide Financial
Benefits and Payments upon Termination |
|
Termination
Without Cause |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Reflects the amount Mr. Carter would receive with respect to the 2023 annual incentive payment under the PIP upon a termination
of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Carter would have qualified for retirement on December 31, 2023, he would receive the PIP
payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the
PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Carter would receive with respect to the 2021-2023 awards under the
LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Carter would receive with respect to the 2022-2024 and 2023-2025 awards
under the LTPP upon termination on December 31, 2023. Mr. Carter would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2025, and a one-third distribution of the total 2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023. The
amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023
matching amounts in the NSP and NSDC Plan; one times the 2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Carter and his family. The amounts were not reduced to their present value.
Steven A. Ginnan
SVP and Chief Financial Officer – Nationwide Financial
Benefits and Payments upon Termination |
|
Termination
Without Cause |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Reflects the amount Mr. Ginnan would receive with respect to the 2023 annual incentive payment under the PIP upon a termination
of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Ginnan would have qualified for retirement on December 31, 2023, he would receive the PIP
payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the
PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Ginnan would receive with respect to the 2021-2023 awards under the
LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Ginnan would receive with respect to the 2022-2024 and 2023-2025 awards
under the LTPP upon termination on December 31, 2022. Mr. Ginnan would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2025, and a one-third distribution of the total 2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023. The
amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023
matching amounts in the NSP and NSDC Plan; one times the 2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Ginnan and his family. The amounts were not reduced to their present value.
NMIC Chief Executive Officer
Benefits and Payments upon Termination |
|
Termination
Without Cause |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Reflects the amount Mr. Walker would receive with respect to the 2023 annual incentive payment under the PIP upon a termination
of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Walker would have qualified for retirement on December 31, 2023, he would receive the PIP
payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be made under the
PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Walker would receive with respect to the 2021-2023 awards under the
LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Walker would receive with respect to the 2022-2024 and 2023-2025 awards under the LTPP upon a
termination employment without cause or upon death, disability or retirement on December 31, 2023. Mr. Walker would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024
award, which would be paid in 2025, and a one-third distribution of the total 2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023. The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of two times base salary; two times the 2022 matching amounts in the NSP and
NSDC Plan; two times the 2023 annual incentive bonus; and the annual COBRA rate for 2024 and 2025, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Walker and his family. The amounts were not reduced to their present
value.
President - Nationwide Annuity
Benefits and Payments upon Termination |
|
Termination
Without Cause |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Reflects the amount Mr. Henderson would receive with respect to the 2023 annual incentive payment under the PIP upon a
termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Henderson would have qualified for retirement on December 31, 2023, he would
receive the PIP payment. The "Termination Without Cause" column does not include the 2022 annual incentive opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be
made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Henderson would receive with respect to the 2021-2023 awards under the
LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Henderson would receive with respect to the 2022-2024 and 2023-2025
awards under the LTPP upon termination on December 31, 2023. Mr. Henderson would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2024, and a one-third distribution of the total 2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023.
The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023
matching amounts in the NSP and NSDC Plan; one times the 2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Frommeyer. The amounts were not reduced to their present value.
Benefits and Payments upon Termination |
|
Termination
Without Cause |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Reflects the amount Mr. Frommeyer would receive with respect to the 2023 annual incentive payment under the PIP upon a
termination of employment, except for cause, on December 31, 2023. The PIP requires that plan participants be employed on the date PIP awards are paid. However, since Mr. Frommeyer would have qualified for retirement on December 31, 2023, he would
receive the PIP payment. The "Termination Without Cause" column does not include the 2023 annual incentive opportunity, as the severance agreement provides that the annual incentive payment under the agreement is in lieu of the payment that would be
made under the PIP. The amounts were not reduced to their present value.
2
Reflects the amount Mr. Frommeyer would receive with respect to the 2021-2023 awards under the
LTPP upon a termination of employment, except for cause, on December 31, 2023.
3
Reflects the amount Mr. Frommeyer would receive with respect to the 2022-2024 and 2023-2025 awards under the LTPP upon
termination on December 31, 2022. Mr. Frommeyer would have qualified for retirement under the LTPP. Accordingly, the amounts shown assume a two-thirds distribution of the total 2022-2024 award, which would be paid in 2025, and a one-third distribution of the total 2023-2025 award, which would be paid in 2026, using a performance score that was estimated as of December 31, 2023.
The amounts were not reduced to their present value.
4
Includes lump-sum cash amounts equal to the sum of one times base salary; one times the 2023
matching amounts in the NSP and NSDC Plan; one times the 2023 annual incentive bonus; and the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Frommeyer. The amounts were not reduced to their present value.
Directors Compensation for 2023
|
Fees Earned or Paid in Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
The Directors included in the table, and discussion pertaining to it, are limited to compensation paid to internal directors of the NLIC company. Messrs. Carter, Frommeyer, Ginnan, Henderson, and Walker’s compensation as employees in 2023 is reflected in
the Summary Compensation Table and the accompanying discussion.
2
Ms. Snyder received no additional compensation for her service as a member of the NLIC Board of
Directors.
As detailed in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of
Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. John A. Carter, our Principal Executive Officer (PEO):
For 2023, our last completed fiscal year:
•
the total compensation for the PEO and median employee is calculated based on allocated total
compensation to NLIC; and
•
the median of the annual total compensation of all employees of our company (other than our
PEO) was $39,552; and
•
the annual total compensation of our PEO, as reported in the "Summary Compensation Table", was
$3,995,625; and
•
our PEO’s total annual allocated compensation to NLIC was approximately 101 times that
of the median of the annual total compensation of all of our employees.
To identify the median of the annual compensation of all of our employees, and to
determine the annual total compensation of our median employee and our PEO, we took the following steps:
1.
We determined that, as of December 31, 2023, our NLIC employee population consisted of 2,870
associates.
2.
To identify the median employee, we calculated total compensation, which is calculated by
adding annual base pay earnings (which is determined based on the actual number of hours all employees are scheduled to work in a year), annual and long-term incentives earned in 2023, contributions made on behalf of the associate under the Nationwide
Supplemental Defined Contribution Plan, change in pension value, and recognition awards. We used this method to determine the median employee because it enabled us to identify an
employee based on a measure that approximated total annual compensation of all employees in a typical year.
3.
Once we identified our median employee, we identified all elements of annual compensation as
required by the "Summary Compensation Table" calculations, resulting in the amount shown above. With respect to the annual total compensation of our PEO, we used the number reported in the Total column of the "Summary Compensation Table" shown
above.
This
pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules
for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a
variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to
the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership as of March 1, 2024, of the holders of our
common stock. Our directors and executive officers do not beneficially own any of our common stock.
The following table sets forth the number of issued and outstanding shares of our common stock owned by each person or
entity known by us to be the beneficial owner of more than five percent of such common stock.
Name and address of beneficial owner |
Amount and nature
of
beneficial ownership |
|
Nationwide Financial Services, Inc. 1 Nationwide Plaza
Columbus, Ohio 43215 |
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
NLIC 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 cost sharing arrangements,
and agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. Measures used to determine the allocation among
companies includes individual employee estimates of time spent, special cost studies, the number of full-time employees and other methods agreed to by the participating
companies.
See Note 12 (Transactions with Affiliates) to the audited financial statements included in the F pages of this report
for further discussion of related party transactions, including amounts specifically allocated to NLIC under the Cost Sharing Agreement.
License to Use Nationwide Name and Service Marks
We have a license to use the "Nationwide" trade name and certain other service marks
solely for the purpose of identifying and advertising our long-term savings and retirement business and related activities.
Policies and Procedures for Review and Approval of
Related Person Transactions
We have a written conflict of interests
policy that is administered by the Office of Ethics. All executive officers and directors are subject to the policy, which is designed to cover related persons transactions with
executive officers, directors and their immediate family members. The policy prohibits:
•
using position at Nationwide or affiliation with any Nationwide company for personal gain or
advantage; and
•
any interest or association that interferes with independent exercise of judgment in the best
interest of Nationwide.
We require our executive officers and directors to annually complete a conflict of interests certificate. This certificate requires the executive officers and directors to represent that they have read the Code of Conduct, which contains the
conflict of interests policy, and disclose any conflicts of interests. Each reported possible conflict of interest is reviewed by the Office of Ethics and addressed by appropriate action. The Office of Ethics submits an annual summary report to the Audit
Committee covering each conflict of interest reported by a director or an executive officer who reports to Mr. Walker, and the disposition of each matter. An annual summary report
of the matters disclosed by other elected officers is submitted to the Chief Legal Officer.
NATIONWIDE LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
Independent Auditors Report
Audit Committee of the Board of Directors
Nationwide Life
Insurance Company:
Opinions
We
have audited the financial statements of Nationwide Life Insurance Company (the Company), which comprise the statutory statements of admitted assets, liabilities, capital and surplus as of December 31, 2023 and 2022, and the related statutory
statements of operations, changes in capital and surplus, and cash flow for each of the years in the three-year period ended December 31, 2023, and the related notes to the statutory financial statements.
Unmodified Opinion on Statutory Basis of Accounting
In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities, capital and
surplus of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flow for each of the years in the three-year period ended December 31, 2023, in accordance with accounting practices prescribed or
permitted by the Ohio Department of Insurance (Department) described in Note 2.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted
Accounting Principles section of our report, the statutory financial statements do not present fairly, in accordance with U.S. generally accepted accounting principles, the financial position of the Company as of December 31, 2023 and 2022, or
the results of its operations or its cash flows for each of the years in the three-year period ended December 31, 2023.
Basis for Opinions
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our
responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical
responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 to the financial statements, the financial statements are prepared by the Company using accounting practices prescribed
or permitted by the Department, which is a basis of accounting other than U.S. generally accepted accounting principles. Accordingly, the financial statements are not intended to be presented in accordance with U.S. generally accepted accounting
principles. The effects on the financial statements of the variances between the statutory accounting practices and U.S. generally accepted accounting principles are also described in Note 2.
Emphasis of Matter
As discussed in Note 2 to the financial statements, the Companys subsidiary received permission from the Department in 2023 to account
for an excess of loss reinsurance recoverable as an admitted asset. Under prescribed statutory accounting practices, the excess of loss reinsurance recoverable would not be an admitted asset. As of December 31, 2023, that permitted accounting
practice increased statutory surplus over what it would have been had that prescribed accounting practice been followed. Our opinions are not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting practices
prescribed or permitted by the Department. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the Companys ability to continue as a going concern for one year after the date that the financial statements are issued.
Auditors Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance
with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the
financial statements.
In performing an audit in accordance with GAAS, we:
|
|
|
Exercise professional judgment and maintain professional skepticism throughout the audit.
|
|
|
|
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
|
|
|
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, no such opinion is expressed. |
|
|
|
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the financial statements. |
|
|
|
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise
substantial doubt about the Companys ability to continue as a going concern for a reasonable period of time. |
F-2
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Supplementary Information
Our audits
were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information included in the Schedule I Summary of Investments - Other Than Investments in Related Parties, Schedule III Supplementary
Insurance Information, Schedule IV Reinsurance, and Schedule V Valuation and Qualifying Accounts is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information
required by the Securities and Exchange Commissions Regulation S-X. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial
statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting
and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with GAAS. In our opinion, the information is fairly stated in all material respects in relation to
the financial statements as a whole.
/s/ KPMG LLP
Columbus, Ohio
March 20, 2024
F-3
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in millions, except share amounts) |
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Admitted assets |
|
|
|
|
|
|
|
|
Invested assets |
|
|
|
|
|
|
|
|
Bonds |
|
$ |
43,867 |
|
|
$ |
40,208 |
|
Stocks |
|
|
3,714 |
|
|
|
3,700 |
|
Mortgage loans, net of allowance |
|
|
9,144 |
|
|
|
8,363 |
|
Policy loans |
|
|
969 |
|
|
|
933 |
|
Derivative assets |
|
|
113 |
|
|
|
143 |
|
Cash, cash equivalents and short-term investments |
|
|
1,555 |
|
|
|
1,621 |
|
Securities lending collateral assets |
|
|
359 |
|
|
|
232 |
|
Other invested assets |
|
|
2,198 |
|
|
|
1,848 |
|
Total invested assets |
|
$ |
61,919 |
|
|
$ |
57,048 |
|
Accrued investment income |
|
|
965 |
|
|
|
585 |
|
Deferred federal income tax assets, net |
|
|
632 |
|
|
|
589 |
|
Other assets |
|
|
404 |
|
|
|
378 |
|
Separate account assets |
|
|
113,270 |
|
|
|
102,808 |
|
Total admitted assets |
|
$ |
177,190 |
|
|
$ |
161,408 |
|
|
|
|
|
|
|
|
|
|
Liabilities, capital and surplus |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Future policy benefits and claims |
|
$ |
49,373 |
|
|
$ |
45,482 |
|
Policyholders dividend accumulation |
|
|
380 |
|
|
|
398 |
|
Asset valuation reserve |
|
|
841 |
|
|
|
707 |
|
Payable for securities |
|
|
512 |
|
|
|
323 |
|
Securities lending payable |
|
|
359 |
|
|
|
232 |
|
Funds held under coinsurance |
|
|
1,323 |
|
|
|
1,608 |
|
Other liabilities |
|
|
1,447 |
|
|
|
1,253 |
|
Accrued transfers from separate accounts |
|
|
(1,548 |
) |
|
|
(1,598 |
) |
Separate account liabilities |
|
|
113,270 |
|
|
|
102,808 |
|
Total liabilities |
|
$ |
165,957 |
|
|
$ |
151,213 |
|
|
|
|
|
|
|
|
|
|
Capital and surplus |
|
|
|
|
|
|
|
|
Capital shares ($1 par value; authorized - 5,000,000 shares,issued and outstanding - 3,814,779
shares) |
|
$ |
4 |
|
|
$ |
4 |
|
Surplus notes |
|
|
1,100 |
|
|
|
1,100 |
|
Special surplus funds |
|
|
93 |
|
|
|
- |
|
Additional paid-in capital |
|
|
2,443 |
|
|
|
2,308 |
|
Unassigned surplus |
|
|
7,593 |
|
|
|
6,783 |
|
Total capital and surplus |
|
$ |
11,233 |
|
|
$ |
10,195 |
|
Total liabilities, capital and surplus |
|
$ |
177,190 |
|
|
$ |
161,408 |
|
See accompanying notes to statutory financial statements.
F-4
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and annuity considerations |
|
$ |
14,670 |
|
|
$ |
14,535 |
|
|
$ |
12,664 |
|
Net investment income |
|
|
3,136 |
|
|
|
2,019 |
|
|
|
2,231 |
|
Other revenues |
|
|
2,389 |
|
|
|
2,346 |
|
|
|
2,455 |
|
Total revenues |
|
$ |
20,195 |
|
|
$ |
18,900 |
|
|
$ |
17,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Benefits to policyholders and beneficiaries |
|
$ |
17,416 |
|
|
$ |
15,963 |
|
|
$ |
16,884 |
|
Increase in reserves for future policy benefits and claims |
|
|
3,747 |
|
|
|
2,525 |
|
|
|
807 |
|
Net transfers from separate accounts |
|
|
(3,742 |
) |
|
|
(1,635 |
) |
|
|
(3,002 |
) |
Commissions |
|
|
766 |
|
|
|
810 |
|
|
|
858 |
|
Reserve adjustment on reinsurance assumed |
|
|
(153 |
) |
|
|
(161 |
) |
|
|
(151 |
) |
Other expenses |
|
|
702 |
|
|
|
564 |
|
|
|
469 |
|
Total benefits and expenses |
|
$ |
18,736 |
|
|
$ |
18,066 |
|
|
$ |
15,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before federal income tax expense (benefit) and net realized capital (losses) gains on
investments |
|
$ |
1,459 |
|
|
$ |
834 |
|
|
$ |
1,485 |
|
Federal income tax expense (benefit) |
|
|
108 |
|
|
|
100 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before net realized capital (losses) gains on investments |
|
$ |
1,351 |
|
|
$ |
734 |
|
|
$ |
1,494 |
|
Net realized capital (losses) gains on investments, net of federal income tax
(benefit) expense of $(4), $3 and $59 in 2023, 2022 and 2021, respectively, and excluding $(30), $(103) and $15 of net realized capital (losses) gains transferred to the interest maintenance reserve in 2023, 2022 and 2021, respectively |
|
|
(402 |
) |
|
|
240 |
|
|
|
(683 |
) |
Net income |
|
$ |
949 |
|
|
$ |
974 |
|
|
$ |
811 |
|
See accompanying notes to statutory financial statements.
F-5
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Changes in Capital and Surplus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Capital
shares |
|
|
Surplus
notes |
|
|
Special
surplus funds |
|
|
Additional
paid-in capital |
|
|
Unassigned
surplus |
|
|
Capital and
surplus |
|
Balance as of December 31, 2020 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
6,003 |
|
|
$ |
9,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reserve on account of change in valuation basis |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
Cumulative effect of change in accounting
principle |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
6 |
|
Balance as of January 1, 2021 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
6,011 |
|
|
$ |
9,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
811 |
|
|
|
811 |
|
Change in asset valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(144 |
) |
|
|
(144 |
) |
Change in deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50 |
|
|
|
50 |
|
Change in net unrealized capital gains and losses, net of tax expense of $30 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(142 |
) |
|
|
(142 |
) |
Change in nonadmitted assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47 |
) |
|
|
(47 |
) |
Dividends paid to Nationwide Financial Services,
Inc. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(550 |
) |
|
|
(550 |
) |
Balance as of December 31, 2021 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
5,989 |
|
|
$ |
9,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction of error (see Note 2) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
|
|
(39 |
) |
Balance as of January 1, 2022 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
1,998 |
|
|
$ |
5,950 |
|
|
$ |
9,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
974 |
|
|
|
974 |
|
Change in asset valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(97 |
) |
|
|
(97 |
) |
Change in deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28 |
|
|
|
28 |
|
Change in net unrealized capital gains and losses, net of tax expense of $37 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(40 |
) |
|
|
(40 |
) |
Change in nonadmitted assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(33 |
) |
|
|
(33 |
) |
Capital contributions from Nationwide Financial Services, Inc. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
310 |
|
|
|
- |
|
|
|
310 |
|
Other, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Balance as of December 31, 2022 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
2,308 |
|
|
$ |
6,783 |
|
|
$ |
10,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
949 |
|
|
|
949 |
|
Change in asset valuation reserve |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(103 |
) |
|
|
(103 |
) |
Change in deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
132 |
|
|
|
132 |
|
Change in net unrealized capital gains and losses, net of tax benefit of $37 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(77 |
) |
|
|
(77 |
) |
Change in nonadmitted assets, including admitted disallowed interest maintenance reserve |
|
|
- |
|
|
|
- |
|
|
|
93 |
|
|
|
- |
|
|
|
(126 |
) |
|
|
(33 |
) |
Capital contributions from Nationwide Financial Services, Inc. |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
135 |
|
|
|
- |
|
|
|
135 |
|
Other, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
35 |
|
|
|
35 |
|
Balance as of December 31, 2023 |
|
$ |
4 |
|
|
$ |
1,100 |
|
|
$ |
93 |
|
|
$ |
2,443 |
|
|
$ |
7,593 |
|
|
$ |
11,233 |
|
See accompanying notes to statutory financial statements.
F-6
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums collected, net of reinsurance |
|
$ |
14,675 |
|
|
$ |
14,545 |
|
|
$ |
12,661 |
|
Net investment income |
|
|
2,775 |
|
|
|
2,064 |
|
|
|
2,404 |
|
Other revenue |
|
|
2,021 |
|
|
|
3,178 |
|
|
|
2,367 |
|
Policy benefits and claims paid |
|
|
(17,567 |
) |
|
|
(15,962 |
) |
|
|
(16,735 |
) |
Commissions, operating expenses and taxes, other than federal income tax paid |
|
|
(1,268 |
) |
|
|
(1,275 |
) |
|
|
(1,122 |
) |
Net transfers from separate accounts |
|
|
3,792 |
|
|
|
1,658 |
|
|
|
2,871 |
|
Policyholders dividends paid |
|
|
(28 |
) |
|
|
(30 |
) |
|
|
(36 |
) |
Federal income taxes recovered (paid) |
|
|
98 |
|
|
|
(261 |
) |
|
|
121 |
|
Net cash provided by operating activities |
|
$ |
4,498 |
|
|
$ |
3,917 |
|
|
$ |
2,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from investments sold, matured or repaid: |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
$ |
2,594 |
|
|
$ |
3,444 |
|
|
$ |
6,953 |
|
Stocks |
|
|
46 |
|
|
|
19 |
|
|
|
127 |
|
Mortgage loans |
|
|
635 |
|
|
|
1,139 |
|
|
|
1,053 |
|
Derivative assets |
|
|
- |
|
|
|
431 |
|
|
|
- |
|
Other invested assets and other |
|
|
467 |
|
|
|
641 |
|
|
|
279 |
|
Total investment proceeds |
|
$ |
3,742 |
|
|
$ |
5,674 |
|
|
$ |
8,412 |
|
Cost of investments acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
$ |
(6,256 |
) |
|
$ |
(6,024 |
) |
|
$ |
(7,744 |
) |
Stocks |
|
|
(35 |
) |
|
|
(901 |
) |
|
|
(538 |
) |
Mortgage loans |
|
|
(1,370 |
) |
|
|
(1,305 |
) |
|
|
(1,441 |
) |
Derivative assets |
|
|
(556 |
) |
|
|
- |
|
|
|
(589 |
) |
Other invested assets and other |
|
|
(766 |
) |
|
|
(1,057 |
) |
|
|
(594 |
) |
Total investments acquired |
|
$ |
(8,983 |
) |
|
$ |
(9,287 |
) |
|
$ |
(10,906 |
) |
Net increase in policy loans |
|
|
(37 |
) |
|
|
(19 |
) |
|
|
(25 |
) |
Net cash used in investing activities |
|
$ |
(5,278 |
) |
|
$ |
(3,632 |
) |
|
$ |
(2,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities and miscellaneous sources: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from Nationwide Financial Services, Inc. |
|
$ |
135 |
|
|
$ |
310 |
|
|
$ |
- |
|
Dividend paid to Nationwide Financials Services, Inc. |
|
|
- |
|
|
|
- |
|
|
|
(550 |
) |
Net change in deposits on deposit-type contract funds and other insurance liabilities |
|
|
270 |
|
|
|
391 |
|
|
|
517 |
|
Other cash provided (used) |
|
|
309 |
|
|
|
(1 |
) |
|
|
196 |
|
Net cash provided by financing activities and
miscellaneous |
|
$ |
714 |
|
|
$ |
700 |
|
|
$ |
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents and short-term investments |
|
$ |
(66 |
) |
|
$ |
985 |
|
|
$ |
175 |
|
Cash, cash equivalents and short-term investments at
beginning of year |
|
|
1,621 |
|
|
|
636 |
|
|
|
461 |
|
Cash, cash equivalents and short-term investments at
end of year |
|
$ |
1,555 |
|
|
$ |
1,621 |
|
|
$ |
636 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of bond investments |
|
$ |
385 |
|
|
$ |
349 |
|
|
$ |
277 |
|
Intercompany transfer of securities from merger |
|
$ |
203 |
|
|
$ |
- |
|
|
$ |
- |
|
See accompanying notes to statutory financial statements.
F-7
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Nationwide Life Insurance Company (NLIC or the Company) is an Ohio domiciled stock 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 NLICs common stock are owned by Nationwide Financial Services, Inc. (NFS),
a holding company formed by Nationwide Corporation, a wholly-owned subsidiary of NMIC.
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 wide range of products and services, which include life insurance, fixed and variable individual annuities, private and
public sector group retirement plans, investment advisory services, pension risk transfer (PRT) contracts and other investment products. The Company is licensed to conduct business in all fifty states, the District of Columbia, Guam,
Puerto Rico and the U.S. Virgin Islands.
The Company sells its products through a diverse distribution network.
Unaffiliated entities that sell, recommend or direct the purchase of the Companys products to their own customer bases include independent broker-dealers, financial institutions, wirehouses and regional firms, pension plan administrators, life
insurance agencies, life insurance specialists and registered investment advisors. Affiliates that market products directly to a customer base include Nationwide Retirement Solutions, Inc., Nationwide Securities, LLC and Nationwide Financial General
Agency, Inc. The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively under various economic conditions.
Wholly-owned subsidiaries of NLIC as of December 31, 2023 include Nationwide Life and Annuity Insurance Company
(NLAIC) and its wholly-owned subsidiaries, Olentangy Reinsurance, LLC (Olentangy) and Nationwide SBL, LLC (NWSBL), Jefferson National Life Insurance Company (JNL) and its wholly-owned subsidiary,
Jefferson National Life Insurance Company of New York (JNLNY), Eagle Captive Reinsurance, LLC (Eagle), Nationwide Investment Services Corporation (NISC) and Nationwide Investment Advisors, LLC (NIA).
NLAIC primarily offers individual annuity contracts including fixed annuity contracts, group annuity contracts including PRT contracts, universal life insurance, variable universal life insurance, term life insurance and corporate-owned life
insurance on a non-participating basis. Olentangy is a dormant Vermont domiciled special purpose financial insurance company and nonadmitted subsidiary. NWSBL is an Ohio limited liability company and offers a securities-based lending product and is
a nonadmitted subsidiary. JNL and JNLNY primarily offer individual deferred fixed and variable annuity products. Eagle is an Ohio domiciled special purpose financial captive insurance company. NISC is a registered broker-dealer. NIA is a registered
investment advisor and nonadmitted subsidiary.
The Company is subject to regulation by the insurance departments of
states in which it is domiciled and/or transacts business and undergoes periodic examinations by those departments.
As of
December 31, 2023 and 2022, the Company did not have a significant concentration of financial instruments in a single investee, industry or geographic region. Also, the Company did not have a concentration of business transactions with a
particular customer, lender, distribution source, market or geographic region in which a single event could cause a severe impact to the Companys financial position after considering insurance risk that has been transferred to external
reinsurers.
(2) |
Summary of Significant Accounting Policies |
Use of Estimates
The preparation of the statutory financial statements requires the Company to make estimates and assumptions that affect the
amounts reported in the statutory financial statements and accompanying notes. Significant estimates include certain investment and derivative valuations and future policy benefits and claims. Actual results could differ significantly from those
estimates.
Basis of Presentation
Effective October 1, 2023, Jefferson National Financial Corporation (JNFC), a holding company and
wholly-owned subsidiary of the Company, completed a merger agreement with the Company. Pursuant to the merger agreement, which was deemed a statutory merger, the operations of JNFC were merged with and into the Company, with the Company continuing
as the surviving corporation. Concurrently, JNL, a wholly-owned subsidiary of JNFC prior to the merger, became a wholly-owned subsidiary of the Company. There was not a material impact on the Companys surplus as a result of the merger.
F-8
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Effective January 1, 2022, Harleysville Life Insurance Company
(HLIC), an Ohio domiciled stock life insurance company and subsidiary of NMIC that offered universal and traditional life insurance, disability income insurance and fixed annuity contracts on a non-participating basis, completed a merger
agreement with NLAIC. Pursuant to the merger agreement, which was deemed a statutory merger, the operations of HLIC were merged with and into NLAIC, with NLAIC continuing as the surviving entity. All shares of HLIC were cancelled and the outstanding
surplus balance was merged into NLAICs additional paid-in capital and unassigned surplus. There was not a material impact on the Companys surplus as a result of the merger.
The statutory financial statements of the Company are presented on the basis of accounting practices prescribed or permitted
by the Ohio Department of Insurance (the Department). Prescribed statutory accounting practices are those practices incorporated directly or by reference in state laws, regulations and general administrative rules applicable to all
insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the domiciliary state but allowed by the domiciliary state regulatory authority.
NLIC and NLAIC have elected to apply a prescribed practice promulgated under Ohio Administrative Code Section 3901-1-67
(OAC 3901-1-67) to its derivative instruments hedging indexed products and indexed annuity reserve liabilities in order to better align the measurement of indexed product reserves and the derivatives that hedge them. Under OAC 3901-1-67,
derivative instruments are carried at amortized cost with the initial hedge cost amortized over the term and asset payoffs realized at the end of the term being reported through net investment income, rather than the derivative instruments being
carried at fair value with asset payoffs realized over the term through net realized capital gains and losses. Additionally, the cash surrender value reserves for indexed annuity products only reflect index interest credits at the end of the
crediting term as compared to partial index interest credits accumulating throughout the crediting term in increase in reserves for future policy benefits and claims.
Eagle applies one prescribed practice with multiple applications as provided under the State of Ohios captive law, which
values assumed guaranteed minimum death benefits (GMDB) and guaranteed lifetime withdrawal benefits (GLWB) risks on variable annuity contracts from NLIC and GLWB risks on fixed indexed annuity contracts from NLIC and NLAIC
using an alternative reserving basis from the Statutory Accounting Principles detailed within the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures manual (NAIC SAP) pursuant to
Ohio Revised Code Chapter 3964 and approved by the Department.
Effective October 1, 2023, Eagle was granted a
permitted practice from the Department, allowing Eagle to carry a reinsurance recoverable asset under an excess of loss reinsurance agreement with a third-party reinsurer as an admitted asset.
Prior to October 1, 2023, Olentangy was granted a permitted practice from the State of Vermont allowing Olentangy to
carry the assets placed into a trust account by Union Hamilton Reinsurance Ltd. on its statutory statements of admitted assets, liabilities and surplus at net admitted asset value for certain universal life and term life insurance policies.
Effective October 1, 2023, Olentangy terminated this permitted practice due to NLAICs recapture of the reinsurance agreements.
F-9
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
If the prescribed or permitted practices were not applied, the Companys
risk-based capital would continue to be above regulatory action levels. A reconciliation of the Companys net income between NAIC SAP and prescribed and permitted practices is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
SSAP # |
|
|
F/S
Page |
|
|
State of
domicile |
|
|
2023 |
|
|
December 31,
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Net Income |
|
|
|
|
|
|
|
|
|
|
OH |
|
|
$ |
949 |
|
|
$ |
974 |
|
|
$ |
811 |
|
State Prescribed Practice: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OAC 3901-1-67: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
86 |
|
|
|
4 |
|
|
|
OH |
|
|
|
110 |
|
|
|
(43 |
) |
|
|
9 |
|
Reserves for indexed annuities |
|
|
51 |
|
|
|
4 |
|
|
|
OH |
|
|
|
(75 |
) |
|
|
15 |
|
|
|
(20 |
) |
Tax impact |
|
|
101 |
|
|
|
4 |
|
|
|
OH |
|
|
|
(7 |
) |
|
|
6 |
|
|
|
3 |
|
NAIC SAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
977 |
|
|
$ |
952 |
|
|
$ |
803 |
|
A reconciliation of the Companys capital and surplus between NAIC SAP and prescribed and
permitted practices is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F/S |
|
|
State of |
|
|
As of December 31, |
|
(in millions) |
|
SSAP # |
|
|
Page |
|
|
domicile |
|
|
2023 |
|
|
2022 |
|
Surplus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Capital and Surplus |
|
|
|
|
|
|
|
|
|
|
OH |
|
|
$ |
11,233 |
|
|
$ |
10,195 |
|
State Prescribed Practice: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OAC 3901-1-67: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
86 |
|
|
|
2,4 |
|
|
|
OH |
|
|
|
84 |
|
|
|
(30 |
) |
Reserves for indexed annuities |
|
|
51 |
|
|
|
3,4 |
|
|
|
OH |
|
|
|
(82 |
) |
|
|
(7 |
) |
Tax impact |
|
|
101 |
|
|
|
2,4 |
|
|
|
OH |
|
|
|
- |
|
|
|
8 |
|
Subsidiary Valuation - NLAIC |
|
|
51,86,101 |
|
|
|
2 |
|
|
|
OH |
|
|
|
89 |
|
|
|
(232 |
) |
Subsidiary valuation - Eagle |
|
|
51 |
|
|
|
2 |
|
|
|
OH |
|
|
|
(228 |
) |
|
|
118 |
|
State Permitted Practice: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary valuation - Eagle |
|
|
61R |
|
|
|
2 |
|
|
|
OH |
|
|
|
(853 |
) |
|
|
- |
|
Subsidiary valuation - Olentangy |
|
|
20 |
|
|
|
2 |
|
|
|
VT |
|
|
|
- |
|
|
|
(67 |
) |
NAIC SAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,243 |
|
|
$ |
9,985 |
|
Statutory accounting practices vary in some respects from U.S. generally accepted accounting
principles (GAAP), including the following practices:
Financial Statements
|
● |
|
Statutory financial statements are prepared using language and groupings substantially the same as the annual
statements of the Company filed with the NAIC and state regulatory authorities; |
|
● |
|
assets must be included in the statutory statements of admitted assets, liabilities, capital and surplus at
net admitted asset value and nonadmitted assets are excluded through a charge to capital and surplus; |
|
● |
|
an asset valuation reserve (AVR) is established in accordance with the NAIC Annual Statement
Instructions for Life and Accident and Health Insurance Companies and is reported as a liability, and changes in the AVR are reported directly in capital and surplus; |
|
● |
|
an interest maintenance reserve (IMR) is established in accordance with the NAIC Annual Statement
Instructions for Life and Accident and Health Insurance Companies and is reported as a liability or other asset, and the amortization of the IMR is reported as revenue; |
|
● |
|
the expense allowance associated with statutory reserving practices for investment contracts held in the
separate accounts is reported in the general account as a negative liability; |
|
● |
|
accounting for contingencies requires recording a liability at the midpoint of a range of estimated possible
outcomes when no better estimate in the range exists; |
|
● |
|
surplus notes are accounted for as a component of capital and surplus; |
F-10
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
|
● |
|
costs related to successful policy acquisitions are charged to operations in the year incurred;
|
|
● |
|
negative cash balances are reported as negative assets; |
|
● |
|
certain income and expense items are charged or credited directly to capital and surplus;
|
|
● |
|
amounts on deposit in internal qualified cash pools are reported as cash equivalents; |
|
● |
|
the statutory statements of cash flow are presented on the basis prescribed by the NAIC; and
|
|
● |
|
the statutory financial statements do not include accumulated other comprehensive income.
|
Future Policy Benefits and Claims
|
● |
|
Deposits to universal life contracts, investment contracts and limited payment contracts are included in
revenue; and |
|
● |
|
future policy benefit reserves are based on statutory requirements. |
Reinsurance Ceded
|
● |
|
Certain assets and liabilities are reported net of ceded reinsurance balances; and |
|
● |
|
provision is made for amounts receivable and outstanding for more than 90 days through a charge to capital and
surplus. |
Investments
|
● |
|
Investments in bonds are generally stated at amortized cost, except those with an NAIC designation of
6, which are stated at the lower of amortized cost or fair value; |
|
● |
|
investments in preferred stocks are generally stated at amortized cost, except those with an NAIC designation
of 4 through 6, which are stated at the lower of amortized cost or fair value; |
|
● |
|
other-than-temporary impairments on bonds, excluding loan-backed and structured securities, are measured based
on fair value and are not reversible; |
|
● |
|
the proportional amortized cost method is utilized to determine the liquidation value of Low-Income Housing
Tax Credit Funds (Tax Credit Funds); |
|
● |
|
admitted subsidiary, controlled and affiliated entities are not consolidated; rather, those investments are
generally carried at audited statutory capital and surplus or GAAP equity, as appropriate, and are recorded as an equity investment in stocks or other invested assets; |
|
● |
|
equity in earnings of subsidiary companies is recognized directly in capital and surplus as net unrealized
capital gains or losses, while dividends from unconsolidated companies are recorded in operations as net investment income; |
|
● |
|
undistributed earnings and valuation adjustments from investments in joint ventures, partnerships and limited
liability companies are recognized directly in capital and surplus as net unrealized capital gains or losses; and |
|
● |
|
gains on sales of investments between affiliated companies representing economic transactions are deferred at
the parent level until the related assets are paid down or an external sale occurs. |
Separate Accounts
|
● |
|
Assets and liabilities of guaranteed separate accounts are reported as separate account assets and separate
account liabilities, respectively. |
Derivative Instruments
|
● |
|
Derivatives used in effective hedging transactions are valued in a manner consistent with the hedged asset or
liability; |
|
● |
|
with the exception of derivatives applying the prescribed practice under OAC 3901-1-67, unrealized gains and
losses on derivatives that are not considered to be effective hedges are charged to capital and surplus; |
|
● |
|
interest earned on derivatives is charged to net investment income; and |
|
● |
|
embedded derivatives are not separated from the host contract and accounted for separately as a derivative
instrument. |
F-11
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Goodwill
|
● |
|
Goodwill is limited to 10% of the prior reporting periods adjusted statutory surplus, with any goodwill
in excess of this limitation nonadmitted through a charge to surplus; and |
|
● |
|
goodwill is amortized and charged to surplus. |
Federal Income Taxes
|
● |
|
Changes in deferred federal income taxes are recognized directly in capital and surplus with limitations on
the amount of deferred tax assets that can be reflected as an admitted asset (15% of capital and surplus); and |
|
● |
|
uncertain tax positions are subject to a more likely than not standard for federal and foreign
income tax loss contingencies only. |
Nonadmitted Assets
|
● |
|
In addition to the nonadmitted assets described above, certain other assets are nonadmitted and charged
directly to capital and surplus. These include prepaid assets, certain software and other receivables outstanding for more than 90 days. |
The financial information included herein is prepared and presented in accordance with SAP prescribed or permitted by the
Department. Certain differences exist between SAP and GAAP, which are presumed to be material.
Revenues and Benefits
Life insurance premiums are recognized as revenue over the premium paying period of the related policies when due. Annuity
considerations are recognized as revenue when received. Health insurance premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Policy benefits and claims that are expensed include interest
credited to policy account balances, benefits and claims incurred in the period in excess of related policy reserves and other changes in future policy benefits.
Future Policy Benefits and Claims
Future policy benefits for traditional products are based on statutory mortality and interest requirements without
consideration of withdrawals. The principal statutory mortality tables and interest assumptions used on policies in force are the 1958 Commissioners Standard Ordinary (CSO) table at interest rates of 2.5%, 3.0%, 3.5%, 4.0% and
4.5%, the 1941 CSO table at an interest rate of 2.5%, the 1980 CSO table at interest rates of 4.0%, 4.5%, 5.0% and 5.5%, the 2001 CSO table at an interest rate of 4.0% and 3.5% and the 2017 CSO table at an interest rate of 3.5% and 4.5%. The Company
has applied principle-based reserving to all new individual life business. For business subject to principle-based reserving, additional reserves may be held where the deterministic and/or stochastic reserves are in excess of net premium reserves,
as defined by Valuation Manual 20, Requirements for Principle-Based Reserves for Life Products (VM-20).
Future policy benefits for universal life and variable universal life contracts have been calculated based on
participants contributions plus interest credited on any funds in the fixed account less applicable contract charges. These policies have been adjusted for possible future surrender charges in accordance with the Commissioners Reserve
Valuation Method (CRVM). For business subject to principle-based reserving, the Company has calculated reserves under VM-20.
Future policy benefits for annuity products have been established based on contract term, interest rates and various contract
provisions. Individual deferred annuity contracts issued in 1990 and after have been adjusted for possible future surrender charges in accordance with the Commissioners Annuity Reserve Valuation Method (CARVM).
Future policy benefits for PRT contracts have been established in accordance with the CRVM. Statutory reserves for PRT
business written during or after 2020 are calculated as the present value of future benefit payments, using the prescribed 1994 Group Annuity Mortality (GAM) table along with the AA projection mortality improvement scale and prescribed
valuation rates as specified in Chapter 22 of the Valuation Manual. For the PRT business written before 2020, the statutory reserves are calculated using prescribed GAM tables and valuation interest rates that vary by issue year, as specified in the
Standard Valuation Law.
The Company calculated its reserves for variable annuities using a stochastic reserve, which is
floored at the cash surrender value, per Valuation Manual 21, Requirements for Principle-Based Reserves for Variable Annuities.
The aggregate reserves for individual accident and health policies consist of active life reserves, disabled life reserves and
unearned premium reserves. The active life reserves for disability income are reserved for on the net level basis, at a 3.0% interest rate, using either the 1964 Commissioners Disability Table (for policies issued prior to 1982) or the 1985
Commissioners Individual Disability Table A (for policies issued after 1981). The active life reserves for major medical insurance (both scheduled and unscheduled benefits) are based on the benefit ratio method for policies issued after 1981.
F-12
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The active life reserves for accident and health policies are reserved for on
the net level basis, at a 3.0% interest rate, using either the 1956 Inter-Company Hospital-Surgical tables, the 1974 Medical Expense tables or the 1959 Accidental Death Benefits table.
The disabled life reserves for accident and health policies are calculated using the 1985 Commissioners Individual
Disability Table A at a 3.0% interest rate. Unearned premium reserves are based on the actual gross premiums and actual days.
The aggregate reserves for group accident and health and franchise accident and health policies consist of disabled life
reserves and unearned premium reserves. Reserves for benefits payable on disabled life claims are based on the 2012 Group Long-Term Disability Valuation Table, at varying interest rates of 2.75% - 6.0%, for group policies and the 1987
Commissioners Group Disability Table, at varying interest rates of 2.75% - 10.25%, for franchise policies.
Future
policy benefits and claims for group long-term disability policies are the present value (discounted between 2.75% and 6.00%) of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. Future
policy benefits and claims on other group health policies are not discounted.
The Company issues fixed and floating rate
funding agreements to the Federal Home Loan Bank of Cincinnati (FHLB). The liabilities for such funding agreements are treated as annuities under Ohio law for life insurance companies and recorded in future policy benefits and claims.
Refer to Note 9 for additional details.
Separate Accounts
Separate account assets represent contractholders funds that have been legally segregated into accounts with specific
investment objectives. Separate account assets are primarily recorded at fair value, with the value of separate account liabilities set to equal the fair value of separate account assets. Separate account assets are primarily comprised of public,
privately-registered and non-registered mutual funds, whose fair value is primarily based on the funds net asset value. Other separate account assets are recorded at fair value based on the methodology that is applicable to the underlying
assets. In limited circumstances, other separate account assets are recorded at book value when the policyholder does not participate in the underlying portfolio experience.
Separate account liabilities, in conjunction with accrued transfers from separate accounts, represent contractholders
funds adjusted for possible future surrender charges in accordance with the CARVM and the CRVM, respectively. The difference between full account value and CARVM/CRVM is reflected in accrued transfers to/from separate accounts, as prescribed by the
NAIC, in the statutory statements of admitted assets, liabilities, capital and surplus. The annual change in the difference between full account value and CARVM/CRVM and its applicable federal income tax is reflected in the statutory statements of
operations as part of the net transfers to/from separate accounts and federal income tax, respectively.
Retained Assets
The Company does not retain beneficiary assets. During a death benefit claim, the death benefit settlement method
is payment to the beneficiary in the form of a check or electronic funds transfer.
Investments
Bonds and stocks of unaffiliated companies. Bonds are generally stated at amortized cost, except those with an
NAIC designation of 6, which are stated at the lower of amortized cost or fair value. Preferred stocks are generally stated at amortized cost, except those with an NAIC designation of 4 through 6, which are stated
at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in the fair value of bonds and stocks stated at fair value are charged to capital and surplus.
Loan-backed and structured securities, which are included in bonds in the statutory financial statements, are stated in a
manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S. government agencies,
commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined for each security. The initial NAIC designation, which takes into consideration the
securitys amortized cost relative to an NAIC-prescribed valuation matrix, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost or fair value).
Interest income is recognized when earned, while dividends are recognized when declared. The Company nonadmits investment
income due and accrued when amounts are over 90 days past due.
For investments in loan-backed and structured securities,
the Company recognizes income and amortizes discounts and premiums using the effective-yield method based on prepayment assumptions, generally obtained using a model provided by a third-party vendor, and the estimated economic life of the
securities. When actual prepayments differ significantly from estimated 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 in the period the estimates are revised. All other investment income is recorded using the effective-yield method without anticipating the impact of prepayments.
F-13
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Purchases and sales of bonds and stocks are recorded on the trade date, with
the exception of private placement bonds, which are recorded on the funding date. Realized gains and losses are determined on a specific identification method on the trade date.
Independent pricing services are most often utilized, and compared to pricing from additional sources when available, to
determine the fair value of bonds and stocks for which market quotations or quotations on comparable securities or models are used. For these bonds and stocks, the Company obtains the pricing services methodologies and classifies the
investments accordingly in the fair value hierarchy.
Corporate pricing matrices are used in valuing certain bonds. The
corporate pricing matrices were developed using publicly and privately available spreads segmented by various weighted average lives and credit quality ratings. Certain private placement bonds have adjusted spreads to capture the impacts of
liquidity premium based on industry sector. The weighted average life and credit quality rating of a particular bond to be priced using those matrices are important inputs into the model and are used to determine a corresponding spread that is added
to the appropriate industry sector or 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 bond.
Non-binding broker quotes are also utilized to determine the fair value of certain bonds when deemed appropriate or when
valuations are not available from independent pricing services or corporate pricing matrices. These bonds are classified with the lowest priority in the fair value hierarchy as only one broker quote is ordinarily obtained, the investment is not
traded on an exchange, the pricing is not available to other entities and/or the transaction volume in the same or similar investments has decreased. Inputs used in the development of prices are not provided to the Company by the brokers, as the
brokers often do not provide the necessary transparency into their quotes and methodologies. At least annually, the Company performs reviews and tests to ensure that quotes are a reasonable estimate of the investments fair value. Price
movements of broker quotes are subject to validation and require approval from the Companys management. Management uses its knowledge of the investment and current market conditions to determine if the price is indicative of the
investments fair value.
For all bonds, the Company considers its ability and intent to hold the security for a
period of time sufficient to allow for the anticipated recovery in value, the expected recovery of principal and interest and the extent to which the fair value has been less than amortized cost. If the decline in fair value to below amortized cost
is determined to be other-than-temporary, a realized loss is recorded equal to the difference between the amortized cost of the investment and its fair value.
The Company periodically reviews loan-backed and structured securities in an unrealized loss position by comparing the present
value of cash flows, including estimated prepayments, expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected, discounted at the securitys effective
interest rate, is less than the amortized cost basis of the security, the impairment is considered other-than-temporary and a realized loss is recorded.
All other bonds in an unrealized loss position are periodically reviewed to determine if a decline in fair value to below
amortized cost is other-than-temporary. Factors considered during this review include timing and amount of expected cash flows, ability of the issuer to meet its obligations, financial condition and future prospects of the issuer, amount and quality
of any underlying collateral and current economic and industry conditions that may impact an issuer.
Stocks may
experience other-than-temporary impairment based on the prospects for full recovery in value in a reasonable period of time and the Companys ability and intent to hold the stock to recovery. If a stock is determined to be
other-than-temporarily impaired, a realized loss is recorded equal to the difference between the cost basis of the investment and its fair value.
Investments in subsidiaries. The investment in the Companys wholly-owned insurance subsidiaries, NLAIC,
JNL and Eagle, are carried using the equity method of accounting applicable to U.S. insurance subsidiary, controlled and affiliated (SCA) entities. This requires the investment to be recorded based on the value of its underlying audited
statutory surplus. Furthermore, the equity method of accounting would be discontinued if the investment is reduced to zero, unless the Company has guaranteed obligations of the subsidiary or otherwise committed to provide further financial support.
The Companys investment in NISC and NIA, wholly-owned non-insurance subsidiaries, are carried using the equity method of accounting applicable to U.S. non-insurance subsidiary, controlled and affiliated entities. This requires the investment
to be recorded based on its underlying audited GAAP equity. Investments in NLAIC, JNL and NISC are included in stocks, and the investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities,
capital and surplus.
Mortgage loans, net of allowance. The Company holds commercial mortgage loans that are
collateralized by properties throughout the U.S. Mortgage loans are held at unpaid principal balance adjusted for premiums and discounts, less a valuation allowance. The Company also holds commercial mortgage loans of these property types that are
under development. Mortgage loans under development are collateralized by the borrowers common stock.
F-14
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
As part of the underwriting process, specific guidelines are followed to
ensure the initial quality of a new mortgage loan. Third-party appraisals are obtained to support loaned amounts as the loans are collateral dependent or guaranteed.
The collectability and value of a mortgage loan is based on the ability of the borrower to repay and/or the value of the
underlying collateral. Many of the Companys mortgage loans are structured with balloon payment maturities, exposing the Company to risks associated with the borrowers ability to make the balloon payment or refinance the property. Loans
are considered delinquent when contractual payments are 90 days past due.
Mortgage loans require a loan-specific reserve
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 requires a loan-specific
reserve, a provision for loss is established equal to the difference between the carrying value and the fair value of the collateral less costs to sell. Loan-specific reserve charges are recorded in net unrealized capital gains and losses. In the
event a loan-specific reserve charge is reversed, the recovery is also recorded in net unrealized capital gains and losses. If the mortgage loan is determined to be other-than-temporarily impaired, a realized loss is recorded equal to the difference
between the cost basis of the loan and the fair value of the collateral less estimated costs to obtain and sell. Any previously recorded loan-specific reserve is reversed.
Management evaluates the credit quality of individual mortgage loans and the portfolio as a whole through a number of loan
quality measurements, including, but not limited to, loan-to-value (LTV) and debt service coverage (DSC) ratios. The LTV ratio is calculated as a ratio of the amortized cost of a loan to the estimated value of the underlying
collateral. DSC is the amount of cash flow generated by the underlying collateral of the mortgage loan available to meet periodic interest and principal payments of the loan. These loan quality measurements contribute to managements assessment
of relative credit risk in the mortgage loan portfolio. Based on underwriting criteria and ongoing assessment of the properties performance, management believes the amounts, net of valuation allowance, are collectible. This process identifies
the risk profile and potential for loss individually and in the aggregate for the commercial mortgage loan portfolios. These factors are updated and evaluated at least annually. Due to the nature of the collateral underlying mortgage loans under
development, these loans are not evaluated using the LTV and DSC ratios described above and instead are evaluated using other qualitative metrics.
Interest income on performing mortgage loans is recognized in net investment income over the life of the loan using the
effective-yield method. Loans in default or in the process of foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received. Loans are restored to
accrual status when the principal and interest is current and it is determined the future principal and interest payments are probable or the loan is modified.
Policy loans. Policy loans, which are collateralized by the related insurance policy, are held at the
outstanding principal balance and do not exceed the net cash surrender value of the policy. As such, no valuation allowance for policy loans is required.
Cash and cash equivalents. Cash and cash equivalents include highly liquid investments with original maturities
of less than three months and amounts on deposit in internal qualified cash pools. The Company and various affiliates maintain 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 in the internal qualified cash pool.
Short-term investments. Short-term investments consist of government agency discount notes with maturities of
twelve months or less at acquisition. Short-term investments also include outstanding promissory notes with initial maturity dates of one-year or less with certain affiliates. The Company carries short-term investments at amortized cost, which
approximates fair value.
Securities Lending. The Company has entered into securities lending
agreements with a custodial bank whereby eligible securities are loaned to third parties, primarily major brokerage firms. These transactions are used to generate additional income in the securities portfolio. The Company is entitled to receive from
the borrower any payments of interest and dividends received on loaned securities during the loan term. The agreements require a minimum of 102% of the fair value of the loaned securities to be held as collateral. Cash collateral is invested by the
custodial bank in investment-grade securities, which are included in the total invested assets of the Company. Periodically, the Company may receive non-cash collateral, which would be recorded off-balance sheet. The Company recognizes loaned
securities in bonds. A securities lending payable is recorded for the amount of cash collateral received. If the fair value of the collateral received (cash and/or securities) is less than the fair value of the securities loaned, the shortfall is
nonadmitted. Net income received from securities lending activities is included in net investment income. Because the borrower or the Company may terminate a securities lending transaction at any time, if loans are terminated in advance of the
reinvested collateral asset maturities, the Company would repay its securities lending obligations from operating cash flows or the proceeds of sales from its investment portfolio, which includes significant liquid securities.
F-15
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Other invested assets. Other invested assets consist
primarily of alternative investments in private equity funds, private debt funds, tax credit funds, real estate partnerships, limited liability companies, joint ventures and the investment in Eagle. Except for investments in certain tax credit
funds, these investments are recorded using the equity method of accounting. Changes in carrying value as a result of the equity method are reflected as net unrealized capital gains and losses as a direct adjustment to capital and surplus. Gains and
losses are generally recognized through income at the time of disposal or when operating distributions are received. Partnership interests in tax credit funds are held at amortized cost with amortization charged to net investment income over the
period in which the tax benefits, primarily credits, are earned. Tax credits are recorded as an offset to tax expense in the period utilized.
The Company sold $3.1 billion, $2.9 billion and $2.6 billion in Tax Credit Funds to unrelated third parties with outstanding
guarantees as of December 31, 2023, 2022 and 2021, respectively. The Company guarantees after-tax benefits to the third-party investors through periods ending in 2041. These guarantees are in effect for periods of approximately 15 years each.
The Tax Credit 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, the Company must fund any shortfall. The
maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $1.8 billion, but the Company does not anticipate making any material payments related to the guarantees. The
Companys risks are mitigated in the following ways: (1) the Company has the right to buyout the equity related to the guarantee under certain circumstances, (2) the Company may replace underperforming properties to mitigate exposure
to guarantee payments, (3) the Company oversees the asset management of the deals and (4) changes in tax laws are explicitly excluded from the Companys guarantees of after-tax benefits.
Derivative Instruments
The Company uses derivative instruments to manage exposures and mitigate risks primarily associated with interest rates,
equity markets and foreign currency. These derivative instruments primarily include interest rate swaps, cross-currency swaps, futures and options.
Derivative instruments used in hedging transactions considered to be effective hedges are reported in a manner consistent with
the hedged items. With the exception of derivatives applying the prescribed practice under OAC 3901-1-67, derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at
fair value with changes in fair value recorded in capital and surplus as unrealized gains or losses.
The fair value of
derivative instruments is determined using various valuation techniques relying predominantly on observable market inputs and internal models. These inputs include interest rate swap curves, credit spreads, interest rates, counterparty credit risk,
equity volatility and equity index levels.
The Companys derivative transaction counterparties are generally
financial institutions. To reduce the credit risk associated with open contracts, the Company enters into master netting agreements which permit the closeout and netting of transactions with the same counterparty upon the 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. The
Company accepts collateral in the forms of cash and marketable securities. Non-cash collateral received is recorded off-balance sheet.
Cash flows and payment accruals on derivatives are recorded in net investment income.
Fair Value Measurements
Fair value is defined 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. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect the
Companys view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In determining fair value,
the Company uses various methods, including market, income and cost approaches.
The Company categorizes 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 assets and liabilities held at fair value in the
statutory statements of admitted assets, liabilities, capital and surplus as follows:
Level 1.
Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date and mutual funds where the value per share (unit) is determined and published daily and is the basis for current transactions.
F-16
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Level 2. Unadjusted quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active 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. Primary inputs to this valuation technique may include comparative trades, bid/asks, interest rate movements, U.S. Treasury rates, London Interbank Offered Rate (LIBOR), Secured Overnight
Financing Rate (SOFR), prime rates, cash flows, maturity dates, call ability, estimated prepayments and/or underlying collateral values.
Level 3. Prices or valuation techniques that require inputs that are both unobservable and significant to
the overall fair value measurement. Inputs reflect managements best estimates of 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. Primary inputs to this valuation technique include broker quotes and comparative trades.
The Company reviews its fair value hierarchy classifications for assets and liabilities quarterly. Changes in the
observability of significant valuation inputs identified during these reviews may trigger reclassifications. Reclassifications are reported as transfers at the beginning of the reporting period in which the change occurs.
Asset Valuation Reserve
The Company maintains an AVR as prescribed by the NAIC for the purpose of offsetting potential credit related investment
losses on each invested asset category, excluding cash, policy loans and income receivable. The AVR contains a separate component for each category of invested assets. The change in AVR is charged or credited directly to capital and surplus.
Interest Maintenance Reserve
The Company records an IMR as prescribed by the NAIC, which represents the net deferral for interest-related gains or losses
arising from the sale of certain investments, such as bonds, mortgage loans and loan-backed and structured securities sold. The IMR is applied as follows:
|
● |
|
for bonds, the designation from the NAIC Capital Markets and Investments Analysis Office must not have changed
more than one designation between the beginning of the holding period and the date of sale; |
|
● |
|
the bond must never have been classified as a default security; |
|
● |
|
for mortgage loans, during the prior two years, they must not have had interest more than 90 days past due,
been in the process of foreclosure or in the course of voluntary conveyance, nor had restructured terms; and |
|
● |
|
for loan-backed and structured securities, all interest-related other-than-temporary impairments and
interest-related realized gains or losses on sales of the securities. |
The realized gains or losses, net
of related federal income tax, from the applicable bonds and mortgage loans sold, have been removed from the net realized gain or loss amounts and established as the IMR. The IMR is amortized into income such that the amount of each capital gain or
loss amortized in a given year is based on the excess of the amount of income which would have been reported that year, if the asset had not been disposed of over the amount of income which would have been reported had the asset been repurchased at
its sale price. In the event the unamortized IMR liability balance is negative, the balance is reclassified as an asset and evaluated for admittance under INT 23-01, Net Negative (Disallowed) Interest Maintenance Reserve (INT 23-01). The
Company utilizes the grouped method for amortization. Under the grouped method, the IMR is amortized into income over the remaining period to expected maturity based on the groupings of the individual securities into five-year bands. Refer to
Recently Adopted Accounting Standards for additional discussion of IMR.
Goodwill
For companies whose operations are primarily insurance related, goodwill is the excess of the cost to acquire a company over
the Companys share of the statutory book value of the acquired entity. Goodwill is recorded in stocks in the statutory statements of admitted assets, liabilities and surplus. Goodwill is amortized on a straight-line basis over the period of
economic benefit, not to exceed ten years, with a corresponding charge to surplus. Goodwill was immaterial as of December 31, 2023 and 2022.
F-17
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Federal Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets,
net of any nonadmitted portion and statutory valuation allowance, and deferred tax liabilities, are recognized for the expected future tax consequences attributable to differences between the statutory financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be
recovered or settled. The change in deferred taxes is charged directly to surplus, with the impact of taxes on unrealized capital gains or losses and nonadmitted assets reported separately in the statutory statements of changes in capital and
surplus.
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 change the provision for federal income taxes recorded in the statutory financial statements, which could be significant.
Tax reserves are reviewed regularly and are adjusted as events occur that the Company believes impact its liability for
additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits or substantial agreement with taxing authorities 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. The Company 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.
The Company
is included in the NMIC consolidated federal income tax return.
Reinsurance Ceded
The Company cedes insurance to other companies in order to limit potential losses and to diversify its exposures. Such
agreements do not relieve the Company of its primary obligation to the policyholder in the event the reinsurer is unable to meet the obligations it has assumed. 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 are reported in the statutory statements of admitted assets, liabilities, capital and surplus on a net basis within the related future
policy benefits and claims of the Company.
Participating Business
Participating business, which refers to policies that participate in profits through policyholder dividends, represented
approximately 3% and 4% of the Companys life insurance in force in 2023 and 2022, respectively, and 48% and 49% of the number of life insurance policies in force in 2023 and 2022, respectively. The provision for policyholder dividends was
based on the respective years dividend scales, as approved by the Board of Directors. Policyholder dividends are recognized when declared. No additional income was allocated to participating policyholders during 2023 and 2022.
Accounting Changes and Corrections of Errors
Effective January 1, 2021, the Company elected to apply OAC 3901-1-67 to its derivative instruments hedging indexed
products and indexed annuity reserve liabilities. As a result of the Companys election to apply OAC 3901-1-67 as of January 1, 2021, the Companys admitted assets decreased $3 million, total liabilities decreased $2 million
and capital and surplus decreased $1 million, which included a $3 million reduction to unassigned surplus from the cumulative effect of the change in accounting principle.
During 2022, the Company identified and corrected an error in annuity product allocation drivers for general operating
expenses between the Company and NLAIC that resulted in an understatement of the Companys general insurance expenses for the years ended December 31, 2021, 2020 and 2019. The error resulted in an overstatement of net income of
$22 million, an overstatement of total surplus of $45 million, an overstatement of total assets of $13 million and an understatement of total liabilities of $32 million as of and for the year ended December 31, 2021. In
accordance with SSAP No. 3, Accounting Changes and Corrections of Errors (SSAP No. 3), the total prior period correction was recorded as a decrease to total surplus of $45 million, a decrease to total assets of
$13 million and an increase to total liabilities of $32 million as of January 1, 2022. Additionally, the Companys subsidiary, NLAIC, identified and corrected errors as of January 1, 2022 that increased the Companys
investment in NLAIC and total surplus by $6 million. The net decrease to the Companys total surplus of $39 million in 2022 as a result of these corrections is reported as a negative adjustment to unassigned surplus.
F-18
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Recently Adopted Accounting Standards
Effective December 31, 2023, the Company adopted INT 23-04, Life Reinsurance Liquidation Questions, that clarifies
accounting and reporting considerations of SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets (SSAP No. 5R), as it relates to the liquidation of Scottish Re U.S. (SRUS). On July 18, 2023, SRUS
was declared insolvent and ordered liquidated by the Court of Chancery of the State of Delaware (Court), resulting in termination of the reinsurance agreements between the Company and SRUS effective September 30, 2023, and the
recapture of the ceded liabilities. The Company has accrued adequate provisions as of December 31, 2023, in accordance with SSAP No. 5R related to SRUS reinsurance recoverables and assets held in a trust that secure the annuity reinsurance
recoverables. The Company will continue to work with the SRUS liquidator and the Court to resolve when the Company will be able to access the trust assets. As of December 31, 2023, assets held in trust and reinsurance recoverables related to
SRUS are immaterial.
Effective September 30, 2023, the Company adopted INT 23-01, a short-term solution related to
the accounting treatment of an insurers negative IMR balance. INT 23-01 allows an insurer with an authorized control level risk-based capital greater than 300%, after an adjustment to total adjusted capital, to admit negative IMR up to 10% of
its general account capital and surplus, subject to certain restrictions and reporting obligations. There is no admitted disallowed IMR in the separate accounts. Fixed income investments generating IMR losses comply with the Companys
investment policies. There are no deviations from the investment policies and sales were not compelled by liquidity pressures. The Company has not allocated gains or losses to IMR from derivatives that were reported at fair value prior to the
termination of the derivative. As of December 31, 2023, the Company has $93 million of admitted disallowed IMR in capital and surplus in the general account.
Effective January 1, 2021, the Company adopted revisions to SSAP No. 32R, Preferred Stock (SSAP
No. 32R). The adopted revisions updated the definition for redeemable and perpetual preferred stock and furthermore, updated the valuation classification for perpetual preferred stock to fair value. Previously, perpetual preferred stock
could have been valued at amortized cost or fair value based on the rating of the security. Per SSAP No. 32R, any valuation classification changes from amortized cost to fair value are to be recognized in statutory surplus. Going forward,
changes to fair value will be recognized as a change in net unrealized capital gains and losses in statutory surplus. As a result of this change, the Company recorded an increase to statutory capital and surplus of $9 million as of
January 1, 2021.
Subsequent Events
The Company evaluated subsequent events through March 20, 2024, the date the statutory financial statements were issued.
F-19
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
(3) |
Analysis of Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics
|
The following table summarizes the analysis of individual annuities actuarial reserves by
withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
General
account1 |
|
|
Separate
account with
guarantees |
|
|
Separate
account non-
guaranteed |
|
|
Total |
|
|
% of
Total |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
4,389 |
|
|
$ |
64 |
|
|
$ |
- |
|
|
$ |
4,453 |
|
|
|
6 |
% |
At book value less current surrender charge of 5% or more |
|
|
2,210 |
|
|
|
- |
|
|
|
- |
|
|
|
2,210 |
|
|
|
3 |
% |
At fair value |
|
|
10 |
|
|
|
- |
|
|
|
61,993 |
|
|
|
62,003 |
|
|
|
83 |
% |
Total with market value adjustment or at fair value |
|
$ |
6,609 |
|
|
$ |
64 |
|
|
$ |
61,993 |
|
|
$ |
68,666 |
|
|
|
92 |
% |
At book value without adjustment (minimal or no charge or adjustment) |
|
|
3,532 |
|
|
|
- |
|
|
|
6 |
|
|
|
3,538 |
|
|
|
5 |
% |
Not subject to discretionary withdrawal |
|
|
2,342 |
|
|
|
- |
|
|
|
62 |
|
|
|
2,404 |
|
|
|
3 |
% |
Total, gross |
|
$ |
12,483 |
|
|
$ |
64 |
|
|
$ |
62,061 |
|
|
$ |
74,608 |
|
|
|
100 |
% |
Less: Reinsurance ceded |
|
|
(98 |
) |
|
|
- |
|
|
|
- |
|
|
|
(98 |
) |
|
|
|
|
Total, net |
|
$ |
12,385 |
|
|
$ |
64 |
|
|
$ |
62,061 |
|
|
$ |
74,510 |
|
|
|
|
|
Amount included in Subject to discretionary withdrawal at book value less current surrender charge of 5% or more that will move to Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment) |
|
$ |
78 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
2,279 |
|
|
$ |
90 |
|
|
$ |
- |
|
|
$ |
2,369 |
|
|
|
4 |
% |
At book value less current surrender charge of 5% or more |
|
|
675 |
|
|
|
- |
|
|
|
- |
|
|
|
675 |
|
|
|
1 |
% |
At fair value |
|
|
11 |
|
|
|
- |
|
|
|
57,823 |
|
|
|
57,834 |
|
|
|
87 |
% |
Total with market value adjustment or at fair value |
|
$ |
2,965 |
|
|
$ |
90 |
|
|
$ |
57,823 |
|
|
$ |
60,878 |
|
|
|
92 |
% |
At book value without adjustment (minimal or no charge or adjustment) |
|
|
3,365 |
|
|
|
- |
|
|
|
6 |
|
|
|
3,371 |
|
|
|
5 |
% |
Not subject to discretionary withdrawal |
|
|
2,009 |
|
|
|
- |
|
|
|
56 |
|
|
|
2,065 |
|
|
|
3 |
% |
Total, gross |
|
$ |
8,339 |
|
|
$ |
90 |
|
|
$ |
57,885 |
|
|
$ |
66,314 |
|
|
|
100 |
% |
Less: Reinsurance ceded |
|
|
(110 |
) |
|
|
- |
|
|
|
- |
|
|
|
(110 |
) |
|
|
|
|
Total, net |
|
$ |
8,229 |
|
|
$ |
90 |
|
|
$ |
57,885 |
|
|
$ |
66,204 |
|
|
|
|
|
Amount included in Subject to discretionary withdrawal at book value less current surrender charge of 5% or more that will move to Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment) |
|
$ |
65 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
65 |
|
|
|
|
|
1 |
Includes reserves applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2.
|
F-20
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the analysis of group annuities actuarial
reserves by withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
General
account1 |
|
|
Separate
account with
guarantees |
|
|
Separate
account non-
guaranteed |
|
|
Total |
|
|
% of
Total |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
17,300 |
|
|
$ |
1,857 |
|
|
$ |
- |
|
|
$ |
19,157 |
|
|
|
45 |
% |
At book value less current surrender charge of 5% or more |
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
0 |
% |
At fair value |
|
|
- |
|
|
|
- |
|
|
|
17,922 |
|
|
|
17,922 |
|
|
|
43 |
% |
Total with market value adjustment or at fair value |
|
$ |
17,302 |
|
|
$ |
1,857 |
|
|
$ |
17,922 |
|
|
$ |
37,081 |
|
|
|
88 |
% |
At book value without adjustment (minimal or no charge or adjustment) |
|
|
3,867 |
|
|
|
- |
|
|
|
- |
|
|
|
3,867 |
|
|
|
9 |
% |
Not subject to discretionary withdrawal |
|
|
1,237 |
|
|
|
102 |
|
|
|
- |
|
|
|
1,339 |
|
|
|
3 |
% |
Total, gross |
|
$ |
22,406 |
|
|
$ |
1,959 |
|
|
$ |
17,922 |
|
|
$ |
42,287 |
|
|
|
100 |
% |
Less: Reinsurance ceded |
|
|
(29 |
) |
|
|
- |
|
|
|
- |
|
|
|
(29 |
) |
|
|
|
|
Total, net |
|
$ |
22,377 |
|
|
$ |
1,959 |
|
|
$ |
17,922 |
|
|
$ |
42,258 |
|
|
|
|
|
Amount included in Subject to discretionary withdrawal at book value less current surrender charge of 5% or more that will move to Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment) |
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
18,397 |
|
|
$ |
2,069 |
|
|
$ |
- |
|
|
$ |
20,466 |
|
|
|
49 |
% |
At book value less current surrender charge of 5% or more |
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
0 |
% |
At fair value |
|
|
- |
|
|
|
- |
|
|
|
15,701 |
|
|
|
15,701 |
|
|
|
38 |
% |
Total with market value adjustment or at fair value |
|
$ |
18,403 |
|
|
$ |
2,069 |
|
|
$ |
15,701 |
|
|
$ |
36,173 |
|
|
|
87 |
% |
At book value without adjustment (minimal or no charge or adjustment) |
|
|
4,211 |
|
|
|
- |
|
|
|
- |
|
|
|
4,211 |
|
|
|
10 |
% |
Not subject to discretionary withdrawal |
|
|
1,051 |
|
|
|
103 |
|
|
|
- |
|
|
|
1,154 |
|
|
|
3 |
% |
Total, gross |
|
$ |
23,665 |
|
|
$ |
2,172 |
|
|
$ |
15,701 |
|
|
$ |
41,538 |
|
|
|
100 |
% |
Less: Reinsurance ceded |
|
|
(53 |
) |
|
|
- |
|
|
|
- |
|
|
|
(53 |
) |
|
|
|
|
Total, net |
|
$ |
23,612 |
|
|
$ |
2,172 |
|
|
$ |
15,701 |
|
|
$ |
41,485 |
|
|
|
|
|
Amount included in Subject to discretionary withdrawal at book value less current surrender charge of 5% or more that will move to Subject to discretionary withdrawal at book
value without adjustment (minimal or no charge or adjustment) |
|
$ |
6 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6 |
|
|
|
|
|
1 |
Includes reserves applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2.
|
F-21
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the analysis of deposit-type contracts and
other liabilities without life or disability contingencies by withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
General
account |
|
|
Separate
account non-
guaranteed |
|
|
Total |
|
|
% of
Total |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
Total with market value adjustment or at fair value |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
At book value without adjustment (minimal or no charge or adjustment) |
|
|
781 |
|
|
|
2 |
|
|
|
783 |
|
|
|
17 |
% |
Not subject to discretionary withdrawal |
|
|
3,677 |
|
|
|
17 |
|
|
|
3,694 |
|
|
|
83 |
% |
Total, gross |
|
$ |
4,459 |
|
|
$ |
19 |
|
|
$ |
4,478 |
|
|
|
100 |
% |
Less: Reinsurance ceded |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total, net |
|
$ |
4,459 |
|
|
$ |
19 |
|
|
$ |
4,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
Total with market value adjustment or at fair value |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
|
0 |
% |
At book value without adjustment (minimal or no charge or adjustment) |
|
|
666 |
|
|
|
2 |
|
|
|
668 |
|
|
|
16 |
% |
Not subject to discretionary withdrawal |
|
|
3,522 |
|
|
|
14 |
|
|
|
3,536 |
|
|
|
84 |
% |
Total, gross |
|
$ |
4,189 |
|
|
$ |
16 |
|
|
$ |
4,205 |
|
|
|
100 |
% |
Less: Reinsurance ceded |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total, net |
|
$ |
4,189 |
|
|
$ |
16 |
|
|
$ |
4,205 |
|
|
|
|
|
The following table is a reconciliation of total annuity actuarial reserves and deposit fund
liabilities, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
Life, accident and health annual statement: |
|
|
|
|
|
|
|
|
Annuities, net (excluding supplemental contracts with life contingencies) |
|
$ |
34,748 |
|
|
$ |
31,827 |
|
Supplemental contracts with life contingencies, net |
|
|
14 |
|
|
|
14 |
|
Deposit-type contracts |
|
|
4,459 |
|
|
|
4,189 |
|
Subtotal |
|
$ |
39,221 |
|
|
$ |
36,030 |
|
Separate accounts annual statement: |
|
|
|
|
|
|
|
|
Annuities, net (excluding supplemental contracts with life contingencies) |
|
$ |
82,006 |
|
|
$ |
75,848 |
|
Other contract deposit funds |
|
|
19 |
|
|
|
16 |
|
Subtotal |
|
$ |
82,025 |
|
|
$ |
75,864 |
|
Total annuity actuarial reserves and deposit fund
liabilities, net |
|
$ |
121,246 |
|
|
$ |
111,894 |
|
F-22
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the analysis of life actuarial reserves by
withdrawal characteristics, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General account |
|
|
Separate account - nonguaranteed |
|
(in millions) |
|
Account
value |
|
|
Cash value |
|
|
Reserve |
|
|
Account
value |
|
|
Cash value |
|
|
Reserve |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal, surrender values or policy loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term policies with cash value |
|
$ |
- |
|
|
$ |
10 |
|
|
$ |
10 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Universal life |
|
|
2,616 |
|
|
|
2,629 |
|
|
|
2,790 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Universal life with secondary guarantees |
|
|
453 |
|
|
|
390 |
|
|
|
1,032 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Indexed universal life with secondary guarantees |
|
|
341 |
|
|
|
265 |
|
|
|
367 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other permanent cash value life insurance |
|
|
- |
|
|
|
1,919 |
|
|
|
2,398 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Variable life |
|
|
3,435 |
|
|
|
3,483 |
|
|
|
3,603 |
|
|
|
29,611 |
|
|
|
29,607 |
|
|
|
29,607 |
|
Subtotal |
|
$ |
6,845 |
|
|
$ |
8,696 |
|
|
$ |
10,200 |
|
|
$ |
29,611 |
|
|
$ |
29,607 |
|
|
$ |
29,607 |
|
Not subject to discretionary withdrawal or no cash value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term policies without cash value |
|
|
- |
|
|
|
- |
|
|
|
181 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accidental death benefits |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Disability - active lives |
|
|
- |
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Disability - disabled lives |
|
|
- |
|
|
|
- |
|
|
|
59 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Miscellaneous reserves |
|
|
- |
|
|
|
- |
|
|
|
32 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total, gross |
|
$ |
6,845 |
|
|
$ |
8,696 |
|
|
$ |
10,490 |
|
|
$ |
29,611 |
|
|
$ |
29,607 |
|
|
$ |
29,607 |
|
Less: reinsurance ceded |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
(151 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total, net |
|
$ |
6,837 |
|
|
$ |
8,688 |
|
|
$ |
10,339 |
|
|
$ |
29,611 |
|
|
$ |
29,607 |
|
|
$ |
29,607 |
|
F-23
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General account |
|
|
Separate account - nonguaranteed |
|
(in millions) |
|
Account
value |
|
|
Cash value |
|
|
Reserve |
|
|
Account
value |
|
|
Cash value |
|
|
Reserve |
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to discretionary withdrawal, surrender values or policy loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term policies with cash value |
|
$ |
- |
|
|
$ |
11 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Universal life |
|
|
2,626 |
|
|
|
1,982 |
|
|
|
2,802 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Universal life with secondary guarantees |
|
|
426 |
|
|
|
353 |
|
|
|
929 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Indexed universal life with secondary guarantees |
|
|
283 |
|
|
|
210 |
|
|
|
304 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other permanent cash value life insurance |
|
|
- |
|
|
|
1,979 |
|
|
|
2,473 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Variable life |
|
|
2,850 |
|
|
|
2,898 |
|
|
|
3,010 |
|
|
|
25,626 |
|
|
|
25,621 |
|
|
|
25,260 |
|
Subtotal |
|
$ |
6,185 |
|
|
$ |
7,433 |
|
|
$ |
9,529 |
|
|
$ |
25,626 |
|
|
$ |
25,621 |
|
|
$ |
25,260 |
|
Not subject to discretionary withdrawal or no cash value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term policies without cash value |
|
|
- |
|
|
|
- |
|
|
|
206 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accidental death benefits |
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Disability - active lives |
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Disability - disabled lives |
|
|
- |
|
|
|
- |
|
|
|
59 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Miscellaneous reserves |
|
|
- |
|
|
|
- |
|
|
|
31 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total, gross |
|
$ |
6,185 |
|
|
$ |
7,433 |
|
|
$ |
9,841 |
|
|
$ |
25,626 |
|
|
$ |
25,621 |
|
|
$ |
25,260 |
|
Less: reinsurance ceded |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(178 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total, net |
|
$ |
6,176 |
|
|
$ |
7,424 |
|
|
$ |
9,663 |
|
|
$ |
25,626 |
|
|
$ |
25,621 |
|
|
$ |
25,260 |
|
The following table is a reconciliation of life actuarial reserves, as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
Life, accident and health annual statement: |
|
|
|
|
|
|
|
|
Life Insurance, net |
|
$ |
10,241 |
|
|
$ |
9,569 |
|
Accidental death benefits, net |
|
|
1 |
|
|
|
1 |
|
Disability - active lives, net |
|
|
17 |
|
|
|
14 |
|
Disability - disabled lives, net |
|
|
53 |
|
|
|
52 |
|
Miscellaneous reserves, net |
|
|
27 |
|
|
|
27 |
|
Subtotal |
|
$ |
10,339 |
|
|
$ |
9,663 |
|
Separate accounts annual statement: |
|
|
|
|
|
|
|
|
Life insurance1 |
|
$ |
29,909 |
|
|
$ |
25,570 |
|
Subtotal |
|
$ |
29,909 |
|
|
$ |
25,570 |
|
Total life actuarial reserves, net |
|
$ |
40,248 |
|
|
$ |
35,233 |
|
|
1 |
Life insurance account value, cash value and reserve include separate accounts with guarantees of
$302 million and $310 million for universal life as of December 31, 2023 and 2022, respectively. |
The total direct premium written by managing general agents and third-party administrators was $451 million,
$415 million and $444 million as of December 31, 2023, 2022 and 2021, respectively.
F-24
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Companys separate account statement includes assets legally insulated from the general account as of the dates
indicated, attributed to the following product lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
(in millions) |
|
Separate
account assets legally
insulated |
|
|
Separate
account assets
(not legally
insulated) |
|
|
Separate
account assets legally
insulated |
|
|
Separate
account assets
(not legally
insulated) |
|
Product / Transaction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual annuities |
|
$ |
67,634 |
|
|
$ |
- |
|
|
$ |
63,282 |
|
|
$ |
- |
|
Group annuities |
|
|
15,453 |
|
|
|
- |
|
|
|
13,743 |
|
|
|
- |
|
Life insurance |
|
|
30,082 |
|
|
|
- |
|
|
|
25,688 |
|
|
|
- |
|
Pension risk transfer group annuities |
|
|
101 |
|
|
|
- |
|
|
|
95 |
|
|
|
- |
|
Total |
|
$ |
113,270 |
|
|
$ |
- |
|
|
$ |
102,808 |
|
|
$ |
- |
|
The following table summarizes amounts paid towards separate account guarantees by the general
account and related risk charges paid by the separate account for the years ended:
|
|
|
|
|
|
|
|
|
(in millions) |
|
Total paid toward separate account guarantees |
|
|
Risk charges paid to
general account |
|
2023 |
|
$ |
78 |
|
|
$ |
780 |
|
2022 |
|
$ |
79 |
|
|
$ |
722 |
|
2021 |
|
$ |
12 |
|
|
$ |
674 |
|
2020 |
|
$ |
26 |
|
|
$ |
631 |
|
2019 |
|
$ |
58 |
|
|
$ |
612 |
|
The Company does not engage in securities lending transactions within its separate accounts.
Most separate accounts held by the Company relate to individual and group variable annuity and variable universal life
insurance contracts of a non-guaranteed return nature. The net investment experience of the separate accounts is credited directly to the contract holder and can be positive or negative. The individual variable annuity contracts generally provide an
incidental death benefit of the greater of account value or premium paid (net of prior withdrawals). However, many individual variable annuity contracts also provide death benefits equal to (i) the most recent fifth-year anniversary account
value, (ii) the highest account value on any previous anniversary, (iii) premiums paid increased 5% or certain combinations of these, all adjusted for prior withdrawals. The death benefit and cash value under the variable universal life
policies may vary with the investment performance of the underlying investments in the separate accounts. The assets and liabilities of these separate accounts are carried at fair value and are non-guaranteed.
Certain other separate accounts offered by the Company contain groups of variable universal life policies wherein the assets
supporting account values on the underlying policies reside in Private Placement Separate Accounts. They provide a quarterly interest rate based on a crediting formula that reflects the market value to book value ratio of the investments, investment
portfolio yield and a specified duration.
Certain other separate accounts relate to a guaranteed term option, which
provides a guaranteed interest rate that is paid over certain maturity durations ranging from three to ten years, so long as certain conditions are met. If amounts allocated to the guaranteed term option are distributed prior to the maturity period,
a market value adjustment can be assessed. The assets and liabilities of these separate accounts are carried at fair value.
The Company has a separate account that holds group annuity contracts offered through the Companys PRT business, wherein
the Company provides guaranteed benefit payments to annuitants. The Company issues PRT business out of both the general and separate accounts, and within both, the assets and liabilities of this business are carried at amortized cost. The PRT
separate account business has been included as a nonindexed guarantee less than or equal to 4%.
Another separate account
offered by the Company contains a group of universal life policies wherein the assets supporting the account values on the underlying policies reside in a Private Placement Separate Account. It provides an annual interest rate guarantee, subject to
a minimum guarantee of 3%. The interest rate declared each year reflects the anticipated investment experience of the account. The business has been included as a nonindexed guarantee less than or equal to 4%.
F-25
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following tables summarize the separate account reserves of the Company,
as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Nonindexed guarantee less than or equal to 4% |
|
|
Nonindexed guarantee more than 4% |
|
|
Nonguaranteed separate accounts |
|
|
Total |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, considerations or deposits |
|
$ |
88 |
|
|
$ |
- |
|
|
$ |
6,181 |
|
|
$ |
6,269 |
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For accounts with assets at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
1,781 |
|
|
$ |
143 |
|
|
$ |
109,609 |
|
|
$ |
111,533 |
|
Amortized cost |
|
|
401 |
|
|
|
- |
|
|
|
- |
|
|
|
401 |
|
Total reserves1 |
|
$ |
2,182 |
|
|
$ |
143 |
|
|
$ |
109,609 |
|
|
$ |
111,934 |
|
By withdrawal characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
1,779 |
|
|
$ |
143 |
|
|
$ |
- |
|
|
$ |
1,922 |
|
At fair value |
|
|
- |
|
|
|
- |
|
|
|
109,522 |
|
|
|
109,522 |
|
At book value without market value adjustment and with
current surrender charge less than 5% |
|
|
304 |
|
|
|
- |
|
|
|
6 |
|
|
|
310 |
|
Subtotal |
|
$ |
2,083 |
|
|
$ |
143 |
|
|
$ |
109,528 |
|
|
$ |
111,754 |
|
Not subject to discretionary withdrawal |
|
|
99 |
|
|
|
- |
|
|
|
81 |
|
|
|
180 |
|
Total reserves1 |
|
$ |
2,182 |
|
|
$ |
143 |
|
|
$ |
109,609 |
|
|
$ |
111,934 |
|
|
1 |
The total reserves balance does not equal the liabilities related to separate accounts of $113.3 billion in
the statutory statements of admitted assets, liabilities, capital and surplus by $1.3 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Nonindexed guarantee less than or equal to 4% |
|
|
Nonindexed guarantee more than 4% |
|
|
Nonguaranteed separate accounts |
|
|
Total |
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, considerations or deposits |
|
$ |
174 |
|
|
$ |
- |
|
|
$ |
7,583 |
|
|
$ |
7,757 |
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For accounts with assets at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
2,016 |
|
|
$ |
145 |
|
|
$ |
98,862 |
|
|
$ |
101,023 |
|
Amortized cost |
|
|
411 |
|
|
|
- |
|
|
|
- |
|
|
|
411 |
|
Total reserves1 |
|
$ |
2,427 |
|
|
$ |
145 |
|
|
$ |
98,862 |
|
|
$ |
101,434 |
|
By withdrawal characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With market value adjustment |
|
$ |
2,117 |
|
|
$ |
145 |
|
|
$ |
- |
|
|
$ |
2,262 |
|
At fair value |
|
|
- |
|
|
|
- |
|
|
|
98,784 |
|
|
|
98,784 |
|
At book value without market value adjustment and with
current surrender charge less than 5% |
|
|
310 |
|
|
|
- |
|
|
|
8 |
|
|
|
318 |
|
Subtotal |
|
$ |
2,427 |
|
|
$ |
145 |
|
|
$ |
98,792 |
|
|
$ |
101,364 |
|
Not subject to discretionary withdrawal |
|
|
- |
|
|
|
- |
|
|
|
70 |
|
|
|
70 |
|
Total reserves1 |
|
$ |
2,427 |
|
|
$ |
145 |
|
|
$ |
98,862 |
|
|
$ |
101,434 |
|
|
1 |
The total reserves balance does not equal the liabilities related to separate accounts of $102.8 billion in
the statutory statements of admitted assets, liabilities, capital and surplus by $1.4 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
F-26
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table is a reconciliation of net transfers from separate
accounts, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
Net transfers as reported in the statutory statements of operations of the separate
accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to separate accounts |
|
$ |
6,268 |
|
|
$ |
7,757 |
|
|
$ |
8,309 |
|
Transfers from separate accounts |
|
|
(9,446 |
) |
|
|
(8,860 |
) |
|
|
(10,860 |
) |
Net transfers from separate accounts |
|
$ |
(3,178 |
) |
|
$ |
(1,103 |
) |
|
$ |
(2,551 |
) |
Reconciling adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Exchange accounts offsetting in the general account |
|
|
(889 |
) |
|
|
(606 |
) |
|
|
(552 |
) |
Fees not included in general account transfers |
|
|
41 |
|
|
|
47 |
|
|
|
68 |
|
Other miscellaneous adjustments not included in the
general account balance |
|
|
284 |
|
|
|
27 |
|
|
|
33 |
|
Net transfers as reported in the statutory statements
of operations |
|
$ |
(3,742 |
) |
|
$ |
(1,635 |
) |
|
$ |
(3,002 |
) |
F-27
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Bonds and Stocks
The following table summarizes the carrying value, the excess of fair value over carrying value, the excess of carrying value
over fair value and the fair value of bonds and stocks, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Carrying value |
|
|
Fair value in excess of carrying value |
|
|
Carrying value in excess of fair value |
|
|
Fair value |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
173 |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
176 |
|
States, territories and possessions |
|
|
609 |
|
|
|
10 |
|
|
|
44 |
|
|
|
575 |
|
Political subdivisions |
|
|
371 |
|
|
|
11 |
|
|
|
21 |
|
|
|
361 |
|
Special revenues |
|
|
2,994 |
|
|
|
57 |
|
|
|
248 |
|
|
|
2,803 |
|
Industrial and miscellaneous |
|
|
31,796 |
|
|
|
311 |
|
|
|
2,206 |
|
|
|
29,901 |
|
Loan-backed and structured securities |
|
|
7,924 |
|
|
|
38 |
|
|
|
304 |
|
|
|
7,658 |
|
Total bonds |
|
$ |
43,867 |
|
|
$ |
430 |
|
|
$ |
2,823 |
|
|
$ |
41,474 |
|
Common stocks unaffiliated |
|
$ |
231 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
231 |
|
Preferred stocks unaffiliated |
|
|
47 |
|
|
|
- |
|
|
|
1 |
|
|
|
46 |
|
Total unaffiliated stocks1 |
|
$ |
278 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
277 |
|
Total bonds and unaffiliated stocks1 |
|
$ |
44,145 |
|
|
$ |
430 |
|
|
$ |
2,824 |
|
|
$ |
41,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1 |
|
States, territories and possessions |
|
|
561 |
|
|
|
7 |
|
|
|
55 |
|
|
|
513 |
|
Political subdivisions |
|
|
380 |
|
|
|
9 |
|
|
|
28 |
|
|
|
361 |
|
Special revenues |
|
|
3,035 |
|
|
|
36 |
|
|
|
362 |
|
|
|
2,709 |
|
Industrial and miscellaneous |
|
|
29,529 |
|
|
|
118 |
|
|
|
3,115 |
|
|
|
26,532 |
|
Loan-backed and structured securities |
|
|
6,702 |
|
|
|
30 |
|
|
|
438 |
|
|
|
6,294 |
|
Total bonds |
|
$ |
40,208 |
|
|
$ |
200 |
|
|
$ |
3,998 |
|
|
$ |
36,410 |
|
Common stocks unaffiliated |
|
$ |
239 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
239 |
|
Preferred stocks unaffiliated |
|
|
30 |
|
|
|
1 |
|
|
|
- |
|
|
|
31 |
|
Total unaffiliated stocks1 |
|
$ |
269 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
270 |
|
Total bonds and unaffiliated stocks1 |
|
$ |
40,477 |
|
|
$ |
201 |
|
|
$ |
3,998 |
|
|
$ |
36,680 |
|
|
1 |
Excludes affiliated common stocks with a carrying value of $3.4 billion as of December 31, 2023 and
2022, respectively. Affiliated common stocks include investment in NLAIC and JNL of $3.2 billion and $203 million as of December 31, 2023, respectively. Affiliated common stocks include investment in NLAIC and JNFC of $3.2 billion and
$186 million as of December 31, 2022, respectively. |
The carrying value of bonds on deposit
with various states as required by law or special escrow agreement was immaterial as of December 31, 2023 and 2022.
F-28
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the carrying value and fair value of bonds, by
contractual maturity, as of December 31, 2023. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without early redemption penalties:
|
|
|
|
|
|
|
|
|
(in millions) |
|
Carrying value |
|
|
Fair value |
|
Bonds: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
1,325 |
|
|
$ |
1,312 |
|
Due after one year through five years |
|
|
10,189 |
|
|
|
9,936 |
|
Due after five years through ten years |
|
|
10,242 |
|
|
|
9,646 |
|
Due after ten years |
|
|
14,187 |
|
|
|
12,922 |
|
Total bonds excluding loan-backed and structured securities |
|
$ |
35,943 |
|
|
$ |
33,816 |
|
Loan-backed and structured securities |
|
|
7,924 |
|
|
|
7,658 |
|
Total bonds |
|
$ |
43,867 |
|
|
$ |
41,474 |
|
The following table summarizes the fair value and unrealized losses on bonds and stocks
(amount by which cost or amortized cost exceeds fair value), for which other-than-temporary declines in value have not been recognized, based on the amount of time each type of bond or stock has been in an unrealized loss position, as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to one year |
|
|
More than one year |
|
|
Total |
|
(in millions) |
|
Fair value |
|
|
Unrealized losses |
|
|
Fair value |
|
|
Unrealized losses |
|
|
Fair value |
|
|
Unrealized losses |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
79 |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
80 |
|
|
$ |
- |
|
States, territories and possessions |
|
|
30 |
|
|
|
- |
|
|
|
373 |
|
|
|
44 |
|
|
|
403 |
|
|
|
44 |
|
Political subdivisions |
|
|
51 |
|
|
|
- |
|
|
|
148 |
|
|
|
21 |
|
|
|
199 |
|
|
|
21 |
|
Special revenues |
|
|
45 |
|
|
|
1 |
|
|
|
1,934 |
|
|
|
247 |
|
|
|
1,979 |
|
|
|
248 |
|
Industrial and miscellaneous |
|
|
1,093 |
|
|
|
43 |
|
|
|
21,615 |
|
|
|
2,266 |
|
|
|
22,708 |
|
|
|
2,309 |
|
Loan-backed and structured securities |
|
|
485 |
|
|
|
2 |
|
|
|
4,671 |
|
|
|
303 |
|
|
|
5,156 |
|
|
|
305 |
|
Total bonds |
|
$ |
1,783 |
|
|
$ |
46 |
|
|
$ |
28,742 |
|
|
$ |
2,881 |
|
|
$ |
30,525 |
|
|
$ |
2,927 |
|
Common stocks unaffiliated |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
37 |
|
|
$ |
5 |
|
|
$ |
37 |
|
|
$ |
5 |
|
Preferred stocks unaffiliated |
|
|
3 |
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
Total unaffiliated stocks |
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
43 |
|
|
$ |
5 |
|
|
$ |
46 |
|
|
$ |
5 |
|
Total bonds and unaffiliated stocks |
|
$ |
1,786 |
|
|
$ |
46 |
|
|
$ |
28,785 |
|
|
$ |
2,886 |
|
|
$ |
30,571 |
|
|
$ |
2,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
- |
|
States, territories and possessions |
|
|
352 |
|
|
|
49 |
|
|
|
23 |
|
|
|
6 |
|
|
|
375 |
|
|
|
55 |
|
Political subdivisions |
|
|
157 |
|
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
|
157 |
|
|
|
27 |
|
Special revenues |
|
|
1,935 |
|
|
|
332 |
|
|
|
55 |
|
|
|
22 |
|
|
|
1,990 |
|
|
|
354 |
|
Industrial and miscellaneous |
|
|
21,261 |
|
|
|
2,526 |
|
|
|
2,604 |
|
|
|
739 |
|
|
|
23,865 |
|
|
|
3,265 |
|
Loan-backed and structured securities |
|
|
3,800 |
|
|
|
263 |
|
|
|
2,079 |
|
|
|
177 |
|
|
|
5,879 |
|
|
|
440 |
|
Total bonds |
|
$ |
27,506 |
|
|
$ |
3,197 |
|
|
$ |
4,761 |
|
|
$ |
944 |
|
|
$ |
32,267 |
|
|
$ |
4,141 |
|
Common stocks unaffiliated |
|
$ |
45 |
|
|
$ |
11 |
|
|
$ |
19 |
|
|
$ |
6 |
|
|
$ |
64 |
|
|
$ |
17 |
|
Preferred stocks unaffiliated |
|
|
20 |
|
|
|
2 |
|
|
|
3 |
|
|
|
1 |
|
|
|
23 |
|
|
|
3 |
|
Total unaffiliated stocks |
|
$ |
65 |
|
|
$ |
13 |
|
|
$ |
22 |
|
|
$ |
7 |
|
|
$ |
87 |
|
|
$ |
20 |
|
Total bonds and unaffiliated stocks |
|
$ |
27,571 |
|
|
$ |
3,210 |
|
|
$ |
4,783 |
|
|
$ |
951 |
|
|
$ |
32,354 |
|
|
$ |
4,161 |
|
As of December 31, 2023, management evaluated securities in an unrealized loss position
for impairment. As of the reporting date, the Company has the intent and ability to hold these securities until the fair value recovers, which may be at maturity, and therefore, does not consider the securities to be other-than-temporarily impaired.
There was no intent to sell loan-backed and structured securities that have been identified as having
other-than-temporary impairments for the years ended December 31, 2023 and 2022.
F-29
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Mortgage Loans, Net of Allowance
The following table summarizes the amortized cost of mortgage loans and the related valuation allowances by type of credit
loss, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
Total amortized cost |
|
$ |
9,146 |
|
|
$ |
8,401 |
|
Valuation allowance: |
|
|
|
|
|
|
|
|
Non-specific reserves2 |
|
$ |
- |
|
|
$ |
37 |
|
Specific reserves |
|
|
2 |
|
|
|
1 |
|
Total valuation allowance1 |
|
$ |
2 |
|
|
$ |
38 |
|
Mortgage loans, net of allowance |
|
$ |
9,144 |
|
|
$ |
8,363 |
|
|
1 |
For the years ended December 31, 2023, 2022 and 2021, changes in the valuation allowance were
immaterial and due to current period provisions. |
|
2 |
Effective January 1, 2023, the Company changed its method for reserving for mortgage loans by removing
the need for a non-specific reserve. In the Companys judgment, the change in reserving approach appropriately reflects the credit risk inherent for mortgage loans held. The impact of the change was recorded as a reversal of the non-specific
reserves, resulting in an increase to unassigned surplus of $4 million and recorded through Other, net activity within the statutory statements of changes in capital and surplus. There was no impact on net income.
|
As of December 31, 2023 and 2022, the Companys mortgage loans classified as delinquent
and/or in non-accrual status were immaterial in relation to the total mortgage loan portfolio.
The following table
summarizes the LTV ratio and DSC ratio of the mortgage loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTV ratio |
|
|
|
|
DSC ratio |
|
(in millions) |
|
Less than 90% |
|
|
90% or greater |
|
|
Total |
|
|
|
|
Greater than 1.00 |
|
|
Less than or equal to 1.00 |
|
|
Total |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartment |
|
$ |
3,831 |
|
|
$ |
22 |
|
|
$ |
3,853 |
|
|
|
|
$ |
3,823 |
|
|
$ |
29 |
|
|
$ |
3,852 |
|
Industrial |
|
|
1,842 |
|
|
|
- |
|
|
|
1,842 |
|
|
|
|
|
1,842 |
|
|
|
- |
|
|
|
1,842 |
|
Office |
|
|
1,057 |
|
|
|
71 |
|
|
|
1,128 |
|
|
|
|
|
1,126 |
|
|
|
3 |
|
|
|
1,129 |
|
Retail |
|
|
1,888 |
|
|
|
8 |
|
|
|
1,896 |
|
|
|
|
|
1,887 |
|
|
|
9 |
|
|
|
1,896 |
|
Other |
|
|
256 |
|
|
|
- |
|
|
|
256 |
|
|
|
|
|
216 |
|
|
|
40 |
|
|
|
256 |
|
Total1 |
|
$ |
8,874 |
|
|
$ |
101 |
|
|
$ |
8,975 |
|
|
|
|
$ |
8,894 |
|
|
$ |
81 |
|
|
$ |
8,975 |
|
Weighted average DSC ratio |
|
|
2.20 |
|
|
|
1.33 |
|
|
|
2.19 |
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Weighted average LTV ratio |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
56 |
% |
|
|
71 |
% |
|
|
57% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartment |
|
$ |
3,651 |
|
|
$ |
22 |
|
|
$ |
3,673 |
|
|
|
|
$ |
3,632 |
|
|
$ |
41 |
|
|
$ |
3,673 |
|
Industrial |
|
|
1,437 |
|
|
|
- |
|
|
|
1,437 |
|
|
|
|
|
1,437 |
|
|
|
- |
|
|
|
1,437 |
|
Office |
|
|
1,223 |
|
|
|
3 |
|
|
|
1,226 |
|
|
|
|
|
1,214 |
|
|
|
12 |
|
|
|
1,226 |
|
Retail |
|
|
1,815 |
|
|
|
8 |
|
|
|
1,823 |
|
|
|
|
|
1,794 |
|
|
|
29 |
|
|
|
1,823 |
|
Other |
|
|
225 |
|
|
|
- |
|
|
|
225 |
|
|
|
|
|
217 |
|
|
|
8 |
|
|
|
225 |
|
Total1 |
|
$ |
8,351 |
|
|
$ |
33 |
|
|
$ |
8,384 |
|
|
|
|
$ |
8,294 |
|
|
$ |
90 |
|
|
$ |
8,384 |
|
Weighted average DSC ratio |
|
|
2.20 |
|
|
|
0.82 |
|
|
|
2.19 |
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Weighted average LTV ratio |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
57 |
% |
|
|
81 |
% |
|
|
57% |
|
|
1 |
Excludes $171 million and $17 million of commercial mortgage loans that were under development as
of December 31, 2023 and 2022, respectively. |
As of December 31, 2023 and 2022, the Company
has a diversified mortgage loan portfolio with no more than 23% in a geographic region in the U.S. and no more than 1% with any one borrower. The maximum and minimum lending rates for mortgage loans originated or acquired during 2023 were 9.2% and
4.8%, respectively, and for those originated or acquired during 2022 were 11.0% and 2.9%, respectively. As of December 31, 2023 and 2022, the maximum LTV ratio of any one loan at the time of loan origination was 78% and 80%, respectively. As of
December 31, 2023 and 2022, the Company did not hold mortgage loans with interest 90 days or more past due. Additionally, there were no taxes, assessments or any amounts advanced and not included in the mortgage loan portfolio.
F-30
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Securities Lending
The fair value of loaned securities was $922 million and $611 million as of December 31, 2023 and 2022,
respectively. The Company held $359 million and $232 million of cash collateral on securities lending as of December 31, 2023 and 2022, respectively. The carrying value and fair value of reinvested collateral assets were
$359 million and $232 million and had a contractual maturity of under 30 days as of December 31, 2023 and 2022, respectively. The fair value of bonds acquired with reinvested collateral assets was $366 million and
$236 million as of December 31, 2023 and 2022, respectively. There are no securities lending transactions that extend beyond one year as of the reporting date. The Company received $584 million and $394 million of non-cash
collateral on securities lending as of December 31, 2023 and 2022, respectively.
Net Investment Income
The following table summarizes net investment income by investment type, for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
Bonds |
|
$ |
1,917 |
|
|
$ |
1,511 |
|
|
$ |
1,417 |
|
Mortgage loans |
|
|
357 |
|
|
|
334 |
|
|
|
358 |
|
Other invested assets |
|
|
868 |
|
|
|
196 |
|
|
|
499 |
|
Policy loans |
|
|
43 |
|
|
|
42 |
|
|
|
43 |
|
Derivative instruments1 |
|
|
24 |
|
|
|
19 |
|
|
|
31 |
|
Other |
|
|
62 |
|
|
|
44 |
|
|
|
12 |
|
Gross investment income |
|
$ |
3,271 |
|
|
$ |
2,146 |
|
|
$ |
2,360 |
|
Investment expenses |
|
|
(135 |
) |
|
|
(127 |
) |
|
|
(129) |
|
Net investment income |
|
$ |
3,136 |
|
|
$ |
2,019 |
|
|
$ |
2,231 |
|
|
1 |
Includes net investment income applying the prescribed practice under OAC 3901-1-67, as disclosed in Note 2.
|
The amount of investment income due and accrued that was nonadmitted as of December 31, 2023 and
2022 was immaterial. Investment income due and accrued as of December 31, 2023 and 2022 that was admitted was $965 million and $585 million, respectively.
Net Realized Capital Gains and Losses
The following table summarizes net realized capital gains and losses for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
Gross gains on sales |
|
$ |
31 |
|
|
$ |
31 |
|
|
$ |
106 |
|
Gross losses on sales |
|
|
(68 |
) |
|
|
(149 |
) |
|
|
(32 |
) |
Net realized (losses) gains on sales |
|
$ |
(37 |
) |
|
$ |
(118 |
) |
|
$ |
74 |
|
Net realized derivative (losses) gains |
|
|
(378 |
) |
|
|
284 |
|
|
|
(679 |
) |
Other-than-temporary impairments |
|
|
(21 |
) |
|
|
(26 |
) |
|
|
(4 |
) |
Total net realized (losses) gains |
|
$ |
(436 |
) |
|
|
$140 |
|
|
$ |
(609 |
) |
Tax (benefit) expense on net (losses) gains |
|
|
(4 |
) |
|
|
3 |
|
|
|
59 |
|
Net realized capital (losses) gains, net of tax |
|
$ |
(432 |
) |
|
|
$137 |
|
|
$ |
(668 |
) |
Less: Realized (losses) gains transferred to the
IMR |
|
|
(30 |
) |
|
|
(103 |
) |
|
|
15 |
|
Net realized capital (losses) gains, net of tax and
transfers to the IMR |
|
$ |
(402 |
) |
|
$ |
240 |
|
|
$ |
(683 |
) |
For the year ended December 31, 2023, gross realized gains and gross realized losses on
sales of bonds were $25 million and $64 million, respectively. For the year ended December 31, 2022, gross realized gains and gross realized losses on sales of bonds were $7 million and $145 million, respectively. For the
year ended December 31, 2021, gross realized gains and gross realized losses on sales of bonds were $80 million and $31 million, respectively.
The Company did not enter into any material repurchase transactions that would be considered wash sales during the years ended
December 31, 2023, 2022 and 2021.
F-31
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Investment Commitments
The Company had unfunded commitments related to its investment in limited partnerships and limited liability companies
totaling $1.0 billion and $894 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, there were $99 million and $207 million of commitments to purchase private placement bonds,
respectively. There were $490 million and $291 million of outstanding commitments to fund mortgage loans as of December 31, 2023 and 2022, respectively.
(6) |
Derivative Instruments |
The Company is exposed to certain risks related to its ongoing business operations which are managed using derivative
instruments.
Interest rate risk management. In the normal course of business, the Company enters into transactions
that expose it to interest rate risk arising from mismatches between assets and liabilities. The Company may use interest rate swaps and futures to reduce or alter interest rate exposure.
Interest rate contracts are used by the Company in association with fixed and variable rate investments to achieve cash flow
streams that support certain financial obligations of the Company and to produce desired investment returns. As such, interest rate contracts are generally used to convert fixed rate cash flow streams to variable rate cash flow streams or vice
versa.
Equity market risk management. The Company issues a variety of insurance products that expose it to equity
risks. To mitigate these risks, the Company enters into a variety of derivatives including futures and options.
Indexed crediting risk management. The Company issues a variety of insurance and annuity products with indexed
crediting features that expose the Company to risks related to the performance of an underlying index. To mitigate these risks, the Company enters into a variety of derivatives including index options, total return swaps and futures. The underlying
indices can have exposure to equites, commodities and fixed income securities.
Other risk management. As part of
its regular investing activities, the Company may purchase foreign currency denominated investments. These investments and the associated income expose the Company to volatility associated with movements in foreign exchange rates. As foreign
exchange rates change, the increase or decrease in the cash flows of the derivative instrument are intended to mitigate the changes in the functional-currency equivalent cash flows of the hedged item. To mitigate this risk, the Company uses
cross-currency swaps.
Credit risk associated with derivatives transactions. 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 credit risk associated with derivative receivables, the
Companys 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. The Company
also considers the impact credit exposure could have on the effectiveness of the Companys hedging relationships. As of December 31, 2023 and 2022, the impact of the exposure to credit risk on the fair value measurement of derivatives and
the effectiveness of the Companys hedging relationships was immaterial.
F-32
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the fair value, carrying value and related
notional amounts of derivative instruments, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Notional amount |
|
|
Net Carrying Value |
|
|
Fair value asset |
|
|
Fair value liability |
|
|
Average fair
value |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
2,410 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Options |
|
|
137 |
|
|
|
1 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
Cross currency swaps |
|
|
1,621 |
|
|
|
94 |
|
|
|
120 |
|
|
|
(22 |
) |
|
|
1 |
|
Futures |
|
|
2,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total derivatives¹ |
|
$ |
7,093 |
|
|
$ |
95 |
|
|
$ |
127 |
|
|
$ |
(22 |
) |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Options |
|
|
96 |
|
|
|
1 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
Cross currency swaps |
|
|
1,498 |
|
|
|
135 |
|
|
|
174 |
|
|
|
(9 |
) |
|
|
2 |
|
Futures |
|
|
3,316 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total derivatives¹ |
|
$ |
4,910 |
|
|
$ |
136 |
|
|
$ |
176 |
|
|
$ |
(9 |
) |
|
$ |
2 |
|
|
1 |
Fair value balance excludes immaterial accrued interest on derivative assets for December 31, 2023 and
2022. |
The Company received $253 million and $178 million of cash collateral and held
$49 million and $20 million of securities off-balance sheet as collateral for derivative assets as of December 31, 2023 and 2022, respectively. Cash and securities pledged for derivative liabilities were immaterial as of
December 31, 2023 and 2022. The impact of netting as a result of master netting agreements reduced the fair value of derivative assets and liabilities by $20 million and $8 million as of December 31, 2023 and 2022, respectively.
As a result, the Companys uncollateralized position for derivatives instruments was immaterial in each respective period. In addition, the Company posted initial margin on derivative instruments of $256 million and $236 million as of
December 31, 2023 and 2022, respectively.
The following table summarizes net gains and losses on derivatives
programs by type of derivative instrument, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized (losses) gains recorded in
operations |
|
|
Unrealized (losses) gains recorded in capital and surplus |
|
|
|
December 31, |
|
|
December 31, |
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
Cross currency swaps |
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
(43 |
) |
|
$ |
103 |
|
|
$ |
69 |
|
Futures |
|
|
(378 |
) |
|
|
283 |
|
|
|
(680 |
) |
|
|
(173 |
) |
|
|
124 |
|
|
|
27 |
|
Total |
|
$ |
(378 |
) |
|
$ |
284 |
|
|
$ |
(679 |
) |
|
$ |
(216 |
) |
|
$ |
227 |
|
|
$ |
96 |
|
F-33
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
(7) |
Fair Value Measurements |
The following table summarizes assets and liabilities held at fair value as of December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Net Asset
Value (NAV) |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
$ |
- |
|
|
$ |
7 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7 |
|
Common stocks unaffiliated |
|
|
67 |
|
|
|
164 |
|
|
|
- |
|
|
|
- |
|
|
|
231 |
|
Preferred stocks unaffiliated |
|
|
- |
|
|
|
39 |
|
|
|
7 |
|
|
|
- |
|
|
|
46 |
|
Separate account assets |
|
|
104,555 |
|
|
|
1,637 |
|
|
|
51 |
|
|
|
6,430 |
|
|
|
112,673 |
|
Assets at fair value |
|
$ |
104,622 |
|
|
$ |
1,847 |
|
|
$ |
58 |
|
|
$ |
6,430 |
|
|
$ |
112,957 |
|
The following table presents the rollforward of Level 3 assets and liabilities held at fair
value during the year ended December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Preferred stocks
unaffiliated |
|
|
Separate account
assets |
|
|
Assets
at fair value |
|
Balance as of December 31, 2022 |
|
$ |
6 |
|
|
$ |
55 |
|
|
$ |
61 |
|
Net gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
In surplus |
|
|
1 |
|
|
|
(1 |
) |
|
|
- |
|
Purchases |
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
Sales |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
Balance as of December 31, 2023 |
|
$ |
7 |
|
|
$ |
51 |
|
|
$ |
58 |
|
The following table summarizes assets and liabilities held at fair value as of
December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Net Asset
Value (NAV) |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
$ |
- |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
11 |
|
Common stocks unaffiliated |
|
|
77 |
|
|
|
162 |
|
|
|
- |
|
|
|
- |
|
|
|
239 |
|
Preferred stocks unaffiliated |
|
|
- |
|
|
|
25 |
|
|
|
6 |
|
|
|
- |
|
|
|
31 |
|
Separate account assets |
|
|
97,015 |
|
|
|
1,795 |
|
|
|
55 |
|
|
|
3,552 |
|
|
|
102,417 |
|
Assets at fair value |
|
$ |
97,092 |
|
|
$ |
1,993 |
|
|
$ |
61 |
|
|
$ |
3,552 |
|
|
$ |
102,698 |
|
The following table presents the rollforward of Level 3 assets and liabilities held at fair
value during the year ended December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Bonds1 |
|
|
Preferred
stocks unaffiliated |
|
|
Separate account
assets |
|
|
Assets
at fair value |
|
Balance as of December 31, 2021 |
|
$ |
1 |
|
|
$ |
6 |
|
|
$ |
49 |
|
|
$ |
56 |
|
Net gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In surplus |
|
|
- |
|
|
|
- |
|
|
|
24 |
|
|
|
24 |
|
Purchases |
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Sales |
|
|
- |
|
|
|
(2 |
) |
|
|
(18 |
) |
|
|
(20 |
) |
Transfers out of Level 3 |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Balance as of December 31, 2022 |
|
$ |
- |
|
|
$ |
6 |
|
|
$ |
55 |
|
|
|
61 |
|
|
1 |
Bonds transfer out of Level 3 during the year ended December 31, 2022, result from the application of
the lower of amortized cost or fair value rules based on NAIC rating. |
F-34
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the carrying value and fair value of the
Companys assets and liabilities not held at fair value as of the dates indicated. The valuation techniques used to estimate these fair values are described below or in Note 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
(in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total fair value |
|
|
Carrying value |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
$ |
175 |
|
|
$ |
35,293 |
|
|
$ |
5,999 |
|
|
$ |
41,467 |
|
|
$ |
43,860 |
|
Mortgage loans, net of allowance |
|
|
- |
|
|
|
- |
|
|
|
8,047 |
|
|
|
8,047 |
|
|
|
9,144 |
|
Policy loans |
|
|
- |
|
|
|
- |
|
|
|
969 |
|
|
|
969 |
|
|
|
969 |
|
Derivative assets |
|
|
- |
|
|
|
120 |
|
|
|
7 |
|
|
|
127 |
|
|
|
113 |
|
Cash, cash equivalents and short-term investments |
|
|
(52 |
) |
|
|
1,607 |
|
|
|
- |
|
|
|
1,555 |
|
|
|
1,555 |
|
Securities lending collateral assets |
|
|
359 |
|
|
|
- |
|
|
|
- |
|
|
|
359 |
|
|
|
359 |
|
Separate account assets |
|
|
5 |
|
|
|
411 |
|
|
|
157 |
|
|
|
573 |
|
|
|
597 |
|
Total assets |
|
$ |
487 |
|
|
$ |
37,431 |
|
|
$ |
15,179 |
|
|
$ |
53,097 |
|
|
$ |
56,597 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment contracts |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,265 |
|
|
$ |
3,265 |
|
|
$ |
3,242 |
|
Derivative liabilities |
|
|
- |
|
|
|
22 |
|
|
|
- |
|
|
|
22 |
|
|
|
17 |
|
Total liabilities |
|
$ |
- |
|
|
$ |
22 |
|
|
$ |
3,265 |
|
|
$ |
3,287 |
|
|
$ |
3,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
$ |
1 |
|
|
$ |
32,048 |
|
|
$ |
4,350 |
|
|
$ |
36,399 |
|
|
$ |
40,197 |
|
Mortgage loans, net of allowance |
|
|
- |
|
|
|
- |
|
|
|
7,351 |
|
|
|
7,351 |
|
|
|
8,363 |
|
Policy loans |
|
|
- |
|
|
|
- |
|
|
|
933 |
|
|
|
933 |
|
|
|
933 |
|
Derivative assets |
|
|
- |
|
|
|
174 |
|
|
|
2 |
|
|
|
176 |
|
|
|
143 |
|
Cash, cash equivalents and short-term investments |
|
|
613 |
|
|
|
1,008 |
|
|
|
- |
|
|
|
1,621 |
|
|
|
1,621 |
|
Securities lending collateral assets |
|
|
232 |
|
|
|
- |
|
|
|
- |
|
|
|
232 |
|
|
|
232 |
|
Separate account assets |
|
|
4 |
|
|
|
311 |
|
|
|
41 |
|
|
|
356 |
|
|
|
391 |
|
Total assets |
|
$ |
850 |
|
|
$ |
33,541 |
|
|
$ |
12,677 |
|
|
$ |
47,068 |
|
|
$ |
51,880 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment contracts |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,158 |
|
|
$ |
3,158 |
|
|
$ |
3,148 |
|
Derivative liabilities |
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
9 |
|
|
|
7 |
|
Total liabilities |
|
$ |
- |
|
|
$ |
9 |
|
|
$ |
3,158 |
|
|
$ |
3,167 |
|
|
$ |
3,155 |
|
Mortgage loans, net of allowance. The fair values of mortgage loans are primarily
estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit ratings.
Policy loans. The carrying amount reported in the statutory statements of admitted assets, liabilities, capital and
surplus approximates fair value as policy loans are fully collateralized by the cash surrender value of underlying insurance policies.
Securities lending collateral assets. These assets are comprised of bonds and short-term investments and the respective
fair values are estimated based on the fair value methods described in Note 2.
Investment contracts. For
investment contracts without defined maturities, fair value is the amount payable on demand, net of 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. The fair value of adjustable-rate contracts approximates their carrying value.
F-35
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following tables summarize the net admitted deferred tax assets, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
(in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
Total gross deferred tax assets |
|
$ |
953 |
|
|
$ |
21 |
|
|
$ |
974 |
|
Statutory valuation allowance adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Adjusted gross deferred tax assets |
|
$ |
953 |
|
|
$ |
21 |
|
|
$ |
974 |
|
Less: Deferred tax assets nonadmitted |
|
|
(222 |
) |
|
|
- |
|
|
|
(222) |
|
Net admitted deferred tax assets |
|
$ |
731 |
|
|
$ |
21 |
|
|
$ |
752 |
|
Less: Deferred tax liabilities |
|
|
(105 |
) |
|
|
(15 |
) |
|
|
(120) |
|
Net admitted deferred tax assets |
|
$ |
626 |
|
|
$ |
6 |
|
|
$ |
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
(in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
Total gross deferred tax assets |
|
$ |
820 |
|
|
$ |
32 |
|
|
$ |
852 |
|
Statutory valuation allowance adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Adjusted gross deferred tax assets |
|
$ |
820 |
|
|
$ |
32 |
|
|
$ |
852 |
|
Less: Deferred tax assets nonadmitted |
|
|
(96 |
) |
|
|
(7 |
) |
|
|
(103) |
|
Net admitted deferred tax assets |
|
$ |
724 |
|
|
$ |
25 |
|
|
$ |
749 |
|
Less: Deferred tax liabilities |
|
|
(147 |
) |
|
|
(13 |
) |
|
|
(160) |
|
Net admitted deferred tax assets |
|
$ |
577 |
|
|
$ |
12 |
|
|
$ |
589 |
|
The following table summarizes components of the change in deferred income taxes reported in
capital and surplus before consideration of nonadmitted assets and changes from the prior year, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
Adjusted gross deferred tax assets |
|
$ |
974 |
|
|
$ |
852 |
|
|
$ |
122 |
|
Total deferred tax liabilities |
|
|
(120 |
) |
|
|
(160 |
) |
|
|
40 |
|
Net deferred tax assets |
|
$ |
854 |
|
|
$ |
692 |
|
|
$ |
162 |
|
Less: Tax effect of unrealized gains and losses |
|
|
|
|
|
|
|
|
|
|
37 |
|
Less: Tax effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
Less: Merger adjustment |
|
|
|
|
|
|
|
|
|
|
1 |
|
Change in deferred income tax |
|
|
|
|
|
|
|
|
|
$ |
132 |
|
F-36
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following tables summarize components of the admitted deferred tax assets
calculation, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
(in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
Federal income taxes recoverable through loss carryback |
|
$ |
- |
|
|
$ |
3 |
|
|
$ |
3 |
|
Adjusted gross deferred tax assets expected to be realized1 |
|
|
623 |
|
|
|
6 |
|
|
|
629 |
|
Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities |
|
|
108 |
|
|
|
12 |
|
|
|
120 |
|
Admitted deferred tax
assets |
|
$ |
731 |
|
|
$ |
21 |
|
|
$ |
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
(in millions) |
|
Ordinary |
|
|
Capital |
|
|
Total |
|
Federal income taxes recoverable through loss carryback |
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
8 |
|
Adjusted gross deferred tax assets expected to be realized1 |
|
|
577 |
|
|
|
4 |
|
|
|
581 |
|
Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities |
|
|
147 |
|
|
|
13 |
|
|
|
160 |
|
Admitted deferred tax
assets |
|
$ |
724 |
|
|
$ |
25 |
|
|
$ |
749 |
|
|
1 |
Note that this amount is calculated as the lesser of the adjusted gross deferred tax assets expected to be
realized following the balance sheet date or the adjusted gross deferred tax assets allowed per the limitation threshold. For the years ended December 31, 2023 and 2022, the threshold limitation for adjusted capital and surplus was $1.6 billion
and $1.4 billion, respectively. |
The adjusted capital and surplus used to determine the recovery period
and adjusted gross deferred tax assets allowed per the limitation threshold was $10.5 billion and $9.5 billion as of December 31, 2023 and 2022, respectively. The ratio percentage used to determine the recovery period and adjusted gross
deferred tax assets allowed per the limitation threshold was 1,062% and 1,071% as of December 31, 2023 and 2022, respectively.
The following tables summarize the impact of tax planning strategies, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
|
|
Ordinary |
|
|
Capital |
|
|
Total |
|
Adjusted gross deferred tax assets |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Net admitted adjusted gross deferred tax assets |
|
|
7.19 |
% |
|
|
0.00 |
% |
|
|
7.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
Ordinary |
|
|
Capital |
|
|
Total |
|
Adjusted gross deferred tax assets |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Net admitted adjusted gross deferred tax assets |
|
|
25.51 |
% |
|
|
0.00 |
% |
|
|
25.51 |
% |
The Companys tax planning strategies included the use of affiliated reinsurance for the
years ended December 31, 2023 and 2022.
There are no temporary differences for which deferred tax liabilities are
not recognized for the years ended December 31, 2023 and 2022.
F-37
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the tax effects of temporary differences and
the change from the prior year, for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
Change |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary: |
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits and claims |
|
$ |
231 |
|
|
$ |
132 |
|
|
$ |
99 |
|
Investments |
|
|
110 |
|
|
|
89 |
|
|
|
21 |
|
Deferred acquisition costs |
|
|
297 |
|
|
|
260 |
|
|
|
37 |
|
Tax credit carry-forward |
|
|
259 |
|
|
|
294 |
|
|
|
(35 |
) |
Other |
|
|
56 |
|
|
|
45 |
|
|
|
11 |
|
Subtotal |
|
$ |
953 |
|
|
$ |
820 |
|
|
$ |
133 |
|
Nonadmitted |
|
|
(222 |
) |
|
|
(96 |
) |
|
|
(126 |
) |
Admitted ordinary deferred tax assets |
|
$ |
731 |
|
|
$ |
724 |
|
|
$ |
7 |
|
Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
21 |
|
|
|
32 |
|
|
|
(11 |
) |
Subtotal |
|
$ |
21 |
|
|
$ |
32 |
|
|
$ |
(11 |
) |
Nonadmitted |
|
|
- |
|
|
|
(7 |
) |
|
|
7 |
|
Admitted capital deferred tax assets |
|
$ |
21 |
|
|
$ |
25 |
|
|
$ |
(4 |
) |
Admitted deferred tax assets |
|
$ |
752 |
|
|
$ |
749 |
|
|
$ |
3 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
(68 |
) |
|
$ |
(100 |
) |
|
$ |
32 |
|
Future policy benefits and claims |
|
|
(22 |
) |
|
|
(32 |
) |
|
|
10 |
|
Other |
|
|
(15 |
) |
|
|
(15 |
) |
|
|
- |
|
Subtotal |
|
$ |
(105 |
) |
|
$ |
(147 |
) |
|
$ |
42 |
|
Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
(15 |
) |
|
|
(13 |
) |
|
|
(2 |
) |
Subtotal |
|
$ |
(15 |
) |
|
$ |
(13 |
) |
|
$ |
(2 |
) |
Deferred tax liabilities |
|
$ |
(120 |
) |
|
$ |
(160 |
) |
|
$ |
40 |
|
Net deferred tax assets |
|
$ |
632 |
|
|
$ |
589 |
|
|
$ |
43 |
|
In assessing the realizability of deferred tax assets, the Company considers whether it is
more likely than not that some portion of the total deferred tax assets will not be realized. Valuation allowances are established when necessary to reduce the deferred tax assets to amounts expected to be realized. Based on the Companys
analysis, it is more likely than not that the results of future operations and the implementation of tax planning strategies will generate sufficient taxable income to enable the Company to realize all deferred tax assets. Therefore, no valuation
allowances have been established as of December 31, 2023 and 2022.
F-38
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the Companys income tax incurred and
change in deferred income tax. The total income tax and change in deferred income tax differs from the amount obtained by applying the federal statutory rate to income (loss) before tax as follows, for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
(in millions) |
|
2023 |
|
|
2022 |
|
|
2021 |
|
Current income tax expense |
|
$ |
104 |
|
|
$ |
103 |
|
|
$ |
50 |
|
Change in deferred income tax (without tax on unrealized
gains and losses) |
|
|
(132 |
) |
|
|
(28 |
) |
|
|
(50 |
) |
Total income tax (benefit) expense
reported |
|
$ |
(28 |
) |
|
$ |
75 |
|
|
$ |
- |
|
Income before income and capital gains taxes |
|
$ |
1,053 |
|
|
$ |
1,077 |
|
|
$ |
861 |
|
Federal statutory tax rate |
|
|
21 |
% |
|
|
21 |
% |
|
|
21 |
% |
Expected income tax expense at statutory tax rate |
|
$ |
221 |
|
|
$ |
226 |
|
|
$ |
181 |
|
(Decrease) increase in actual tax reported resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received deduction |
|
|
(211 |
) |
|
|
(80 |
) |
|
|
(137 |
) |
Tax credits |
|
|
(45 |
) |
|
|
(58 |
) |
|
|
(47 |
) |
Other |
|
|
7 |
|
|
|
(13 |
) |
|
|
3 |
|
Total income tax (benefit) expense
reported |
|
$ |
(28 |
) |
|
$ |
75 |
|
|
$ |
- |
|
The Company incurred $11 million in federal income tax expense in 2021, which is
available for recoupment in the event of future net losses.
The following table summarizes operating loss or tax credit
carry-forwards available as of December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Amount |
|
|
Origination |
|
|
Expiration |
|
Operating loss carryforwards |
|
$ |
2 |
|
|
|
2017 |
|
|
|
2032 |
|
Business credits |
|
$ |
32 |
|
|
|
2016 |
|
|
|
2036 |
|
Business credits |
|
$ |
62 |
|
|
|
2017 |
|
|
|
2037 |
|
Business credits |
|
$ |
30 |
|
|
|
2018 |
|
|
|
2038 |
|
Business credits |
|
$ |
27 |
|
|
|
2019 |
|
|
|
2039 |
|
Business credits |
|
$ |
29 |
|
|
|
2020 |
|
|
|
2040 |
|
Business credits |
|
$ |
28 |
|
|
|
2021 |
|
|
|
2041 |
|
Business credits |
|
$ |
27 |
|
|
|
2022 |
|
|
|
2042 |
|
Business credits |
|
$ |
24 |
|
|
|
2023 |
|
|
|
2043 |
|
F-39
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company is included in the NMIC consolidated federal income tax return
which includes the following entities:
|
|
|
Nationwide Mutual Insurance Company AGMC
Reinsurance, Ltd Allied Insurance Company of America Allied
Property & Casualty Insurance Company Allied Texas Agency, Inc.
AMCO Insurance Company American Marine Underwriters
Crestbrook Insurance Company Depositors Insurance Company
DVM Insurance Agency, Inc. Eagle Captive Reinsurance, LLC
Freedom Specialty Insurance Company Harleysville Insurance
Company of New York Harleysville Insurance Company
Harleysville Insurance Company of New Jersey Harleysville Lake
States Insurance Company Harleysville Preferred Insurance Company
Harleysville Worcester Insurance Company Jefferson National
Financial Corporation Jefferson National Life Insurance Company
Jefferson National Life Insurance Company of New York Lone Star
General Agency, Inc. National Casualty Company Nationwide
Advantage Mortgage Company Nationwide Affinity Insurance Company of America
Nationwide Agent Risk Purchasing Group. Inc. Nationwide
Agribusiness Insurance Company Nationwide Assurance Company
Nationwide Cash Management Company Nationwide
Corporation |
|
Nationwide Financial Assignment Company
Nationwide Financial General Agency, Inc. Nationwide Financial
Services, Inc. Nationwide General Insurance Company
Nationwide Indemnity Company Nationwide Insurance Company of
America Nationwide Insurance Company of Florida Nationwide
Investment Services Corporation Nationwide Life and Annuity Insurance Company
Nationwide Life Insurance Company Nationwide Lloyds
Nationwide Property & Casualty Ins. Company Nationwide
Retirement Solutions, Inc. Nationwide Sales Solutions, Inc.
Nationwide Trust Company, FSB NBS Insurance Agency, Inc.
NFS Distributors, Inc. Registered Investment Advisors Services,
Inc. Retention Alternatives, Ltd. Retention Alternatives Ltd.
In Respect of Cell No. 1 Segregated Account Scottsdale
Indemnity Company Scottsdale Insurance Company Scottsdale
Surplus Lines Insurance Company Titan Insurance Company Titan
Insurance Services, Inc. Veterinary Pet Insurance Company
Victoria Fire & Casualty Company Victoria Select
Insurance Company VPI Services, Inc. |
The method of allocation of regular tax among the companies is based upon separate return
calculations with current benefit for tax losses and credits utilized in the consolidated return. Effective January 1, 2023, the Company revised its tax sharing agreement to address corporate alternative minimum tax (CAMT). If the
consolidated federal income tax return group is an Applicable Corporation and has a CAMT liability, all members of the group will be treated as Applicable Corporations subject to CAMT. CAMT is paid by affiliates based on the ratio of the
subsidiarys CAMT liability to the total CAMT liabilities of all subsidiaries.
The Company did not have any
protective tax deposits under Section 6603 of the Internal Revenue Code as of December 31, 2023 and 2022.
The
Company does not have any tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date.
In August 2022, the Inflation Reduction Act of 2022 (Act) was passed by the U.S. Congress and signed into law. The
Act includes a new Federal CAMT, effective in 2023, that is based on the adjusted financial statement income (AFSI) set forth on the applicable financial statement (AFS) of an applicable corporation. A corporation is an
applicable corporation if its rolling average pre-tax AFSI over three prior years (starting with 2020-2022) is greater than $1.0 billion. For a group of related entities, the $1.0 billion threshold is determined on a group basis, and the
groups AFS is generally treated as the AFS for all separate taxpayers in the group. Except under limited circumstances, once a corporation is an applicable corporation, it is an applicable corporation in all future years.
An applicable corporation is not automatically subject to a CAMT liability. The corporations tentative CAMT liability is
equal to 15% of its adjusted AFSI, and CAMT is payable to the extent the tentative CAMT liability exceeds regular corporate income tax. However, any CAMT paid would be indefinitely available as a credit carryover that could reduce future regular tax
in excess of CAMT.
F-40
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Reporting entities that reasonably expect to be applicable corporations for
the current reporting period are considered applicable reporting entities. The Company comprises a controlled group of corporations and has determined that it likely will be an applicable corporation, and therefore an appliable reporting entity, in
2023. In making such determination, the group has made certain interpretations of, and assumptions regarding, the CAMT provisions of the Act. The Company does not consider its CAMT status when evaluating its deferred tax assets under the regular tax
system. The U.S. Treasury Department is expected to issue guidance throughout 2024 that may differ from the groups interpretations and assumptions and that could alter the groups determination.
The reporting entity has made an accounting policy election to disregard CAMT when evaluating the need for a valuation
allowance for its non-CAMT deferred tax assets.
For the years ended December 31, 2023 and 2022, the Act did not
impact the Companys total tax.
(9) |
Short-Term Debt and FHLB Funding Agreements |
Short-Term Debt
The Company is a party to a $750 million revolving variable rate credit facility agreement. The Company had no amounts
outstanding under the facility as of December 31, 2023 and 2022.
The Company 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. The maximum amount available under the agreement is $350 million. The borrowing rate on this program is equal to Effective
Federal Funds Rate plus 0.18%. The Company had no amounts outstanding under this agreement as of December 31, 2023 and 2022.
The terms of certain debt instruments contain various restrictive covenants, including, but not limited to, minimum statutory
surplus defined in the agreements. The Company was in compliance with all covenants as of December 31, 2023 and 2022.
The amount of interest paid on short-term debt was immaterial in 2023, 2022 and 2021.
FHLB Funding Agreements
The Company is a member of the FHLB. Through its membership, the FHLB established the Companys capacity for short-term
borrowings and cash advances under the funding agreement program at up to 50% of total admitted assets.
The
Companys Board of Directors has authorized the issuance of funding agreements up to $6.0 billion to the FHLB, shared between the Company and NLAIC, in exchange for cash advances, which are collateralized by pledged securities. The Company uses
these funds in an investment spread strategy, consistent with its other investment spread operations. As such, the Company applies SSAP No. 52, Deposit-Type Contracts, accounting treatment to these funds, consistent with its other
deposit-type contracts. It is not part of the Companys strategy to utilize these funds for operations, and any funds obtained from the FHLB for use in general operations would be accounted for consistent with SSAP No. 15, Debt and Holding
Company Obligations, as borrowed money. FHLB membership requires the Company to purchase and hold a minimum amount of FHLB capital stock plus additional stock based on outstanding advances. The Company has $20 million in membership stock as of
December 31, 2023 and 2022. As part of the agreement, the Company purchased and held an additional $144 million and $139 million in activity stock and an immaterial amount in excess stock as of December 31, 2023 and 2022,
respectively, which is included in stocks on the statutory statements of admitted assets, liabilities, capital and surplus. The Companys liability for advances from the FHLB was $3.3 billion and $3.1 billion as of December 31, 2023 and
2022, respectively, which is included in future policy benefits and claims on the statutory statements of admitted assets, liabilities, capital and surplus.
The Company has agreements with the FHLB to provide financing for operations. These agreements, which were renewed in February
2024 and expire January 2025, allow the Company access to borrow up to $1.1 billion. As of December 31, 2023 and 2022, the Company had no amounts outstanding under these agreements.
Bonds and mortgage loans with a carrying value of $5.3 billion (3.0% of total admitted assets) as of December 31, 2023
and $4.6 billion (2.8% of total admitted assets) as of December 31, 2022 were pledged as collateral under FHLB agreements and are included in bonds and mortgage loans on the statutory statements of admitted assets, liabilities, capital and
surplus.
F-41
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The following table summarizes the carrying value of surplus notes issued by the Company to NFS, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date issued |
|
Interest rate |
|
|
Par value |
|
|
Carrying value |
|
|
Interest and/ or principal paid in current year |
|
|
Total interest and/or principal paid |
|
|
Unapproved interest and/or principal |
|
|
Date of maturity |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/19/2001 |
|
|
7.50 |
% |
|
$ |
300 |
|
|
$ |
300 |
|
|
$ |
23 |
|
|
$ |
495 |
|
|
$ |
- |
|
|
|
12/31/2031 |
|
6/27/2002 |
|
|
8.15 |
% |
|
|
300 |
|
|
|
300 |
|
|
|
24 |
|
|
|
521 |
|
|
|
- |
|
|
|
6/27/2032 |
|
12/23/2003 |
|
|
6.75 |
% |
|
|
100 |
|
|
|
100 |
|
|
|
7 |
|
|
|
132 |
|
|
|
- |
|
|
|
12/23/2033 |
|
12/20/2019 |
|
|
4.21 |
% |
|
|
400 |
|
|
|
400 |
|
|
|
16 |
|
|
|
67 |
|
|
|
- |
|
|
|
12/19/2059 |
|
Total |
|
|
|
|
|
$ |
1,100 |
|
|
$ |
1,100 |
|
|
$ |
70 |
|
|
$ |
1,215 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/19/2001 |
|
|
7.50 |
% |
|
$ |
300 |
|
|
$ |
300 |
|
|
$ |
22 |
|
|
$ |
472 |
|
|
$ |
- |
|
|
|
12/31/2031 |
|
6/27/2002 |
|
|
8.15 |
% |
|
|
300 |
|
|
|
300 |
|
|
|
24 |
|
|
|
497 |
|
|
|
- |
|
|
|
6/27/2032 |
|
12/23/2003 |
|
|
6.75 |
% |
|
|
100 |
|
|
|
100 |
|
|
|
6 |
|
|
|
125 |
|
|
|
- |
|
|
|
12/23/2033 |
|
12/20/2019 |
|
|
4.21 |
% |
|
|
400 |
|
|
|
400 |
|
|
|
17 |
|
|
|
51 |
|
|
|
- |
|
|
|
12/19/2059 |
|
Total |
|
|
|
|
|
$ |
1,100 |
|
|
$ |
1,100 |
|
|
$ |
69 |
|
|
$ |
1,145 |
|
|
$ |
- |
|
|
|
|
|
The surplus notes were issued in accordance with Section 3901.72 of the Ohio
Revised Code. The principal and interest on these surplus notes shall not be a liability or claim against NLIC, or any of its assets, except as provided in Section 3901.72 of the Ohio Revised Code. The Department must approve interest and
principal payments before they are paid.
The Company has 100% coinsurance agreements with funds withheld with Eagle to cede specified GMDB and GLWB obligations
provided under substantially all of the variable annuity contracts and certain fixed indexed annuity contracts issued and to be issued by NLIC. While the GMDB and GLWB contract riders are ceded by NLIC to Eagle, the base annuity contracts and any
non-reinsured risks will be retained by NLIC. Amounts ceded to Eagle during 2023, 2022 and 2021 included premiums of $635 million, $637 million and $607 million, respectively, benefits and claims, net of third-party reinsurance
recoveries, of $73 million, $75 million, and $8 million respectively, net investment earnings on funds withheld assets of $55 million, $52 million and $40 million, respectively, and an expense allowance for third-party
reinsurance premiums of $1 million, $2 million and $1 million, respectively. As of December 31, 2023 and 2022, the carrying value of the funds withheld assets recorded within funds held under coinsurance was $1.3 billion and $1.6
billion, respectively, which consists of bonds and cash equivalents that had a carrying value of $1.2 billion and $1.5 million, respectively, and mortgage loans that had a carrying value of $73 million and $95 million, respectively.
As of December 31, 2023 and 2022, the Companys reserve credit for guaranteed benefits ceded under the reinsurance agreements was $91 million and $253 million, respectively. Amounts payable to Eagle related to the reinsurance
agreements were $377 million and $424 million as of December 31, 2023 and 2022, respectively.
The Company
has a reinsurance agreement with NMIC whereby nearly all of the Companys 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 the Companys agreement, the investment risk
associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by the Company, although a fee is paid to the Company for the retention of such risk. The ceding of risk does not discharge the Company, as the
original insurer, from its primary obligation to the policyholder. Amounts ceded to NMIC include revenues of $307 million, $287 million and $281 million for the years ended December 31, 2023, 2022 and 2021, respectively, while
benefits, claims and expenses ceded were $301 million, $267 million and $257 million, respectively.
F-42
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company has an intercompany reinsurance agreement with NLAIC whereby
certain inforce and subsequently issued fixed individual deferred annuity contracts are assumed on a modified coinsurance basis. Under modified coinsurance agreements, the ceding company retains invested assets and investment earnings are paid to
the reinsurer. Under terms of the agreement, the Company bears the investment risk associated with changes in interest rates. Risk of asset default remains with NLAIC, and the Company pays a fee to NLAIC for the retention of such risk. The agreement
will remain inforce until all contract obligations are settled. The ceding of risk does not discharge the original insurer from its primary obligation to the contractholder. Amounts assumed from NLAIC are included in the Companys statutory
statements of operations for 2023, 2022 and 2021 and include considerations of $46 million, $10 million and $10 million, respectively, net investment income of $31 million, $35 million and $42 million, respectively, and
benefits, claims and other expenses of $186 million, $161 million and $147 million, respectively. The reserve adjustment for 2023, 2022 and 2021 of $(153) million, $(161) million and $(151) million, respectively,
represents changes in reserves related to this fixed block of business, offset by investment earnings on the underlying assets. Policy reserves under this agreement totaled $737 million and $859 million as of December 31, 2023 and
2022, respectively, and amounts payable related to this agreement were $6 million and $14 million as of December 31, 2023 and 2022, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby certain variable universal life insurance, whole life
insurance and universal life insurance policies are assumed on a modified coinsurance basis. Total policy reserves under this treaty were $34 million and $33 million as of December 31, 2023 and 2022, respectively. Total premiums
assumed under this treaty were $12 million, $12 million and $12 million during 2023, 2022 and 2021, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby a certain life insurance contract is assumed on a
100% coinsurance basis. Policy reserves assumed under this agreement totaled $154 million and $156 million as of December 31, 2023 and 2022, respectively.
The Company has entered into reinsurance contracts to cede a portion of its individual annuity and life insurance business to
unrelated reinsurers. Total reserve credits taken as of December 31, 2023 and 2022 were $278 million and $345 million, respectively. The ceding of risk does not relieve the Company, as the original insurer, from its primary obligation
to the policyholder.
(12) |
Transactions with Affiliates |
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, but are not limited to, annuity and life insurance contracts, and agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany
repurchases, cash management services and software licensing. In addition, several benefit plans sponsored by NMIC are available to Nationwide employees, for which the Company has no legal obligations. Measures used to determine the allocation among
companies includes individual employee estimates of time spent, special cost studies, the number of full-time employees and other methods agreed to by the participating companies in conformity with NAIC statutory accounting principles. In addition,
the Company may underwrite insurance policies for its officers, directors, and/or other personnel providing services to the Company. The Company may offer discounts on certain products that are subject to applicable state insurance laws and
approvals.
Affiliate receivables and payables are the result of cost sharing and intercompany service agreements between
the Company and its affiliates in which settlement has not yet occurred. Affiliate receivables are presented net of affiliate payables when the Company has the right to offset. The gross amounts due from affiliates were $19 million and
$226 million as of December 31, 2023 and 2022, respectively, and are included in other assets in the Companys statutory statements of admitted assets, liabilities, capital and surplus. The gross amounts due to affiliates were
$133 million and $177 million as of December 31, 2023 and 2022, respectively, and are included in other liabilities in the Companys statutory statements of admitted assets, liabilities, capital and surplus. These arrangements
are subject to written agreements which require that intercompany balances be settled within a certain time period, generally 30 to 60 days.
In addition, Nationwide Services Company, LLC (NSC), a subsidiary of NMIC, provided 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 pursuant to the enterprise cost sharing agreement. As of January 1, 2022 NSC merged into
NNOV8, LLC, a subsidiary of NMIC, and all services going forward were provided by NMIC. For the years ended December 31, 2023 and 2022, the Company was allocated costs from NMIC totaling $245 million and $285 million, respectively.
For the year ended December 31, 2021, the Company was allocated costs from NMIC and NSC totaling $288 million.
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 $3.4 billion and $3.7 billion as of December 31, 2023 and 2022, respectively. Total revenues from these contracts were $125 million,
$127 million and $121 million for the years ended December 31, 2023, 2022 and 2021, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest
credited to the account balances were $84 million, $87 million and $113 million for the years ended December 31, 2023, 2022 and 2021, respectively.
F-43
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The Company receives an annual fee payable from the Tax Credit Funds, for
which it is a guarantor and Managing Member, for its services in connection with the oversight of the performance of the Investee Partnerships and the compliance by their managing members and managing agents thereof with the provisions of the
various operating level agreements and applicable laws. The amount the Company earned for the years ended December 31, 2023, 2022 and 2021 were immaterial.
Funds of Nationwide Funds Group (NFG), a group of Nationwide businesses that develops, sells and services mutual
funds, are offered to the Companys customers as investment options in certain of the Companys products. As of December 31, 2023 and 2022, customer allocations to NFG funds totaled $63.9 billion and $63.0 billion, respectively. For
the years ended December 31, 2023, 2022 and 2021, NFG paid the Company $234 million, $242 million and $265 million, respectively, for the distribution and servicing of these funds.
Amounts on deposit with NCMC for the benefit of the Company were $1.3 billion and $1.0 billion as of December 31, 2023
and 2022, respectively. As of December 31, 2023 and 2022, amounts on deposit with NCMC were comprised of $1.0 billion and $883 million, respectively, of cash equivalents, with remaining amounts in short-term investments.
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, 2023, 2022 and 2021 was $63 million, $112 million and $74 million, respectively.
The Company provides commercial mortgage loans to subsidiaries of Nationwide Realty Investors, LTD, a subsidiary of NMIC with
interest rates ranging from 3.62% to 4.90% and maturity dates ranging from January 2031 to July 2041. As of December 31, 2023 and 2022, the Company had $304 million and $338 million, respectively, outstanding under these arrangements.
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 from the buyer at the original sales price plus interest. As of December 31, 2023 and 2022, the Company had no outstanding
borrowings from affiliated entities under such agreements. The amounts the Company incurred for interest expense on intercompany repurchase agreements during 2023, 2022 and 2021 were immaterial.
During 2023, the Company received capital contributions of $135 million from NFS. During 2024, the Company received an
additional capital contribution of $30 million from NFS. During 2022, the Company received capital contributions of $310 million from NFS.
During 2023, there were no capital contributions paid to NLAIC by the Company. During 2024, the Company has paid capital
contributions to NLAIC of $100 million as of the subsequent event date. During 2022 and 2021, the Company paid capital contributions of $800 million and $400 million, respectively, to NLAIC. In addition, the Company contributed
$60 million to NLAIC in connection with the January 1, 2022 merger of HLIC.
The Company has a replacement
unsecured promissory note and revolving line of credit agreement with JNLNY whereby JNLNY can borrow up to $5 million. No amounts have been drawn on the note as of December 31, 2023 or through the subsequent event date.
Pursuant to financial support agreements, the Company has agreed to provide NLAIC and JNL with the minimum capital and surplus
required by each state in which NLAIC and JNL does business. These agreements do not constitute the Company as guarantor of any obligation or indebtedness of NLAIC or JNL or provide any creditor of NLAIC or JNL with recourse to or against any of the
assets of the Company.
F-44
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
Eagles surplus position is evaluated quarterly to determine if an
additional surplus contribution is required from the Company or if a distribution to the Company can be declared as of each quarter end. During 2023 and 2022, the Company made surplus contributions to Eagle. On September 29, 2023, the Company
made a surplus contribution to Eagle of $10 million. On June 30, 2022 and July 19, 2022, the Company made surplus contributions to Eagle of $225 million and $1 million, respectively. During 2023 and 2022 Eagle declared
distributions to the Company based on their earned surplus position. On February 9, 2024, the Company received a total distribution of $421 million that was declared on December 29, 2023 and consisted of a return of contributed
surplus of $10 million and a dividend of $411 million. The return of contributed surplus receivable was recorded in other invested assets and the dividend receivable was recorded in investment income due and accrued as of December 31,
2023. On August 10, 2023, the Company received a dividend distribution of $205 million that was declared on June 30, 2023. On May 9, 2023, the Company received a dividend distribution of $204 million that was declared on
March 31, 2023. On February 10, 2023, the Company received a total distribution of $332 million that was declared on December 30, 2022 and consisted of a return of contributed surplus of $221 million and a dividend of
$111 million. The return of contributed surplus receivable was recorded in other invested assets and the dividend receivable was recorded in investment income due and accrued as of December 31, 2022. On November 10, 2022, the Company
received a return of contributed surplus distribution of $5 million that was declared on September 30, 2022. On May 10, 2022, the Company received a dividend distribution of $19 million that was declared on March 31, 2022.
On February 10, 2022, the Company received a dividend distribution of $168 million that was declared on December 31, 2021.
On December 22, 2021, the Company and NLAIC entered into a short-term loan where NLAIC borrowed $80 million from the
Company. NLAIC repaid the short-term loan in full on January 4, 2022.
In March 2022, the Company executed a
$850 million unsecured promissory note and revolving line of credit agreement with Nationwide SBL, LLC (NWSBL), an affiliate, at an interest rate of 1-month LIBOR plus 1.25% with a maturity date of March 1, 2023. As of
December 31, 2022 NWSBL had outstanding borrowings of $168 million. During 2023, additional draws increased the outstanding balance to $198 million when, on March 1, 2023, the outstanding balance was repaid and a replacement
agreement was entered into at an interest rate of 1-month SOFR plus 0.9% and a maturity date of February 28, 2024. As of December 31, 2023, NWSBL had outstanding borrowings of $328 million. During 2024, additional draws increased the
outstanding balance to $363 million when, on February 28, 2024, the outstanding balance was repaid and a replacement agreement was entered into at an interest rate of 1-month SOFR plus 0.9% and a maturity date of February 27, 2025
with an initial draw of $363 million. Subsequently, additional draws have increased the outstanding balance to $381 million as of the subsequent event date.
During 2022, the Company and NMIC entered into unsecured promissory note agreements. On August 11, 2022, NMIC borrowed
$50 million from the Company and subsequently repaid the note in full on August 15, 2022. On September 8, 2022, NMIC borrowed $150 million from the Company and subsequently repaid the note in full on September 15, 2022.
The Company utilizes the look-through approach in valuing its investment in Nationwide Real Estate Investors (NLIC), LLC
(NW REI (NLIC)), a subsidiary of NMIC, at $251 million and $140 million as of December 31, 2023 and 2022, respectively. NW REI (NLIC)s financial statements are not audited and the Company has limited the value of its
investment in NW REI (NLIC) to the value contained in the audited financial statements of the underlying investments. All liabilities, commitments, contingencies, guarantees or obligations of the NW REI (NLIC), which are required under applicable
accounting guidance, are reflected in the Companys determination of the carrying value of the investment in NW REI (NLIC), if not already recorded in the financial statements of NW REI (NLIC).
Legal and Regulatory Matters
The Company is subject to legal and regulatory proceedings in the ordinary course of its business. These include proceedings
specific to the Company and proceedings generally applicable to business practices in the industries in which the Company operates. The outcomes of these proceedings cannot be predicted due to their complexity, scope, and many uncertainties. The
Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory proceedings is not likely to have a material adverse effect on the Companys financial condition.
F-45
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2023, 2022 and 2021 Statutory Financial Statements
The various businesses conducted by the Company are subject to oversight by
numerous federal and state regulatory entities, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the IRS, the Office of the Comptroller of the Currency and
state insurance authorities. Such regulatory entities may, in the normal course of business, be engaged in general or targeted inquiries, examinations and investigations of the Company and/or its affiliates. With respect to all such scrutiny
directed at the Company or its affiliates, the Company is cooperating with regulators.
Guarantees
In accordance with SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, for all guarantees made to or on
behalf of wholly-owned subsidiaries, no initial liability recognition has been made and there is no net financial statement impact related to these guarantees.
The contractual obligations under NLAICs single premium deferred annuity (SPDA) contracts in force and
issued before September 1, 1988 are guaranteed by the Company. Total SPDA contracts affected by this guarantee in force were immaterial as of December 31, 2023 and 2022.
The Company has guaranteed the obligations and liabilities of NISC, including, without limitation, the full and prompt payment
of all accounts payable to any party now or in the future. If for any reason NISC fails to satisfy any of its obligations, the Company will cause such obligation, loss or liability to be fully satisfied.
Indemnifications
In the normal course of business, the Company provides standard indemnifications to contractual counterparties. The types of
indemnifications typically provided include breaches of representations and warranties, taxes and certain other liabilities, such as third-party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the
normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated, and the contingencies triggering
the obligation to indemnify have not occurred and are not expected to occur. Consequently, the amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these
obligations.
(14) |
Regulatory Risk-Based Capital, Dividend Restrictions and Unassigned Surplus |
The NAIC Risk-Based Capital (RBC) model law requires every insurer to calculate its total adjusted capital and RBC
requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a companys total adjusted capital falling below established
relationships to required RBC. The model includes components for asset risk, liability risk, interest rate exposure and other factors. The State of Ohio, where the Company is domiciled, imposes minimum RBC requirements that are developed by the
NAIC. The formulas in the model for determining the amount of RBC 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 to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action. The Company exceeded
the minimum RBC requirements for all periods presented.
The State of Ohio insurance laws require insurers 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 twelve months, exceeds the greater of (i) 10% of
surplus as regards policyholders as of the prior December 31 or (ii) the net income of the insurer as of the prior year. No dividends were paid by the Company to NFS for the years ended December 31, 2023 and 2022. In March 2021, the
Company paid an ordinary dividend of $550 million to NFS. The Companys surplus as regards policyholders as of December 31, 2023, was $11.2 billion and statutory net income for 2023 was $949 million. As of January 1, 2024,
the Company has the ability to pay dividends to NFS totaling $1.1 billion without obtaining prior approval.
The State of
Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned capital and surplus. Earned capital and surplus is defined under the State of Ohio insurance laws as the amount equal to the
Companys 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 insurers policyholder capital
and surplus must be reasonable in relation to the insurers outstanding liabilities and adequate for its financial needs. The payment of dividends by the Company 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 the Companys participating policies (measured before dividends to policyholders) available for the benefit of the Company and its stockholders.
F-46
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule I Summary of Investments Other Than Investments in
Related Parties
As of December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
|
Type of investment |
|
Cost |
|
|
Fair value |
|
|
Amount at which is shown in the statutory statements of admitted assets, liabilities, capital and
surplus |
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government corporations |
|
$ |
173 |
|
|
$ |
175 |
|
|
$ |
173 |
|
U.S. government and agencies |
|
|
104 |
|
|
|
105 |
|
|
|
104 |
|
Obligations of states and political subdivisions |
|
|
3,576 |
|
|
|
3,361 |
|
|
|
3,576 |
|
Foreign governments |
|
|
342 |
|
|
|
321 |
|
|
|
342 |
|
Public utilities |
|
|
4,758 |
|
|
|
4,410 |
|
|
|
4,736 |
|
All other corporate, mortgage-backed and asset-backed securities |
|
|
35,011 |
|
|
|
33,102 |
|
|
|
34,936 |
|
Total fixed
maturity securities |
|
$ |
43,964 |
|
|
$ |
41,474 |
|
|
$ |
43,867 |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
Banks, trust and insurance companies |
|
|
65 |
|
|
|
67 |
|
|
|
67 |
|
Industrial, miscellaneous and all other |
|
|
164 |
|
|
|
164 |
|
|
|
164 |
|
Nonredeemable preferred stocks |
|
|
42 |
|
|
|
46 |
|
|
|
46 |
|
Total equity
securities1 |
|
$ |
271 |
|
|
$ |
277 |
|
|
$ |
277 |
|
Mortgage loans2 |
|
|
9,146 |
|
|
|
|
|
|
|
9,144 |
|
Short-term investments |
|
|
1,555 |
|
|
|
|
|
|
|
1,555 |
|
Policy loans |
|
|
970 |
|
|
|
|
|
|
|
969 |
|
Other long-term
investments3 |
|
|
2,346 |
|
|
|
|
|
|
|
2,346 |
|
Total
invested assets |
|
$ |
58,252 |
|
|
|
|
|
|
$ |
58,158 |
|
1 |
Amount does not agree to the statutory statements of admitted assets, liabilities, capital and surplus as
investments in related parties of $3.4 billion are excluded. |
2 |
Difference from Column B is attributable to valuation allowances on mortgage loans (see Note 5 to the
audited statutory financial statements). |
3 |
Includes derivatives, securities lending reinvested collateral assets and other invested assets. Amount does
not agree to the statutory statements of admitted assets, liabilities, capital and surplus as investments in related parties of $324 million are excluded. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-47
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule III Supplementary Insurance Information
As of December 31, 2023, 2022 and 2021 and for each of the years then ended (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
Column F |
|
Year: Segment |
|
Deferred policy acquisition costs1 |
|
|
Future
policy benefits,
losses, claims and
loss expenses |
|
|
Unearned premiums2 |
|
|
Other policy
claims and benefits payable2 |
|
|
Premium revenue |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
|
|
|
|
$ |
5,428 |
|
|
|
|
|
|
|
|
|
|
$ |
412 |
|
Annuities |
|
|
|
|
|
|
15,213 |
|
|
|
|
|
|
|
|
|
|
|
7,368 |
|
Retirement Solutions |
|
|
|
|
|
|
20,351 |
|
|
|
|
|
|
|
|
|
|
|
4,150 |
|
Corporate Solutions and Other |
|
|
|
|
|
|
8,381 |
|
|
|
|
|
|
|
|
|
|
|
2,740 |
|
Total |
|
|
|
|
|
$ |
49,373 |
|
|
|
|
|
|
|
|
|
|
$ |
14,670 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
|
|
|
|
$ |
5,353 |
|
|
|
|
|
|
|
|
|
|
$ |
415 |
|
Annuities |
|
|
|
|
|
|
10,635 |
|
|
|
|
|
|
|
|
|
|
|
5,758 |
|
Retirement Solutions |
|
|
|
|
|
|
21,824 |
|
|
|
|
|
|
|
|
|
|
|
5,097 |
|
Corporate Solutions and Other |
|
|
|
|
|
|
7,670 |
|
|
|
|
|
|
|
|
|
|
|
3,265 |
|
Total |
|
|
|
|
|
$ |
45,482 |
|
|
|
|
|
|
|
|
|
|
$ |
14,535 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
|
|
|
|
$ |
5,306 |
|
|
|
|
|
|
|
|
|
|
$ |
425 |
|
Annuities |
|
|
|
|
|
|
8,026 |
|
|
|
|
|
|
|
|
|
|
|
6,512 |
|
Retirement Solutions |
|
|
|
|
|
|
22,446 |
|
|
|
|
|
|
|
|
|
|
|
4,551 |
|
Corporate Solutions and Other |
|
|
|
|
|
|
6,721 |
|
|
|
|
|
|
|
|
|
|
|
1,176 |
|
Total |
|
|
|
|
|
$ |
42,499 |
|
|
|
|
|
|
|
|
|
|
$ |
12,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column G |
|
|
Column H |
|
|
Column I |
|
|
Column J |
|
|
Column K |
|
Year: Segment |
|
Net
investment income3 |
|
|
Benefits,
claims, losses and
settlement expenses4 |
|
|
Amortization of deferred policy acquisition costs1 |
|
|
Other
operating expenses |
|
|
Premiums written |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
$ |
276 |
|
|
$ |
757 |
|
|
|
|
|
|
$ |
101 |
|
|
|
|
|
Annuities |
|
|
613 |
|
|
|
13,619 |
|
|
|
|
|
|
|
158 |
|
|
|
|
|
Retirement Solutions |
|
|
835 |
|
|
|
5,610 |
|
|
|
|
|
|
|
214 |
|
|
|
|
|
Corporate Solutions and Other |
|
|
1,412 |
|
|
|
1,943 |
|
|
|
|
|
|
|
203 |
|
|
|
|
|
Total |
|
$ |
3,136 |
|
|
$ |
21,929 |
|
|
|
|
|
|
$ |
676 |
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
$ |
261 |
|
|
$ |
730 |
|
|
|
|
|
|
$ |
105 |
|
|
|
|
|
Annuities |
|
|
346 |
|
|
|
10,871 |
|
|
|
|
|
|
|
136 |
|
|
|
|
|
Retirement Solutions |
|
|
860 |
|
|
|
6,178 |
|
|
|
|
|
|
|
120 |
|
|
|
|
|
Corporate Solutions and Other |
|
|
552 |
|
|
|
1,519 |
|
|
|
|
|
|
|
174 |
|
|
|
|
|
Total |
|
$ |
2,019 |
|
|
$ |
19,298 |
|
|
|
|
|
|
$ |
535 |
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
$ |
254 |
|
|
$ |
311 |
|
|
|
|
|
|
$ |
107 |
|
|
|
|
|
Annuities |
|
|
337 |
|
|
|
9,411 |
|
|
|
|
|
|
|
41 |
|
|
|
|
|
Retirement Solutions |
|
|
861 |
|
|
|
6,973 |
|
|
|
|
|
|
|
122 |
|
|
|
|
|
Corporate Solutions and Other |
|
|
779 |
|
|
|
1,304 |
|
|
|
|
|
|
|
169 |
|
|
|
|
|
Total |
|
$ |
2,231 |
|
|
$ |
17,999 |
|
|
|
|
|
|
$ |
439 |
|
|
|
|
|
1 |
Deferred policy acquisition costs and amortization of deferred policy acquisition costs are not applicable
for statutory basis of accounting. |
2 |
Unearned premiums and other policy claims and benefits payable are included in Column C amounts.
|
3 |
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. |
4 |
Benefits to policyholders and beneficiaries, increase in reserves for future policy benefits and claims and
commissions are included in Column H amounts. |
See accompanying notes to statutory financial statements and report of independent
registered public accounting firm.
F-48
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule IV Reinsurance
As of December 31, 2023, 2022 and 2021 and each of the years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
|
Gross amount |
|
|
Ceded to other companies |
|
|
Assumed from other companies |
|
|
Net amount |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force |
|
$ |
147,725 |
|
|
$ |
(26,722 |
) |
|
$ |
579 |
|
|
$ |
121,582 |
|
Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
$ |
2,931 |
|
|
$ |
(143 |
) |
|
$ |
12 |
|
|
$ |
2,800 |
|
Accident and health insurance |
|
|
457 |
|
|
|
(465 |
) |
|
|
9 |
|
|
|
- |
|
Total |
|
$ |
3,388 |
|
|
$ |
(608 |
) |
|
$ |
21 |
|
|
$ |
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force |
|
$ |
145,173 |
|
|
$ |
(29,598 |
) |
|
$ |
605 |
|
|
$ |
116,180 |
|
Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
$ |
3,473 |
|
|
$ |
(144 |
) |
|
$ |
12 |
|
|
$ |
3,341 |
|
Accident and health insurance |
|
|
425 |
|
|
|
(424 |
) |
|
|
- |
|
|
|
1 |
|
Total |
|
$ |
3,898 |
|
|
$ |
(568 |
) |
|
$ |
12 |
|
|
$ |
3,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force |
|
$ |
144,115 |
|
|
$ |
(29,120 |
) |
|
$ |
653 |
|
|
$ |
115,648 |
|
Premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance |
|
$ |
1,624 |
|
|
$ |
(140 |
) |
|
$ |
12 |
|
|
$ |
1,496 |
|
Accident and health insurance |
|
|
445 |
|
|
|
(444 |
) |
|
|
- |
|
|
|
1 |
|
Total |
|
$ |
2,069 |
|
|
$ |
(584 |
) |
|
$ |
12 |
|
|
$ |
1,497 |
|
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-49
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule V Valuation and Qualifying Accounts
Years ended December 31, 2023, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
Description |
|
Balance at beginning of period |
|
|
Charged to costs and expenses |
|
|
Deductions1 |
|
|
Balance at end of period |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances - mortgage loans2 |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
- |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances - mortgage loans |
|
$ |
43 |
|
|
$ |
(5 |
) |
|
$ |
- |
|
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances - mortgage loans |
|
$ |
48 |
|
|
$ |
(4 |
) |
|
$ |
(1 |
) |
|
$ |
43 |
|
1 |
Amounts generally represent recoveries, payoffs and sales. |
2 |
Effective January 1, 2023, the Company changed its method for reserving for mortgage loans. Refer to
Note 5 for further discussion and the resulting impacts of the change. |
See accompanying notes to statutory financial statements and
report of independent registered public accounting firm.
F-50
Dealer
Prospectus Delivery Obligations
All dealers
that effect transactions in these securities are required to deliver a prospectus.
The SEC maintains a website (www.sec.gov) that contains the prospectus and other information.
PART
II
INFORMATION NOT REQUIRED IN A
PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution
The expenses in connection with the issuance and distribution of the contracts are as follows
(except for the Securities and Exchange Commission Registration Fee, all amounts shown are estimates):
Securities and Exchange Commission Registration Fee: $147,600
Accounting expenses: $30,000
Cost of Independent Registered Public Accounting Firm Consent: $15,000
Cost of Independent Registered Public Accounting Firm Audit of Registrant’s Financial
Statements: $5,738,033
Item 14.
Indemnification of Directors and Officers
Ohio's General Corporation Law expressly authorizes and Nationwide's Amended and Restated
Code of Regulations provides for indemnification by Nationwide of any person who, because such person is or was a director, officer or employee of Nationwide, was or is a party, or is threatened to be made a party to:
•
any threatened, pending or completed civil action, suit or proceeding;
•
any threatened, pending or completed criminal action, suit or proceeding;
•
any threatened, pending or completed administrative action or proceeding;
•
any threatened, pending or completed investigative action or proceeding.
The indemnification will be for
actual and reasonable expenses, including attorney's fees, judgments, fines and amounts paid in settlement by such person in connection with such action, suit or proceeding, to the
extent and under the circumstances permitted by Ohio's General Corporation Law. Nationwide has been informed that in the opinion of the Securities and Exchange Commission, the indemnification of directors, officers or persons controlling Nationwide for
liabilities arising under the Securities Act of 1933 ("Act") is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by a director, officer or
controlling person in connection with the securities being registered, the registrant will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act. Nationwide and
its directors, officers and/or controlling persons will be governed by the final adjudication of such issue. Nationwide will not be required to seek the court's determination if, in the opinion of Nationwide's counsel, the matter has been settled by
controlling precedent.
However, the payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action, suit or proceeding is permitted.
Item 15.
Recent Sales of Unregistered Securities.
Item 16.
Exhibits and Financial Statement Schedules
(B)
Financial Statement Schedules
All required
financial statement schedules of Nationwide Life Insurance Company are included in Part I of this registration statement.
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(a)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(b)
To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(c)
To include any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such information in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other
than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)
That, for the purpose of determining liability of the Registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the
undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(a)
Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering
required to be filed pursuant to Rule 424;
(b)
Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned Registrant or used or referred to by the undersigned Registrant;
(c)
The portion of any other free writing prospectus relating to the offering containing material
information about the undersigned Registrant or its securities provided by or on behalf of the undersigned
Registrant; and
(d)
Any other communication that is an offer in the offering made by the undersigned Registrant to
the purchaser.
(B)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may
be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officers or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
As required by the Securities Act of 1933, the Registrant certifies that it has caused this Registration Statement to be signed by the undersigned, duly authorized, in the City of Columbus, and State of Ohio, on May 2,
2024.
NATIONWIDE LIFE INSURANCE COMPANY |
|
|
Jamie Ruff Casto
Attorney-in-Fact |
As required by the Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities indicated, on May 2, 2024.
|
|
John L. Carter, President and Chief Operating Officer and Director (Principal Executive Officer) |
|
|
|
Timothy G. Frommeyer, Executive Vice President and Director |
|
|
|
Eric S. Henderson, Senior Vice President-Nationwide Annuity and Director |
|
|
|
Steven A. Ginnan, Senior Vice President-Chief Financial Officer-Nationwide Financial and Director (Chief Financial Officer) |
|
|
|
Holly R. Snyder, Senior Vice President-Nationwide Life and Director |
|
|
|
|
|
|
|
James D. Benson, Senior Vice President-Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |
|
|
|
|
Jamie Ruff Casto
Attorney-in-Fact |