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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

No established published trading market exists for the registrant’s common stock, par value $1.00 per share. As of ~~October~~April 27, ~~2006,~~2007, 3,814,779 shares of the registrant’s common stock were outstanding, all of which are held by Nationwide Financial Services, Inc.

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

ITEM 1 ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Condensed Consolidated Financial Statements


	Three months ended September 30,						Nine months ended September 30,					Three months ended March 31,
	2006			2005			2006			2005		2007			2006
Revenues:
Policy charges	$	277.8		$	268.7		$	846.0		$	790.7	$	290.7		$	275.3
Traditional life insurance and immediate annuity premiums		76.2			58.9			230.0			190.3		73.0			77.0
Net investment income		516.9			534.3			1,546.7			1,578.7		514.3			517.0
Net realized gains (losses) on investments, hedging instruments and hedged items		10.5			(15.1	)		(6.2	)		6.1
Net realized losses on investments, hedging instruments and hedged items													(11.1	)		(6.6	)
Other income		(1.5	)		0.6			(0.7	)		1.5		—			0.8

Total revenues		879.9			847.4			2,615.8			2,567.3		866.9			863.5

Benefits and expenses:
Interest credited to policyholder account values		335.8			338.5			998.8			996.0		322.5			329.9
Life insurance and annuity benefits		112.7			91.1			329.1			282.1		103.3			104.1
Policyholder dividends on participating policies		7.3			6.9			20.9			24.9		5.9			7.6
Amortization of deferred policy acquisition costs		105.2			115.9			344.4			345.9		129.7			116.6
Interest expense on debt, primarily with Nationwide Financial Services, Inc. (NFS)		15.8			17.4			48.0			48.7		15.1			16.6
Other operating expenses		122.1			135.3			386.8			396.8		126.0			133.5

Total benefits and expenses		698.9			705.1			2,128.0			2,094.4		702.5			708.3

Income from continuing operations before federal income tax expense (benefit)		181.0			142.3			487.8			472.9
Federal income tax expense (benefit)		50.8			(13.1	)		2.8			70.3
Income from continuing operations before federal income tax expense													164.4			155.2
Federal income tax expense													32.8			31.0

Income from continuing operations													131.6			124.2
Cumulative effect of adoption of accounting principle, net of taxes													(6.0	)		—

Net income	$	130.2		$	155.4		$	485.0		$	402.6	$	125.6		$	124.2


	September 30, 2006		December 31, 2005		March 31, 2007		December 31, 2006
	(Unaudited)				(Unaudited)
Assets
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $25,446.8 in 2006; $26,958.9 in 2005)	$	25,561.7	$	27,198.1
Equity securities (cost $27.2 in 2006; $35.1 in 2005)		33.1		42.1
Fixed maturity securities (cost $25,015.6 in 2007; $25,197.2 in 2006)					$	25,186.1	$	25,275.4
Equity securities (cost $28.4 in 2007; $28.5 in 2006)						34.3		34.4
Mortgage loans on real estate, net		8,239.4		8,458.9		7,997.5		8,202.2
Real estate, net		82.2		84.9		46.1		54.8
Policy loans		630.1		604.7		649.3		639.2
Other long-term investments		627.0		641.5		593.9		598.9
Short-term investments, including amounts managed by a related party		1,534.7		1,596.6		1,803.5		1,722.0

Total investments		36,708.2		38,626.8		36,310.7		36,526.9

Cash		2.5		0.9		1.4		0.5
Accrued investment income		359.0		344.0		335.2		323.6
Deferred policy acquisition costs		3,692.5		3,597.9		3,724.7		3,758.0
Other assets		2,022.3		1,699.1		1,747.3		2,001.5
Assets held in separate accounts		62,893.6		62,689.8		68,138.9		67,351.9

Total assets	$	105,678.1	$	106,958.5	$	110,258.2	$	109,962.4


Liabilities and Shareholder’s Equity
Liabilities:
Future policy benefits and claims	$	34,415.2	$	35,941.1	$	33,730.1	$	34,409.4
Short-term debt		78.6		242.3		146.6		75.2
Long-term debt, payable to NFS		700.0		700.0		700.0		700.0
Other liabilities		3,103.1		3,130.1		3,411.6		2,988.1
Liabilities related to separate accounts		62,893.6		62,689.8		68,138.9		67,351.9

Total liabilities		101,190.5		102,703.3		106,127.2		105,524.6

Shareholder’s equity:
Common stock, $1 par value; authorized - 5.0 shares; issued and outstanding - 3.8 shares		3.8		3.8		3.8		3.8
Additional paid-in capital		274.4		274.4		274.4		274.4
Retained earnings		4,158.4		3,883.4		3,781.5		4,130.9
Accumulated other comprehensive income		51.0		93.6		71.3		28.7

Total shareholder’s equity		4,487.6		4,255.2		4,131.0		4,437.8

Total liabilities and shareholder’s equity	$	105,678.1	$	106,958.5	$	110,258.2	$	109,962.4

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2007 and 2006 ~~and 2005~~


	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income			Total shareholder’s equity			Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income			Total shareholder’s equity
Balance as of December 31, 2005														$	3.8	$	274.4	$	3,883.4		$	93.6		$	4,255.2

Balance as of December 31, 2004	$	3.8	$	274.4	$	3,543.9		$	393.8		$	4,215.9
Comprehensive loss:
Net income															—		—		124.2			—			124.2
Other comprehensive loss, net of taxes															—		—		—			(165.7	)		(165.7	)

Total comprehensive loss																									(41.5	)

Dividends to NFS															—		—		(70.0	)		—			(70.0	)

Balance as of March 31, 2006														$	3.8	$	274.4	$	3,937.6		$	(72.1	)	$	4,143.7

Balance as of December 31, 2006														$	3.8	$	274.4	$	4,130.9		$	28.7		$	4,437.8

Comprehensive income:
Net income		—		—		402.6			—			402.6			—		—		125.6			—			125.6
Other comprehensive loss, net of taxes		—		—		—			(214.2	)		(214.2	)
Other comprehensive income, net of taxes															—		—		—			42.6			42.6

Total comprehensive income												188.4													168.2

Dividends to NFS		—		—		(75.0	)		—			(75.0	)		—		—		(475.0	)		—			(475.0	)

Balance as of September 30, 2005	$	3.8	$	274.4	$	3,871.5		$	179.6		$	4,329.3
Balance as of March 31, 2007														$	3.8	$	274.4	$	3,781.5		$	71.3		$	4,131.0

Balance as of December 31, 2005	$	3.8	$	274.4	$	3,883.4		$	93.6		$	4,255.2

Comprehensive income:
Net income		—		—		485.0			—			485.0
Other comprehensive loss, net of taxes		—		—		—			(42.6	)		(42.6	)

Total comprehensive income												442.4

Dividends to NFS		—		—		(210.0	)		—			(210.0	)

Balance as of September 30, 2006	$	3.8	$	274.4	$	4,158.4		$	51.0		$	4,487.6


	Nine months ended September 30,						Three months ended March 31,
	2006			2005			2007			2006
Cash flows from operating activities:
Net income	$	485.0		$	402.6		$	125.6		$	124.2
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses (gains) on investments, hedging instruments and hedged items		6.2			(6.1	)
Net realized losses on investments, hedging instruments and hedged items								11.1			6.6
Interest credited to policyholder account values		998.8			996.0			322.5			329.9
Capitalization of deferred policy acquisition costs		(407.3	)		(345.3	)		(140.0	)		(129.4	)
Amortization of deferred policy acquisition costs		344.4			345.9			129.7			116.6
Amortization and depreciation		40.3			49.4			10.9			15.6
(Increase) decrease in other assets		(413.2	)		254.9
Increase (decrease) in policy and other liabilities		436.2			(382.7	)
Decrease (increase) in other assets								247.6			(182.9	)
Increase in policy and other liabilities								274.2			161.2
Other, net		—			(35.9	)		9.3			3.3

Net cash provided by operating activities		1,490.4			1,278.8			990.9			445.1

Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale		3,666.1			3,863.2			1,126.5			1,200.4
Proceeds from sale of securities available-for-sale		2,156.6			2,252.9			1,563.2			983.5
Proceeds from repayments of mortgage loans on real estate		1,777.2			1,850.2
Proceeds from repayments or sales of mortgage loans on real estate								558.2			649.1
Cost of securities available-for-sale acquired		(4,350.0	)		(5,570.1	)		(2,729.2	)		(1,145.3	)
Cost of mortgage loans on real estate originated or acquired		(1,561.8	)		(1,699.2	)		(350.6	)		(577.7	)
Net decrease (increase) in short-term investments		59.3			(84.7	)
Collateral (paid) received – securities lending, net		(296.7	)		87.6
Net increase in short-term investments								(81.5	)		(785.1	)
Collateral received (paid) – securities lending, net								99.6			(128.9	)
Other, net		29.3			(627.7	)		(16.3	)		1.9

Net cash provided by investing activities		1,480.0			72.2			169.9			197.9

Cash flows from financing activities:
Net (decrease) increase in short-term debt		(163.7	)		167.2
Net proceeds from issuance of long-term debt		—			6.6
Net increase (decrease) in short-term debt								71.4			(104.9	)
Cash dividends paid to NFS		(210.0	)		(75.0	)		(232.5	)		(70.0	)
Investment and universal life insurance product deposits		1,625.4			1,561.8			848.1			590.6
Investment and universal life insurance product withdrawals		(4,220.5	)		(3,026.0	)		(1,846.7	)		(1,059.0	)
Other, net								(0.2	)		—

Net cash used in financing activities		(2,968.8	)		(1,365.4	)		(1,159.9	)		(643.3	)

Net increase (decrease) in cash		1.6			(14.4	)		0.9			(0.3	)
Cash, beginning of period		0.9			15.5			0.5			0.9

Cash, end of period	$	2.5		$	1.1		$	1.4		$	0.6

The accompanying condensed consolidated financial statements of Nationwide Life Insurance Company and subsidiaries (NLIC, or collectively, the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. The financial information included herein reflects all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. Operating results for all periods presented are not necessarily indicative of the results that may be expected for the full year. All significant intercompany balances and transactions have been eliminated. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, ~~2005~~2006 included in the Company’s ~~2005~~2006 Annual Report on Form 10-K.

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

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

A complete summary of the Company’s significant accounting policies is included in Note 2 to the audited consolidated financial statements included in the Company’s ~~2005~~2006 Annual Report on Form 10-K. During the quarter ended ~~September 30, 2006,~~March 31, 2007, there have been no material changes to these policies.

In ~~September 2006,~~February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statements No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. In addition, SFAS 159 does not establish requirements for recognizing and measuring dividend income, interest income or interest expense, nor does it eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157,Fair Value Measurements (SFAS 157), and SFAS No. 107,Disclosures about Fair Value of Financial Instruments. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company currently is evaluating the impact of adopting SFAS 159.

In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end balance sheet is effective for fiscal years ending after December 15, 2008. If in the last quarter of the preceding fiscal year an employer enters into a transaction that results in a settlement or experiences an event that causes a curtailment of the plan, the related gain or loss pursuant to Statement 88 or 106 is required to be recognized in earnings that quarter. Earlier application of the recognition or measurement date provisions is encouraged; however, early application must be for all of an employer’s benefit plans. Retrospective applicationThe Company adopted SFAS 158 effective December 31, 2006. The adoption of SFAS 158 isdid not ~~permitted. The Company currently is evaluating~~have a material impact on the ~~impact~~Company’s financial position or results of ~~adopting SFAS 158.~~operations.

In September 2006, the FASB issued SFAS ~~No. 157,~~~~Fair Value Measurements~~ ~~(SFAS 157).~~157. SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also provides guidance regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. SFAS 157 is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

In September 2006, the United States Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108 (SAB 108). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the SEC’s previous guidance in SAB No. 99 on evaluating the materiality of misstatements. A registrant applying the new guidance for the first time that identifies material errors in existence at the beginning of the first fiscal year ending after November 15, 2006, may correct those errors through a one-time cumulative effect adjustment to beginning-of-year retained earnings. The cumulative effect alternative is available only if the application of the new guidance results in a conclusion that a material error exists as of the beginning of the first fiscal year ending after November 15, 2006, and those misstatements were determined to be immaterial based on a proper application of the registrant’s previous method for quantifying misstatements. Because of the beginning-of-year recognition of the cumulative effect adjustment, misstatements occurring in the year of adoption cannot be included in that adjustment. The cumulative effect adjustment may be reflected in a Form 10-K for the year of adoption or, if early adoption is chosen, the adjustment may be reflected in any Form 10-Q filed after issuance of SAB 108.Company adopted SAB 108 requires the following disclosures if a cumulative effect adjustment is recorded: the nature and amount of each individual error included in the cumulative effect adjustment; when and how each error arose; and the fact that the errors had previously been considered immaterial. The cumulative effect adjustment is available only for prior-year uncorrected misstatements. The adjustment should not include amounts related to changes in accounting estimates.effective December 31, 2006. SAB 108 isdid not ~~expected to~~ have a material impact on the Company’s financial position or results of ~~operations.~~operations upon adoption.

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

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

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

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1). SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, issued by the FASB. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights or coverages that occurs as a result of the exchange of a contract for a new contract, or by amendment, endorsement or rider to a contract, or by the election of a new feature or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, ~~2006, with earlier adoption encouraged.~~2006. Retrospective application of SOP 05-1 to previously issued financial statements is not permitted. Initial application of SOP 05-1 is required as of the beginning of an entity’s fiscal year. The Company ~~will adopt~~adopted SOP 05-1 effective January 1, ~~2007. Although~~2007, which resulted in a $6.0 million charge, net of taxes, as the ~~Company is currently unable to quantify the impact~~cumulative effect of adoption ~~SOP 05-1 could have a material impact on the Company’s financial position and/or results~~ of ~~operations.~~this accounting principle.

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

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

In July 2006, the Company reached substantial agreement with the IRS on all open issues for tax years 2000-2002, including issues related to the DRD. Accordingly, the Company revised its estimate of amounts that may be due in connection with certain tax positions, including the DRD, for all open tax years. As a result of the revised estimate, $110.9 million of tax reserves were released into earnings during the quarter ended June 30, 2006.

During the third quarter of 2005, the Company refined its separate account DRD estimation process. As a result, the Company identified and recorded additional federal income tax benefits and recoverables in the amount of $42.6 million related to all tax years (2000 – 2005) that were open at that time. In addition, the Company recorded $5.6 million of net benefit adjustments primarily related to differences between the 2004 estimated tax liability and the amounts reported on the Company’s 2004 tax returns.

Total federal income tax (benefit) expense differs from the amount computed by applying the U.S. federal income tax rate to income from continuing operations before federal income tax (benefit) expense as follows for the periods indicated:

   Three months ended September 30,
      2006 2005
(in millions)
   Amount % Amount %
Computed (expected) tax expense
   $ 63.3 35.0 $ 49.8 35.0
Tax exempt interest and DRD
   (10.5 ) (5.8 ) (62.6 ) (44.0 )
Other, net
   (2.0 ) (1.1 ) (0.3 ) (0.2 )

Total
   $ 50.8 28.1 $ (13.1 ) (9.2 )

   Nine months ended September 30,
   2006 2005
(in millions)
   Amount % Amount %
Computed (expected) tax expense
   $ 170.7 35.0 $ 165.5 35.0
Reserve release
   (110.9 ) (22.7 ) —   —
Tax exempt interest and DRD
   (44.3 ) (9.1 ) (86.7 ) (18.3 )
Other, net
   (12.7 ) (2.6 ) (8.5 ) (1.8 )

Total
   $ 2.8 0.6 $ 70.3 14.9

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

The following table summarizes the Company’s other comprehensive income (loss) ~~income,~~, before and after federal income tax benefit, ~~(expense),~~ for the periods indicated:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(in millions)	2006			2005			2006			2005			2007			2006
Net unrealized gains (losses) on securities available-for-sale arising during the period:
Net unrealized gains (losses) before adjustments	$	505.0		$	(483.6	)	$	(131.0	)	$	(503.9	)	$	78.4		$	(409.7	)
Net adjustment to deferred policy acquisition costs		(121.8	)		135.6			31.7			134.2			(34.3	)		94.5
Net adjustment to future policy benefits and claims		(31.2	)		58.2			25.2			22.4			3.3			42.1
Related federal income tax (expense) benefit		(123.3	)		101.5			25.9			121.6
Related federal income tax benefit														(16.7	)		95.6

Net unrealized gains (losses)		228.7			(188.3	)		(48.2	)		(225.7	)		30.7			(177.5	)

Reclassification adjustment for net realized (gains) losses on securities available-for-sale realized during the period:
Net unrealized (gains) losses		(13.2	)		8.9			5.6			(14.7	)

Related federal income tax benefit expense (benefit)		4.6			(3.2	)		(2.0	)		5.1
Reclassification adjustment for net realized losses on securities available-for-sale realized during the period:
Net unrealized losses														13.9			5.1
Related federal income tax benefit														(4.9	)		(1.8	)

Net reclassification adjustment		(8.6	)		5.7			3.6			(9.6	)		9.0			3.3

Other comprehensive income (loss) on securities available-for-sale		220.1			(182.6	)		(44.6	)		(235.3	)
Other comprehensive gain (loss) on securities available-for-sale														39.7			(174.2	)

Accumulated net holding gains on cash flow hedges:
Unrealized holding gains		1.1			3.6			3.1			32.4			4.5			13.1
Related federal income tax expense		(0.4	)		(1.2	)		(1.1	)		(11.3	)		(1.6	)		(4.6	)

Other comprehensive income on cash flow hedges		0.7			2.4			2.0			21.1			2.9			8.5

Total other comprehensive income (loss)	$	220.8		$	(180.2	)	$	(42.6	)	$	(214.2	)	$	42.6		$	(165.7	)

Adjustments for net realized gains and losses on the ineffective portion of cash flow hedges were immaterial during the three months ended March 31, 2007 and ~~nine month periods ended September 30, 2006 and 2005.~~2006.

The Company and certain affiliated companies participate in a defined benefit pension plan sponsored by Nationwide Mutual Insurance Company (NMIC). The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work benefits the Company.

~~The following table summarizes the components of net periodic benefit cost for the NMIC pension plan as a whole, including amounts not related to the Company, for the periods indicated:~~

   Three months ended
September 30, Nine months ended
September 30,
(in millions)
   2006 2005 2006 2005
Service cost
   $ 37.9 $ 33.6 $ 113.9 $ 100.7
Interest cost
   36.2 33.7 108.4 101.1
Expected return on plan assets
   (52.0 ) (43.0 ) (155.9 ) (129.1 )
Recognized net actuarial loss
   4.1 0.9 12.5 2.8
Amortization of prior service cost
   1.1 1.1 3.4 3.4
Amortization of unrecognized transition asset
   —   (0.3 ) —   (0.9 )

Net periodic benefit cost
   $ 27.3 $ 26.0 $ 82.3 $ 78.0

NMIC and all participating employers, including the Company, expect to contribute $120.0 million to the pension plan during 2006. Through September 30, 2006, $90.0 million had been contributed, all by NMIC. Additional contributions to the plan totaling $30.0 million are anticipated for the remainder of the year, including $16.2 million by the Company. Tax planning strategies influence the timing of plan contributions.

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

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

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

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

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

On November 15, 2006, Nationwide Financial Services, Inc. (NFS), NLIC and Nationwide Retirement Solutions, Inc. (NRS) were named in a lawsuit filed in the United States District Court for the Southern District of Ohio entitledKevin Beary, Sheriff of Orange County, Florida, In His Official Capacity, Individually and On Behalf of All Others Similarly Situated v. Nationwide Life Insurance Co., Nationwide Retirement Solutions, Inc. and Nationwide Financial Services, Inc.The plaintiff seeks to represent a class of all sponsors of 457(b) deferred compensation plans in the United States that had variable annuity contracts with the defendants at any time during the class period, or in the alternative, all sponsors of 457(b) deferred compensation plans in Florida that had variable annuity contracts with the defendants during the class period. The class period is from January 1, 1996 until the class notice is provided. The plaintiff alleges that the defendants breached their fiduciary duties by arranging for and retaining service payments from certain mutual funds. The complaint seeks an accounting, a declaratory judgment, a permanent injunction and disgorgement or restitution of the service fee payments allegedly received by the defendants, including interest. On January 25, 2007, NFS, NLIC and NRS filed a motion to dismiss. On March 3, 2007, the plaintiffs filed their memorandum in opposition to the motion to dismiss that was filed by NFS, NLIC and NRS. On March 23, 2007, NFS, NLIC and NRS filed their response. NFS, NLIC and NRS intend to defend this lawsuit vigorously.

On February 11, 2005, NLIC was named in a class action lawsuit filed in Common Pleas Court, Franklin County, Ohio entitledMichael Carr v. Nationwide Life Insurance Company. The complaint seeks recovery for breach of contract, fraud by omission, violation of the Ohio Deceptive Trade Practices Act and unjust enrichment. The complaint also seeks unspecified compensatory damages, disgorgement of all amounts in excess of the guaranteed maximum premium and attorneys’ fees. On February 2, 2006, the ~~Court~~court granted the plaintiff’s motion for class certification on the breach of contract and unjust enrichment claims. The ~~Court~~court certified a class consisting of all residents of the United States and the Virgin Islands who, during the ~~Class Period,~~class period, paid premiums on a modal basis to NLIC for term life insurance policies issued by NLIC during the ~~Class Period~~class period that provide for guaranteed maximum premiums, excluding certain specified products. Excluded from the class are NLIC; any parent, subsidiary or affiliate of NLIC; all employees, officers and directors of NLIC; and any justice, judge or magistrate judge of the State of Ohio who may hear the case. The ~~Class Period~~class period is from February 10, 1990 through February 2, 2006, the date the class was certified. ~~The parties are currently engaged in discovery.~~On January 26, 2007, the plaintiff filed a motion for summary judgment. On April 30, 2007, NLIC filed a motion for summary judgment. NLIC continues to defend this lawsuit vigorously.

On April 13, 2004, NLIC was named in a class action lawsuit filed in Circuit Court, Third Judicial Circuit, Madison County, Illinois, entitledWoodbury v. Nationwide Life Insurance Company. NLIC removed this case to the United States District Court for the Southern District of Illinois on June 1, 2004. On December 27, 2004, the case was transferred to the United States District Court for the District of Maryland and included in the multi-district proceeding entitledIn Re Mutual Funds Investment ~~Litigation~~.Litigation. In response, on May 13, 2005, the plaintiff filed ~~a First Amended Complaint~~the first amended complaint purporting to represent, with certain exceptions, a class of all persons who held (through their ownership of an NLIC annuity or insurance product) units of any NLIC sub-account invested in mutual funds that included foreign securities in their portfolios and that experienced market timing or stale price trading activity. The ~~First Amended Complaint~~first amended complaint purports to disclaim, with respect to market timing or stale price trading in NLIC’s annuities sub-accounts, any allegation based on NLIC’s untrue statement, failure to disclose any material fact, or usage of any manipulative or deceptive device or contrivance in connection with any class member’s purchases or sales of NLIC annuities or units in annuities sub-accounts. The plaintiff claims, in the alternative, that if NLIC is found with respect to market timing or stale price trading in its annuities sub-accounts, to have made any untrue statement, to have failed to disclose any material fact or to have used or employed any manipulative or deceptive device or contrivance, then the plaintiff purports to represent a class, with certain exceptions, of all persons who, prior to NLIC’s untrue statement, omission of material fact, use or employment of any manipulative or deceptive device or contrivance, held (through their ownership of an NLIC annuity or insurance product) units of any NLIC sub-account invested in mutual funds that included foreign securities in their portfolios and that experienced market timing activity. The ~~First Amended Complaint~~first amended complaint alleges common law negligence and seeks to recover damages not to exceed $75,000 per plaintiff or class member, including all compensatory damages and costs. On June 1, 2006, the District Court granted NLIC’s motion to dismiss the plaintiff’s complaint. On June 30, 2006, the plaintiff filed a notice with the Fourth Circuit Court of Appeals of its intent to appeal the District Court’s decision. This case has been fully briefed. NLIC continues to defend this lawsuit vigorously.

On January 21, 2004, NLIC, Nationwide Life Insurance Company of America, ~~(NLICA),~~ Nationwide Life and Annuity Insurance Company, ~~(NLAIC),~~ NFS and Nationwide Financial Corporation (collectively referred to as the Companies) were named in a lawsuit filed in the United States District Court for the Northern District of Mississippi entitledUnited Investors Life Insurance Company v. Nationwide Life Insurance Company and/or Nationwide Life Insurance Company of America and/or Nationwide Life and Annuity Insurance Company and/or Nationwide Life and Annuity Company of America and/or Nationwide Financial Services, Inc. and/or Nationwide Financial Corporation, and John Does ~~A-Z.~~A-Z. In its complaint, the plaintiff alleges that the Companies and/or their affiliated life insurance companies caused the replacement of variable insurance policies and other financial products issued by United Investors with policies issued by the Companies. The plaintiff raises claims for (1) violations of the Federal Lanham Act, and common law unfair competition and defamation; (2) tortious interference with the plaintiff’s contractual relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W&R Insurance Agency, Inc., or with the plaintiff’s contractual relationships with its variable policyholders; (3) civil conspiracy; and (4) breach of fiduciary duty. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, a constructive trust and costs and disbursements, including attorneys’ fees. On December 30, 2005, the Companies filed a motion for summary judgment. On June 15, 2006, the District Court granted the Companies’ motion for summary judgment on all grounds and dismissed the plaintiff’s entire case with prejudice. ~~On June 26, 2006,~~The plaintiff appealed the ~~plaintiff filed a notice with~~District Court’s decision to the Fifth Circuit Court of ~~Appeals of its intent to~~Appeals. The appeal has been fully briefed, and the ~~District Court’s decision.~~court heard oral argument on May 3, 2007. The Companies continue to defend this lawsuit vigorously.

~~On October 31, 2003, NLIC and NLAIC were named in a lawsuit seeking class action status filed in the United States District Court for the District of Arizona. The suit, entitled~~~~Robert Helman et al v. Nationwide Life Insurance Company et al~~, challenges the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans. On April 8, 2004, the plaintiff filed an amended class action complaint on behalf of all persons who purchased an individual variable deferred annuity contract or a certificate to a group variable annuity contract issued by NLIC or NLAIC, which were allegedly used to fund certain tax-deferred retirement plans. The amended class action complaint seeks unspecified compensatory damages. On July 27, 2004, the District Court granted the motion to dismiss filed by NLIC and NLAIC. On June 7, 2006, the Ninth Circuit affirmed the order of the District Court dismissing the plaintiff’s complaint, and judgment was entered in favor of defendants NLIC and NLAIC. The time for the plaintiff to seek reconsideration by the appellate court or petition the United States Supreme Court for review has expired.

On August 15, 2001, NFS and NLIC were named in a lawsuit filed in the United States District Court for the District of Connecticut entitledLou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance ~~Company.~~Company. Currently, the plaintiffs’ fifth amended complaint, filed March 21, 2006, purports to represent a class of qualified retirement plans under the Employee Retirement Income Security Act of 1974, as amended (ERISA), that purchased variable annuities from NLIC. The plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts and that NLIC and NFS breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds. The complaint seeks disgorgement of some or all of the payments allegedly received by NLIC and NFS, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys’ fees. To date, the District Court has rejected the plaintiffs’ request for certification of the alleged class. ~~NLIC~~NFS’ and ~~NFS’~~NLIC’s motion to dismiss the plaintiffs’ fifth amended complaint is currently pending before the court. ~~NLIC~~NFS and ~~NFS~~NLIC continue to defend this lawsuit vigorously.

The Company’s federal income tax returns are routinely audited by the ~~IRS.~~Internal Revenue Service (IRS). Management has established tax reserves representing its best estimate of additional amounts it may be required to pay if certain tax positions it has taken are challenged and ultimately denied by the IRS. These reserves are reviewed regularly and are adjusted as events occur that management believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits or substantial agreement on the deductibility/non-deductibility of uncertain items, additional exposure based on current calculations, identification of new issues, release of administrative guidance or rendering of a court decision affecting a particular tax issue. Management believes its tax reserves reasonably provide for potential assessments that may result from IRS examinations and other tax-related matters for all open tax years.

Since 2001, the Company has sold ~~$615.4~~$627.0 million of credit enhanced equity interests in Low-Income-Housing Tax Credit Funds (Tax Credit Funds) to unrelated third parties. The Company has guaranteed cumulative after-tax yields to the third party investors ranging from 3.75% to 5.25% over periods ending between 2002 and 2022. As of ~~September 30, 2006,~~March 31, 2007, the Company held guarantee reserves totaling $6.3 million on these transactions. 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, then the Company must fund any shortfall, which is mitigated by stabilization collateral set aside by the Company at the inception of the transactions. The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is ~~$1.33~~$1.36 billion. The Company does not anticipate making any material payments related to these guarantees.

To the extent there are cash deficits in any specific property owned by the Tax Credit Funds, property reserves, property operating guarantees and reserves held by the Tax Credit Funds are exhausted before the Company is required to perform under its guarantees. To the extent the Company is ever required to perform under its guarantees, it may recover any such funding out of the cash flow distributed from the sale of the underlying properties of the Tax Credit Funds. This cash flow distribution would be paid to the Company prior to any cash flow distributions to unrelated third party investors.

As of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, the Company had relationships with 18 ~~and 19~~ variable interest entities (VIEs), ~~respectively,~~ each of which the Company was the primary beneficiary. Each VIE is a conduit that assists the Company in structured ~~product~~products transactions involving the sale of Tax Credit Funds to third party investors for which the Company provides guaranteed returns (see Note 8)6). The results of operations and financial position of these VIEs are included along with corresponding minority interest liabilities in the accompanying condensed consolidated financial statements.

VIE net assets were ~~$440.6~~$456.5 million and $445.5 million as of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, respectively. The following table summarizes the components of net assets as of the dates indicated:


(in millions)	September 30, 2006			December 31, 2005			March 31, 2007			December 31, 2006
Mortgage loans on real estate	$	—		$	31.5
Other long-term investments		441.6			478.6		$	438.3		$	432.5
Short-term investments		34.3			42.3			38.8			33.7
Other assets		40.1			41.3			38.0			37.8
Short-term debt		—			(32.6	)
Other liabilities		(75.4	)		(120.5	)		(58.6	)		(58.5	)

The Company’s total loss exposure from VIEs of which the Company is the primary beneficiary was immaterial as of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005~~2006 (except for the impact of guarantees disclosed in Note 8)6).

In addition to the VIEs described above, the Company holds variable interests, in the form of limited partnerships or similar investments, in Tax Credit Funds of which the Company is not the primary beneficiary. These investments have been held by the Company for periods of 1 to 10 years and allow the Company to utilize certain tax credits and realize other tax benefits from affordable housing projects. The Company also has certain investments in other securitization transactions that qualify as VIEs, but of which the Company is not the primary beneficiary. The total exposure to loss on these VIEs was ~~$69.2~~$118.4 million and ~~$53.9~~$118.9 million as of ~~September 30, 2006~~March 31, 2007 and December 31, ~~2005,~~2006, respectively.

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

The primary segment profitability measure that management uses is pre-tax operating earnings, which is calculated by adjusting income from continuing operations before federal income taxes to ~~exclude:~~exclude (1) net realized gains and losses on investments, hedging instruments and hedged items, except for periodic net coupon settlements on non-qualifying derivatives and net realized gains and losses related to ~~securitizations;~~securitizations and (2) the adjustment to amortization of ~~DAC~~deferred policy acquisition costs (DAC) related to net realized gains and losses.

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

The Retirement Plans segment is comprised of the Company’s private and public sector retirement plans business. The private sector primarily includes Internal Revenue Code (IRC) Section ~~401 and Section 403~~401(k) business, and the public sector primarily includes IRC Section 457 and Section 401(a) business, both in the form of full-service arrangements that provide plan administration and fixed and variable group ~~annuities.~~annuities as well as administration-only business.

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

The Corporate and Other segment includes certain structured products business; the MTN program; net investment income and certain expenses not allocated to ~~product~~other segments; periodic net coupon settlements on non-qualifying derivatives; ~~unallocated expenses;~~ interest expense on debt; revenue and expenses of the Company’s non-insurance subsidiaries not reported in other segments; and net realized gains and losses related to securitizations.

The following tables summarize the Company’s business segment operating results for the periods indicated:


	Three months ended September 30, 2006											Three months ended March 31, 2007
(in millions)	Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total		Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total
Revenues:
Policy charges	$	143.8	$	34.2	$	99.8	$	—		$	277.8	$	155.2	$	34.1	$	101.4	$	—		$	290.7
Traditional life insurance and immediate annuity premiums		37.4		—		38.8		—			76.2		33.6		—		39.4		—			73.0
Net investment income		188.6		160.4		83.0		84.9			516.9		164.5		161.2		84.0		104.6			514.3
Net realized gains on investments, hedging instruments and hedged items¹		—		—		—		7.0			7.0
Net realized losses on investments, hedging instruments and hedged items¹													—		—		—		(13.4	)		(13.4	)
Other income		0.4		—		—		1.6			2.0		0.8		—		—		1.5			2.3

Total revenues		370.2		194.6		221.6		93.5			879.9		354.1		195.3		224.8		92.7			866.9

Benefits and expenses:
Interest credited to policyholder account values		125.0		109.6		46.3		54.9			335.8		111.6		108.6		44.1		58.2			322.5
Life insurance and annuity benefits		55.5		—		57.2		—			112.7		46.6		—		56.7		—			103.3
Policyholder dividends on participating policies		—		—		7.3		—			7.3		—		—		5.9		—			5.9
Amortization of DAC		79.5		9.7		17.7		(1.7	)		105.2		99.5		9.6		23.1		(2.5	)		129.7
Interest expense on debt		—		—		—		15.8			15.8		—		—		—		15.1			15.1
Other operating expenses		49.7		42.3		34.7		(4.6	)		122.1		45.6		46.6		33.6		0.2			126.0

Total benefits and expenses		309.7		161.6		163.2		64.4			698.9		303.3		164.8		163.4		71.0			702.5

Income from continuing operations before federal income tax expense		60.5		33.0		58.4		29.1		$	181.0		50.8		30.5		61.4		21.7		$	164.4

Net realized gains on investments, hedging instruments and hedged items¹		—		—		—		(7.0	)
Adjustment to amortization related to net realized gains								(1.7	)
Net realized losses on investments, hedging instruments and hedged items¹													—		—		—		13.4
Adjustment to amortization related to net realized gains and losses													—		—		—		(2.5	)

Pre-tax operating earnings	$	60.5	$	33.0	$	58.4	$	20.4				$	50.8	$	30.5	$	61.4	$	32.6


	Three months ended September 30, 2005												Three months ended March 31, 2006
(in millions)	Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total			Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total
Revenues:
Policy charges	$	136.6	$	35.4	$	96.7	$	—		$	268.7		$	141.9	$	35.7	$	97.7	$	—		$	275.3
Traditional life insurance and immediate annuity premiums		24.5		—		34.4		—			58.9			31.5		—		45.5		—			77.0
Net investment income		208.5		160.9		82.6		82.3			534.3			194.8		159.8		80.9		81.5			517.0
Net realized losses on investments, hedging instruments and hedged items¹		—		—		—		(15.2	)		(15.2	)		—		—		—		(7.2	)		(7.2	)
Other income		0.3		—		—		0.4			0.7			0.4		—		—		1.0			1.4

Total revenues		369.9		196.3		213.7		67.5			847.4			368.6		195.5		224.1		75.3			863.5

Benefits and expenses:
Interest credited to policyholder account values		140.5		113.1		45.9		39.0			338.5			130.3		110.6		43.4		45.6			329.9
Life insurance and annuity benefits		35.8		—		55.3		—			91.1			40.5		—		63.6		—			104.1
Policyholder dividends on participating policies		—		—		6.9		—			6.9			—		—		7.6		—			7.6
Amortization of DAC		92.2		12.3		15.8		(4.4	)		115.9			97.6		10.0		14.1		(5.1	)		116.6
Interest expense on debt		—		—		—		17.4			17.4			—		—		—		16.6			16.6
Other operating expenses		48.3		45.6		39.2		2.2			135.3			46.6		43.8		41.0		2.1			133.5

Total benefits and expenses		316.8		171.0		163.1		54.2			705.1			315.0		164.4		169.7		59.2			708.3

Income from continuing operations before federal income tax expense		53.1		25.3		50.6		13.3		$	142.3			53.6		31.1		54.4		16.1		$	155.2

Net realized losses on investments, hedging instruments and hedged items¹		—		—		—		15.2						—		—		—		7.2
Adjustment to amortization related to net realized losses		—		—		—		(4.4	)
Adjustment to amortization related to net realized gains and losses														—		—		—		(5.1	)

Pre-tax operating earnings	$	53.1	$	25.3	$	50.6	$	24.1					$	53.6	$	31.1	$	54.4	$	18.2

ITEM 2 ~~MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS~~Management’s Narrative Analysis of the Results of Operations

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

The following analysis of condensed consolidated results of operations and financial condition of the Company should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere herein.

The Company is a member of the Nationwide group of companies, which is comprised of Nationwide Mutual Insurance Company (NMIC) and all of its subsidiaries and affiliates.

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

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

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

The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Company’s products to their own customer bases include independent broker/dealers, financial institutions, wirehouse and regional firms, pension plan administrators, and life insurance specialists. Representatives of affiliates ~~who~~that market products directly to a customer base include Nationwide Retirement Solutions, Inc. (NRS),; Nationwide Financial Network (NFN) ~~producers~~producers; and Mullin TBG Insurance Agency Services, LLC (Mullin TBG), a joint venture between NFS’ majority-owned subsidiary, TBG Insurance Services Corporation d/b/a TBG Financial, ~~(TBG Financial).~~and MC Insurance Agency Services, LLC d/b/a Mullin Consulting. The Company also distributes products through the ~~NMIC~~ agency distribution ~~force.~~force of its ultimate majority parent company, NMIC.

SeePart 1 – Financial Information, Item 1 – Condensed Consolidated Financial Statements, Note 108 – Segment Informationfor a discussion of reportable segments, including the components of each segment.

The following table summarizes pre-tax operating earnings by segment for the periods indicated:


	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31
(in millions)	2006		2005		Change	2006		2005		Change	2007		2006		Change
Individual Investments	$	60.5	$	53.1	14 %	$	164.4	$	173.7	(5)%	$	50.8	$	53.6	(5)%
Retirement Plans		33.0		25.3	30 %		108.3		84.7	28 %		30.5		31.1	(2)%
Individual Protection		58.4		50.6	15 %		158.4		147.9	7 %		61.4		54.4	13 %
Corporate and Other		20.4		24.1	(15)%		59.2		61.4	(4)%		32.6		18.2	79 %

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

Management makes decisions concerning the sale of invested assets based on a variety of market, business, tax and other factors. All realized gains and losses generated by these sales, charges related to other-than-temporary impairments of available-for-sale securities and other investments, and changes in ~~the allowance for losses~~valuation allowances on mortgage loans on real estate are reported in realized gains and losses on investments, hedging instruments and hedged items. Also included are changes in the fair values of derivatives qualifying as fair value hedges and the related changes in the fair values of hedged items; the ineffective, or excluded, portion of cash flow hedges; changes in the fair values of derivatives that do not qualify for hedge accounting ~~treatment;~~treatment (non-qualifying derivatives); and periodic net coupon settlements on non-qualifying derivatives.

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

The Company regularly evaluates and adjusts the DAC balance when actual gross profits in a given reporting period vary from management’s initial estimates, with a corresponding charge or credit to current period earnings. This process is referred to by the Company as a “true-up”, which is performed, and the resulting impact recognized, on a quarterly basis. Additionally, the Company regularly evaluates its assumptions regarding the future estimated gross profits used as a basis for amortization of DAC and adjusts the total amortization recorded to date by a charge or credit to earnings if evidence suggests that these future assumptions and estimates should be revised. This process is referred to by the Company as “unlocking.” The Company regularly monitors its actual experience with factors impacting its assumptions about future expected gross profits and other relevant internal and external information regarding those assumptions and unlocks as such information and analysis warrants.

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 affects surrender charges and impacts DAC amortization assumptions when lapse experience changes significantly.

In particular, the Company’s profitability is driven by fee income on separate account products, general and separate account asset levels, and management’s ability to manage interest spread income. While asset fees are largely at guaranteed annual rates, amounts earned vary directly with the underlying performance of the separate accounts. Interest spread income is comprised of net investment income, excluding any applicable allocated charges for invested capital, less interest credited to policyholder account values. 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;~~rates and the level of invested assets; the competitive environment; and other factors. In recent periods, management has taken actions to address low interest rate environments and the resulting impact on interest spread margins, including reducing commissions on fixed annuity sales, launching new products with new guaranteed rates, discontinuing the sale of its leading annual reset fixed annuities and invoking contractual provisions that limit the amount of variable annuity deposits allocated to the guaranteed fixed option. Also, the majority of new business contains lower floor guarantees than were historically provided.

In addition, life insurance profits are significantly impacted by mortality, morbidity and persistency experience.

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1). The Company adopted SOP 05-1 effective January 1, 2007, which resulted in a $6.0 million charge, net of taxes, as the cumulative effect of adoption of this accounting principle. SeePart 1 – Financial Information, Item 1 – Condensed Consolidated Financial Statements, Note 3 – Recently Issued Accounting Standardsfor a complete description of SOP 05-1.

The preparation of financial statements in accordance with United States generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ significantly from those estimates.

The Company’s most critical estimates include those used to determine the following: the balance, recoverability and amortization of DAC for investment products and universal life insurance products; impairment losses on investments; valuation allowances for mortgage loans on real estate; ~~federal income tax provision;~~ the liability for future policy benefits and claims; and ~~pension benefits.~~federal income tax provision.

Note 2 to the audited consolidated financial statements included in the Company’s ~~2005~~2006 Annual Report on Form 10-K provides a summary of significant accounting policies. SeePart 1 – Financial Information, Item 1 – Condensed Consolidated Financial Statements, Note 23 – Recently Issued Accounting Standards~~of this report~~ for a discussion of recently issued accounting standards. The Company’s critical accounting policies have not changed materially from those disclosed in the Company’s ~~2005~~2006 Annual Report on Form 10-K.

The following table summarizes the Company’s consolidated results of operations for the periods indicated:

The decrease in net income primarily was driven by a tax benefit recorded during the third quarter of 2005 compared to tax expense for the comparable period in 2006. This effect partially was offset by higher income from continuing operations before federal income tax expense (benefit) primarily due to the recognition of net realized gains on investments, hedging instruments and hedged items in 2006 compared to net losses in the prior year; higher traditional life insurance and immediate annuity premiums; and lower amortization of DAC. Higher life insurance and annuity benefits and lower interest spread income partially offset the overall improvement in income from continuing operations before federal income tax expense (benefit).

During the third quarter of 2006, the Company recorded $7.8 million of net expense adjustments primarily related to differences between the 2005 estimated tax liability and the amounts reported on the Company’s 2005 tax returns. During the third quarter of 2005, the Company refined its separate account DRD estimation process. As a result, the Company identified and recorded additional federal income tax benefits and recoverables in the amount of $42.6 million related to all tax years (2000 – 2005) that were open at that time. In addition, the Company recorded $5.6 million of net benefit adjustments primarily related to differences between the 2004 estimated tax liability and the amounts reported on the Company’s 2004 tax returns. Therefore, the effective tax rates in 2006 and 2005 are not comparable.

The Company recorded net realized gains on investments, hedging instruments and hedged items during the third quarter of 2006 compared to net realized losses in the prior year primarily due to a decline in current year impairment charges. The third quarter of 2005 included significant impairments on airline industry holdings.

The increase in traditional life insurance and immediate annuity premiums was due to higher interest rates relative to a year ago, which created a favorable environment for immediate annuity product sales in the Individual Investments segment.

Lower amortization of DAC primarily was due to the fixed annuity business in the Individual Investments segment. The main drivers were a favorable true-up in the third quarter of 2006 and an unfavorable unlocking in the prior year quarter.

Higher life insurance and annuity benefits primarily were driven by the Individual Investments segment due to increased immediate annuity reserves caused by growth in sales relative to a year ago. This increase is consistent with the corresponding increase in immediate annuity premiums described above.

Interest spread income declined primarily due to lower invested asset levels and yields on excess capital and surplus retained in the Corporate and Other segment. In addition, the decrease within the Individual Investments segment was driven by lower income from mortgage loan prepayment penalties and bond call premiums.

~~The following table summarizes the Company’s consolidated results of operations for the periods indicated:~~


	Nine months ended September 30,						Three months ended March 31,
(in millions)	2006			2005		Change	2007			2006			Change
Revenues:
Policy charges:
Asset fees	$	488.0		$	456.8	7%	$	176.4		$	162.1		9 %
Cost of insurance charges		209.7			202.5	4%		74.0			69.6		6 %
Administrative fees		92.7			68.4	35%		24.3			24.2		—
Surrender fees		55.6			63.0	(12)%		16.0			19.4		(18)%

Total policy charges		846.0			790.7	7%		290.7			275.3		6 %

Traditional life insurance and immediate annuity premiums		230.0			190.3	21%		73.0			77.0		(5)%
Net investment income		1,546.7			1,578.7	(2)%		514.3			517.0		(1)%
Net realized (losses) gains on investments, hedging instruments and hedged items		(6.2	)		6.1	NM
Net realized losses on investments, hedging instruments and hedged items								(11.1	)		(6.6	)	NM
Other income		(0.7	)		1.5	NM		—			0.8		(100)%

Total revenues		2,615.8			2,567.3	2%		866.9			863.5		—

Benefits and expenses:
Interest credited to policyholder account values		998.8			996.0	—		322.5			329.9		(2)%
Life insurance and annuity benefits		329.1			282.1	17%		103.3			104.1		(1)%
Policyholder dividends on participating policies		20.9			24.9	(16)%		5.9			7.6		(22)%
Amortization of DAC		344.4			345.9	—		129.7			116.6		11 %
Interest expense, primarily with NFS		48.0			48.7	(1)%		15.1			16.6		(9)%
Other operating expenses		386.8			396.8	(3)%		126.0			133.5		(6)%

Total benefits and expenses		2,128.0			2,094.4	2%		702.5			708.3		(1)%

Income from continuing operations before federal income tax expense		487.8			472.9	3%		164.4			155.2		6 %
Federal income tax expense		2.8			70.3	(96)%		32.8			31.0		6 %

Income from continuing operations								131.6			124.2		6 %
Cumulative effect of adoption of accounting principle, net of taxes								(6.0	)		—		NM

Net income	$	485.0		$	402.6	20%	$	125.6		$	124.2		1 %

The increase in net income primarily was driven by ~~a tax benefit recorded during the second quarter of 2006 that was~~higher asset fees and lower other operating expenses, partially offset by ~~separate tax benefits~~higher amortization of DAC and ~~recoverables recorded during the third quarter of 2005. In addition, the Company recorded higher income from continuing operations before federal income tax expense~~net realized losses on investments, hedging instruments and hedged items.

Asset fees increased primarily due to increases in traditional life insurance and immediate annuity premiums and policy charges. Higher life insurance and annuity benefits and lower interest spread income partially offset the overall increase in income from continuing operations before federal income tax expense.

Furthermore, as described in the third quarter section of this discussion, the Company recorded $7.8 million in net expense adjustments during the third quarter of 2006 and a total of $48.2 million in federal income tax benefits, recoverables and adjustments during the third quarter of 2005. Because of the impact of this activity, along with the 2006 reserve release described above, the effective tax rates in 2006 and 2005 are not comparable.

~~The increase in traditional life insurance and immediate annuity premiums was due to higher interest rates relative to a year ago, which created a~~values driven by favorable ~~environment for immediate annuity product sales~~market performance in the Individual Investments segment.

The ~~increase~~decline in policy charges was driven by higher asset fees and administrative fees. Asset fees rose due to increases in both average separate account values and the average asset fee rate charged within the Individual Investments segment. The average variable asset fee rate increased as new business sold with higher-risk features and corresponding higher fee rates influenced the overall average rate. Administrative fees increased primarily in the Retirement Plans segment due to the fee charged for the withdrawal of funds from a fixed annuity contract. See~~Part I – Financial Information, Item 2 – Management’s Narrative Analysis of the Results of Operations (MD&A) – Business Segments – Retirement Plans~~ ~~for additional information.~~

~~Interest spread income decreased~~other operating expenses occurred primarily within the Individual ~~Investments and Corporate and Other segments. The decline in Individual Investments was~~Protection segment due to lower ~~income from mortgage loan prepayment penalties~~agency group commissions.

Amortization of DAC increased primarily due to universal life true-ups and ~~bond call premiums~~higher actual gross profits for the variable universal life business within the Individual Protection segment.

Net realized losses on investments, hedging instruments and hedged items increased primarily due to higher impairment charges, partially offset by higher gross realized gains on sales. During the first quarter of 2007, the Company recognized a ~~decline in general account assets caused~~$10.6 million impairment on an investment vehicle that holds the rights to certain motion pictures created and/or distributed by ~~fixed annuity net outflows. Reduced invested asset levels, lower yields and shrinking margins~~a major entertainment company.

The effective tax rate was unchanged at 20.0% in the ~~MTN program drove the decrease in the Corporate~~first quarter of 2007 and ~~Other segment.~~2006.

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

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

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

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

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

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

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

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

~~The following table summarizes sales by product and segment for the periods indicated:~~

~~See~~~~Part I – Financial Information, Item 2 – MD&A~~ –~~Business Segments~~ ~~for an analysis of sales by product and segment.~~

~~The following table summarizes sales by distribution channel for the periods indicated:~~

The increase in total sales primarily was driven by strong sales of the recently introduced Lifetime Income (L.Inc.) and Capital Preservation Plus Lifetime Income (CPPLI) product riders in the Individual Investments segment, partially offset by lower corporate-owned life insurance (COLI) sales in the Individual Protection segment and private sector sales in the Retirement Plans segment.

Increased sales in the financial institutions, wirehouse and regional firms, and independent broker/dealers channels were driven by increased variable annuity sales, specifically L.Inc. and CPPLI as mentioned above, and strong sales of fixed life insurance products.

~~Lower sales through TBG Financial and life insurance specialists reflected the addition of two large COLI cases in the third quarter of 2005.~~

The following table summarizes sales by product and segment for the periods indicated:


	Nine months ended September 30,					Three months ended March 31,
(in millions)	2006		2005		Change	2007		2006		Change
Individual Investments
Individual variable annuities:
The BEST of AMERICA products	$	3,125.4	$	2,292.8	36 %	$	1,166.9	$	912.5	28 %
Private label annuities		264.5		264.3	—		73.2		73.0	—

Total individual variable annuities		3,389.9		2,557.1	33 %		1,240.1		985.5	26 %
Individual fixed annuities		140.4		148.7	(6)%		36.8		39.0	(6)%
Income products		171.5		134.0	28 %		55.5		57.0	(3)%
Advisory services program		180.4		182.1	(1)%		36.8		62.6	(41)%

Total Individual Investments		3,882.2		3,021.9	28 %		1,369.2		1,144.1	20 %

Retirement Plans
Private sector:
The BEST of AMERICA products		1,018.1		1,150.2	(12)%
Group products							339.5		363.6	(7)%
Public sector:
IRC Section 457 annuities		1,177.9		1,165.8	1 %		389.7		407.3	(4)%

Total Retirement Plans		2,196.0		2,316.0	(5)%		729.2		770.9	(5)%

Individual Protection
Corporate-owned life insurance		496.6		552.5	(10)%		203.2		282.2	(28)%
The BEST of AMERICA variable life series		327.4		317.9	3 %		108.7		110.1	(1)%
Traditional/universal life insurance		260.5		256.0	2 %		84.7		80.1	6 %

Total Individual Protection		1,084.5		1,126.4	(4)%		396.6		472.4	(16)%

Total sales	$	7,162.7	$	6,464.3	11 %	$	2,495.0	$	2,387.4	5 %

SeePart I – Financial Information, Item 2 – ~~MD&A~~Management’s Narrative Analysis of the Results of Operations (MD&A) – Business Segments for an analysis of sales by product and segment.

The following table summarizes sales by distribution channel for the periods indicated:


	Nine months ended September 30,					Three months ended March 31,
(in millions)	2006		2005		Change	2007		2006		Change
Non-affiliated:
Independent broker/dealers	$	2,096.5	$	1,966.7	7%	$	715.4	$	675.2	6 %
Financial institutions		1,290.6		938.4	38%		452.3		375.6	20 %
Wirehouse and regional firms		1,102.3		935.3	18%		422.0		322.8	31 %
Life insurance specialists		302.9		313.4	(3)%		88.3		172.6	(49)%
Pension plan administrators		261.7		288.3	(9)%		84.5		81.1	4 %

Total non-affiliated sales		5,054.0		4,442.1	14%		1,762.5		1,627.3	8 %

Affiliated:
NRS		1,195.2		1,187.0	1%		396.0		411.4	(4)%
Nationwide agents		540.6		496.9	9%		171.4		178.6	(4)%
TBG Financial		194.5		239.4	(19)%
Mullin TBG							115.0		110.4	4 %
NFN producers		178.4		98.9	80%		50.1		59.7	(16)%

Total affiliated sales		2,108.7		2,022.2	4%		732.5		760.1	(4)%

Total sales	$	7,162.7	$	6,464.3	11%	$	2,495.0	$	2,387.4	5 %

The increase in total sales primarily was driven by ~~strong~~higher individual variable annuity sales ~~of the recently introduced L.Inc. and CPPLI product riders~~ in the Individual Investments segment, led by the strong performance of the Lifetime Income (L.INC) product rider introduced in 2006, partially offset by lower ~~private sector~~COLI sales in the Individual Protection segment and lower sales in the Retirement Plans segment ~~and COLI sales in~~from the ~~Individual Protection segment.~~

~~Increased sales in~~continued movement of pension business to the ~~financial institutions, wirehouse and regional firms, and independent broker/dealers channels were generated from strong variable annuity sales, specifically L.Inc. and CPPLI as mentioned above.~~NFS trust platform.

Higher sales in the ~~NFN producers channel~~wirehouse and regional firms, financial institutions and independent broker/dealers channels primarily were driven by variable annuity ~~and income products.~~products, specifically products offering the L.INC rider mentioned above.

~~Lower sales~~Sales decreased through ~~TBG Financial reflected~~the life insurance specialists channel due to the addition of two large COLI cases induring the ~~third quarter of 2005.~~prior year quarter. However, quarterly sales fluctuations are normal and expected for corporate products.

The following table summarizes selected financial data for the Company’s Individual Investments segment for the periods indicated:


	Three months ended September 30,					Three months ended March 31,
(in millions)	2006		2005		Change
(dollars in millions)						2007		2006		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	123.9	$	116.8	6 %	$	136.7	$	122.5	12 %
Administrative fees		5.5		4.0	38 %		6.2		4.5	38 %
Surrender fees		14.4		15.8	(9)%		12.3		14.9	(17)%

Total policy charges		143.8		136.6	5 %		155.2		141.9	9 %
Premiums on income products		37.4		24.5	53 %		33.6		31.5	7 %
Net investment income		188.6		208.5	(10)%		164.5		194.8	(16)%
Other income		0.4		0.3	33 %		0.8		0.4	100 %

Total revenues		370.2		369.9	—		354.1		368.6	(4)%

Benefits and expenses:
Interest credited to policyholder account values		125.0		140.5	(11)%		111.6		130.3	(14)%
Annuity benefits and claims		55.5		35.8	55 %
Anuuity benefits and claims							46.6		40.5	15 %
Amortization of DAC		79.5		92.2	(14)%		99.5		97.6	2 %
Other operating expenses		49.7		48.3	3 %		45.6		46.6	(2)%

Total benefits and expenses		309.7		316.8	(2)%		303.3		315.0	(4)%

Pre-tax operating earnings	$	60.5	$	53.1	14 %	$	50.8	$	53.6	(5)%

Other Data
Sales:
Individual variable annuities	$	1,191.4	$	796.7	50 %	$	1,240.1	$	985.5	26 %
Individual fixed annuities		56.4		31.0	82 %		36.8		39.0	(6)%
Income products		57.1		46.4	23 %		55.5		57.0	(3)%
Advisory services program		47.7		65.1	(27)%		36.8		62.6	(41)%

Total sales	$	1,352.6	$	939.2	44 %	$	1,369.2	$	1,144.1	20 %

Average account values:
General account	$	13,102.3	$	14,517.0	(10)%	$	11,987.3	$	13,996.8	(14)%
Separate account		36,462.3		34,460.7	6 %		39,387.0		36,085.6	9 %
Advisory services program		528.7		345.3	53 %		607.0		443.3	37 %

Total average account values	$	50,093.3	$	49,323.0	2 %	$	51,981.3	$	50,525.7	3 %

Account values as of period end:
Individual variable annuities						$	43,862.3	$	41,631.0	5 %
Individual fixed annuities							5,553.3		7,072.0	(21)%
Income products							2,003.9		1,906.1	5 %
Advisory services program							616.8		475.0	30 %

Total account values						$	52,036.3	$	51,084.1	2 %

Interest spread margin:
Net investment income							5.73%		5.75%
Interest credited							3.73%		3.72%

Interest spread on average general account values							2.00%		2.03%

Pre-tax operating earnings to average account values		0.48%		0.43%			0.39%		0.42%

The ~~increase~~decrease in pre-tax operating earnings primarily was ~~driven~~due to lower interest spread income and an increase in annuity benefits and claims. Higher asset fees partially offset the overall decrease.

Interest spread income declined primarily due to lower general account assets caused by ~~lower amortization~~fixed annuity outflows, which accounted for $10.0 million of ~~DAC~~the $11.6 million total decline. In addition, interest spread margins tightened during the first quarter of 2007 to 200 basis points compared to 203 basis points in the same quarter a year ago. However, the current quarter included 16 basis points, or $4.8 million, of income from mortgage loan prepayments and ~~higher~~bond call premiums ~~on income products~~compared to 12 basis points, or $4.0 million, in the same quarter a year ago. For full year 2007, the Company expects interest spread margins to tighten compared to 2006 and ~~asset fees.~~ projects full year margins of 185 to 190 basis points, including a nominal level of prepayment activity.

~~Lower amortization of DAC primarily was due to the fixed annuity business, including a $3.9 million favorable true-up in the third quarter of 2006~~were driven by increased guaranteed benefit expenses related to ~~interest rate fluctuations and a $6.8 million unfavorable unlocking~~growth in ~~the prior year quarter driven by lapse rate changes.~~

The increase in premiums on income products was due to higher interest rates relative to a year ago, which created a favorable environment for immediate annuity product sales. The Federal Funds rate was 5.25% at September 30, 2006 compared to 3.75% at September 30, 2005.business with living benefit features.

Asset fees, ~~rose due to increases in average separate account values. Asset fees~~which are calculated daily and charged as a percentage of separate account ~~values.~~values, increased primarily due to higher average separate account values driven by favorable market performance. This factor contributed $11.5 million of the increase. Additionally, the average variable asset fee rate increased to 1.39% from 1.36% in the prior year.

Higher sales in the individual variable annuity ~~benefits and claims~~business were driven by ~~increased immediate annuity reserves due to growth in~~the L.INC product rider and a more targeted sales ~~relative to a year ago. This increase is consistent~~process. Sales of products with the L.INC rider accounted for $329.6 million of the increase in ~~premiums on income products noted above.~~

~~The following table summarizes the interest spread on Individual Investments segment average general account values for the periods indicated:~~

~~Interest spread margins improved during the third quarter of 2006 to 215 basis points~~sales compared to ~~205 basis points in~~ the same period a year ago. Included in the current quarter were 25 basis points, or $8.1 million, of income from mortgage loan prepayment penalties and bond call premiums compared to 32 basis points, or $11.8 million, in the same period a year ago.

Higher sales occurred in the variable annuity business driven by the recently introduced L.Inc. and CPPLI product riders and more targeted sales processes. L.Inc. and CPPLI accounted for $303.4 million and $79.9 million, respectively, of the increase in sales over the third quarter of 2005.

~~The following table summarizes selected financial data for the Company’s Individual Investments segment for the periods indicated:~~

The decrease in pre-tax operating earnings was driven by higher annuity benefits and claims and amortization of DAC and lower interest spread income. Increased premiums on income products and asset fees partially offset the overall decrease.

The increase in annuity benefits and claims was driven by increased immediate annuity reserves due to growth in sales relative to a year ago. This increase is consistent with the increase in premiums on income products noted below.

Amortization of DAC increased primarily due to higher variable annuity gross profits driven by higher asset levels. The increase partially was offset by a $3.9 million favorable fixed annuity true-up in the third quarter of 2006 related to interest rate fluctuations and a $6.8 million unfavorable fixed annuity unlocking in the prior year quarter driven by lapse rate changes.

~~The following table summarizes the interest spread on Individual Investments segment average general account values for the periods indicated:~~

Interest spread income declined even though interest spread margins improved slightly during the first nine months of 2006 to 201 basis points compared to 200 basis points in the same period a year ago. Included in the current period were 15 basis points, or $15.3 million, of income from mortgage loan prepayment penalties and bond call premiums compared to 22 basis points, or $24.6 million, in the same period a year ago. Lower general account assets caused by fixed annuity net outflows also contributed to the reduced interest spread income. For the full year 2006, the Company expects interest spread margins to decline slightly and projects full year spreads of 195 to 200 basis points, including a nominal level of prepayment activity during the remainder of the year.

~~The increase in premiums on income products was due to higher interest rates relative to a year ago, which created a favorable environment for immediate annuity product sales.~~

~~Most of the increase in asset fees was due to higher average separate account values.~~

Higher sales occurred in the variable annuity business driven by the recently introduced L.Inc. and CPPLI product riders and more targeted sales processes. L.Inc. and CPPLI accounted for $510.7 million and $399.0 million, respectively, of the increase in sales over the first nine months of 2005.

The following table summarizes selected information about the Company’s deferred individual fixed annuities, including the fixed option of variable annuities, as of ~~September 30, 2006:~~March 31, 2007:


	Ratchet			Reset			Market value adjustment (MVA) and other			Total			Ratchet			Reset			Market value adjustment (MVA) and other			Total
(dollars in millions)	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate
Minimum interest rate of 3.50% or greater	$	—	N/A	$	510.9	3.44 %	$	—	N/A	$	510.9	3.44 %	$	—	N/A	$	705.7	3.60%	$	—	N/A	$	705.7	3.60%
Minimum interest rate of 3.00% to 3.49%		2,378.0	4.65%		4,882.6	3.10 %		—	N/A		7,260.6	3.61 %		1,937.9	4.53%		4,311.2	3.10%		—	N/A		6,249.1	3.54%
Minimum interest rate lower than 3.00%		857.6	3.31%		618.1	3.55 %		28.7	3.86%		1,504.4	3.35 %		845.3	3.33%		397.3	3.51%		44.7	3.94%		1,287.3	3.41%
MVA with no minimum interest rate guarantee		—	N/A		—	N/A		1,644.0	2.96%		1,644.0	2.89 %		—	N/A		—	N/A		1,620.6	2.87%		1,620.6	2.87%

Total deferred individual fixed annuities	$	3,235.6	4.29%	$	6,011.6	3.17 %	$	1,672.7	2.97%	$	10,919.9	3.45 %	$	2,783.2	4.17%	$	5,414.2	3.19%	$	1,665.3	2.90%	$	9,862.7	3.42%

The following table summarizes selected financial data for the Company’s Retirement Plans segment for the periods indicated:


	Three months ended September 30,					Three months ended March 31,
(in millions)	2006		2005		Change
(dollars in millions)						2007		2006		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	30.6	$	32.1	(5)%	$	30.5	$	31.8	(4)%
Administrative fees		2.7		1.6	69 %		2.6		2.5	4 %
Surrender fees		0.9		1.7	(47)%		1.0		1.4	(29)%

Total policy charges		34.2		35.4	(3)%		34.1		35.7	(4)%
Net investment income		160.4		160.9	—		161.2		159.8	1 %

Total revenues		194.6		196.3	(1)%		195.3		195.5	—

Benefits and expenses:
Interest credited to policyholder account values		109.6		113.1	(3)%		108.6		110.6	(2)%
Amortization of DAC		9.7		12.3	(21)%		9.6		10.0	(4)%
Other operating expenses		42.3		45.6	(7)%		46.6		43.8	6 %

Total benefits and expenses		161.6		171.0	(6)%		164.8		164.4	—

Pre-tax operating earnings	$	33.0	$	25.3	30 %	$	30.5	$	31.1	(2)%

Other Data
Sales:
Private sector	$	305.9	$	361.0	(15)%	$	339.5	$	363.6	(7)%
Public sector		381.6		397.6	(4)%		389.7		407.3	(4)%

Total sales	$	687.5	$	758.6	(9)%	$	729.2	$	770.9	(5)%

Average account values:
General account	$	10,581.4	$	10,654.2	(1)%	$	10,877.7	$	10,889.2	—
Separate account		16,715.6		18,306.4	(9)%		17,595.1		18,303.3	(4)%

Total average account values	$	27,297.0	$	28,960.6	(6)%	$	28,472.8	$	29,192.5	(2)%

Account values as of period end:
Private sector						$	12,112.9	$	12,545.8	(3)%
Public sector							16,310.2		16,148.1	1 %

Total account values						$	28,423.1	$	28,693.9	(1)%

Interest spread margin:
Net investment income							5.92%		5.87%
Interest credited							3.99%		4.06%

Interest spread on average general account values							1.93%		1.81%

Pre-tax operating earnings to average account values		0.48%		0.35%			0.43%		0.43%

The ~~increase~~slight decrease in pre-tax operating earnings primarily was driven by higher ~~interest spread income and decreases in~~ other operating expenses and ~~amortization of DAC.~~

~~The following table summarizes the~~lower asset fees, partially offset by higher interest spread ~~on Retirement Plans segment~~income.

Other operating expenses increased primarily due to higher software amortization expense of $2.1 million.

Asset fees decreased due to the continued reduction in variable annuity assets from the movement of pension business to the NFS trust platform.

Interest spread income increased primarily due to a lower average ~~general account values for the periods indicated:~~

crediting rate. Interest spread margins ~~widened~~increased during the ~~third~~first quarter of ~~2006~~2007 to ~~192~~193 basis points compared to ~~179~~181 basis points in the same ~~period~~quarter a year ago. Included in the current quarter were 1311 basis points, or ~~$3.4~~$3.0 million, of income from mortgage loan ~~prepayment penalties~~prepayments and bond call premiums compared to 198 basis points, or ~~$5.1~~$2.3 million, in the same ~~period a year ago. The increase in interest spread income was due to the decline in the average credited interest rate.~~

~~Lower other operating expenses primarily were the result of lower net commissions and software costs.~~

~~The decrease in amortization of DAC was due to unlocking in 2005 related to mutual fund revenue assumptions that resulted in higher expense in the prior year.~~

~~Overall sales decreased primarily due to the declining issuance of group annuity contracts in the private sector.~~

~~The following table summarizes selected financial data for the Company’s Retirement Plans segment for the periods indicated:~~

~~The increase in pre-tax operating earnings primarily was driven by higher administrative fees attributable to the withdrawal of funds from a fixed annuity contract in the second~~ quarter ~~of 2006, which resulted in an $18.6 million policy fee adjustment.~~

~~The following table summarizes the interest spread on Retirement Plans segment average general account values for the periods indicated:~~

Interest spread margins decreased to 181 basis points in the first nine months of 2006 compared to 189 basis points in the same period a year ago. Included in the current period were 9 basis points, or $7.3 million, of income from mortgage loan prepayment penalties and bond call premiums compared to 20 basis points, or $16.0 million, in the same period a year ago. For ~~the~~ full year ~~2006,~~2007, the Company expects interest spread margins ~~to remain relatively stable~~consistent with 2006 and projects full year ~~spreads~~margins of 180 to 185 basis points, including a nominal level of prepayment ~~activity during the remainder of the year.~~activity.

Overall sales ~~decreased due~~continued to decline as a result of the movement of pension business to the ~~declining issuance of group annuity contracts in the private sector.~~NFS trust platform as noted above.

The following table summarizes selected financial data for the Company’s Individual Protection segment for the periods indicated:

~~Pre-tax operating earnings increased primarily due to higher life insurance premiums and lower other operating expenses.~~

~~The improvement in life insurance premiums was driven by increased sales of traditional life insurance products.~~

~~The decline in sales primarily was attributable to the COLI line as the third quarter of 2005 included the addition of two large cases.~~

~~The following table summarizes selected financial data for the Company’s Individual Protection segment for the periods indicated:~~


	Nine months ended September 30,					Three months ended March 31,
(in millions)	2006		2005		Change	2007		2006		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	23.9	$	20.9	14 %	$	9.2	$	7.8	18 %
Cost of insurance charges		209.7		202.5	4 %		74.0		69.6	6 %
Administrative fees		50.4		51.1	(1)%		15.5		17.2	(10)%
Surrender fees		9.0		9.5	(6)%		2.7		3.1	(13)%

Total policy charges		293.0		284.0	3 %		101.4		97.7	4 %
Traditional life insurance premiums		126.2		122.1	3 %		39.4		45.5	(13)%
Net investment income		245.6		251.9	(3)%		84.0		80.9	4 %

Total revenues		664.8		658.0	1 %		224.8		224.1	—

Benefits and expenses:
Interest credited to policyholder account values		135.2		137.0	(1)%		44.1		43.4	2 %
Life insurance benefits		183.2		174.0	5 %		56.7		63.6	(11)%
Policyholder dividends on participating policies		20.9		24.9	(16)%		5.9		7.6	(22)%
Amortization of DAC		60.3		63.8	(5)%		23.1		14.1	64 %
Other operating expenses		106.8		110.4	(3)%		33.6		41.0	(18)%

Total benefits and expenses		506.4		510.1	(1)%		163.4		169.7	(4)%

Pre-tax operating earnings	$	158.4	$	147.9	7 %	$	61.4	$	54.4	13 %

Other Data
Sales:
Corporate-owned life insurance	$	496.6	$	552.5	(10)%	$	203.2	$	282.2	(28)%
The BEST of AMERICA variable life series		327.4		317.9	3 %		108.7		110.1	(1)%
Traditional/universal life insurance		260.5		256.0	2 %		84.7		80.1	6 %

Total sales	$	1,084.5	$	1,126.4	(4)%	$	396.6	$	472.4	(16)%

Policy reserves as of period end:
Individual investment life insurance	$	3,483.3	$	3,251.3	7 %	$	3,740.0	$	3,491.8	7 %
Corporate investment life insurance		7,425.6		6,643.0	12 %		8,703.9		7,140.8	22 %
Traditional life insurance		2,122.1		2,138.0	(1)%		2,006.7		2,128.3	(6)%
Universal life insurance		1,130.1		1,047.1	8 %		1,136.9		1,082.5	5 %

Total policy reserves	$	14,161.1	$	13,079.4	8%	$	15,587.5	$	13,843.4	13 %

Insurance in force as of period end:
Individual investment life insurance	$	38,393.8	$	37,113.6	3 %	$	39,063.3	$	37,871.7	3 %
Corporate investment life insurance		24,224.4		23,646.6	2 %		24,869.6		23,964.0	4 %
Traditional life insurance		19,987.0		20,380.7	(2)%		18,629.4		19,796.2	(6)%
Universal life insurance		9,396.1		8,663.8	8 %		9,720.0		8,911.9	9 %

Total insurance in force	$	92,001.3	$	89,804.7	2 %	$	92,282.3	$	90,543.8	2 %

The increase in pre-tax operating earnings primarily was ~~driven by~~due to lower other operating expenses and life insurance benefits and higher cost of insurance ~~charges~~charges. Higher amortization of DAC and lower ~~policyholder dividends on participating policies,~~life insurance premiums partially offset ~~by higher life insurance benefits.~~

~~Higher cost of insurance charges were due to increased business in force throughout~~ the ~~segment combined with the aging of the individual life business block.~~overall increase.

~~Policyholder dividends on participating policies declined~~The decrease in ~~the traditional life business~~other operating expenses primarily resulted from lower agency group commissions of $3.6 million due to a ~~reduction~~reduced rate structure.

Lower life insurance benefits were driven by favorable mortality in the ~~dividend scale~~variable universal life business in 2007 compared to the prior ~~year.~~

~~Higher life insurance benefits were due to adverse mortality in both the fixed and investment life businesses,~~year, partially offset by a $3.3 million waiver of premium reserve release in fixed life during the first quarter of 2006.

Cost of insurance charges increased due to increased business in force combined with the aging of the individual life business block. The ~~decline~~aging of a block generally increases cost of insurance charges.

Higher amortization of DAC primarily was due to universal life true-ups which resulted in ~~sales was attributable~~a $4.0 increase over the prior year. Higher actual gross profits for the variable universal life business accounted for the remainder of the increase.

Traditional life insurance premiums declined primarily due to a $3.7 million fixed life insurance premium refund in the ~~COLI line as the comparable 2005 period included~~prior year.

Sales decreased primarily due to the addition of ~~several~~two large ~~cases.~~COLI cases during the prior year quarter. However, quarterly sales fluctuations are normal and expected for corporate products.

The following table summarizes selected financial data for the Company’s Corporate and Other segment for the periods indicated:


	Three months ended September 30,					Three months ended March 31,
(in millions)	2006		2005		Change	2007			2006			Change
Statements of Income Data
Operating revenues:
Net investment income	$	84.9	$	82.3	3 %	$	104.6		$	81.5		28 %
Other income		1.6		0.4	NM		1.5			1.0		50 %

Total operating revenues		86.5		82.7	5 %		106.1			82.5		29 %

Benefits and operating expenses:
Interest credited to policyholder account values		54.9		39.0	41 %		58.2			45.6		28 %
Interest expense on debt		15.8		17.4	(9)%		15.1			16.6		(9)%
Other operating expenses		(4.6)		2.2	NM		0.2			2.1		(90)%

Total benefits and operating expenses		66.1		58.6	13 %		73.5			64.3		14 %

Pre-tax operating earnings		20.4		24.1	(15)%		32.6			18.2		79 %

Net realized gains (losses) on investments, hedging instruments and hedged items¹		7.0		(15.2)	NM
Adjusment to amortization related to net realized gains and losses		1.7		4.4	NM
Net realized losses on investments, hedging instruments and hedged items¹							(13.4	)		(7.2	)	NM
Adjustment to amortization related to net realized gains and losses							2.5			5.1		NM

Income from continuing operations before federal income taxes	$	29.1	$	13.3	119 %	$	21.7		$	16.1		35 %

Other Data
Customer funds managed and administered:
Funding agreements backing medium-term notes						$	4,347.9		$	4,122.0		5 %

Pre-tax operating earnings ~~decreased~~increased primarily due to ~~lower~~higher interest spread income, as ~~lower net investment income on excess capital~~corporate assets increased and ~~surplus retained in this segment was~~earned higher average returns driven by reduced invested asset levels and lower yields. The overall decline was partially offset by legal accrual write-offs in the current year due to several favorable case developments, which resulted in negative other operating expenses for the third quarter of 2006.strong market performance.

Net realized ~~gains~~losses on investments, hedging instruments and hedged items ~~during the third quarter of 2006 compared to net realized losses in the prior year~~increased primarily due to ~~a decline in current year~~higher impairment ~~charges. The third~~charges, partially offset by higher gross realized gains on sales. During the first quarter of ~~2005 included significant impairments~~2007, the Company recognized a $10.6 million impairment on ~~airline industry holdings.~~an investment vehicle that holds the rights to certain motion pictures created and/or distributed by a major entertainment company.

The following table summarizes net realized ~~gains (losses)~~losses on investments, hedging instruments and hedged items from continuing operations by source for the periods indicated:

~~The following table summarizes selected financial data for the Company’s Corporate and Other segment for the periods indicated:~~

~~Pre-tax operating earnings decreased primarily due to lower interest spread income, partially offset by lower other operating expenses.~~

Interest spread income declined due to lower net investment income on excess capital and surplus retained in this segment driven by reduced invested asset levels and lower yields. Lower margins in the MTN program also contributed to the decrease.

~~Lower other operating expenses were driven by legal accrual write-offs in the third quarter of 2006 due to several favorable case developments,~~

The Company recorded net realized losses on investments, hedging instruments and hedged items during the first nine months of 2006 compared to net realized gains in the comparable prior year period primarily due to a decline in gross gains and an increase in gross losses on sales of fixed maturity securities, partially offset by lower current year impairments as the third quarter of 2005 included significant losses on airline industry holdings.

~~The following table summarizes net realized (losses) gains on investments, hedging instruments and hedged items from continuing operations by source for the periods indicated:~~


	Nine months ended September 30,						Three months ended March 31,
(in millions)	2006			2005			2007			2006
Total realized gains on sales, net of hedging losses	$	43.0		$	50.7		$	23.0		$	10.8
Total realized losses on sales, net of hedging gains		(48.5	)		(12.6	)		(21.7	)		(17.8	)
Other-than-temporary and other investment impairments		(8.1	)		(29.1	)		(13.3	)		(0.8	)
Credit default swaps		(0.4	)		(6.8	)		(0.3	)		(0.2	)
Periodic net coupon settlements on non-qualifying derivatives		1.4			(0.2	)		0.6			0.6
Other derivatives		6.4			4.1			0.6			0.8

Net realized (losses) gains on investments, hedging instruments and hedged items	$	(6.2	)	$	6.1
Net realized losses on investments, hedging instruments and hedged items							$	(11.1	)	$	(6.6	)

The Company has a comprehensive portfolio monitoring process for fixed maturity and equity securities to identify and evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments.

The following table summarizes for the ~~nine~~three months ended ~~September 30, 2006~~March 31, 2007 the Company’s largest aggregate losses on sales and write-downs by issuer, the related circumstances giving rise to the losses and the circumstances that may have affected other material investments held:

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

The Company’s contractual obligations and commitments have not changed materially from those disclosed in the Company’s ~~2005~~2006 Annual Report on Form ~~10-K~~.10-K.

Under the MTN program, NLIC issues funding agreements to an unconsolidated third party trust to secure notes issued to investors by the trust. The funding agreements rankpari passuwith all other insurance claims of the issuing company in the event of liquidation and should be treated as “annuities” under applicable Ohio insurance law. Therefore, the funding agreement obligations are classified as a component of future policy benefits and claims on the condensed consolidated balance sheets. Because the Company is not the primary beneficiary of, and has no ownership interest in, or control over, the third party trust that issues the ~~notes,~~MTNs, the Company does not include the trust in its condensed consolidated financial statements. Since the notes issued by the trust have a secured interest in the funding agreements issued by the Company, Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., assign the same ratings to the notes and the insurance financial strength of the Company.

ITEM 3 ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risks have not changed materially from those disclosed in the Company’s ~~2005~~2006 Annual Report on Form 10-K.

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

Effective April 1, 2006, the Company implemented a series of new enterprise resource planning (ERP) modules, including a new general ledger and chart of accounts and new consolidation, reporting and purchasing tools. The introduction of these new ERP modules and the related workflow changes resulted in changes to many of the Company’s financial reporting controls and procedures. Such changes were identified and planned prior to their introduction into the Company’s internal controls over financial reporting. Following implementation, these new controls were validated according to the Company’s established processes. The integration of the ERP modules and related workflow changes will continue throughout 2006 and may result in further changes to the Company’s financial reporting controls and procedures. The system changes were undertaken to standardize accounting systems, improve management reporting and consolidate accounting functions for the Company, its subsidiaries and affiliates, and were not undertaken in response to any actual or perceived significant deficiencies in the Company’s internal control over financial reporting.

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

SeePart 1 – Financial Information, Item 1 – ~~Unaudited~~ Condensed Consolidated Financial Statements, Note 75 – Contingencies – Legal Mattersfor a discussion of legal proceedings.

The Company’s risk factors have not changed materially from those disclosed in the Company’s ~~2005~~2006 Annual Report on Form 10-K.

ITEM 2 ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~Unregistered Sales of Equity Securities And Use of Proceeds

ITEM 4 ~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~Submission of Matters to a Vote of Security Holders

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


One Nationwide Plaza, Columbus, Ohio		43215
(Address of principal executive offices)		(Zip Code)



PART I –FINANCIAL INFORMATION		1

	ITEM 1	Condensed Consolidated Financial Statements	1

	ITEM 2	Management’s Narrative Analysis of the Results of Operations	2017

	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	4632

	ITEM 4	Controls and Procedures	4632

PART II –OTHER INFORMATION		4733

	ITEM 1	Legal Proceedings	4733

	ITEM 1A	Risk Factors	4733

	ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	4733

	ITEM 3	Defaults Upon Senior Securities	4733

	ITEM 4	Submission of Matters to a Vote of Security Holders	4733

	ITEM 5	Other Information	4733

	ITEM 6	Exhibits	4733

SIGNATURE		4834


(in millions)	Fair value at sale (proceeds)		YTD loss on sale			YTD write- downs		September 30, 2006
(in millions)	Fair value at sale (proceeds)		YTD loss on sale			YTD write- downs		Holdings¹		Net unrealized gain (loss)
U.S. government agency securities that were sold at a loss in 2006. No impairment is necessary on the remaining holdings.	$	206.5	$	(4.6	)	$	—	$	575.1	$	45.8

A bank and thrift holding company which offers various financial services to consumers and small businesses in the United States. A portion of the securities was sold in the second quarter of 2006. The Company has the ability and intent to hold the remaining securities to recovery.		47.6		(2.7	)		—		131.3		(3.8	)

U.S. government securities that were sold at a loss in 2006. No impairment is necessary on the remaining holdings.		113.3		(2.3	)		—		130.0		10.6

A global service company that provides electronic commerce and payment services for businesses and consumers. A portion of the securities was sold in the first quarter of 2006. The Company has the ability and intent to hold the remaining securities to recovery.		27.1		(1.3	)		—		6.7		(0.2	)


Total	$	394.5	$	(10.9	)	$	—	$	843.1	$	52.4


	Fair value at sale (proceeds)		YTD loss on sale			YTD write-downs			March 31, 2007
(in millions)	Fair value at sale (proceeds)		YTD loss on sale			YTD write-downs			Holdings¹		Net unrealized gain (loss)
U.S. government securities that were sold at a loss in the first quarter of 2007. No impairment is necessary on the remaining holdings.	$	323.8	$	(8.9	)	$	—		$	491.1	$	45.1

An investment vehicle which represents ownership interests in a trust fund that consists primarily of mortgage loans. No impairment is necessary on the remaining holdings.		67.3		(2.0	)		—			54.8		(1.4	)

A national owner and operator of office buildings and affiliate of a premier global private equity firm.		19.0		(1.0	)		—			—		—

A financial services company that serves automotive dealers. No impairment is necessary on the remaining holdings.		17.3		(0.8	)		—			22.8		0.3

An investment vehicle that holds the rights to certain motion pictures created and/or distributed by a major entertainment company. An impairment was recognized in the first quarter of 2007.		—		—			(10.6	)		0.4		—

Total	$	427.4	$	(12.7	)	$	(10.6	)	$	569.1	$	44.0


		NATIONWIDE LIFE INSURANCE COMPANY
		(Registrant)

Date: ~~November 3, 2006~~May 4, 2007		/s/ Timothy G. Frommeyer
		Timothy G. Frommeyer, Senior Vice President — Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)


	Nine months ended September 30, 2006
(in millions)	Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total
Revenues:
Policy charges	$	428.0	$	125.0	$	293.0	$	—		$	846.0
Traditional life insurance and immediate annuity premiums		103.8		—		126.2		—			230.0
Net investment income		567.8		476.2		245.6		257.1			1,546.7
Net realized losses on investments, hedging instruments and hedged items¹		—		—		—		(10.7	)		(10.7	)
Other income		1.6		—		—		2.2			3.8

Total revenues		1,101.2		601.2		664.8		248.6			2,615.8

Benefits and expenses:
Interest credited to policyholder account values		382.1		330.5		135.2		151.0			998.8
Life insurance and annuity benefits		145.9		—		183.2		—			329.1
Policyholder dividends on participating policies		—		—		20.9		—			20.9
Amortization of DAC		261.9		30.4		60.3		(8.2	)		344.4
Interest expense on debt		—		—		—		48.0			48.0
Other operating expenses		146.9		132.0		106.8		1.1			386.8

Total benefits and expenses		936.8		492.9		506.4		191.9			2,128.0

Income from continuing operations before federal income tax expense		164.4		108.3		158.4		56.7		$	487.8

Net realized losses on investments, hedging instruments and hedged items¹		—		—		—		10.7
Adjustment to amortization related to net realized losses		—		—		—		(8.2	)

Pre-tax operating earnings	$	164.4	$	108.3	$	158.4	$	59.2


	Nine months ended September 30, 2005
(in millions)	Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total
Revenues:
Policy charges	$	397.7	$	109.0	$	284.0	$	—		$	790.7
Traditional life insurance and immediate annuity premiums		68.2		—		122.1		—			190.3
Net investment income		621.2		480.1		251.9		225.5			1,578.7
Net realized gains on investments, hedging instruments and hedged items¹		—		—		—		6.3			6.3
Other income		0.9		0.2		—		0.2			1.3

Total revenues		1,088.0		589.3		658.0		232.0			2,567.3

Benefits and expenses:
Interest credited to policyholder account values		421.2		331.9		137.0		105.9			996.0
Life insurance and annuity benefits		108.1		—		174.0		—			282.1
Policyholder dividends on participating policies		—		—		24.9		—			24.9
Amortization of DAC		245.6		35.4		63.8		1.1			345.9
Interest expense on debt		—		—		—		48.7			48.7
Other operating expenses		139.4		137.3		110.4		9.7			396.8

Total benefits and expenses		914.3		504.6		510.1		165.4			2,094.4

Income from continuing operations before federal income tax expense		173.7		84.7		147.9		66.6		$	472.9

Net realized gains on investments, hedging instruments and hedged items¹		—		—		—		(6.3	)
Adjustment to amortization related to net realized gains		—		—		—		1.1

Pre-tax operating earnings	$	173.7	$	84.7	$	147.9	$	61.4


FORWARD-LOOKING INFORMATION		21
	18
OVERVIEW		22
	19
CRITICAL ACCOUNTING POLICIESAND RECENTLY ISSUED ACCOUNTING STANDARDS		23
	20
RESULTSOF OPERATIONS		24
	21
SALES		28
	22
BUSINESS SEGMENTS		33
	25
CONTRACTUAL OBLIGATIONSAND COMMITMENTS		46
	32
OFF-BALANCE SHEET TRANSACTIONS		4632